UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~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: 000-53283

CHINA ENERGY RECOVERY, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		90-0459730
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

Building#26, No. 1388 Zhangdong Road,
Zhangjiang Hi-tech Park
Shanghai, China		201203
(Address of Principal Executive Offices)		(Zip Code)

+86 (0)21 2028-1866

(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 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. (Check one):

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

~~Indicate~~(Do bynot check ~~mark whether the registrant has submitted electronically and posted on its corporate Web site,~~ if ~~any,~~a ~~every~~smaller ~~Interactive Data File required to be submitted and posted pursuant~~reporting ~~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~~company).

~~Yes~~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 shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

~~Yes ¨ No x~~Number of shares outstanding of the registrant's common stock as of October 31, 2012:

~~Number of shares~~31,072,061 ~~outstanding~~shares of ~~the~~Common ~~registrant's~~Stock, ~~common~~$0.001 ~~stock~~par asvalue ofper ~~July 31, 2012:~~share

31,085,859 shares of Common Stock, $0.001 par value per share

TABLE OF CONTENTS

			~~Page~~	Page
Part I		Financial Information
	Item 1.	Unaudited Consolidated Financial Statements	3	3
		Consolidated Balance Sheets as of December 31, 2011 and June 30, 2012	3
		Consolidated Balance Sheets as of December 31, 2011 and September 30, 2012		3
		Consolidated Statements of Operations and Other Comprehensive (Loss) Income for the Three and Six Months Ended June 30, 2011 and 2012	4
		Consolidated Statements of Operations and Other Comprehensive Income for the Three and Nine Months Ended September 30, 2011 and 2012		4
		Consolidated Statements of Shareholders' Equity for the Year ended December 31,2011 and Six Months Ended June 30, 2012	5
		Consolidated Statements of Shareholders' Equity for the Year ended December 31,2011 and Nine Months Ended September 30, 2012		5
		Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and 2012	6
		Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2012		6
		Notes to the Consolidated Financial Statements	7	7
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	42	45
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	60	63
	Item 4.	Controls and Procedures	60	64
Part II		Other Information
	Item 1.	Legal Proceedings	61	64
	Item 1A.	Risk Factors	61	64
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61	64
	Item 3.	Defaults Upon Senior Securities	61	65
	Item 4.	Mine Safety Disclosures	61	65
	Item 5.	Other Information	61	65
	Item 6.	Exhibits	61	65

PART I

FINANCIAL INFORMATION

Item 1. Unaudited Consolidated Financial Statements

CHINA ENERGY RECOVERY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2011 AND ~~JUNE~~SEPTEMBER 30, 2012

(UNAUDITED)

	December 31,			~~June~~September 30,
	2011			2012
ASSETS
CURRENT ASSETS:
Cash	$	3,579,446		$	~~775~~1,~~012~~326,939
Restricted cash		882,428			21,~~872~~286,~~749~~393
Notes receivable		1,779,233			1978,~~431,172~~352
Accounts receivable, net - third parties		11,639,138			1211,~~125~~465,468
Accounts receivable, net - related party		9,088,157			811,~~298~~445,~~660~~785
Inventories, net		14,678,312			129,~~498~~543,~~064~~298
Other current assets and receivables		333,376			~~382~~1,~~859~~079,160
Advances on purchases		21,276,652			11,~~649~~217,~~280~~899
Short-term investment		79,355			-
Total current assets		63,336,097			5048,~~033~~343,~~264~~294
NON-CURRENT ASSETS:
Property, plant, and equipment, net		26,159,602			28,~~345~~589,~~636~~900
Deferred tax assets		621,940			~~675~~474,~~179~~080
Intangible assets		4,999,883			4,~~888~~920,~~520~~226
Long term accounts receivable, net - third parties		-			54,~~425~~736,~~923~~633
Long term accounts receivable, net - related party		-			52,~~613~~951,~~367~~128
Total non-current assets		31,781,425			4441,~~948~~671,~~625~~967
Total Assets	$	95,117,522		$	9490,~~981~~015,~~889~~261
CURRENT LIABILITIES:
Accounts payable	$	21,625,205		$	2426,~~341~~234,~~786~~629
Notes payable		1,396,648			42,~~029~~641,~~724~~254
Accrued expenses and other liabilities		1,269,950			32,~~140~~964,~~076~~225
Advances from customers		42,742,078			3021,~~559~~894,~~644~~241
Taxes payable		1,220,334			3,~~276~~531,~~268~~053
Long term loan, current portion		4,850,945			45,~~946~~000,~~600~~000
Short term loans		14,388,649			1517,~~497~~331,~~839~~836
Derivative liability, current		21,274			-
Total current liabilities		87,515,083			8579,~~791~~597,~~937~~238
NON-CURRENT LIABILITIES:
Warrant liability		22,806			38,~~537~~188
Deferred revenue		89,068			~~178~~154,~~975~~273
Total non-current liabilities		111,874			~~182~~162,~~512~~461
Total Liabilities		87,626,957			8579,~~974~~759,~~449~~699
SHAREHOLDERS' EQUITY:
Preferred stock($0.001 par value; 50,000,000 shares authorized, 200,000 shares issued and outstanding as of both December 31, 2011 and June 30, 2012)		189			189
Preferred stock($0.001 par value; 50,000,000 shares authorized, 200,000 shares issued and outstanding as of both December 31, 2011 and September 30, 2012)		189			189
Common stock($0.001 par value; 100,000,000 shares authorized, 31,085,859 and 31,082,960 shares issued and outstanding as of December 31, 2011 and June 30, 2012, respectively)		31,085			31,085
Common stock($0.001 par value; 100,000,000 shares authorized, 31,085,859 and 31,085,859 shares issued and outstanding as of December 31, 2011 and September 30, 2012, respectively)		31,085			31,085
Treasury stock		-			(1,212	)
Treasury stock(Nil and 13,232 shares repurchased as of December 31, 2011 and September 30, 2012, respectively)		-			(5,024	)
Additional paid-in-capital		8,758,236			8,~~772~~779,~~369~~436
Accumulated deficit		(3,094,667	)		(1466,~~367,161~~542	)
Statutory reserves		509,596			509,596
Accumulated other comprehensive income		1,286,126			1,~~062~~406,~~574~~822
Total shareholders' equity		7,490,565			910,~~007~~255,~~440~~562
Total liabilities and shareholders' equity	$	95,117,522		$	9490,~~981~~015,~~889~~261

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

CHINA ENERGY RECOVERY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE ~~(LOSS)~~ INCOME

FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~ SEPTEMBER 30, 2011 AND 2012

(UNAUDITED)

	Three months ended June 30,						Six months ended June 30,
	Three months ended September 30,						Nine months ended September 30,
	2011			2012			2011			2012
	(Note 2(v))						(Note 2(v))
REVENUES
Third parties:
Engineering, procurement, and construction - third parties	$	216,~~223~~600,~~034~~366		$	2316,~~731~~758,~~400~~871		$	623,~~664~~265,~~914~~280		$	4359,~~143~~901,~~094~~966
Engineering, procurement, and construction - related party (Note 16)		1110,~~293~~563,~~381~~393			~~816~~12,~~571~~672			1323,~~068~~631,~~038~~431			6,~~647~~660,~~487~~158
Total EPC revenues		1327,~~516~~163,~~415~~759			2416,~~547~~771,~~971~~543			1946,~~732~~896,~~952~~711			4966,~~790~~562,~~581~~124
Products - third parties		42,~~753~~222,~~411~~699			24,~~165~~176,~~931~~683			58,~~916~~139,~~933~~632			59,~~763~~940,~~419~~102
Total revenue		1829,~~269~~386,~~826~~458			2620,~~713~~948,~~902~~226			2555,~~649~~036,~~885~~343			5576,~~554~~502,~~000~~226
COST OF REVENUES
Cost of revenues – EPC (Note 16)		(1122,~~638~~691,~~820~~015	)		(2013,~~312~~736,~~685~~857	)		(1639,~~618~~309,~~538~~553	)		(4357,~~771~~508,~~552~~410	)
Cost of revenues - products		(31,~~488~~607,~~835~~384	)		(12,~~627~~930,~~098~~514	)		(46,~~650~~257,~~258~~642	)		(47,~~266~~196,~~259~~772	)
Total cost of revenues		(1524,~~127~~298,~~655~~399	)		(2116,~~939~~667,~~783~~371	)		(2145,~~268~~567,~~796~~195	)		(4864,~~037~~705,~~811~~182	)
GROSS PROFIT		35,~~142~~088,~~171~~059			4,~~774~~280,~~119~~855			49,~~381~~469,~~089~~148			711,~~516~~797,~~189~~044
Selling, general, and administrative expenses		(2,~~063~~490,~~067~~222	)		(2,~~631~~650,~~951~~738	)		(36,~~876~~366,~~148~~370	)		(47,~~685~~336,~~286~~024	)
INCOME FROM OPERATIONS		12,~~079~~597,~~104~~837			21,~~142~~630,~~168~~117			~~504~~3,~~941~~102,778			24,~~830~~461,~~903~~020
OTHER INCOME (EXPENSE):
Change in fair value of derivative liability for warrant		~~437~~248,~~901~~332			46(4,~~020~~651	)		~~915~~1,~~790~~164,122			1914,~~269~~618
Change in fair value of derivative liability for loan		~~161~~72,~~501~~764			~~35,918~~-			~~323~~396,~~718~~482			21,274
Other non-operating (expenses)/income, net		(213,510	)		272,036			(404,127	)		332,093
Other non-operating income/(expenses), net		330,541			(72,617	)		(73,586	)		259,476
Investment income		-			~~2,972~~-			-			2,972
Interest expense, net		(~~605~~370,~~739~~400	)		(9956,~~031~~703	)		(~~975~~1,~~264~~345,664	)		(~~529~~586,~~820~~523	)
Total other income (expense), net		~~(219~~281,~~847~~237	)		~~257~~(133,~~915~~971	)		~~(139~~141,~~883~~354	)		(~~154~~288,~~212~~183	)
INCOME BEFORE INCOME TAXES		~~859~~2,~~257~~879,074			21,~~400~~496,~~083~~146			~~365~~3,~~058~~244,132			24,~~676~~172,~~691~~837
Income Tax Benefit (Expense)		2,343			(478,301	)		20,095			(949,185	)
Income Tax Expense		(600,661	)		(595,527	)		(580,566	)		(1,544,712	)
NET INCOME		~~861~~2,~~600~~278,413			1900,~~921,782~~619			~~385~~2,~~153~~663,566			12,~~727~~628,~~506~~125
OTHER COMPREHENSIVE INCOME/(LOSS):
Foreign currency translation adjustment		86458,~~813~~788			~~(263~~344,~~579~~248	)		~~307~~766,~~582~~370			~~(223~~120,~~552~~696	)
COMPREHENSIVE INCOME	$	~~948~~2,~~413~~737,201		$	1,~~658~~244,~~203~~867		$	~~692~~3,~~735~~429,936		$	12,~~503~~748,~~954~~821
INCOME PER SHARE:
Basic	$	0.0307		$	0.0603		$	0.0109		$	0.0508
Diluted	$	0.0307		$	0.0603		$	0.0109		$	0.0508
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic		31,~~026~~085,~~225~~859			31,~~084~~078,~~513~~083			3031,~~979~~015,~~564~~385			31,~~085~~082,~~182~~790
Diluted		31,~~103~~102,~~542~~815			31,~~084~~078,~~513~~083			31,~~056~~032,~~881~~341			31,~~085~~082,~~182~~790

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

CHINA ENERGY RECOVERY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(UNAUDITED)

																						Accumulated
	Preferred Stock				Common stock				Treasury Stock						Additional paid-in		Statutory		Accumulated			Accumulated other comprehensive
															Additional							other
	Preferred Stock				Common stock				Treasury Stock						paid-in		Statutory		Accumulated			comprehensive
	Shares		Amount		Shares		Amount		Shares			Amount			capital		reserves		deficit			income/(loss)			Total
																			(Note 2(v))			(Note 2(v))
Balance at December 31, 2010		200,000		189		30,906,266		30,906		-			-			8,313,385		132,802		(4,713,541	)		410,646			4,174,387
Common stock issued for consulting services		-		-		50,385		50		-			-			40,258		-		-			-			40,308
Restricted common stock issued related to long-term loan		-		-		129,208		129		-			-			144,369		-		-			-			144,498
Stock based compensation		-		-		-		-		-			-			260,224		-		-			-			260,224
Net income		-		-		-		-		-			-			-		-		1,995,668			-			1,995,668
Appropriations to statutory reserves		-		-		-		-		-			-			-		376,794		(376,794	)		-			-
Foreign currency translation adjustment		-		-		-		-		-			-			-		-		-			875,480			875,480
										-			-
Balance at December 31, 2011		200,000		189		31,085,859		31,085		-			-			8,758,236		509,596		(3,094,667	)		1,286,126			7,490,565
Stock based compensation		-		-		-		-		-			-			1421,~~133~~200		-		-			-			1421,~~133~~200
Net income		-		-		-		-		-			-			-		-		12,~~727~~628,~~506~~125			-			12,~~727~~628,~~506~~125
Foreign currency translation adjustment		-		-		-		-		-			-			-		-		-			~~(223~~120,~~552~~696	)		~~(223~~120,~~552~~696	)
Repurchase of common stock		-		-		-		- -		(213,~~899~~232	)		(15,~~212~~024	)		-		-		-			-			(15,~~212~~024	)
Balance at June 30, 2012		200,000	$	189		31,085,859	$	31,085		(2,899	)		(1,212	)		8,772,369		509,596		(1,367,161	)		1,062,574			9,007,440
Balance at September 30, 2012		200,000	$	189		31,085,859	$	31,085		(13,232	)		(5,024	)		8,779,436		509,596		(466,542	)		1,406,822			10,255,562

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

CHINA ENERGY RECOVERY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE ~~SIX~~ NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2011 AND 2012

(UNAUDITED)

	Six months ended June 30,
	Nine months ended September 30,
	2011			2012
	(Note 2(v))
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	~~385~~2,~~153~~663,566		$	12,~~727~~628,~~506~~125
Adjustments to reconcile to cash provided by (used in) operating activities:
Depreciation and amortization		~~532~~1,~~570~~014,085			~~877~~1,~~306~~316,887
Discount reflected in revenue for payment extensions on long-term accounts receivable (Note 3)		-			1,706,280
Loss on disposal of fixed assets		52,732
Interest income – long term accounts receivable accretion (Note 3)		-			(433,621	)
Discount reflected in revenue for payment extensions on long-term accounts receivable (Note 3)		-			1,703,369
(Gain on reversal of) charge to allowance for doubtful accounts		(37,372	)		40,633
Interest income – long term accounts receivable accretion (Note 3)		-			(911,283	)
Provision for inventories		21,040			-
(Gain on reversal of) charge to allowance for doubtful accounts		(37,624	)		106,907
Stock based compensation		241,068			14,133
Provision for inventories		26,621			-
Stock based compensation		253,158			21,200
Common stock for consulting services		40,308			-
Common stock issued to settle exchange rate loss related to long-term loan		144,498			-
(Gain) loss from changes in fair value of warrant and derivative liabilities		(1,~~239~~560,~~508~~604	)		(4035,~~543~~892	)
Accretion to face value on loan		~~158~~198,~~049~~584			95149,~~655~~055
Amortization of deferred financing cost		~~148~~215,~~704~~623			-
Cancellation of warrants		(15,547	)		-
Capitalized interest		-(6,829	)		(4355,~~078~~382	)
Deferred tax benefit		(250,738	)		(53,239	)
Debt issue cost		-			7,747
Deferred tax benefit		(344,079	)		147,860
Changes in operating assets and liabilities:
Notes receivable		1(213,~~140,483~~108	)		~~348~~800,~~061~~881
Accounts receivable		(114,263	)		(512,898	)
Accounts receivable - third parties		(586,722	)		61,721
Accounts receivable - related party		-(7,063,336	)		~~789~~(2,~~497~~357,628	)
Inventories		(45,~~586~~230,~~742~~423	)		25,~~181~~135,~~229~~995
Other receivables		(1682,~~204,985~~203	)		(49745,~~483~~784	)
Advances on purchases		(2321,~~971~~062,~~466~~854	)		910,~~627~~058,~~372~~753
Long term accounts receivable-related party		-			(6,990,212	)
Long term accounts receivable - related party		4,679,121			(3,993,404	)
Long term accounts receivable		4,679,121			(5,321,738	)
Long term accounts receivable - third parties		-			(4,486,443	)
Accounts payable		59,~~926~~344,~~036~~972			35,~~865~~571,~~105~~893
Notes payable		-			21,~~633~~244,~~076~~606
Other payables and accrued liabilities		(~~960~~902,~~876~~707	)		1,~~870~~694,~~212~~275
Advances from customers		2623,~~967~~066,~~005~~390			(1220,~~182~~847,~~434~~837	)
Advances from customers – related party		2,297,156			-
Taxes payable		(1,235,278	)		2,310,719
Taxes payable		197,480			2,055,934
Deferred revenue		-			65,205
Deferred revenue		-			89,907
Effects of exchange rate change in operating activities		914,029			55,631
Effects of exchange rate change in operating activities		315,395			7,632
Net cash provided by (used in) operating activities		5,036,779			(352,824	)
Net cash provided by operating activities		10,812,569			2,302,292
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant, and equipment		(79,~~758~~011,~~196~~203	)		(4,~~281~~469,~~992~~407	)
Purchase of intangible assets		(972,~~708~~465,073	)		(1737,~~573~~366	)
Change in restricted cash		~~110~~112,~~018~~040			(1403,~~990,321~~965	)
Proceeds from disposal of property, plant, and equipment		24,863			-
Cash proceeds from short term investment		-			79,355
Net cash used in investing activities		(711,~~745~~339,~~886~~373	)		(64,~~210~~831,~~531~~383	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long term loans		(3,259,843	)		-
Cash proceeds from short term loans		114,~~414~~477,~~288~~210			1218,~~777~~195,~~071~~858
Repayment of short term loans		(~~648~~1,~~984~~162,700	)		(1115,~~667~~260,~~880~~418	)
Acquisition of treasury stock		-			(15,~~212~~024	)
Net cash (used in) provided by financing activities		(2,494,539	)		1,107,979
Net cash provided by financing activities		10,054,667			2,930,416
EFFECTS OF EXCHANGE RATE CHANGES ON CASH		6954,~~299~~470			(41,~~174~~284	)
INCREASE (DECREASE) IN CASH		~~641~~3,~~443~~806,543			(2,~~804~~252,~~434~~507	)
CASH, beginning balance	$	2,996,076		$	3,579,446
CASH, ending balance	$	36,~~637~~802,~~519~~619		$	~~775~~1,~~012~~326,939
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for income taxes		~~225~~506,~~345~~692			~~320~~403,~~425~~256
Cash paid for interest		~~705~~1,~~006~~123,589			~~566~~836,~~273~~389
Supplemental schedule of non-cash investing and financing activities:
Accounts payable relating to purchase of buildings and equipment		4,691,360			-
Common stock for consulting services		40,308			-
Common stock issued to settle exchange rate loss related to long-term loan		144,498			-
Accounts payable relating to purchase of buildings and equipment		5,191,982			-

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1 – Organization and Basis of Presentation

China Energy Recovery, Inc. ("CER" or the "Company"), formerly known as MMA Media Inc. and Commerce Development Corporation Ltd., was incorporated under the laws of the State of Maryland in May, 1998. On February 5, 2008, the Company changed its name to China Energy Recovery, Inc. On January 24, 2008, the Company entered into a Share Exchange Agreement with Poise Profit International, Ltd. ("Poise Profit"), a company incorporated on November 23, 2007, under the laws of the British Virgin Islands, and the shareholders of Poise Profit. Pursuant to the Share Exchange Agreement, the Company agreed to acquire all of the issued and outstanding shares of Poise Profit's common stock in exchange for the issuance of 20,757,090 shares, or 81.5% of the Company's common stock on a post 1-for-2 reverse stock split basis, to the shareholders of Poise Profit. The share exchange transaction (the "Share Exchange") was consummated on April 15, 2008 and Poise Profit became a wholly-owned subsidiary of the Company. On April 16, 2008, the Company conducted a 1-for-2 reverse stock split pursuant to which each two shares of CER's common stock, issued and outstanding on the record date of April 15, 2008, converted into one share of CER's common stock.

Poise Profit is an off-shore holding company and has no operating business activities. Poise Profit owns 100% of HAIE Hi-tech Engineering (Hong Kong) Company, Limited ("Hi-tech") and CER (Hong Kong) Holdings Limited (“CER Hong Kong”), which were incorporated in Hong Kong on January 4, 2002 and August 13, 2008, respectively.

In order to restructure the holding structure of the Company, on December 2, 2008, 100% of the shares of CER Hong Kong were transferred to Poise Profit from Mr. Qinghuan Wu, the Company’s Chairman and Chief Executive Officer, and his wife, Mrs. Jialing Zhou, and all the contracts between Hi-tech and Shanghai Engineering were transferred to CER Hong Kong. Thereafter, CER Hong Kong, through its wholly owned subsidiaries and a consolidated variable interest entity (Shanghai Engineering) located in the People's Republic of China ("PRC"), designs, develops, manufactures and markets waste heat boilers and pressure vessels in the fields of chemical industry, petrochemical industry, oil refining, fine chemicals, water and power conservancy, metallurgical industry, environmental protection, waste heat utilization ,and power generation from waste heat recovery.

On November 11, 2008, CER Energy Recovery (Shanghai) Co., Ltd. (“CER Shanghai”) was incorporated in Shanghai by CER Hong Kong. CER Shanghai’s registered capital is $5,000,000. As of December 31, 2010, CER Hong Kong had contributed all the registered capital. CER Shanghai is mainly engaged in the development of energy recovery and environmental protection technologies, and design, installation and servicing of waste heat recovery systems.

CER Energy Recovery (Yangzhou) Co., Ltd. (“CER Yangzhou”) was incorporated on August 28, 2009 in Yangzhou by CER Hong Kong. CER Yangzhou’s registered capital is $20,000,000. As of December 31, 2011, CER Hong Kong had contributed all the registered capital. CER Yangzhou is mainly engaged in the development and manufacturing of waste heat recovery systems and other related energy efficiency equipment.

~~CER,~~On ~~Poise~~July ~~Profit~~2, 2012, CER Hong Kong, ~~Hi-tech~~and CER Shanghai entered into a share transfer agreement, whereby all of CER Hong Kong’s equity interests in CER Yangzhou were transferred to CER Shanghai. ~~Engineering~~This share transfer is intended to change CER Yangzhou’s entity from foreign capital to domestic capital, so as to make it more competitive in the domestic Chinese economy. As a result of the reorganization, all of CER Hong Kong’s equity interests in CER Yangzhou were transferred to CER Shanghai. As the reorganization was under common control of the Company, except for income tax for the intra-entity sales of the subsidiary’s shares, it will not have a material impact on the Company’s consolidated financial position or results of operations of the Company or its subsidiaries in any material respect. The reorganization was completed on August 21, 2012 and ~~CER~~income ~~Yangzhou~~taxes ~~are~~of ~~collectively~~$206,147 ~~hereinafter~~for ~~referred~~the tointra-entity sales asof the ~~“Group”~~subsidiary’s shares were recorded in the consolidated statement of operation as of September 30, 2012.

~~The~~CER, ~~basis of presentation for the Group’s~~Poise ~~financial~~Profit, ~~statements~~CER isHong ~~accounting~~Kong, ~~principles~~Hi-tech, ~~generally~~Shanghai ~~accepted~~Engineering, inCER ~~the~~Shanghai, ~~United~~and ~~States~~CER ofYangzhou ~~America~~are ~~(U.S.~~collectively ~~GAAP)~~hereinafter ~~and~~referred ~~the reporting~~to ~~currency~~as is the U“Group”.~~S. dollar.~~

~~Note~~The 2basis ~~– Summary~~of presentation for the Group’s financial statements is accounting principles generally accepted in the United States of ~~Significant~~America (U.S. ~~Accounting~~GAAP) ~~Policies~~and the reporting currency is the U.S. dollar.

The accompanying ~~unaudited~~ ~~interim consolidated~~ financial statements have been prepared assuming the Group will continue as a going concern. However, as of ~~June~~September 30, 2012, ~~and~~the ~~for~~Group ~~the~~reported ~~three~~a ~~and~~negative ~~six~~working ~~months~~capital ~~ended~~balance ~~June~~of ~~30,~~$31.3 ~~2012~~million and ~~2011~~ ~~have~~had ~~been~~negative ~~prepared~~operating cash byflows ~~the~~of ~~Company,~~$0.4 inmillion ~~accordance~~for ~~with~~the ~~generally~~nine ~~accepted~~months ~~accounting~~ended ~~principles~~September 30, or2012. ~~GAAP,~~The ~~for~~Group ~~interim~~expects ~~financial reports~~such ~~and~~negative ~~the~~working ~~instructions~~capital ~~for~~to ~~Form~~continue into ~~10-Q~~the ~~and~~foreseeable ~~Rule~~future ~~10-01~~and ofwill ~~Regulation~~need ~~S-X.~~to ~~Accordingly,~~obtain ~~certain~~new ~~information~~sales orders and ~~footnote~~additional ~~disclosures normally~~financing ~~included~~to infund ~~financial~~its ~~statements~~daily ~~prepared~~operations. ~~under~~These factors ~~generally~~raise ~~accepted~~substantial ~~accounting~~doubt ~~principles~~about ~~have~~the ~~been~~Group’s ~~condensed~~ability orto ~~omitted~~continue ~~pursuant~~as toa ~~such~~going ~~regulations~~concern. In ~~the~~order ~~opinion~~to ofcontinue ~~the~~its ~~Company’s management~~operations, the ~~unaudited~~Group ~~interim~~must ~~consolidated~~obtain ~~financial~~additional ~~statements~~sales orders to achieve profitable operations, ~~include~~raise ~~all~~more ~~adjustments~~funds, ~~consisting~~and/or ofcurtail ~~normal~~its ~~recurring~~capital ~~adjustments,~~expenditures. ~~necessary~~The ~~for~~Group aimplemented ~~fair~~plans ~~statement~~to ofpostpone ~~the~~spending ~~Company’s~~for ~~financial~~capital expenditures ~~position,~~and ~~results~~has ofbeen ~~operations~~ and ~~cash~~continues ~~flows.~~to ~~The~~be ~~results~~in ofnegotiations ~~operations~~with ~~for~~several ~~the~~domestic ~~three~~banks in China and ~~six~~state-owned ~~months~~companies ~~ended~~for ~~June~~additional financing. ~~30,~~There ~~2012~~can ~~are not~~be ~~necessarily~~no ~~indicative~~assurance, ofhowever, ~~the~~that ~~results~~such offinancing ~~operations~~will ~~for~~be ~~the~~successfully ~~year~~completed ~~ending~~or ~~December~~completed ~~31,~~on ~~2012~~terms acceptable to the Group. The ~~balance~~Group’s ~~sheet~~plans atof ~~December~~operations, 31even if successful, ~~2011~~ ~~has~~may ~~been~~not ~~derived~~result ~~from~~in ~~the~~cash ~~audited~~flow ~~consolidated~~sufficient ~~financial~~to ~~statements~~finance atand maintain ~~that~~its ~~date~~business. The ~~unaudited interim~~ financial statements ~~and~~ ~~footnotes~~ do not include ~~all~~any ofadjustments that might result from the ~~information~~outcome ~~and~~of ~~footnotes~~this ~~required~~uncertainty. Please byrefer ~~generally~~to ~~accepted~~Note ~~accounting~~7 ~~principles~~– Short Term Loans for ~~complete financial~~additional ~~statements~~information.

~~The~~Note ~~principal~~2 ~~accounting~~– Summary ~~policies adopted~~of inSignificant ~~the~~Accounting ~~preparation of these consolidated financial statements are set out below:~~Policies

(The accompanying unaudited interim consolidated financial statements as of September 30, 2012 and for the three and nine months ended September 30, 2012 and 2011 have been prepared by the Company, in accordance with generally accepted accounting principles, or GAAP, for interim financial reports and the instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared under generally accepted accounting principles have been condensed or omitted pursuant to such regulations. In the opinion of the Company’s management, the unaudited interim consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a) ~~Principle~~fair statement of ~~consolidation~~the Company’s financial position, results of operations and cash flows. The results of operations for the three and nine months ended September 30, 2012 are not necessarily indicative of the results of operations for the year ending December 31, 2012. The balance sheet at December 31, 2011 has been derived from the audited consolidated financial statements at that date. The unaudited interim financial statements and footnotes do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

The ~~accompanying consolidated financial~~principal ~~statements~~accounting ~~have~~policies ~~been~~adopted ~~prepared~~ in ~~accordance with generally accepted accounting principles in~~ the ~~United~~preparation ~~States~~ of ~~America~~these ~~(“US GAAP”). The~~ consolidated financial statements include the financial statements of the Company, its wholly-owned subsidiaries Poise Profit, CER Hong Kong, Hi-tech, CER Shanghai, and CER Yangzhou; and its variable interest entity (“VIE”) Shanghai Engineering. All significant inter-company transactions and balances among the Company, its subsidiaries and VIE are ~~eliminated upon~~set ~~consolidation.~~out below:

In(a) ~~accordance~~Principle with U.S. GAAP, variable interest entities are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision making ability. Each variable interest entity with which the Company is affiliated must be evaluated to determine who the primary beneficiary of the risks and rewards of ownership of the variable interest entity. The primary beneficiary is required to consolidate the variable interest entity's financial information for financial reporting purposes.consolidation

~~Management~~The ~~has concluded that Shanghai~~accompanying ~~Engineering~~consolidated isfinancial astatements ~~variable~~have ~~interest~~been ~~entity~~prepared ~~and~~in ~~that~~accordance ~~CER~~with ~~Hong~~generally ~~Kong~~accepted isaccounting ~~the~~principles ~~primary~~in ~~beneficiary thereof. Pursuant to~~ the ~~contractual~~United ~~arrangements~~States ~~described elsewhere in this filing on Form 10-Q, the Company recovers substantially all~~ of ~~the~~America ~~profits of its VIE through service fees charged~~ (~~particularly~~“US ~~under~~GAAP”). aThe ~~consulting~~consolidated ~~and~~financial ~~service~~statements ~~agreement)~~include ~~and has~~ the ~~unilateral~~financial ~~ability~~statements toof dothe ~~so through~~Company, its wholly -owned subsidiaries. ~~Through~~Poise ~~such contractual arrangements~~Profit, ~~the~~CER ~~Company~~Hong ~~(as applicable~~Kong, ~~through wholly~~Hi-~~owned~~tech, ~~subsidiaries) has~~CER ~~the~~Shanghai, ~~power~~and toCER ~~direct~~Yangzhou; ~~the activities most significant to the economic performance of the VIE~~ and ~~absorbs~~its ~~all,~~variable ~~or substantially~~interest ~~all,~~entity of(“VIE”) ~~the~~Shanghai ~~profits or losses~~Engineering. ~~Accordingly,~~All ~~the~~significant ~~Company~~inter-company istransactions ~~the~~and ~~primary~~balances ~~beneficiary~~among ~~of such arrangements. Under~~ the ~~requirements of the FASB’s accounting standard regarding VIEs~~Company, ~~the~~its subsidiaries ~~Company~~and ~~consolidates~~VIE ~~the~~are ~~financial~~eliminated ~~statements~~upon ~~of Shanghai Engineering~~consolidation.

8In accordance with U.S. GAAP, variable interest entities are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision making ability. Each variable interest entity with which the Company is affiliated must be evaluated to determine who the primary beneficiary of the risks and rewards of ownership of the variable interest entity. The primary beneficiary is required to consolidate the variable interest entity's financial information for financial reporting purposes.

~~Under~~Management has ~~the~~concluded ~~contractual~~that ~~arrangements with~~ Shanghai Engineering, ~~the~~is ~~Company~~a ~~has~~variable ~~the~~interest ~~power~~entity ~~to direct its activities,~~ and ~~can~~that ~~have~~CER ~~assets~~Hong ~~transferred~~Kong ~~freely~~is ~~out of~~ the ~~entity without~~primary ~~any~~beneficiary ~~restrictions~~thereof. Pursuant ~~Therefore~~to the ~~Company~~contractual ~~considers~~arrangements ~~that~~described ~~there~~elsewhere isin nothis ~~asset~~filing ofon ~~the~~Form ~~consolidated~~10-Q, ~~VIE~~the ~~that~~Company ~~can~~recovers besubstantially ~~used only~~all ~~to settle obligations~~ of the ~~VIE,~~profits ~~except for registered capital and PRC statutory reserves~~ of ~~the~~its VIE ~~amounting~~through toservice afees ~~total~~charged ~~of $1.43~~(particularly ~~million~~under asa ofconsulting ~~June~~and ~~30,~~service ~~2012.~~agreement) Asand has the ~~consolidated~~unilateral ability ~~VIE~~to isdo ~~incorporated~~so asthrough aits ~~limited~~wholly ~~liability~~owned ~~company~~subsidiaries. ~~under~~Through ~~the~~such ~~PRC~~contractual ~~Company Law~~arrangements, ~~creditors of~~ the ~~VIE~~Company do(as ~~not~~applicable, ~~have~~through wholly-owned ~~recourse~~subsidiaries) tohas the ~~general~~power ~~credit~~to ofdirect the ~~Company~~activities ~~for~~most ~~any~~significant ofto the ~~liabilities~~economic performance of the ~~consolidated~~ VIE, ~~which~~and absorbs ~~at June 30~~all, ~~2012~~or ~~receipts~~substantially ~~in advance of $8.8 million~~all, ~~payables to suppliers and agents~~ of ~~$11.6~~the ~~million,~~profits ~~and~~or ~~other accrued liabilities of $2~~losses.3 ~~million~~Accordingly, ~~totaling $22.7 million. As of June 30, 2012,~~ the ~~VIE~~Company ~~held a cash balance of $9,134. Currently there~~ is ~~no contractual arrangement that could require~~ the ~~Company~~primary tobeneficiary ~~provide~~of ~~additional~~such ~~financial support to the consolidated VIE~~arrangements. Under As the ~~Company~~requirements isof ~~conducting certain business in~~ the ~~PRC~~FASB’s ~~mainly~~accounting ~~through~~standard ~~the~~regarding ~~VIE~~VIEs, the Company ~~may~~consolidates ~~provide~~the ~~such~~financial ~~support on~~statements aof ~~discretionary~~Shanghai ~~basis in the future, which could expose the Company to a loss~~Engineering.

~~(b) Use of estimates~~8

InUnder ~~preparing~~the ~~financial statements in conformity~~contractual arrangements with USShanghai ~~GAAP~~Engineering, ~~management~~the isCompany ~~required~~has the power to ~~make~~direct ~~estimates~~its activities, and ~~assumptions~~can ~~that~~have ~~affect~~assets transferred freely out of the ~~reported~~entity ~~amounts~~without any restrictions. Therefore the Company considers that there is no asset of ~~assets~~the ~~and~~consolidated ~~liabilities~~VIE that ~~and~~can ~~the~~be ~~disclosure~~used only to settle obligations of ~~contingent~~the ~~assets~~VIE, except for registered capital and ~~liabilities~~PRC atstatutory reserves of the ~~date~~VIE amounting to a total of $1.43 million as of September 30, 2012. As the ~~financial~~consolidated ~~statements~~VIE ~~and~~is ~~revenues~~incorporated ~~and~~as ~~expenses~~a ~~during~~limited liability company under the ~~reported~~PRC ~~periods.~~Company ~~Significant~~Law, ~~estimates~~creditors ~~include~~of ~~useful~~the ~~lives~~VIE do not have recourse to the general credit of ~~equipment,~~the ~~allowances~~Company for ~~doubtful~~any ~~accounts,~~of ~~deferred~~the ~~tax~~liabilities ~~assets~~of the consolidated VIE, which at September 30, 2012 consisted of receipts in advance of $6.6 million, payables to suppliers and agents ~~related~~of ~~valuation~~$10.1 ~~allowances~~million, and ~~the~~other ~~completion~~accrued ~~percentage~~liabilities of ~~construction~~$2.2 ~~contracts~~million, totaling $18. ~~Actual~~9 ~~results~~million. As of September 30, 2012, the VIE held a cash balance of $61,050. Currently there is no contractual arrangement that could ~~differ~~require the Company to provide additional ~~from~~financial ~~those~~support ~~estimates~~to the consolidated VIE. As the Company is conducting certain business in the PRC mainly through the VIE, the Company may provide such support on a discretionary basis in the future, which could expose the Company to a loss.

(cb) ~~Concentrations~~Use of ~~risk~~ estimates

~~The~~In ~~Company maintains cash balances at~~preparing financial ~~institutions~~statements ~~within~~in ~~the~~conformity ~~U.S.,~~with ~~Hong~~US ~~Kong~~GAAP, ~~and~~management ~~PRC.~~is ~~Balances~~required atto ~~financial~~make ~~institutions~~estimates orand ~~state~~assumptions ~~owned~~that ~~banks~~affect ~~within~~ the reported ~~PRC~~amounts ~~are~~of ~~not~~assets ~~covered~~and byliabilities ~~insurance.~~and ~~Balances~~the atdisclosure ~~financial~~of ~~institutions~~contingent ~~within~~assets ~~the~~and ~~United~~liabilities ~~States~~at ~~are~~the ~~covered~~date byof the ~~Federal~~financial ~~Deposit~~statements ~~Insurance~~and ~~Corporation~~revenues ~~for~~and ~~$250,000~~expenses ~~per~~during ~~depositor~~the ~~per~~reported ~~institution~~periods. ~~Balances~~ atSignificant ~~financial~~estimates ~~institutions~~include ~~within~~useful ~~Hong~~lives ~~Kong~~of ~~are insignificant.~~equipment, ~~The~~allowances ~~Company~~for doubtful ~~has~~accounts, ~~not~~deferred ~~experienced~~tax ~~any~~assets ~~losses~~and inrelated ~~such~~valuation ~~accounts~~allowances, and ~~believes~~the itcompletion ispercentage ~~not~~of ~~exposed~~construction ~~to any significant credit~~contracts. ~~risks~~Actual onresults ~~its~~could ~~cash~~differ infrom ~~bank~~those ~~accounts~~estimates.

For the three months ended June 30, 2011 and 2012, the Company’s five top customers accounted for 91% and 75% of the Company's sales, respectively. For the six months ended June 30, 2011 and 2012, the Company’s five top customers accounted for 77% and 63% of the Company's sales, respectively. Receivables from these five top customers were 8% and 67% of total accounts receivable at June 30, 2011 and 2012, respectively. Among those customers, the two largest customers were Jiangsu SOPO (~~Group~~c) ~~Company Limited (“Jiangsu~~Concentrations ~~SOPO”) and Ningbo Xinfu. Ningbo Xinfu accounted for 18%~~ of revenue for the six months ended June 30, 2012 and 0% of receivables as of June 30, 2012. Jiangsu SOPO accounted for 15% of revenue for the six months ended June 30, 2012 and 24% of receivables as of June 30, 2012.risk

~~For~~The ~~the three~~Company maintains ~~months~~cash ~~ended~~balances ~~June~~at 30financial institutions within the U.S., ~~2011~~ ~~and~~Hong ~~2012~~Kong, ~~the~~and ~~five~~PRC. ~~top~~Balances ~~suppliers~~at ~~provided~~financial ~~approximately~~institutions ~~57%~~or ~~and~~state owned ~~48%~~banks ofwithin the ~~Company's~~PRC ~~purchases~~are ofnot ~~raw~~covered ~~materials,~~by ~~respectively~~insurance. ~~For~~ ~~the six~~Balances ~~months~~at ~~ended~~financial ~~June~~institutions ~~30,~~within ~~2011~~the ~~and~~United ~~2012,~~States are covered by the ~~five~~Federal ~~top~~Deposit ~~suppliers~~Insurance ~~accounted~~Corporation for ~~approximately~~$250,000 ~~41%~~per ~~and~~depositor ~~29%~~per ofinstitution. Balances ~~the~~at ~~Company's~~financial institutions ~~purchases~~within ofHong ~~raw~~Kong ~~materials,~~are ~~respectively~~insignificant. ~~Payables~~The toCompany ~~these~~has ~~five~~not ~~suppliers~~experienced ~~were~~any ~~approximately~~losses ~~9.2%~~in such accounts and ~~14.4%~~believes ofit ~~total~~is ~~accounts~~not exposed ~~payable~~to atany ~~June~~significant ~~30,~~credit ~~2011~~risks ~~and~~on ~~2012,~~its ~~respectively~~cash in bank accounts.

~~The~~For ~~Company's~~the ~~operations~~three months ~~are~~ended ~~carried~~September ~~out in~~30, ~~the~~2011 ~~PRC.~~and ~~Accordingly~~2012, the Company'’s ~~business,~~five ~~financial~~top ~~condition~~customers ~~and~~accounted ~~results~~for of87% ~~operations~~and ~~may~~73% of ~~be influenced by~~ the ~~political,~~Company's ~~economic~~sales, ~~and~~respectively. ~~legal~~For ~~environments~~the innine ~~the~~months ~~country~~ended September 30, 2011 and by2012, the ~~general~~Company’s ~~state~~five top customers accounted for 73% and 57% of the ~~country~~Company's ~~economy~~sales, respectively. ~~The~~Receivables ~~Company's~~from ~~operations~~these ~~in the~~five ~~PRC~~top ~~are~~customers ~~subject~~were to56% ~~specific~~and ~~considerations~~69% ~~and~~of ~~significant~~total ~~risks~~accounts receivable ~~not~~at ~~typically~~September ~~associated~~30, ~~with~~2011 ~~companies~~and ~~carrying~~2012, ~~out~~respectively. ~~operations in~~Among those customers, the ~~United~~two ~~States.~~largest ~~These~~customers ~~include~~were ~~risks~~Ningbo ~~associated~~Xinfu ~~with,~~and Wuxi ~~among~~Green. ~~others,~~Ningbo ~~the~~Xinfu ~~political,~~accounted ~~economic~~for ~~and~~19% ~~legal~~of ~~environments~~revenue infor the ~~PRC~~ ~~and~~nine ~~foreign~~months ~~currency~~ended ~~exchange.~~September ~~The~~30, ~~Company's~~2012 ~~results~~and ~~may~~0% beof ~~adversely~~receivables ~~affected~~as byof September ~~changes~~30, in2012. ~~governmental~~Wuxi ~~policies~~Green ~~with~~accounted ~~respect to~~for ~~laws~~12% ~~and~~of ~~regulations,~~revenue ~~anti-inflationary~~for ~~measures,~~the ~~currency~~nine ~~conversion~~months ~~and~~ended ~~remittance~~September ~~abroad~~30, ~~and~~2012 ~~rates~~ and ~~methods~~0% of ~~taxation,~~receivables ~~among~~as ~~other~~of ~~things~~September 30, 2012.

9For the three months ended September 30, 2011 and 2012, the five top suppliers provided approximately 23% and 26% of the Company's purchases of raw materials, respectively. For the nine months ended September 30, 2011 and 2012, the five top suppliers accounted for approximately 25% and 18% of the Company's purchases of raw materials, respectively. Payables to these five suppliers were approximately 13% and 15.1% of total accounts payable at September 30, 2011 and 2012, respectively.

~~(d) Foreign currency translation~~9

The ~~reporting and functional currency~~Company's ofoperations ~~the~~are ~~parent~~carried ~~Company~~out ~~and~~in ~~of CER Hong Kong is~~ the UPRC.S. ~~dollar.~~Accordingly, ~~Our~~the ~~subsidiaries~~Company's ~~Shanghai Engineering~~business, ~~CER~~financial ~~Shanghai,~~condition and ~~CER~~results ~~Yangzhou use the Chinese yuan Renminbi ("RMB") as their functional currency. Results~~ of operations ~~are translated at average~~may ~~exchange~~be ~~rates~~influenced ~~during~~by the ~~period~~political, economic and ~~assets~~legal ~~and~~environments ~~liabilities~~in ~~are~~the ~~translated~~country, atand by the ~~end~~general state of ~~period~~the ~~exchange~~country's ~~rates~~economy. ~~Cash flows are~~ ~~also~~The ~~translated~~Company's atoperations ~~average~~in ~~exchange rates for~~ the ~~period,~~PRC ~~therefore,~~are ~~amounts~~subject ~~reported~~to onspecific ~~the~~considerations ~~statement~~and ofsignificant ~~cash~~risks ~~flows~~not ~~will~~typically ~~not~~associated with ~~necessarily~~companies ~~agree~~carrying ~~with~~out ~~changes~~operations in the ~~corresponding~~United ~~balances~~States. onThese ~~the~~include ~~balance~~risks ~~sheet.~~associated ~~Translation~~with, ~~adjustments~~among ~~resulting~~others, ~~from~~the ~~this~~political, economic ~~process~~and ~~are~~legal ~~included~~environments in ~~accumulated~~the ~~other~~PRC ~~comprehensive~~and ~~income~~foreign ~~(loss)~~currency ~~in stockholders' equity~~exchange. ~~For~~The ~~the~~Company's ~~three~~results ~~months~~may ~~ended~~be ~~June 30,~~adversely ~~2011~~affected ~~and~~by ~~2012,~~changes ~~foreign~~in governmental ~~currency~~policies ~~translation~~with ~~gains~~respect ~~(losses) amounted~~ to ~~$86,813~~laws and ~~to ($263~~regulations,~~579),~~ ~~respectively.~~anti-inflationary ~~For~~measures, ~~the~~currency ~~six months~~conversion ~~ended~~and ~~June~~remittance 30abroad, and ~~2011~~rates and ~~2012,~~methods ~~foreign~~of ~~currency translation gains (losses) amounted to $307~~taxation,~~582~~ ~~and~~among toother ~~($223,552), respectively~~things.

Transaction gains and losses that arise from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are included in the consolidated statements of operations and other comprehensive income (~~loss~~d) ~~as incurred within “non-operating income~~Foreign ~~(expenses),~~currency ~~net.”~~translation

The ~~PRC~~reporting and ~~government~~functional ~~imposes~~currency ~~significant~~of the parent Company and of CER Hong Kong is the U.S. dollar. Our subsidiaries Shanghai Engineering, ~~exchange~~CER ~~restrictions~~Shanghai, onand ~~fund~~CER ~~transfers~~Yangzhou ~~out~~use the Chinese yuan Renminbi ("RMB") as their functional currency. Results of operations are translated at average exchange rates during the ~~PRC~~period, ~~that~~and assets and liabilities are ~~not~~translated ~~related~~at tothe ~~business~~end ~~operations~~of period exchange rates. ~~These~~Cash ~~restrictions~~flows ~~have~~are ~~not had~~also atranslated ~~material~~at ~~impact~~average exchange rates for the period, therefore, amounts reported on the ~~Company~~statement ~~because~~of cash itflows ~~has~~will not ~~engaged~~necessarily agree with changes in ~~any~~the ~~significant~~corresponding ~~transactions~~balances ~~that~~on the balance sheet. Translation adjustments resulting from this process are ~~subject~~included in accumulated other comprehensive income (loss) in stockholders' equity. For the three months ended September 30, 2011 and 2012, foreign currency translation gains amounted to $458,788 and to $344,248, respectively. For the ~~restrictions~~nine months ended September 30, 2011 and 2012, foreign currency translation gains amounted to $766,370and to $120,696, respectively.

~~Accumulated other comprehensive income~~Transaction ~~amounted~~gains ~~to $1,286,126~~ and ~~$1,062,574~~losses asthat ofarise ~~December~~from ~~31,~~exchange ~~2011~~rate ~~and~~fluctuations ~~June~~from ~~30,~~transactions ~~2012,~~denominated ~~respectively.~~in ~~The~~a ~~balance~~currency ~~sheet~~other ~~accounts~~than ~~with~~ the ~~exception~~functional currency ofare ~~equity~~included atin ~~December~~the ~~31,~~consolidated ~~2011~~statements ~~and~~of ~~June~~operations ~~30,~~and ~~2012~~other ~~were~~comprehensive ~~translated~~income at(loss) ~~RMB6.30~~as toincurred ~~$1.00~~within ~~and~~“non-operating income ~~RMB6.35 to~~(expenses), $1net.~~00 respectively.~~”

The ~~average~~PRC ~~translation rates applied~~government toimposes ~~income~~significant ~~and~~exchange ~~cash~~restrictions ~~flow~~on ~~statement~~fund ~~amounts~~transfers ~~for~~out of the ~~three~~PRC ~~months~~that ~~ended~~are ~~June~~not ~~30,~~related ~~2011 and 2012 were RMB6.49~~ to ~~$1.00~~business ~~and RMB6~~operations.33 These torestrictions ~~$1.00~~have ~~respectively.~~not ~~For~~had ~~the~~a ~~six~~material ~~months~~impact ~~ended~~on ~~June~~the ~~30,~~Company ~~2011~~because ~~and~~it ~~2012,~~has ~~the~~not ~~average~~engaged ~~translation~~in ~~rates~~any ~~were~~significant ~~RMB6.53~~transactions tothat ~~$1.00 and~~are ~~RMB6.32~~subject to ~~$1.00,~~the ~~respectively~~restrictions.

~~(e)~~Accumulated other ~~Cash~~comprehensive income amounted to $1,286,126 and ~~restricted~~$1,406,822 ~~cash~~as of December 31, 2011 and September 30, 2012, respectively. The balance sheet accounts with the exception of equity at December 31, 2011 and September 30, 2012 were translated at RMB6.30 to $1.00 and RMB6.28 to $1.00 respectively.

~~Cash~~The ~~includes~~average translation ~~cash~~rates onapplied ~~hand~~to income and ~~demand deposits~~cash ~~with~~flow ~~banks~~statement amounts for the three months ended September 30, ~~which~~2011 ~~are~~and ~~unrestricted~~2012 aswere RMB6.40 to ~~withdrawal~~$1.00 and ~~use~~RMB6.35 to $1.00 respectively. For the nine months ended September 30, 2011 and ~~which~~2012, ~~have~~the ~~original~~average ~~maturities~~translation rates ~~less~~were ~~than~~RMB6.49 ~~three~~to ~~months~~$1.00 and RMB6.33 to $1.00, respectively.

~~Restricted~~(e) ~~cash~~Cash ~~represents a cash portion of the guaranty for the bids on contracts~~ and ~~is deposited in a separate bank account subject to withdrawal restrictions controlled~~ by the customer to secure the Company’s performance of the project in process. The deposit cannot be drawn or transferred by the Company until the restriction period has expired. The Company also classified certain cash as restricted ~~that is not available for immediate use due to its collateralization on certain short term borrowings and notes payable, etc.~~cash

~~(f)~~Cash ~~Notes~~includes cash ~~receivable~~on hand and demand deposits with banks, which are unrestricted as to withdrawal and use, and which have original maturities less than three months.

~~Notes~~Restricted cash ~~receivable~~represents ~~represent~~a ~~trade~~cash ~~accounts receivable~~portion ~~due~~of ~~from~~the ~~various~~guaranty ~~customers~~for ~~where~~ the ~~customers’~~bids ~~banks~~on ~~have~~contracts ~~guaranteed~~and ~~the~~is ~~payment~~deposited ofin ~~the~~a ~~receivables.~~separate ~~The~~bank ~~notes are~~account ~~non-interest~~subject ~~bearing~~to withdrawal ~~and~~restrictions ~~normally~~controlled ~~paid~~by ~~within~~the ~~three~~customer to ~~six~~secure ~~months~~the Company’s performance of the project in process. The deposit cannot be drawn or transferred by the Company ~~has~~until the ~~ability~~restriction toperiod ~~submit~~has aexpired. ~~request~~The ~~for~~Company ~~payment~~also classified certain cash toas ~~the~~restricted ~~customer’s~~that ~~bank~~is ~~earlier~~not ~~than~~available ~~the~~for ~~scheduled~~immediate ~~payment~~use ~~date,~~due ~~but~~to ~~will~~its ~~incur~~collateralization anon ~~interest~~certain ~~charge~~short ~~and~~term aborrowings ~~processing~~and ~~fee~~notes payable, etc.

(gf) ~~Receivables~~Notes ~~and allowances for doubtful accounts~~receivable

~~Receivables~~Notes ~~include~~receivable represent trade accounts receivable due from various customers ~~and~~where ~~revenues~~the ~~earned~~customers’ inbanks ~~excess~~have ofguaranteed ~~amounts~~the ~~billed~~payment onof the ~~EPC~~receivables. ~~contracts~~The ~~(unbilled~~notes ~~receivables).~~are ~~Pursuant~~non-interest tobearing ~~ASC~~and ~~Topic 850,~~normally ~~such~~paid ~~amounts~~within ~~attributable~~three to ~~related~~six ~~parties~~months. ~~are~~The ~~separately~~Company ~~presented~~has in the ~~balance~~ability to ~~sheet.~~submit ~~Management~~a ~~regularly~~request ~~reviews~~ for payment to the ~~aging~~customer’s ofbank ~~receivables~~earlier ~~and~~than ~~changes~~the inscheduled payment ~~trends~~date, ~~and~~but ~~records~~will aincur ~~reserve~~an ~~when~~interest charge ~~collection~~and ofa ~~amounts~~processing ~~due is at risk~~fee.

Allowance for doubtful accounts, December 31, 2010	$	625,014
Additions charged to income		1,047,926
Reversals credited to income		(37,824	)
Translation adjustment		56,358
Allowance for doubtful accounts, December 31, 2011	$	1,691,474
Additions charged to income		40,633
Reversals credited to income		-
Translation adjustment		(14,380	)
Allowance for doubtful accounts, June 30, 2012	$	1,717,727

(g) Receivables and allowances for doubtful accounts

~~Accounts~~Receivables include ~~receivable~~trade ~~which~~accounts ~~are~~due ~~expected~~from customers and revenues earned in excess of amounts billed on EPC contracts (unbilled receivables). Pursuant to beASC ~~collected~~Topic ~~after~~850, ~~one~~such ~~year are~~amounts ~~reclassified~~attributable asto ~~long-term~~related ~~accounts~~parties ~~receivable. The~~are ~~provision~~separately ~~for~~presented ~~accounts~~in ~~receivable~~the balance sheet. Management ~~balances~~regularly ~~described~~reviews ~~above~~the isaging ~~further~~of ~~described~~receivables and changes in ~~Note~~payment 3trends, and records a reserve when collection of amounts due is at risk.

(h) Inventories

Allowance for doubtful accounts, December 31, 2010	$	625,014
Additions charged to income		1,047,926
Reversals credited to income		(37,824	)
Translation adjustment		56,358
Allowance for doubtful accounts, December 31, 2011	$	1,691,474
Additions charged to income		106,907
Reversals credited to income		-
Translation adjustment		5,042
Allowance for doubtful accounts, September 30, 2012	$	1,803,423

~~Inventories~~Accounts ~~are comprised of raw materials,~~receivable ~~work~~which ~~in progress and finished goods and~~ are ~~stated~~expected atto ~~the~~be ~~lower~~collected ofafter ~~cost~~one ~~or market value. Costs of work in progress include direct labor, direct materials, and production overhead before the goods~~ year are ~~ready~~reclassified ~~for sale. Management reviews inventories for obsolescence or cost in excess of market value periodically. The obsolescence, if any, is recorded~~ as along-term ~~reserve~~accounts ~~against the inventory~~receivable. The provision ~~cost~~for inaccounts ~~excess~~receivable ofbalances ~~market~~described ~~value~~above is ~~written~~further ~~off~~described ~~and~~in ~~recorded~~Note ~~as cost of revenues~~3.

Provision for inventory, December 31, 2010	$	93,195
Additions charged to income		26,763
Realized		(5,471	)
Translation adjustment		5,276
Provision for inventory, December 31, 2011	$	119,763
Additions charged to income		-
Realized		-
Translation adjustment		(981	)
Provision for inventory, June 30, 2012		118,782

(h) Inventories

~~(i)~~Inventories are ~~Advances~~comprised onof ~~purchases~~raw materials, work in progress and finished goods and are stated at the lower of cost or market value. Costs of work in progress include direct labor, direct materials, and production overhead before the goods are ready for sale. Management reviews inventories for obsolescence or cost in excess of market value periodically. The obsolescence, if any, is recorded as a reserve against the inventory. The cost in excess of market value is written off and recorded as cost of revenues.

Advances on purchases are money advanced to outside vendors for inventory purchases and property, plant and equipment purchases. This amount is refundable and bears no interest.

Provision for inventory, December 31, 2010	$	93,195
Additions charged to income		26,763
Realized		(5,471	)
Translation adjustment		5,276
Provision for inventory, December 31, 2011	$	119,763
Additions charged to income		-
Realized		-
Translation adjustment		302
Provision for inventory, September 30, 2012		120,065

(ji) ~~Property,~~Advances on ~~plant and equipment, net~~purchases

~~Property,~~Advances ~~plant~~on purchases ~~and equipment~~ are ~~stated at~~money ~~cost.~~advanced ~~Depreciation~~to isoutside ~~calculated~~vendors ~~principally by use of the straight-line method over the estimated useful lives of the related assets. Expenditures~~ for ~~maintenance~~inventory purchases and ~~repairs~~property, ~~which~~plant doand ~~not~~equipment ~~improve~~purchases. orThis ~~extend the expected useful lives of the assets, are~~amount ~~charged~~is torefundable ~~operations as incurred, while renewals~~ and ~~betterments~~bears ~~are~~no ~~capitalized~~interest.

~~Management~~(j) ~~established a 5% residual value for property~~Property, plant and equipment~~. The estimated useful lives of the property~~, ~~plant and equipment are as follows:~~ net

Plant and buildings	20-38 years
Transportation equipment	3-10 years
Machinery equipment	5-10 years
Office equipment	3-5 years

Property, plant and equipment are stated at cost. Depreciation is calculated principally by use of the straight-line method over the estimated useful lives of the related assets. Expenditures for maintenance and repairs, which do not improve or extend the expected useful lives of the assets, are charged to operations as incurred, while renewals and betterments are capitalized.

~~The~~Management established ~~gain~~a or5% ~~loss~~residual onvalue ~~disposal~~for of property, plant and equipment. isThe ~~the~~estimated ~~difference~~useful ~~between~~lives ~~the net sales proceeds and the carrying amount~~ of the ~~relevant assets’ gains or losses~~property, ifplant ~~any,~~ and equipment are ~~recognized~~as ~~in the consolidated statement of income and other comprehensive income. There were no disposals of assets during the three and six months ended June 30, 2011 and 2012.~~follows:

(k) Impairment of assets

Plant and buildings	20-38 years
Transportation equipment	3-10 years
Machinery equipment	5-10 years
Office equipment	3-5 years

The ~~Company~~gain ~~assesses~~or loss ~~the~~on ~~carrying~~disposal ~~value~~ of ~~long-lived~~property, ~~assets~~plant ~~each~~and ~~reporting~~equipment ~~period,~~is ~~more~~the ~~often~~difference ~~when~~between ~~factors~~the ~~indicating~~net ~~impairment~~sales ~~are~~proceeds ~~present,~~ and ~~reduces~~ the carrying ~~value~~ ~~of such assets by the~~ amount of the ~~impairment.~~relevant ~~The~~assets’, ~~Company~~gains ~~determines~~or ~~the~~losses, ~~existence~~if ofany, ~~such~~and ~~impairment~~are byrecognized ~~measuring~~in the ~~expected~~ ~~future~~consolidated ~~cash~~statement ~~flows~~of ~~(undiscounted~~income and ~~without~~other ~~interest~~comprehensive income. ~~charges)~~There ~~and~~were ~~comparing~~no ~~such~~disposals ~~amount~~of toassets during the ~~net~~three ~~asset~~and ~~carrying~~nine ~~value. An~~months ~~impairment~~ended ~~loss,~~September ~~if it exists~~30, is2012. ~~measured~~During as the ~~amount~~three ~~by which~~and ~~the~~nine months ~~carrying~~ended ~~amount~~September of30, ~~the~~2011, ~~asset exceeds~~ the ~~fair~~Company ~~value~~ disposed of ~~the~~machinery ~~asset.~~with ~~Fair~~a carrying value ~~generally~~of ~~means based on either quoted market price~~$37,949 ifand ~~available,~~two orcars ~~discounted~~with ~~cash flow analysis.~~carrying ~~There~~value ~~were no impairments~~ of ~~long~~$39,646 ~~lived~~and ~~assets~~ recognized loss for ~~the~~disposal ~~three~~of ~~and six months ended June 30~~$52,732 ~~2011~~from ~~and~~the ~~2012~~transactions.

(lk) ~~Advances~~Impairment of ~~from customers~~assets

~~Advances~~The ~~from~~Company assesses ~~customers~~the ~~represent~~carrying ~~amounts~~value of long-lived assets each reporting period, more often when factors indicating impairment are present, ~~advanced~~and byreduces ~~customers~~the oncarrying ~~product~~value orof ~~service~~such ~~orders~~assets by the amount of the impairment. The ~~product~~Company determines the existence of such impairment by measuring the expected future cash flows (~~service~~undiscounted and without interest charges) and comparing such amount to the net asset carrying value. An impairment loss, if it exists, is ~~shipped~~measured ~~(rendered)~~as ~~within~~the ~~one~~amount ~~year~~by which ~~after~~the ~~receipt~~carrying amount of the asset exceeds the fair value of the ~~advance~~asset. ~~payment~~Fair value generally means based on either quoted market price, ~~and~~if ~~the~~available, ~~related~~or ~~sales are~~discounted ~~recognized~~cash flow inanalysis. ~~accordance~~There ~~with~~were no impairments of long lived assets recognized for the ~~Company’s~~three ~~revenue~~and ~~recognition~~nine ~~policy~~months ended September 30, 2011 and 2012.

(ml) ~~Income~~Advances from ~~taxes~~customers

~~Income~~Advances ~~taxes are accounted for under the~~from ~~asset~~customers ~~and~~represent ~~liability method. Deferred income taxes are recognized for temporary differences between the tax bases of assets and liabilities and their reported~~ amounts inadvanced ~~the financial statements, net operating loss carry forwards and credits,~~ by ~~applying enacted~~customers ~~statutory~~on ~~tax~~product ~~rate in the year in which those temporary differences are expected to be recovered~~ or ~~settled~~service orders. ~~Deferred tax~~The ~~assets~~product ~~are~~(service) ~~reduced by a valuation allowance when it~~ is ~~more~~shipped ~~likely~~(rendered) ~~than~~within one ~~not~~year ~~that~~after ~~some~~receipt ~~portion or all~~ of the ~~deferred~~advance ~~tax~~payment, ~~assets will~~and ~~not~~the berelated ~~realized. Current income taxes~~ sales are ~~provided~~recognized ~~for~~ in accordance with the ~~laws~~Company’s revenue ofrecognition ~~the relevant taxing authorities~~policy.

In assessing uncertain tax positions, the Company applies a more likely than not threshold and a two-step approach for the tax position measurement and financial statement recognition. For the two-step approach, the first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is greater than 50% likely to be realized upon settlement. As of June 30, 2012, the Company does not have any uncertain tax positions required to be recognized and measured under the accounting standard for income taxes.12

12(m) Income taxes

~~(n)~~Income ~~Value~~taxes are ~~added~~accounted for under the asset and liability method. Deferred income taxes are recognized for temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements, net operating loss carry forwards and credits, by applying enacted statutory tax rates in the year in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.

~~Sales~~In ~~revenue~~assessing uncertain ~~represents~~tax ~~invoiced values~~positions, ~~net~~ ofthe Company applies a ~~value-added~~more ~~tax~~likely ~~("VAT").~~than ~~All~~not ofthreshold and a two-step approach for the ~~Company's~~tax ~~products~~position ~~that~~measurement and ~~are~~financial ~~sold~~statement inrecognition. For the ~~PRC~~two-step ~~are~~approach, ~~subject~~the first step is to aevaluate ~~Chinese~~the ~~value-added~~ tax atposition afor ~~rate~~recognition by ofdetermining ~~17%~~if of the ~~gross~~weight ~~sales~~of ~~price.~~available ~~This~~evidence ~~VAT~~indicates ~~may~~that beit ~~offset~~is bymore ~~VAT~~likely ~~paid~~than bynot that the ~~Company~~position onwill ~~raw~~be ~~materials~~sustained, including ~~and~~resolution ~~other~~of ~~materials~~related appeals or litigation processes, if any. The ~~Company~~second ~~records~~step ~~VAT~~is ~~payable~~to ~~and~~measure ~~VAT~~the ~~receivable,~~tax ~~net~~benefit as the largest amount that is greater than 50% likely to be realized upon settlement. As of ~~payments~~September 30, in2012, the ~~financial~~Company ~~statements.~~does ~~The~~not have ~~VAT~~any uncertain tax ~~return~~positions isrequired ~~filed offsetting~~to ~~the~~be ~~payables~~recognized ~~against~~and measured under the ~~receivables~~accounting standard for income taxes.

(on) ~~Operating~~Value ~~leases~~added tax

~~Leases~~Sales ~~where~~revenue represents ~~substantially~~invoiced ~~all~~values, net of a value-added tax ("VAT"). All of the ~~rewards~~Company's products that are sold in the PRC ~~and~~are ~~risks~~subject to a Chinese value-added tax at a rate of ~~ownership~~17% of ~~assets~~the ~~remain~~gross ~~with~~sales ~~the~~price. ~~leasing~~This ~~company~~VAT ~~are~~may ~~accounted~~be ~~for~~offset asby ~~operating~~VAT ~~leases~~paid by the Company on raw materials and other materials. ~~Payments~~The ~~made~~Company ~~under~~records ~~operating leases~~VAT ~~are~~payable ~~charged~~and toVAT ~~the~~receivable, ~~statement~~net of ~~operations~~payments, ~~and~~in ~~comprehensive~~the ~~(loss)~~financial statements. ~~income~~The onVAT atax ~~straight~~return ~~line~~is ~~basis~~filed ~~over~~offsetting the ~~lease~~payables ~~periods~~against the receivables.

(po) ~~Stock based compensation~~Operating leases

InLeases ~~accordance~~where substantially ~~with~~all ~~ASC~~the ~~718,~~rewards ~~Compensation-Stock Compensation,~~and ~~the~~risks ~~Company~~of ~~measures~~ownership ~~the~~of ~~cost~~assets ofremain ~~employee~~with ~~services~~the ~~received~~leasing incompany ~~exchange~~are accounted for ~~stock~~as ~~based~~operating leases. ~~compensation~~Payments atmade ~~the grant~~under ~~date~~operating ~~fair~~leases ~~values~~are charged to the statement of operations and comprehensive (loss) income on a straight line basis over the ~~awards~~lease periods.

~~The~~(p) ~~Company~~Stock ~~recognizes stock~~ based compensation costs, net of a forfeiture rate, on a straight-line basis over the requisite service period for each award. ASC 718 requires forfeitures to be estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from those estimates. There were no stock options granted in the three and six months ended June 30, 2011 and 2012.

~~Cost~~In ofaccordance with ~~goods~~ASC ~~acquired~~718, ~~or services received from non~~Compensation-~~employees~~Stock isCompensation, ~~measured~~the ~~based~~Company onmeasures the ~~fair~~cost ~~value~~ of ~~the~~employee ~~awards~~services ~~issued~~received ~~on the measurement date as defined~~ in ~~ASC 505, “Equity.”~~exchange ~~Awards~~for ~~granted~~stock tobased ~~non-employees~~compensation ~~are remeasured~~ at ~~each~~the ~~reporting~~grant date ~~using the~~ fair ~~value as at each period end. Changes in fair~~ values ~~between~~of the ~~interim reporting dates are attributed consistent with the method used in recognizing the original stock based compensation costs~~awards.

~~(q)~~The ~~Shipping~~Company recognizes ~~and~~stock ~~handling~~based compensation costs, net of a forfeiture rate, on a straight-line basis over the requisite service period for each award. ASC 718 requires forfeitures to be estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from those estimates. There were no stock options granted in the three and nine months ended September 30, 2011 and 2012.

~~Shipping~~Cost ~~and~~of ~~handling~~goods acquired ~~costs~~or ~~are~~services ~~included~~received from non-employees is measured based on the fair value of the awards issued on the measurement date as defined in ~~selling~~ASC 505, ~~general~~“Equity.” ~~and~~Awards ~~administrative~~granted ~~expenses~~to ~~which~~non-employees ~~totaled~~are ~~$10,325~~remeasured ~~and~~at ~~$94,181~~each ~~for~~reporting date using the ~~three~~fair ~~month~~value ~~periods~~as ~~ended~~at ~~June~~each ~~30,~~period ~~2011 and~~end. ~~2012,~~Changes ~~respectively,~~in ~~and~~fair ~~$108,373~~values ~~and~~between ~~$147,289~~the ~~for~~interim reporting dates are attributed consistent with the ~~six~~method ~~month~~used ~~periods~~in ~~ended~~recognizing ~~June~~the ~~30,~~original ~~2011~~stock ~~and~~based ~~2012,~~compensation ~~respectively~~costs.

(rq) ~~Revenue~~Shipping and ~~recognition~~handling costs

~~The~~Shipping ~~Company~~and handling ~~derives~~costs ~~revenues~~are ~~principally~~included ~~from:~~in selling, general and administrative expenses which totaled $301,735 and $138,133 for the three month periods ended September 30, 2011 and 2012, respectively, and $410,108 and $285,422 for the nine month periods ended September 30, 2011 and 2012, respectively.

(a) Provision of Engineering, Procurement and Construction ("EPC") services, which are essentially turnkey contracts where the Company provides all services in the whole construction process from design, development, engineering, manufacturing, and procurement to installation;13

(br) ~~Sales~~Revenue ~~of energy recovery systems; and~~recognition

~~(c)~~The ~~Provision~~Company ofderives ~~design~~revenues ~~services.~~principally from:

13(a) Provision of Engineering, Procurement and Construction ("EPC") services, which are essentially turnkey contracts where the Company provides all services in the whole construction process from design, development, engineering, manufacturing, and procurement to installation;

In(b) ~~accordance~~Sales ~~with the accounting standard regarding performance~~ of construction-type and certain production-type contracts, and long-term construction-type contracts, the Company adopted the percentage of completion method to recognize revenues and cost of sales for EPC contracts. EPC contracts are long-term, complex contracts involving multiple elements, such as design, manufacturing and installation, which all form one integral EPC project. The energy recovery ~~system~~systems; ~~involved in an EPC project is highly customized to the specific customer's facilities~~ and essentially not transferable to any other facilities without significant modification and cost. It would be difficult, if not impossible, to beneficially use a single element of a specific EPC project on a standalone basis other than in connection with the facilities for which it was intended. EPC contracts are by nature long-term construction-type contracts, usually lasting more than one accounting period, and the Company is able to reasonably estimate the progress toward completion, including contract revenues and contract costs. EPC contacts specify the customers' rights to the goods, the consideration to be paid and received, and the terms of payment. Specifically, the Company has the right to require a customer to make progress payments upon completion of determined stages of the project which serve as evidence of the customer's approval and acceptance of the work completed to date as complying with the terms of the particular EPC contract.

Sales of the Company's energy recovery systems and related products are essentially product sales. The products consist mainly of waste heat boilers and other related equipment manufactured according to specific customers' specifications. Once manufactured, the Company ships the products to its customers in their entirety in one batch. The Company’s service arrangement also includes a limited warranty to its customers pursuant to which the customers retain between 5% and 10% of the particular contract price as retainage during the limited warranty period (~~usually 12-18 months~~c). ~~The~~Provision ~~Company generally recognizes revenues including retainage from product sales when (i) persuasive evidence~~ of andesign arrangement exists, which is generally represented by a contract between the Company and the customer; (ii) products are shipped; (iii) title and risks of ownership have passed to the customer, which generally occurs at the time of delivery; (iv) the customer accepts the products upon a quality inspection performed by them; (v) the purchase price is agreed to between the Company and the customer; and (vi) collectability is reasonably assuredservices. ~~Net revenues represent the invoiced value of products, less returns and discounts, and are net of value-added tax.~~

In ~~providing~~accordance with ~~design~~the ~~services~~accounting standard regarding performance of construction-type and certain production-type contracts, and long-term construction-type contracts, the Company adopted the percentage of completion method to recognize revenues and cost of sales for ~~designs~~EPC contracts. EPC contracts are long-term, complex contracts involving multiple elements, such as design, manufacturing and installation, which all form one integral EPC project. The energy recovery ~~systems~~system ~~and~~involved ~~other~~in ~~related~~an ~~systems~~EPC ~~based~~project onis ahighly customized to the specific customer's ~~requirements~~facilities and ~~the~~essentially ~~deliverable~~not ~~consists~~transferable to any other facilities without significant modification and cost. It would be difficult, if not impossible, to beneficially use a single element of ~~engineering~~a specific EPC project on a standalone basis other than ~~drawings~~in connection with the facilities for which it was intended. ~~The~~EPC ~~customer~~contracts ~~may~~are by ~~elect~~nature tolong-term ~~engage~~construction-type contracts, usually lasting more than one accounting period, and the Company is able to ~~manufacture~~reasonably estimate the ~~designed~~progress ~~system~~toward orcompletion, including ~~choose~~contract torevenues ~~present~~and contract costs. EPC contacts specify the ~~Company~~customers's ~~drawings~~ rights to ~~other~~the ~~manufacturers~~goods, ~~for~~the ~~manufacturing~~consideration to be paid and ~~installation~~received, and the terms of payment. ~~The~~Specifically, the Company ~~recognizes~~has ~~revenues~~the ~~from~~right ~~design~~to ~~services~~require ~~when~~a ~~the~~customer ~~services~~to make progress ~~are~~payments ~~provided,~~upon completion of determined stages of the ~~design~~project ~~drawings~~which ~~are~~serve ~~delivered,~~as ~~invoices~~evidence ~~are~~of ~~issued~~the customer's approval and ~~collectability~~acceptance of isthe ~~reasonably~~work ~~assured.~~completed ~~The~~to ~~Company~~date ~~generally delivers~~as complying with the ~~drawings~~terms inof ~~one~~the ~~batch~~particular EPC contract.

(Sales of the Company's energy recovery systems and related products are essentially product sales. The products consist mainly of waste heat boilers and other related equipment manufactured according to specific customers' specifications. Once manufactured, the Company ships the products to its customers in their entirety in one batch. The Company’s service arrangement also includes a limited warranty to its customers pursuant to which the customers retain between 5% and 10% of the particular contract price as retainage during the limited warranty period (usually 12-18 months). ~~Fair~~The Company generally recognizes revenues including retainage from product sales when (i) persuasive evidence of an arrangement exists, which is generally represented by a contract between the Company and the customer; (ii) products are shipped; (iii) title and risks of ownership have passed to the customer, which generally occurs at the time of delivery; (iv) the customer accepts the products upon a quality inspection performed by them; (v) the purchase price is agreed to between the Company and the customer; and (vi) collectability is reasonably assured. Net revenues represent the invoiced value of ~~financial~~products, ~~instruments~~less returns and discounts, and are net of value-added tax.

~~The~~In ~~accounting~~providing design ~~standard~~services, ~~regarding~~the ~~fair value~~Company ~~measurements~~designs ~~defines~~energy ~~financial~~recovery ~~instruments~~systems and ~~requires~~other ~~fair~~related ~~value~~systems ~~disclosures~~based ~~for~~on ~~those financial instruments. The fair value standard also establishes~~ a ~~three-level~~customer's ~~valuation~~requirements ~~hierarchy for disclosures of fair value measurement~~ and ~~enhances disclosure~~ ~~requirements~~the ~~for~~deliverable ~~fair~~consists ~~value~~of ~~measurements~~engineering drawings. The ~~carrying~~customer ~~amounts~~may ~~reported~~elect into engage the ~~accompanying~~Company ~~consolidated~~to ~~balance~~manufacture ~~sheets~~the ~~for~~designed ~~current~~system ~~assets~~or ~~and~~choose ~~current~~to ~~liabilities~~present ~~such~~the asCompany's ~~cash,~~drawings ~~restricted~~to ~~cash,~~other ~~accounts~~manufacturers ~~and~~for ~~notes~~manufacturing ~~receivable, long term accounts receivable, short term loans, accounts payable,~~ and ~~other payables qualify as financial instruments~~installation. ~~Management~~The ~~concluded~~Company ~~the carrying values of~~recognizes ~~these~~revenues ~~financial~~from ~~instruments~~design ~~are~~services ~~reasonable~~when ~~approximations of their respective fair values because of~~ the ~~short~~services ~~period~~are ofprovided, ~~time between~~ the ~~origination~~design ofdrawings ~~such~~are ~~instruments~~delivered, ~~and~~invoices ~~their~~are ~~expected~~issued ~~realization~~ and ~~the~~collectability is ~~current~~reasonably ~~market rates of interest~~assured. The ~~three levels~~Company ofgenerally delivers the ~~valuation~~drawings ~~hierarchy~~in ~~are~~one ~~defined as follows:~~batch.

~~Level 1 Inputs to the valuation methodology are quoted prices~~ (~~unadjusted~~s) ~~for~~Fair ~~identical assets or liabilities in active markets. At December 31, 2011 and June 30, 2012, the Company did not have any fair~~ value ~~assets~~of ~~or liabilities classified as Level 1.~~financial instruments

~~Level~~The 2accounting standard ~~Inputs~~regarding tofair ~~the~~value measurements defines financial instruments and requires fair value disclosures for those financial instruments. The fair value standard also establishes a three-level valuation ~~methodology~~hierarchy ~~include~~for ~~quoted~~disclosures ~~prices~~of fair value measurement and enhances disclosure requirements for ~~similar~~fair value measurements. The carrying amounts reported in the accompanying consolidated balance sheets for current assets and current liabilities insuch ~~active~~as ~~markets~~cash, restricted cash, accounts and ~~inputs~~notes ~~that~~receivable, ~~are~~long ~~observable~~term accounts ~~for~~receivable, ~~the~~short ~~assets~~term orloans, ~~liability~~accounts payable, ~~either~~and ~~directly~~other orpayables ~~indirectly,~~qualify ~~for~~as ~~substantially~~financial instruments. Management concluded the ~~full~~carrying ~~term~~values of ~~the~~these financial instruments. Atare ~~December~~reasonable ~~31,~~approximations ~~2011~~of ~~and~~their ~~June~~respective ~~30,~~fair ~~2012,~~values because of the short ~~Company~~period ~~did~~of ~~not~~time ~~have~~between ~~any~~the ~~fair~~origination ~~value~~of ~~assets~~such orinstruments ~~liabilities~~and ~~classified~~their asexpected ~~Level~~realization 2and the current market rates of interest. The three levels of the valuation hierarchy are defined as follows:

Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value. Inputs reflected management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

¨	Level 1	Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. At December 31, 2011 and September 30, 2012, the Company did not have any fair value assets or liabilities classified as Level 1.

¨	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 assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.

¨	Level 3	Inputs to the valuation methodology are unobservable and significant to the fair value. Inputs reflected management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

The measurement basis for current assets and current liabilities such as cash, restricted cash, accounts and notes receivable, long term accounts receivable, short term loans, accounts payable, and other payables is carrying value, which approximates fair value. All such current assets and liabilities with the exception of cash and restricted cash (Level 1) and short term loans (Level 2) would be classified as Level 3 measurements due to the presence of Company-specific unobservable inputs. The following table presents information about the company’s fair value financial liabilities classified as Level 2 and Level 3 as of December 31, 2011 and ~~June~~ September 30, 2012.

	Balance as of June 30, 2012
	Balance as of September 30, 2012
	Fair Value Measurements
	Using Fair Value Hierarchy
	Level 1		Level 2		Level 3
Derivative liability related to loan (Note 12)		-		-	$	-
Derivative liability related to warrant (Note 12)		-		-	$	38,~~537~~188
Guaranty contract liability (Note 16)		-	$	154,273		-

	Balance as of December 31, 2011
	Fair Value Measurements
	Using Fair Value Hierarchy
	Level 1		Level 2		Level 3
Derivative liability related to loan (Note 12)		-		-	$	21,274
Derivative liability related to warrant (Note 12)		-		-	$	22,806

A summary of changes in the Level 3-classified derivative liabilities related to stock purchase warrants and a loan for the year ended December 31, 2011 and for the six months ended June 30, 2012 is as follows:

	Balance as of December 31, 2011
	Fair Value Measurements
	Using Fair Value Hierarchy
	Level 1		Level 2		Level 3
Derivative liability related to loan (Note 12)		-		-	$	21,274
Derivative liability related to warrant (Note 12)		-		-	$	22,806
Guaranty contract liability (Note 16)		-	$	89,068		-

Balance at December 31, 2010	$	1,756,067
Warrant cancellation (Note 12)		(15,547	)
Change in fair value of derivative liability for warrant		(1,294,407	)
Change in fair value of derivative liability for loan		(402,033	)
Balance at December 31, 2011	$	44,080
Change in fair value of derivative liability for warrant		(19,269	)
Change in fair value of derivative liability for loan		(21,274	)
Balance at June 30, 2012	$	3,537

A summary of changes in the Level 2-classified guaranty contract liability related to Zhejiang Kailin project (Note 16) for the year ended December 31, 2011 and for the nine months ended September 30, 2012 is as follows:

	Guaranty contract liability

Balance at December 31, 2010	$	-
Guaranty contract liability		90,745
Change in fair value of guaranty contract liability		(1,677	)
Balance at December 31, 2011	$	89,068
Guaranty contract liability		119,905
Change in fair value of guaranty contract liability		(54,700	)
Balance at September 30, 2012	$	154,273

~~(t)~~For ~~Segment~~the ~~reporting~~three and nine months ended September 30, 2012, the Company recorded change in fair value of guaranty contract liability of $26,635 and $54,700, respectively.

~~The~~A ~~Group~~summary ~~reports~~of ~~its~~changes ~~segments~~ in ~~accordance~~the Level ~~with~~3-classified ~~ASC~~derivative ~~280.~~liabilities ~~The~~related ~~Group~~to ~~primarily~~stock ~~operates~~purchase inwarrants ~~China~~ and ~~measures~~a ~~its~~loan ~~business~~for asthe ayear ~~single~~ended ~~operating~~December 31, ~~segment.~~2011 ~~All~~and for of the ~~group’s long~~nine ~~term~~months ~~assets~~ended ~~are~~September ~~located~~30, in2012 ~~China.~~is as follows:

(u) Subsidy income

	Derivative liability for warrant			Derivative liability for loan

Balance at December 31, 2010	$	1,332,760			423,307
Warrant cancellation (Note 12)		(15,547	)		-
Change in fair value of derivative liability for warrant		(1,294,407	)		-
Change in fair value of derivative liability for loan		-			(402,033	)
Balance at December 31, 2011	$	22,806			21,274
Change in fair value of derivative liability for warrant		(14,618	)		-
Change in fair value of derivative liability for loan		-			(21,274	)
Balance at September 30, 2012	$	8,188			-

~~The~~For ~~Company,~~the ~~in connection with its occupancy~~three and ~~use~~nine ofmonths ~~certain~~ended ~~industrial~~September ~~park~~30, ~~land~~2012, ~~receives from time to time certain subsidies wholly at~~ the ~~discretion of the management authority of a third party research and development fund related to the industrial park which are not tied to future tenancy or performance by the~~ Company; ~~receipt~~recorded of$4,651 ~~such subsidy income is not contingent upon any further actions or performance by the Company~~ and ~~the amounts do not have to be refunded under any circumstances. These amounts are not tied to land use rights or any other transactions. Upon receipt~~$35,892 ~~these~~fair ~~incentives~~value ~~are~~change ~~recognized within other income (loss) in the consolidated statements~~ of ~~operations and~~derivative ~~other~~liability ~~comprehensive (loss) income~~respectively.

(vt) ~~Restatements~~Segment ~~and reclassifications~~reporting

The ~~Company,~~Group ~~effective with the annual~~reports ~~2011~~its ~~financial~~segments ~~statements included~~ in ~~Form~~accordance ~~10-K,~~with ~~reclassified~~ASC ~~its~~280. ~~presentation~~The ofGroup ~~revenue~~primarily ~~and~~operates ~~costs of revenue~~ in ~~the~~China ~~consolidated statements of (loss) income~~ and ~~other~~measures ~~comprehensive~~its ~~(loss)~~business ~~income~~as toa ~~depict~~single ~~engineering, procurement, and construction (“EPC”)~~operating ~~revenue~~segment. ~~attributable~~All toof ~~third~~the ~~party~~group’s ~~customers,~~long ~~EPC~~term ~~revenue~~assets ~~attributable~~are tolocated ~~related parties, and product revenue given the growth~~ in ~~the number and per-contract revenue associated with EPC contracts and 2011 amounts have been reclassified to conform to the current presentation~~China.

On March 30, 2012 the Company filed, on Form 8-K, a report announcing the restatement of its unaudited quarterly financial statements for the first three quarters of 2011. The root cause of the necessary adjustments to the quarterly interim unaudited financial information for the first three quarters of 2011 was identified during the preparation of the Company’s annual 2011 financial statements as reported in Form 10-K filed March 30, 2012. The Company determined that transaction losses resulting from variations in foreign currency exchange rates on certain purchase transactions denominated in U.S. dollars involving the Company’s onshore PRC subsidiaries (which use the yuan renminbi, or RMB as their functional currency) were incorrectly classified as translation losses and were incorrectly included in other comprehensive income (loss). These losses should have been reported in the statement of operations within other income (expense). Such transaction losses only impacted the first three quarters of 2011 as the underlying business activity involving purchasing of raw materials related to the Group’s then-under-construction Yangzhou production facility started in 2011 and was substantially completed by the end of 2011. The transaction losses arose as a result of cash advances made for purchase transactions in which goods were acquired outside of mainland China and imported to the Company’s onshore PRC subsidiaries. Continued weakening of the U.S. dollar against the RMB led to a decrease in the RMB value of purchased goods subsequently received relative to the asset already recorded for the refundable purchase advance made in cash.16

Accordingly, the Company undertook further evaluation to identify and quantify the necessary adjustments to restate the previously issued unaudited financial information for the first three quarters of 2011. Adjustments were limited to the change in classification of foreign exchange transaction losses from other comprehensive income to non-operating income (~~loss~~u), ~~net in the consolidated unaudited statement of operations.~~Subsidy Such adjustments were reported in amended Forms 10-Q for the first three quarters of 2011 filed with the SEC on May 15, 2012. The comparative amounts for 2011 included in this Form 10-Q reflect the restated financial information.income

16The Company, in connection with its occupancy and use of certain industrial park land, receives from time to time certain subsidies wholly at the discretion of the management authority of a third party research and development fund related to the industrial park which are not tied to future tenancy or performance by the Company; receipt of such subsidy income is not contingent upon any further actions or performance by the Company and the amounts do not have to be refunded under any circumstances. These amounts are not tied to land use rights or any other transactions. Upon receipt, these incentives are recognized within other income (loss) in the consolidated statements of operations and other comprehensive (loss) income.

(wv) ~~Recent~~Restatements and ~~accounting pronouncements~~reclassifications

~~Recently~~The Company, effective ~~pronouncements~~with the annual 2011 financial statements included in Form 10-K, reclassified its presentation of revenue and costs of revenue in the consolidated statements of (loss) income and other comprehensive (loss) income to depict EPC revenue attributable to third party customers, EPC revenue attributable to related parties, and product revenue given the growth in the number and per-contract revenue associated with EPC contracts and 2011 amounts have been reclassified to conform to the current presentation.

InOn ~~May~~March ~~2011~~30, 2012 the ~~Financial~~Company ~~Accounting Standards~~filed, ~~Board~~on ~~issued~~Form ~~Accounting~~8-K, ~~Standards~~a ~~Update~~report ~~2011-04,~~announcing ~~“Fair~~the ~~Value~~restatement ~~Measurement:~~of ~~Amendments~~its tounaudited ~~Achieve~~quarterly ~~Common~~financial ~~Fair~~statements ~~Value~~for the ~~Measurement~~first ~~and~~three ~~Disclosure~~quarters ~~Requirements~~of ~~in U~~2011.S. ~~GAAP~~The ~~and~~root ~~IFRSs”~~cause ~~(ASU~~of ~~2011-04).~~the ~~Key~~necessary ~~provisions~~adjustments ofto the ~~amendments~~quarterly ininterim ~~ASU~~unaudited ~~2011-04~~financial information ~~include:~~for ~~(1)~~the afirst ~~prohibition~~three onquarters ~~grouping~~of ~~financial~~2011 ~~instruments~~was ~~for~~identified ~~purposes~~during the preparation of ~~determining~~the ~~fair~~Company’s ~~value,~~annual ~~except~~2011 financial statements as reported in ~~limited~~Form ~~cases; (2)~~10-K anfiled ~~extension~~March of30, ~~the~~2012. ~~prohibition~~The ~~against~~Company ~~the~~determined ~~use~~that oftransaction alosses ~~blockage~~resulting ~~factor~~from tovariations ~~all~~in ~~fair~~foreign currency ~~value~~exchange ~~measurements;~~rates ~~and~~on ~~(3)~~certain apurchase ~~requirement that~~transactions ~~for~~denominated ~~recurring~~in ~~Level~~U.S. 3dollars ~~fair~~involving ~~value~~the ~~measurements,~~Company’s ~~entities~~onshore ~~disclose~~PRC subsidiaries ~~quantitative~~(which ~~information~~use ~~about~~the ~~unobservable~~yuan ~~inputs~~renminbi, aor ~~description of~~RMB ~~the~~as ~~valuation~~their ~~process~~functional ~~used,~~currency) were incorrectly classified as translation losses and ~~qualitative~~were ~~details~~incorrectly ~~about~~included ~~the~~in ~~sensitivity~~other ofcomprehensive ~~the~~income ~~measurements~~(loss). ~~For~~These ~~items~~losses ~~not~~should ~~carried~~have atbeen ~~fair value~~reported ~~but~~in ~~for~~the ~~which~~statement ~~fair~~of operations ~~value~~within isother ~~disclosed,~~income ~~entities~~(expense). ~~will~~Such betransaction ~~required~~losses toonly ~~disclose~~impacted the ~~level~~first ~~within~~three ~~the~~quarters ~~fair~~of ~~value~~2011 ~~hierarchy~~as ~~that~~the underlying ~~applies~~business toactivity ~~the~~involving ~~fair~~purchasing ~~value~~of ~~measurements~~raw ~~disclosed.~~materials ~~This~~related ~~ASU~~to isthe ~~effective~~Group’s ~~for~~then-under-construction ~~interim~~Yangzhou production facility started in 2011 and ~~annual~~was ~~periods~~substantially ~~beginning~~completed ~~after~~by ~~December 15,~~the end of 2011. The ~~adoption~~transaction losses arose as a result of ~~this~~cash advances ~~guidance,~~made ~~effective~~for ~~with~~purchase ~~the~~transactions ~~quarter~~in ~~ended~~which ~~March~~goods ~~31,~~were ~~2012,~~acquired ~~did~~outside ~~not~~of ~~have~~mainland aChina ~~material~~and ~~impact~~imported to ~~CER~~the Company’s ~~financial~~onshore ~~statements~~PRC assubsidiaries. ~~management~~Continued ~~concluded~~weakening ~~CER’s~~of ~~Level~~the 3U.S. ~~fair~~dollar ~~value~~against ~~measurements~~the ~~were~~RMB ~~not~~led ~~material~~to ~~for~~a ~~purposes~~decrease in the RMB value of ~~additional~~purchased ~~disclosure~~goods subsequently received relative to the asset already recorded for the refundable purchase advance made in cash.

~~In June 2011~~Accordingly, the ~~FASB~~Company ~~issued~~undertook ~~Accounting Standards~~further ~~Update~~evaluation ~~2011-05,~~to ~~“Comprehensive~~identify ~~Income:~~and ~~Presentation~~quantify ofthe ~~Comprehensive~~necessary ~~Income.”~~adjustments ~~The~~to ~~amendment~~restate ~~requires~~the ~~that all~~previously ~~non-owner~~issued ~~changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income~~unaudited orfinancial ininformation ~~two separate but consecutive statements. This guidance is effective retrospectively~~ for ~~interim~~the ~~periods~~first ~~and~~three ~~annual~~quarters ~~periods beginning~~of ~~after December 15,~~ 2011. ~~and~~Adjustments ~~has~~were ~~been~~limited ~~adopted~~to ~~by CER. Further,~~ the ~~requirement~~change ~~for~~in ~~presentation~~classification of ~~reclassifications~~foreign exchange transaction losses from other comprehensive income to ~~net~~non-operating income on(loss), anet ~~line item basis contained~~ in the ~~new~~consolidated ~~accounting standards update is presently~~unaudited ~~subject~~statement toof ~~indefinite~~operations. ~~deferral~~Such byadjustments ~~the~~were ~~FASB~~reported ~~pursuant~~in toamended ~~Accounting~~Forms ~~Standards Update 2011~~10-~~12,~~Q ~~“Deferral of the Effective Date~~ for ~~Amendments to~~ the ~~Presentation~~first ofthree ~~Reclassifications~~quarters of ~~Items~~2011 ~~Out~~filed ofwith the ~~Accumulated~~SEC ~~Other~~on ~~Comprehensive~~May ~~Income~~15, ~~in ASU 2011-05~~2012.” The ~~adoption~~comparative ofamounts ~~this~~for ~~collective~~2011 ~~guidance~~included ~~has~~in ~~not~~this ~~impacted~~Form ~~CER’s~~10-Q ~~financial~~reflect ~~statements as~~ the ~~company~~restated ~~presently~~financial ~~prepares, and continues to prepare, a consolidated statement of operations and comprehensive income (loss)~~information.

~~Note~~(w) ~~3 –~~Recent ~~Accounts~~accounting ~~Receivable, Net~~pronouncements

In December 2011, the FASB issued ASU 2011-11, Balance Sheet (aTopic 210): ~~Accounts~~Disclosures ~~Receivable~~about Offsetting Assets and Liabilities (ASU 2011-11). This newly issued accounting standard requires an entity to disclose both gross and net information about instruments and transactions eligible for offset in the statements of financial position as well as instruments and transactions executed under a master netting or similar arrangement and was issued to enable users of financial statements to understand the effects or potential effects of those arrangements on their financial position. This ASU is required to be applied retrospectively and is effective for fiscal years, ~~Net~~and interim periods within those years, beginning on or after January 1, 2013. As this accounting standard only requires enhanced disclosure, the adoption of this standard is not expected to have an impact on the Company’s financial position.

	December 31,		June 30,
	2011		2012
Current accounts receivable - third parties	$	11,639,138	$	12,125,468
Current accounts receivable - related party		9,088,157		8,298,660
Current accounts receivable		20,727,295		20,424,128
Subtract: Allowance for doubtful accounts		-		-
Current accounts receivable, net	$	20,727,295	$	20,424,128

17Note 3 – Accounts Receivable, Net

~~Current~~(a) ~~receivables~~Accounts ~~also include revenue recognized in excess of amounts billed for EPC contracts. As of December 31~~Receivable, ~~2011 and June 30, 2012, revenue recognized in excess of amounts billed amounted to approximately $18,085,048 and $17,789,174, respectively.~~Net

(b) Long-term Accounts Receivable, Net

	December 31,		September 30,
	2011		2012

Current accounts receivable - third parties	$	11,639,138	$	11,465,468
Current accounts receivable - related party		9,088,157		11,445,785
Current accounts receivable		20,727,295		22,911,253
Subtract: Allowance for doubtful accounts		-		-

Current accounts receivable, net	$	20,727,295	$	22,911,253

~~The~~Current ~~Company classifies accounts receivable~~receivables ~~and~~also include revenue recognized in excess of amounts billed ~~which~~for ~~are~~EPC tocontracts. beAs ~~collected~~of ~~after~~December ~~one~~31, ~~year~~2011 asand ~~long-term~~September ~~accounts~~30, ~~receivable~~2012, revenue recognized in excess of amounts billed amounted to approximately $18,085,048 and $ 18,791,747, respectively.

(b) Long-term ~~accounts~~Accounts ~~receivable~~Receivable, net, which are presented in the below table net of the discounting effect for interest (see Note 16 for further description), included revenue recognized in excess of amounts billed of approximately $0 and $13,215,818 as of December 31, 2011 and June 30, 2012, respectively.Net

	December 31,			June 30,
	2011			2012
Long term accounts receivable - third parties		1,691,474			7,143,650
Long term accounts receivable - related party		-			5,613,367
Long-term accounts receivable	$	1,691,474			12,757,017
Subtract: Allowance for doubtful accounts		(1,691,474	)		(1,717,727	)
Total	$	-			11,039,290

The Company classifies accounts receivable and revenue recognized in excess of amounts billed which are to be collected after one year as long-term accounts receivable.

Long-term accounts receivable, ~~consisted~~ net, which are presented in the below table net of ~~two~~the ~~customers~~discounting effect for interest (see Note 16 for further description), included ~~Zhenjiang~~revenue ~~Kailin~~recognized in excess of amounts billed of approximately $0 and ~~Jiangsu~~$7,687,761 ~~SOPO~~as of December 31, ~~for~~2011 ~~both~~and ~~periods~~September 30, ~~presented~~2012, respectively.

CER and Zhenjiang Kailin, a related party, agreed to revise the payment schedule of receivables related to a project originally entered into in January 2011, which was completed on May 31, 2012, from all remaining amounts due by August 31, 2012 to 4 installments due by December 31, 2013 with no interest to be earned (refer to note 16 for more details about the Zhenjiang Kailin receivable collection schedule).

	December 31,			September 30,
	2011			2012

Long term accounts receivable - third party	$	1,691,474			6,540,056
Subtract: Allowance for doubtful accounts	$	(1,691,474	)		(1,803,423	)
Total		-			4,736,633

Long term accounts receivable - related party	$	-			2,951,128

Maturity date	Amount due
August 31, 2012		4,722,300
June 30, 2013		2,833,380
September 30, 2013		3,148,200
December 31, 2013		3,302,851
Total		14,006,731

Long-term accounts receivable consisted of two customers, Zhenjiang Kailin and Jiangsu SOPO, for both periods presented.

InCER ~~August~~and ~~2012, based on developments~~Zhenjiang ~~subsequent to the balance sheet date~~Kailin, ~~including~~a ~~communication~~related ~~with Zhenjiang Kailin~~party, itagreed ~~was~~to ~~determined~~revise ~~that~~ the ~~first~~ payment ~~would~~ beschedule ~~delayed~~of toreceivables ~~December~~related ~~2012. Zhenjiang Kailin only begun~~ to ~~generate~~a ~~cash~~project ~~flow~~originally ~~commencing~~entered ininto ~~May 2012 due to the delayed~~in ~~opening~~January of2011, ~~its~~which ~~facility~~was ~~following~~completed ~~CER’s~~on ~~completion~~May ~~thereof~~31, ~~and required extra time to pay by December~~ 2012~~. There were no other payment installments that were subject to delay~~, ~~and~~from ~~based upon an evaluation of~~ all ~~the~~remaining ~~facts and circumstances the Company determined that it expected to fully collect all~~ amounts due ~~over~~by ~~the~~August ~~revised payment schedule incorporating the December extension of the first installment. After considering the further extension of the first installment payment to December~~ 31, 2012, ~~the Company reassessed the discount impact applicable~~ to ~~this~~4 ~~payment~~installments ~~extension~~due ~~using the original interest rate of 10.65% (which considered~~by ~~the~~December ~~risk free rate and Zhenjiang Kailin’s credit risk). As of June 30~~31, ~~2012,~~2013 ~~the~~with ~~accounts~~no ~~receivable~~interest ~~(including both current and non-current portions) from Zhenjiang Kailin under the contract was $13,912,027 after discounting for the time value of money pursuant~~ to ~~applicable~~be ~~accounting~~earned ~~guidance~~ (~~the~~refer ~~discount rate was determined as 10.65% considering the risk free rate and Zhenjiang Kailin’s credit risk). The discount reflected as a reduction~~ to ~~revenue~~note in16 ~~the statement of operations arising from this extension of payment terms was $161,871 and $1,706,280~~ for ~~the~~more ~~three~~details ~~and~~about ~~six months ended June 30, 2012;~~ the ~~accretion for interest income included in interest income was $329,435. Of the total balance of $13,912,027, $5,613,367 represented the non-current balance due from~~ Zhenjiang Kailin ~~which~~receivable ~~is to be collected over one year; the remaining $8,298,660 is included in current receivables~~collection ~~due from a related party~~schedule).

Long term accounts receivable, net due from third parties of $5,425,923 represents a balance due from Jiangsu SOPO. On October 18, 2011, CER signed a contract for the manufacture, design, and installation of a major dock storage and tube project with Jiangsu SOPO, a third party customer of CER and related party of Zhenjiang Kailin. The contract was originally valued at RMB 50 million (approximately $7.9 million), including the procurement part of RMB 40 million (approximately $6.3 million) and construction part of RMB 10 million (approximately $1.6 million). Due to the strong relationship between CER and Jiangsu SOPO, CER was retained as the contractor, and was allowed to sub-contract substantially all of the work to a third party sub-contractor. Jiangsu SOPO has agreed to CER’s retention of 10% as a profit margin (based upon the contract value), or approximately an 11% markup on costs of the project. CER has concluded that gross recognition of the revenue is appropriate as it is the primary obligor and certain of the costs represent CER product.

Maturity date	Amount due
December 31, 2012		4,773,300
June 30, 2013		2,863,980
September 30, 2013		3,182,200
December 31, 2013		3,338,521
Total		14,158,001

OnA ~~April 15, 2012, CER and Jiangsu SOPO~~reconciliation entered into a repayment agreement. Pursuant to the agreement, the total contract price will be allocated 90% to the subcontractor and CER earns the remaining 10% margin. The project has been fully completed by the end of ~~June 2012. The current best estimate of~~ the ~~total~~accounts ~~contract~~receivable ~~price is RMB 57.1 million~~ (~~approximately~~including $9both ~~million)~~current ~~based upon project completion~~ and ~~discussions~~non-current ~~with Jiangsu SOPO, and this amount is the basis for the repayment agreement. Jiangsu SOPO will pay the project price of RMB 57.1 million (approximately $9 million~~portions), plus interest over time of RMB 6.4 million (approximately $1 million), for a total of RMB 63.5 million (approximately $10 million) in exchange for an extension of the payment terms involving 36 installments due on a monthly basis starting from ~~May, 2012.~~Zhenjiang ~~The~~Kailing ~~discount rate used to discount these receivable cash flows under the applicable accounting guidance for Jiangsu SOPO was 8% (considering its stated-owned background~~ and ~~AA credit rating), which is same as~~ the ~~contractual~~amount ~~rate~~from ~~of interest included~~collection inschedule the contract. For the three and six months ended June 30, 2012, $2,918,572 and $8,273,746 in revenue was recognized in relation to this EPC project, respectively, and the accretion of interest income was $104,186, as ~~further~~at ~~described~~September ~~in Note 14. The receivable from Jiangsu SOPO as of June~~ 30, 2012 ~~was~~is ~~$8,112,151, among which $5,425,923 was classified~~ as ~~long-term accounts receivable.~~follows:

Both of the arrangements described above regarding extensions of payment terms for these two particular customers were originally recognized in the March 31, 2012 balances and revenue for the quarter then ended as the underlying facts and circumstances leading to the arrangements existed, or were in the early stages of negotiation, at that time. With respect to the additional discount reflected in revenue for the Zhenjiang Kailin project due to the extension of the August 2012 payment to December 2012, such adjustment was reflected in revenue for the quarter ended June 30, 2012 as it related to facts and circumstances which likely existed at June 30, 2012.

	September 30,
	2012

Total payment amount		14,158,001
Accretion for interest income		661,093
Upgrade Contract (Note16)		1,281,188
Less - unearned finance income		(1,703,369	)
Total accounts receivables		14,396,913

Accounts receivable, net - related party		11,445,785
Long term accounts receivable, net - related party		2,951,128
Total accounts receivables		14,396,913

~~Note~~In ~~4 – Inventories~~August 2012, based ~~Net~~on developments subsequent to the balance sheet date, including communication with Zhenjiang Kailin, it was determined that the first payment would be delayed to December 2012. Zhenjiang Kailin only begun to generate cash flow commencing in May 2012 due to the delayed opening of its facility following CER’s completion thereof and required extra time to pay by December 2012. There were no other payment installments that were subject to delay, and based upon an evaluation of all the facts and circumstances the Company determined that it expected to fully collect all amounts due over the revised payment schedule incorporating the December extension of the first installment. After considering the further extension of the first installment payment to December 31, 2012, the Company reassessed the discount impact applicable to this payment extension using the original interest rate of 10.65% (which considered the risk free rate and Zhenjiang Kailin’s credit risk). As of September 30, 2012, the accounts receivable (including both current and non-current portions) from Zhenjiang Kailin under the contract was $14,396,913 after discounting for the time value of money pursuant to applicable accounting guidance (the discount rate was determined as 10.65% considering the risk free rate and Zhenjiang Kailin’s credit risk). The discount reflected as a reduction to revenue in the statement of operations arising from this extension of payment terms was $0 and $1,703,369 for the three and nine months ended September 30, 2012; the accretion for interest income included in interest income was $661,093. Of the total balance of $14,396,913, $2,951,128 represented the non-current balance due from Zhenjiang Kailin which is to be collected over one year; the remaining $11,445,785 is included in current receivables due from a related party.

AsLong term accounts receivable, net due from third party of ~~December~~$4,736,633 31represents a balance due from Jiangsu SOPO. On October 18, 2011 , CER signed a contract for the manufacture, design, and ~~June~~installation 30of a major dock storage and tube project with Jiangsu SOPO, ~~2012~~a third party customer of CER and related party of Zhenjiang Kailin. The contract was originally valued at RMB 50 million (approximately $7.9 million), ~~inventories~~including the procurement part of RMB 40 million (approximately $6.3 million) and construction part of RMB 10 million ~~consist~~(approximately $1.6 million). Due to the strong relationship between CER and Jiangsu SOPO, CER was retained as the contractor, and was allowed to sub-contract substantially all of the ~~following:~~work to a third party sub-contractor. Jiangsu SOPO has agreed to CER’s retention of 10% as a profit margin (based upon the contract value), or approximately an 11% markup on costs of the project. CER has concluded that gross recognition of the revenue is appropriate as it is the primary obligor and certain of the costs represent CER product.

	December 31,		June 30,
	2011		2012
Raw materials	$	1,485,293	$	2,018,340
Work in progress		12,975,360		10,263,848
Finished goods		217,659		215,876
Total inventories	$	14,678,312	$	12,498,064

19On April 15, 2012, CER and Jiangsu SOPO entered into a repayment agreement. Pursuant to the agreement, the total contract price will be allocated 90% to the subcontractor and CER earns the remaining 10% margin. The project has been fully completed by the end of June 2012. The current best estimate of the total contract price is RMB 57.1 million (approximately $9 million) based upon project completion and discussions with Jiangsu SOPO, and this amount is the basis for the repayment agreement. Jiangsu SOPO will pay the project price of RMB 57.1 million (approximately $9 million), plus interest over time of RMB 6.4 million (approximately $1 million), for a total of RMB 63.5 million (approximately $10 million) in exchange for an extension of the payment terms involving 36 installments due on a monthly basis starting from May, 2012. The discount rate used to discount these receivable cash flows under the applicable accounting guidance for Jiangsu SOPO was 8% (considering its stated-owned background and AA credit rating), which is same as the contractual rate of interest included in the contract. For the three and nine months ended September 30, 2012, $0 and $8,259,628 in revenue was recognized in relation to this EPC project, respectively, and the accretion of interest income was $250,190, as further described in Note 14. The receivable from Jiangsu SOPO as of September 30, 2012 was $7,605,077, among which $4,736,633 was classified as long-term accounts receivable.

~~For~~Both of the arrangements ~~three~~described ~~months~~above ~~ended~~regarding ~~June~~extensions ~~30,~~of ~~2011~~payment ~~and~~terms ~~2012,~~for nothese ~~accrual~~two particular customers were originally recognized in the March 31, 2012 balances and revenue for ~~inventory~~the ~~provision~~quarter ~~was~~then ~~required.~~ended ~~For~~as the ~~six~~underlying ~~month~~facts ~~periods~~and ~~ended~~circumstances ~~June~~leading 30to the arrangements existed, ~~2011~~or ~~and~~were ~~2012~~in the early stages of negotiation, at that time. With respect to the additional discount reflected in revenue for the ~~Group~~Zhenjiang ~~accrued~~Kailin ~~inventory~~project ~~provisions~~due to the extension of $the ~~26,141~~August ~~and~~2012 $0payment to December 2012, ~~respectively~~such adjustment was reflected in revenue for the quarter ended June 30, ~~through~~2012 ~~charges~~as it related to ~~income~~facts and circumstances which likely existed at June 30, 2012.

Note 54 –~~Property~~ Inventories, ~~plant and equipment,~~ Net

As of December 31, 2011 and September ~~June~~ 30, 2012, ~~property,~~inventories ~~plant~~consist ~~and equipment, net consisted~~ of the following:

	December 31,			~~June~~September 30,
	2011			2012
Plant	$	21,416,681		$	21,337,164
Raw materials	$	1,601,998		$	2,395,338
Machinery equipment		4,496,365			4,238,317
Work in progress		12,978,418			7,049,818
Transportation equipment		366,270			367,136
Finished goods		217,659			218,207
Office equipment		839,790			903,430
Inventory cost	$	14,798,075		$	9,663,363
Accumulated depreciation		(2,137,381	)		(2,658,634	)
Less: inventory provision		(119,763	)		(120,065	)
Subtotal		24,981,725			24,187,413
Inventory, net	$	14,678,312		$	9,543,298
Construction in progress		1,177,877			4,158,223
Property, plant and equipment, net	$	26,159,602		$	28,345,636

~~Depreciation~~For ~~expense for~~ the three months ended ~~June~~September 30, 2011 and 2012, ~~was~~no ~~$285,040,~~accrual ~~and~~for ~~$283,660,~~inventory ~~respectively.~~provision ~~Depreciation~~was ~~expense~~required. ~~for~~ For the ~~six~~nine ~~months~~month periods ended ~~June~~September 30, 2011 and 2012, the ~~was~~Group accrued inventory provisions of $~~498~~26,~~415,~~621 and $~~788~~0,~~958,~~ respectively, through charges to income.

~~Note 6 – Intangible Assets~~20

~~Intangible~~Note ~~assets mainly represent purchases~~5 –Property, ~~of land usage rights in Yangzhou where the Company’s sole manufacturing~~ plant ~~is located~~ and ~~software. The Company obtained the usage title of its first land parcel in December 2009. The land use right was recorded at cost of $2~~equipment,~~438,632~~ and is being amortized over the lease term of 50 years starting from November 2009 when it was acquired. In July 2011, the Company obtained the usage title of another parcel of land. The land use right was recorded at cost of $2,331,869 and is being amortized over the lease term of 50 years starting from July 2011. Amortization expense for intangible assets recorded for three months ended June 30, 2011 and 2012 amounted to $22,740 and $50,323, respectively. Amortization expense for intangible assets recorded for the six months ended June 30, 2011 and 2012 amounted to $34,155 and $88,348, respectively. The remaining balance of intangible assets represents the net value of purchased software.Net

~~Note~~As 7of –December 31, ~~Short~~2011 and ~~Term~~September ~~Loans~~30, 2012, property, plant and equipment, net consisted of the following:

Short-term borrowings and letter of credit

	December 31,			September 30,
	2011			2012

Plant	$	21,416,681		$	21,576,369
Machinery equipment		4,496,365			4,289,211
Transportation equipment		366,270			367,193
Office equipment		839,790			926,247
Accumulated depreciation		(2,137,381	)		(3,090,578	)
Subtotal		24,981,725			24,068,442
Construction in progress		1,177,877			4,521,458
Property, plant and equipment, net	$	26,159,602		$	28,589,900

ADepreciation expense ~~tabular~~for ~~reconciliation of~~ the ~~Company’s short~~three ~~term~~months ~~borrowings~~ended ~~including~~September ~~balances outstanding at December 31~~30, 2011 and ~~June~~2012 30was $450,730, ~~2012~~ and ~~activity~~$398,971, ~~during~~respectively. ~~the~~Depreciation ~~period (including~~expense ~~letters~~for ofthe ~~credit)~~nine ismonths asended ~~follows.~~September ~~Where borrowings are denominated in Renminbi~~30, ~~the~~2011 ~~U.S.~~and ~~dollar~~2012 ~~outstanding~~was ~~balance at the respective period end~~$949,145, ~~translated~~and ~~at the applicable period-end exchange rate~~$1,187,929, ~~is included in the tabular presentation~~respectively.

20Note 6 – Intangible Assets

Borrowing	Borrowing date	Interest rate	Maturity date	Balance at Dec. 31, 2011	Balance at Jun. 30, 2012	Pledge or guarantee
		December 31,				September 30,
RMB 29 million – Shanghai Pudong Development Bank, Shanghai Branch	Aug. 31, 2011	7.544%	May 31, 2012	RMB 29,000,000 (USD 4,602,590)	RMB 0 (repaid March 28, 2012)	Collateralized by CER’s office building in Zhangjiang, Shanghai.
		2011				2012
RMB 9.5 million – Bank of China, Yizheng Branch	Nov. 17, 2011	7.216%	Oct. 24, 2012	RMB 9,500,000 (USD 1,507,745)	RMB 9,500,000 (USD 1,495,395)	Guaranteed by Qinghuan Wu, Jialing Zhou, CER Shanghai, Shanghai Engineering, and Yizheng Auto Industrial Park Investment and Development Co., Ltd., and pledged by a land use right in Yizheng, China.
Cost:
RMB 11.5 million – Bank of China, Yizheng Branch	Nov. 23, 2011	7.216%	Nov. 16, 2012	RMB 11,500,000 (USD 1,825,165)	RMB 11,500,000 (USD 1,810,215)
Land use rights		$	5,023,217			$	5,035,878
RMB 6.68 million - Industrial and Commercial Bank of China Limited, Zhangjiang Branch	Dec. 29, 2011	6.405%	June 28, 2012	RMB 6,680,000 (USD 1,060,183)	RMB 0 (repaid June 20, 2012)	Collateralized by a pledge of several bank acceptance notes* owned by CER Shanghai in the amount of RMB 7,430,000.
Software			152,896				190,920
RMB 5 million - Shanghai Pudong Zhanjiang Micro-credit Co.	Dec. 2011	12.000%	June 9, 2012	RMB 5,000,000 (USD 793,550)	RMB 0 (repaid April 15, 2012)	Collateralized by a building in Shanghai owned by Jiangsu SOPO; guaranteed by Mr. Qinghuan Wu.
Less: Accumulated amortization			(176,230	)			(306,572	)
RMB 21 million letter of credit – China Construction Bank	Sept. 30, 2011	5.02%	Jan. 6, 2012	RMB 21,000,000 (USD 3,332,910)	-	Collateralized by machinery of CER Yangzhou.
Intangible assets, net		$	4,999,883			$	4,920,226
RMB 7.98 million letter of credit – Industrial and Commercial Bank of China	Dec. 12, 2011	6.71%	May 28, 2012	RMB 7,980,000 (USD 1,266,506)	-	Collateralized by a building in Shanghai owned by Jiangsu SOPO.
RMB 1.38 million - Industrial and Commercial Bank of China Limited, Zhangjiang Branch	Jan. 16, 2012	6.405%	July 15, 2012	-	RMB 0 (repaid June 20, 2012)	Collateralized by a pledge of several bank acceptance notes* owned by CER Shanghai in the amount of RMB 1,530,000.

21Intangible assets mainly represent purchases of land usage rights in Yangzhou where the Company’s sole manufacturing plant is located and software. The Company obtained the usage title of its first land parcel in December 2009. The land use right was recorded at cost of $2,438,632 and is being amortized over the lease term of 50 years starting from November 2009 when it was acquired and the software is being amortized over 3 years. In July 2011, the Company obtained the usage title of another parcel of land. The land use right was recorded at cost of $2,331,869 and is being amortized over the lease term of 50 years starting from July 2011. Amortization expense for intangible assets recorded for three months ended September 30, 2011 and 2012 amounted to $30,785 and $40,610, respectively. Amortization expense for intangible assets recorded for the nine months ended September 30, 2011 and 2012 amounted to $64,940 and $128,958, respectively.

RMB 10 million - Shanghai Pudong Zhanjiang Micro-credit Co., Ltd.	Feb. 29, 2012	12.000%	Feb. 20, 2013	-	RMB 7,300,000(USD 1,149,093)	Collateralized by accounts receivable from Zhenjiang Kailin; also collateralized by CER’s office building in Zhangjiang Shanghai in case of default in repayment.
RMB 29 million - Bank of Communication, Shanghai Branch	Mar. 20, 2012	7.544%	Mar. 15, 2013	-	RMB 29,000,000 (USD 4,564,890)	Collateralized by CER’s office building in Zhangjiang, Shanghai and guaranteed by Qinghuan Wu.
RMB 11 million - Bank of Communication, Shanghai Branch	Apr. 12, 2012	7.544%	Apr. 12, 2013	-	RMB 11,000,000 (USD 1,731,510)
RMB 5 million - Industrial and Commercial Bank of China Limited, Zhangjiang Branch.	Mar. 23, 2012	6.405%	Sept. 28, 2012	-	RMB 5,000,000 (USD 787,050)	Collateralized by several bank acceptance notes* owned by CER Shanghai in the amount of RMB 5,600,000 (approximately $890,000).
RMB 10 million - China CITIC Bank Yizheng branch.	Jun. 6, 2012	7.544%	Jun. 6, 2013	-	RMB 10,000,000 (USD 1,574,100)	Guaranteed by Jiangsu SOPO, and guaranteed by Mr. Qinghuan Wu.
USD 1.15 million – Industrial and Commercial Bank of China Limited, Zhangjiang Branch.	Jun. 15, 2012	2.4789%	Sep. 14, 2012	-	USD 1,150,000	Collateralized by cash deposit in the amount of RMB 7,710,000 (approximately $1,213,631).
RMB 7.9 million letter of credit – Industrial and Commercial Bank of China	May 18, 2012	6.405%	Sep. 17, 2012	-	RMB 7,900,000 (USD 1,235,586)	Collateralized by a building in Shanghai owned by Jiangsu SOPO.

Note 7 – Short Term Loans

*The Group’s bank acceptance notes are reported in “Notes receivable” in the consolidated balance sheet and represent shortShort-term ~~notes receivable typically~~ received from customers as a form of payment. The Group can discount such notes receivable for early payment, typically at a small percentage discount to face value. The Group typically uses the notes to collateralize short-term borrowings asand aletter ~~means~~ of ~~matching timing of cash inflows and outflows, or transfers the notes to settle payables to suppliers.~~credit

22A tabular reconciliation of the Company’s short term borrowings including balances outstanding at December 31, 2011 and September 30, 2012 and activity during the period (including letters of credit) is as follows. Where borrowings are denominated in Renminbi, the U.S. dollar outstanding balance at the respective period end, translated at the applicable period-end exchange rate, is included in the tabular presentation.

~~Descriptions of short-term borrowings~~21

On August 31, 2011, CER Shanghai borrowed RMB 29,000,000 (approximately $4,500,000 at the then-existing exchange rate) from the Shanghai Pudong Development Bank, Luwan Branch. The loan was collateralized by CER’s office building in Zhangjiang, Shanghai. The term of the loan was 9 months. The loan agreement provided for quarterly interest payments at an annual interest rate of 7.544% and the total principal and interest were repaid on March 28, 2012.

Borrowing

date

Interest

rate

Maturity

date

Balance at

Dec. 31,

2011

Balance at

Sep. 30,

2012

Pledge or

guarantee

RMB 29 million – Shanghai Pudong Development Bank, Shanghai Branch

Aug. 31, 2011

7.544%

May 31, 2012

RMB 29,000,000

(USD 4,602,590)

RMB 0

(repaid March 28, 2012)

Collateralized by CER’s office building in Zhangjiang, Shanghai.

RMB 9.5 million – Bank of China, Yizheng Branch

Nov. 17, 2011

7.216%

Oct. 19, 2012

RMB 9,500,000

(USD 1,507,745)

RMB 9,500,000

(USD 1,511,545)

(repaid October 19, 2012)

Guaranteed by Qinghuan Wu, Jialing Zhou, CER Shanghai, Shanghai Engineering, and Yizheng Auto Industrial Park Investment and Development Co., Ltd., and pledged by a land use right in Yizheng, China.

RMB 11.5 million – Bank of China, Yizheng Branch

Nov. 23, 2011

7.216%

Nov. 16, 2012

RMB 11,500,000

(USD 1,825,165)

RMB 11,500,000

(USD 1,829,765)

RMB 6.68 million - Industrial and Commercial Bank of China Limited, Zhangjiang Branch

Dec. 29, 2011

6.405%

June 28, 2012

RMB 6,680,000

(USD 1,060,183)

RMB 0

(repaid June 20, 2012)

Collateralized by a pledge of several bank acceptance notes* owned by CER Shanghai in the amount of RMB 7,430,000.

RMB 5 million - Shanghai Pudong Zhanjiang Micro-credit Co.

Dec. 2011

12.000%

June 9, 2012

RMB 5,000,000

(USD 793,550)

RMB 0

(repaid April 15, 2012)

Collateralized by a building in Shanghai owned by Jiangsu SOPO; guaranteed by Mr. Qinghuan Wu.

RMB 21 million letter of credit – China Construction Bank

Sept. 30, 2011

5.02%

Jan. 6, 2012

RMB 21,000,000

(USD 3,332,910)

RMB 0

(repaid January 6, 2012)

Collateralized by machinery of CER Yangzhou.

RMB 7.98 million letter of credit – Industrial and Commercial Bank of China

Dec. 12, 2011

6.71%

May 28, 2012

RMB 7,980,000

(USD 1,266,506)

RMB 0

(repaid June 6, 2012)

Collateralized by a building in Shanghai owned by Jiangsu SOPO.

RMB 1.38 million - Industrial and Commercial Bank of China Limited, Zhangjiang Branch

Jan. 16, 2012

6.405%

July 15, 2012

RMB 0

(repaid June 20, 2012)

Collateralized by a pledge of several bank acceptance notes* owned by CER Shanghai in the amount of RMB 1,530,000.

RMB 10 million - Shanghai Pudong Zhanjiang Micro-credit Co., Ltd.

Feb. 29, 2012

12.000%

Feb. 20, 2013

RMB 4,600,000 (USD 729,655)

Collateralized by accounts receivable from Zhenjiang Kailin; also collateralized by CER’s office building in Zhangjiang Shanghai in case of default in repayment.

On December 9, 2010, CER Yangzhou entered into a three-year loan facility with the Bank of China, Yizheng Branch. The facility is RMB 30,000,000 (approximately $4,500,000 at the then-existing exchange rate). Any amounts due under the loan are repayable no later than November 24, 2013. The loan facility has been guaranteed by Qinghuan Wu, the Company’s Chief Executive Officer; Jialing Zhou, a former director of the Company and wife of Mr. Wu; one of the Group’s subsidiaries and the Group’s VIE, CER Shanghai and Shanghai Engineering, respectively; and Yizheng Auto Industrial Park Investment and Development Co., Ltd. The Company has also collateralized the loan facility with its land use right in Yizheng. By the end of 2010, the Company drew down RMB 21,000,000 (approximately $3,171,000 at the then-existing exchange rate) under the facility as a short-term loan, due in one year, with an annual interest rate of 5.838%. On June 20, 2011, the Company drew down RMB 9,152,782 (approximately $1,414,288 at the then-existing exchange rate) under the facility as a short-term loan, due in six months, with an annual interest rate of 5.56%. On November 15, 2011 and November 18, 2011, CER Yangzhou repaid RMB 9,500,000 (approximately $1,497,572) and RMB 11,500,000 (approximately $1,809,656), respectively. On December 20, 2011, CER Yangzhou repaid RMB 9,152,782 (approximately $1,444,773). On November 17, 2011 and November 23, 2011, CER Yangzhou drew down RMB 9,500,000 (approximately $1,497,000 at the then-existing exchange rate) and RMB 11,500,000 (approximately $1,810,000 at the then-existing exchange rate), respectively, under the three-year loan facility. The loans are due in one year and carry an annual interest rate of 7.216%.22

On December 29, 2011, CER Shanghai borrowed RMB 6,680,000 (approximately $1,057,682 at the then-existing exchange rate) from Industrial and Commercial Bank of China Limited, Zhangjiang Branch. The loan carries an annual interest rate of 6.405%. The term of the loan is six months commencing from December 29, 2011 to June 28, 2012. The loan is secured by a pledge of several bank acceptance notes owned by CER Shanghai in the amount of RMB 7,430,000 (approximately $1,176,433). The total principal and interest were repaid by several installments as of June 20, 2012.

RMB 29 million - Bank of Communication, Shanghai Branch

Mar. 20, 2012

7.544%

Mar. 15, 2013

RMB 29,000,000

(USD 4,614,190)

Collateralized by CER’s office building in Zhangjiang, Shanghai and guaranteed by Qinghuan Wu.

RMB 11 million - Bank of Communication, Shanghai Branch

Apr. 12, 2012

7.544%

Apr. 12, 2013

RMB 11,000,000

(USD 1,750,210)

RMB 5 million - Industrial and Commercial Bank of China Limited, Zhangjiang Branch.

Mar. 23, 2012

6.405%

Sept. 28, 2012

RMB 0

(repaid
August 24, 2012)

Collateralized by several bank acceptance notes* owned by CER Shanghai in the amount of RMB 5,600,000 (approximately $890,000).

RMB 10 million - China CITIC Bank Yizheng branch.

Jun. 6, 2012

7.544%

Jun. 6, 2013

RMB 10,000,000

(USD 1,591,100)

Guaranteed by Jiangsu SOPO, and guaranteed by Mr. Qinghuan Wu.

USD 1.15 million – Industrial and Commercial Bank of China Limited, Zhangjiang Branch.

Jun. 15, 2012

2.4789%

Sep. 14, 2012

USD 0

(repaid
September 14, 2012)

Collateralized by cash deposit in the amount of RMB 7,710,000 (approximately $1,213,631).

RMB 7.9 million letter of credit – Industrial and Commercial Bank of China

May 18, 2012

6.405%

Sep. 17, 2012

RMB 0

(repaid
September 29, 2012)

Collateralized by a building in Shanghai owned by Jiangsu SOPO.

RMB 4 million - Bank of Shanghai

Sep 11, 2012

7.2%

Sep 10, 2013

RMB 4,000,000

(USD 636,440 )

Guaranteed by Mr. Qinghuan Wu and Mrs. Jialing Zhou, and among which RMB 5,000,000 is collateralized by a building owned by Mr. Wu and his son, and RMB 10,000,000 is guaranteed by Shanghai Chuang Ye Jie Li Financing Guarantee Co., Ltd (Shanghai Chuangye)

In December 2011, CER Shanghai borrowed $789,639 (RMB 5,000,000 at the then-existing exchange rate) from Shanghai Pudong Zhanjiang Micro-credit Co., Ltd. The loan is collateralized by a building in Shanghai owned by Jiangsu SOPO, and guaranteed by Mr. Qinghuan Wu, the Chairman and Chief Executive Officer of CER. The loan carries an annual interest rate of 12% and the due date of the loan is June 9, 2012. The loan was drawn down in two installments, with $315,353 (RMB 2,000,000) and $474,286 (RMB 3,000,000) being drawn down on December 15, 2011 and December 22, 2011, respectively. The total amount of principal and interest amounting to RMB 5,043,333 (approximately $801,038) was repaid on April 16, 2012.23

On January 16, 2012, CER Shanghai borrowed RMB 1,380,000 (approximately $217,989 at the then-existing exchange rate) from Industrial and Commercial Bank of China Limited, Zhangjiang Branch. The loan carries an annual interest rate of 6.405%. The term of the loan is six months commencing from January 16, 2012 to July 15, 2012. The loan was collateralized by several bank acceptance notes owned by CER Shanghai in the amount of RMB 1,530,000 (approximately $242,949).

RMB 95,000 – Shanghai Pudong Development Bank, Shanghai Branch

Jul. 12, 2012

6.44%

Nov. 9, 2012

RMB 95,000

(USD 15,115)

Collateralized by a pledge of several bank acceptance notes* owned by Shanghai Engineering in the amount of RMB 100,000.

RMB 10 million – China Great Wall Industry Corporation

Sep. 6, 2012

4.13%

Dec. 20, 2012

RMB 10,000,000

(USD 1,591,100)

Equivalent worth of equipment.

RMB 20 million – China Great Wall Industry Corporation

Sep. 25, 2012

4.13%

Mar. 15, 2013

RMB 20,000,000

(USD 3,182,200 )

Equivalent worth of equipment.

Less: Debt Issue Cost

RMB 750,957

(USD 119,485)

Total Short term loan

RMB 90,660,000

(USD 14,388,649)

RMB 108,929,896

(USD 17,331,836)

*The ~~total~~Group’s bank ~~amount~~acceptance ofnotes ~~principal~~are reported in “Notes receivable” in the consolidated balance sheet and ~~interest~~represent short-term ~~were~~notes ~~repaid~~receivable bytypically ~~several~~received ~~installments~~from customers as a form of ~~June~~payment. 20The Group can discount such notes receivable for early payment, ~~2012~~typically at a small percentage discount to face value. The Group typically uses the notes to collateralize short-term borrowings as a means of matching timing of cash inflows and outflows, or transfers the notes to settle payables to suppliers.

23Descriptions of short-term borrowings

On ~~February~~August 2731, ~~2012~~ 2011, CER Shanghai ~~signed a loan contract to borrow~~ borrowed RMB ~~10 million from Shanghai Pudong Zhanjiang Micro-credit Co., Ltd. On February~~ 29, ~~2012~~000,000 ~~CER~~(approximately ~~Shanghai drew down~~ $14,~~589~~500,~~345~~000 ~~(RMB 10 million~~ at the then-existing exchange rate ~~at that time~~). from ~~The loan is guaranteed by Mr. Qinghuan Wu,~~ the ~~Chairman~~Shanghai ~~and~~Pudong ~~Chief~~Development ~~Executive~~Bank, ~~Officer~~Luwan ~~of CER and collateralized by the accounts receivable of CER Shanghai~~Branch. IfThe ~~there~~loan iswas ~~any~~collateralized ~~default in repayment, CER Shanghai agrees to further secure the loan~~ by ~~way of~~ CER’s office building in Zhangjiang, Shanghai. The ~~loan carries~~ anterm ~~annual interest rate~~ of ~~12% and~~ the ~~due date of the~~ loan iswas ~~February~~9 ~~20, 2013~~months. ~~CER~~The ~~Shanghai~~loan ~~began~~agreement toprovided ~~repay~~for ~~RMB~~quarterly ~~900,000~~interest ~~per month~~payments toat ~~Shanghai~~an ~~Pudong~~annual ~~Zhanjiang~~interest ~~Micro-credit~~rate ~~Co.,~~of ~~Ltd from April 2012~~7.544% and ~~Amounts~~the ~~totaling RMB~~total ~~2,700,000~~principal ~~had~~and ~~been~~interest were repaid ason ofMarch ~~June 30~~28, 2012.

On ~~March 6~~December 9, ~~2012~~2010, CER ~~Shanghai~~Yangzhou entered into a ~~short~~three-~~term~~year ~~comprehensive~~ loan facility with the Bank of ~~Communication~~China, ~~Shanghai~~Yizheng Branch. The facility is RMB 5730,000,000 (approximately $94,~~000~~500,000 at the then-existing exchange rate). Any amounts due under the loan are repayable no later than November 24, 2013. The loan facility has been guaranteed by Qinghuan Wu, the Company’s Chief Executive Officer; Jialing Zhou, a former director of the Company and wife of Mr. Wu; one of the Group’s subsidiaries and the Group’s VIE, CER Shanghai isand Shanghai ~~entitled~~Engineering, torespectively; ~~draw~~and Yizheng Auto Industrial Park Investment and Development Co., Ltd. The Company has also collateralized the loan facility with its land use right in Yizheng. By the end of 2010, the Company drew down RMB 4021,000,000 (approximately $63,~~300~~171,000 at the then-existing exchange rate) under the facility as a short-term loan, ordue in one year, with an annual interest rate of 5.838%. On June 20, 2011, the Company drew down RMB 579,~~000~~152,~~000~~ 782 (approximately $91,~~000~~414,~~000~~288 at the then-existing exchange rate) under the facility as ~~bank~~a ~~acceptance~~short-term ~~notes~~loan, ~~after~~due ~~making~~in asix ~~cash~~months, ~~deposit~~with an annual interest rate of 5.56%. On November 15, 2011 and November 18, 2011, CER Yangzhou repaid RMB 179,~~000~~500,000 (approximately $21,~~700~~497,~~000~~572) toand RMB 11,500,000 (approximately ~~the~~$1,809,656), ~~bank~~respectively. On ~~March~~December 20, ~~2012~~2011, CER ~~Shanghai~~Yangzhou repaid RMB 9,152,782 (approximately $1,444,773). On November 17, 2011 and November 23, 2011, CER Yangzhou drew down RMB 299,500,000 ~~million~~(approximately to$1,497,000 ~~replace~~at the then-existing ~~Shanghai~~exchange ~~Pudong~~rate) and ~~Development~~RMB ~~Bank~~11,500,000 ~~Shanghai Branch~~(approximately ~~loan.~~$1,810,000 Onat ~~April~~the ~~12,~~then-existing ~~CER~~exchange ~~Shanghai~~rate), ~~drew~~respectively, ~~down~~under ~~RMB~~the 11three-year ~~million~~loan facility. The ~~These~~loans ~~amounts~~ are due in one year and carry an annual interest rate of 7.~~544~~216%. CER ~~The~~(Yangzhou) ~~loan~~repaid ~~has~~RMB ~~been~~9,500,000 ~~collateralized~~(approximately by$1,511,545) ~~CER’s~~on ~~office~~October ~~building~~24, ~~in Zhangjiang~~2012, ~~Shanghai~~ and ~~guaranteed~~repaid ~~by Qinghuan~~RMB Wu6,000,000 ~~the~~(approximately ~~Company’s~~$952,124) ~~Chief~~on ~~Executive~~November ~~Officer~~1, 2012, respectively.

On March 29, 2012, CER Shanghai entered into a loan contract to borrow RMB 5,000,000 (approximately $795,000 at the exchange rate at that time) from Industrial and Commercial Bank of China Limited, Zhangjiang Branch. The loan carries an annual interest rate of 6.405%. The term of the loan is six months commencing from March 29, 2012. The loan is collateralized by several bank acceptance notes owned by CER Shanghai in the amount of RMB 5,600,000 (approximately $890,000).24

On ~~March 30~~December 29, ~~2012~~2011, CER ~~Yangzhou~~Shanghai ~~entered into~~borrowed aRMB 26,680,000 ~~year~~(approximately ~~comprehensive~~$1,057,682 ~~credit~~at ~~facility~~the ~~with~~then-existing ~~the~~exchange ~~China~~rate) ~~CITIC~~from Industrial and Commercial Bank of China Limited, ~~Yangzhou~~Zhangjiang Branch. The ~~facility~~loan iscarries ~~RMB~~an ~~20,000,000~~annual ~~(approximately $3,175,000).~~interest ~~This~~rate ~~comprehensive~~of ~~line~~6.405%. The term of ~~credit~~the ~~can~~loan is besix ~~used~~months commencing from ~~March~~December 3029, ~~2012~~2011 to ~~March~~June 3028, ~~2014~~2012. ~~This~~The ~~facility~~loan is ~~guaranteed~~secured by ~~Jiangsu~~ ~~SOPO~~a ~~and~~pledge ~~guaranteed~~of byseveral ~~Mr.~~bank ~~Qinghuan~~acceptance ~~Wu,~~notes owned ~~the~~by ~~Company’s~~CER ~~Chief~~Shanghai ~~Executive~~in ~~Officer.~~the Onamount ~~June~~of 6,RMB ~~2012~~7,430,000 ~~CER Yangzhou drew down RMB 10 million~~ (approximately $1,~~587~~176,~~900~~433) ~~as a short-term loan~~. ~~This~~The ~~amount~~total ~~due~~principal inand ~~one~~interest ~~year~~were ~~and~~repaid by ~~carries~~several aninstallments ~~annual~~as ~~interest rate~~ of 7June 20, 2012.~~544%.~~

OnIn ~~June 15,~~December ~~2012~~2011, CER Shanghai ~~entered~~borrowed ~~into~~$789,639 an(RMB ~~import~~5,000,000 ~~financing~~at ~~agreement with~~ the ~~Industrial~~then-existing ~~and~~exchange ~~Commercial~~rate) ~~Bank~~from ofShanghai ~~China~~Pudong Zhanjiang Micro-credit Co., ~~which~~Ltd. ~~paid for~~The ~~certain~~loan ~~procured~~is ~~imports~~collateralized onby ~~behalf~~a ofbuilding ~~CER~~in Shanghai. ~~CER~~owned ~~Shanghai~~by isJiangsu ~~entitled~~SOPO, toand ~~authorize~~guaranteed ~~Industrial~~by Mr. Qinghuan Wu, the Chairman and ~~Commercial~~Chief ~~Bank~~Executive Officer of ~~China~~ toCER. ~~make~~The aloan ~~payment~~carries ~~amounting~~an toannual ~~$1.15~~interest ~~million~~rate toof an12% ~~overseas~~and ~~supplier~~the ~~for~~due ~~import~~date ~~purchases.~~of ~~This~~the ~~amount~~loan is ~~collateralized~~June 9, 2012. byThe aloan ~~cash~~was ~~deposit~~drawn down in ~~the~~two ~~amount~~installments, ofwith $315,353 (RMB 72,~~710~~000,000) ~~(approximately~~and $1474,~~213~~286 (RMB 3,~~631~~000,000). ~~This~~being ~~loan~~drawn ~~bears~~down anon ~~annual~~December 15, ~~interest~~2011 ~~rate~~and ofDecember 222, 2011, respectively.~~4789%.~~ The ~~term~~total amount of ~~the~~principal ~~loan~~and isinterest ~~three~~amounting ~~months~~to ~~commencing~~RMB ~~from~~5,043,333 ~~June 15~~(approximately $801,038) ~~2012~~was torepaid ~~September~~on 14April 16, 2012.

~~Interest~~On January ~~expense~~16, on2012, ~~short-term~~CER ~~loans~~Shanghai ~~for the~~borrowed ~~three~~RMB ~~months~~1,380,000 ~~ended~~(approximately ~~June 30~~$217,989 ~~2011~~at ~~and~~the ~~2012~~then-existing ~~was~~exchange ~~$62,722~~rate) from Industrial and ~~$249~~Commercial Bank of China Limited,~~373,~~ ~~respectively~~Zhangjiang Branch. ~~Interest~~The ~~expense~~loan oncarries ~~short-term~~an ~~loans~~annual ~~for~~interest rate of 6.405%. The term of the loan is six months ~~ended~~commencing ~~June~~from 30January 16, ~~2011~~2012 ~~and~~to July 15, 2012. The loan was collateralized by several bank acceptance notes owned by CER Shanghai in the amount of RMB 1,530,000 (approximately $~~126~~242,~~122~~949). The total amount of principal and ~~$466~~interest were repaid by several installments as of June 20,~~779,~~ ~~respectively~~2012.

~~Descriptions~~On February 27, 2012, CER Shanghai signed a loan contract to borrow RMB 10 million from Shanghai Pudong Zhanjiang Micro-credit Co., Ltd. On February 29, 2012, CER Shanghai drew down $1,589,345 (RMB 10 million at the exchange rate at that time). The loan is guaranteed by Mr. Qinghuan Wu, the Chairman and Chief Executive Officer of ~~letters~~CER and collateralized by the accounts receivable of CER Shanghai. If there is any default in repayment, CER Shanghai agrees to further secure the loan by way of CER’s office building in Zhangjiang, Shanghai. The loan carries an annual interest rate of 12% and the due date of the loan is February 20, 2013. CER Shanghai began to repay RMB 900,000 per month to Shanghai Pudong Zhanjiang Micro-credit Co., Ltd from April 2012. Amounts totaling RMB 5,400,000 had been repaid as of September 30, 2012.

~~CER,~~On ~~through~~March ~~its subsidiary~~6, 2012, CER ~~Yangzhou imports~~Shanghai ~~goods~~entered ~~from~~into ~~CER~~a ~~Hong~~short-term ~~Kong~~comprehensive loan facility with the Bank of Communication, ~~which~~Shanghai ~~are~~Branch. ~~purchased~~The facility ~~from~~is ~~overseas~~RMB ~~suppliers~~57,000,000 (approximately $9,000,000). CER ~~Yangzhou~~Shanghai ~~issued~~is aentitled ~~forward~~to ~~letter~~draw ofdown ~~credit~~RMB 40,000,000 (~~“L/C”~~approximately $6,300,000) toas ~~CER~~a ~~Hong~~short-term ~~Kong~~loan ~~for~~or ~~import~~RMB ~~purchases~~57,000,000 in(approximately ~~September~~$9,000,000) ~~2011.~~as ~~The~~bank ~~L/C~~acceptance isnotes ~~collateralized~~after bymaking ~~the~~a ~~machinery~~cash deposit of ~~CER~~RMB 17,000,000 ~~Yangzhou’s~~(approximately ~~plant~~$2,700,000) to the bank. On ~~September~~March 3020, ~~2011~~2012, CER ~~Hong~~Shanghai ~~Kong~~drew ~~discounted~~down ~~the~~RMB ~~L/C~~29 ~~from~~million ~~Standard~~to ~~Chartered~~replace ~~Bank’s~~the ~~Hong~~existing Shanghai ~~Kong~~Pudong ~~branch~~Development inBank, ~~the~~Shanghai ~~amount~~Branch ~~of RMB~~loan. ~~21,000,000~~On ~~($3~~April 12,~~240,000~~ atCER ~~the~~Shanghai ~~exchange~~drew ~~rate~~down atRMB ~~such~~11 ~~date)~~million. ~~The~~These amounts are due ~~date~~in ofone ~~the~~year ~~L/C~~and iscarry ~~January~~an 6,annual ~~2012~~interest rate of 7.544%. The ~~discount~~loan ~~rate~~has ~~is 5.02%~~been ~~annually.~~collateralized by CER’s ~~Yangzhou~~office ~~repaid~~building ~~RMB 21~~in Zhangjiang,~~000,000~~ onShanghai ~~January~~and 6guaranteed by Qinghuan Wu, ~~2012~~the Company’s Chief Executive Officer.

2425

On ~~November~~March 29, ~~2011~~ 2012, CER Shanghai ~~issued a~~entered ~~forward~~into ~~letter~~a ofloan ~~credit~~contract ~~(“L/C”)~~ to ~~CER~~borrow Yangzhou for the purchase of goods. The L/C is collateralized by a building in Shanghai, which is owned by Jiangsu SOPO. On December 12, 2011, CER Yangzhou discounted the L/C from Industrial and Commercial Bank of China Limited, Zhangjiang Branch in the amount of RMB 75,~~980~~000,000 (approximately $1795,~~260,~~000 at the exchange rate at ~~the~~that time). ~~The~~from ~~due~~Industrial ~~date~~and ofCommercial ~~the~~Bank ~~L/C~~of isChina ~~May 28~~Limited, ~~2012~~Zhangjiang Branch. The ~~discount~~loan carries an annual interest rate isof 6.71405% ~~annually~~. The term ~~total amount~~ of the ~~letter~~loan ofis ~~credit~~six ~~was~~months ~~repaid on~~commencing ~~May~~from 15March 29, 2012. OnThe ~~May~~loan ~~18,~~is ~~2012,~~collateralized ~~CER~~by ~~Shanghai~~several ~~renewed~~bank ~~the~~acceptance ~~issuance~~notes ofowned by aCER ~~forward~~Shanghai ~~letter~~in ofthe ~~credit~~amount ~~amounting to~~of RMB 75,~~900~~600,000 (approximately $ 1890,~~235,586~~000). toThe ~~CER~~total ~~Yangzhou~~amount ~~for purchase~~ of ~~goods.~~principal ~~The~~and ~~discount~~interest ~~rate~~were ~~is 6.405% annually.~~repaid ~~The~~by ~~due~~several ~~date~~installments as of ~~the renewed LC is~~ September 1730, 2012.

~~Interest~~On ~~expense~~March on30, 2012, ~~letters~~CER ofYangzhou entered into a 2 year comprehensive credit ~~for the~~facility ~~three~~with ~~months~~the ~~ended~~China ~~June~~CITIC 30Bank, ~~2011~~Yangzhou ~~and~~Branch. ~~2012~~The ~~was~~facility is $0RMB ~~and~~20,000,000 (approximately $243,~~620~~175, ~~respectively~~000). ~~Interest~~This ~~expense~~comprehensive online ~~letters~~ of credit ~~for~~can ~~the~~be ~~six months~~used ~~ended~~from ~~June~~March 30, ~~2011~~2012 to March 30, 2014. This facility is guaranteed by Jiangsu SOPO and guaranteed by Mr. Qinghuan Wu, the Company’s Chief Executive Officer. On June 6, 2012, ~~was~~CER $0Yangzhou ~~and~~drew down RMB 10 million (approximately $511,~~606~~587,900) ~~respectively~~as a short-term loan. This amount is due in one year and carries an annual interest rate of 7.544%.

~~Formerly~~On ~~convertible~~June ~~debt~~15, 2012, ~~(presented~~CER Shanghai entered into an import financing agreement with the Industrial and Commercial Bank of China, which paid for ascertain ~~current~~procured ~~portion~~imports on behalf of ~~long~~CER Shanghai. CER Shanghai is entitled to authorize Industrial and Commercial Bank of China to make a payment amounting to $1.15 million to an overseas supplier for import purchases. This amount is collateralized by a cash deposit in the amount of RMB 7,710,000 (approximately $1,213,631). This loan bears an annual interest rate of 2.4789%. The term of the loan) is three months commencing from June 15, 2012 to September 14, 2012. The total amount of principal and interest were repaid on September 14, 2012.

Borrowing	Borrowing date	Interest rate	Maturity date	Balance at Dec. 31, 2011	Balance at Jun. 30, 2012	Pledge or guarantee
$ 5 million – Hold And Opt Investments Limited	Dec. 31, 2010	15.100%	Sept. 29, 2012	USD 4,850,945	USD 4,946,600	Collateralized by 8,000,006 of Qinghuan Wu's shares in CER.

On September 5, 2012, Shanghai Engineering entered into a comprehensive facility contract with Bank of Shanghai. The total amount is RMB 15,000,000 (approximately $2,364,625 at the then-existing exchange rate). This amount is due in one year and carries an annual interest rate of 7.2%. The loan is guaranteed by Mr. Qinghuan Wu, the Company’s Chief Executive Officer and Mrs. Jialing Zhou, Mr. Wu’s wife, and among which RMB 5,000,000 is collateralized by a building located in Shanghai, which is owned by Mr. Qinghuan Wu and his son. In addition, the remaining amount of RMB 10,000,000 of this loan is guaranteed by Shanghai Chuang Ye Jie Li Financing Guarantee Co., Ltd (“Shanghai Chuangye”), after making a cash deposit of 5% of the total guarantee amount to Shanghai Chuangye. Shanghai Chuangye charged a 3% fee and required a counter-guarantee by CER Yangzhou and CER Shanghai. Shanghai Chuangye also required second tier collateralization by the aforementioned building owned by Mr. Wu and his son and 60% of Mr. Wu’s ownership interest in Shanghai Engineering. Since this building had previously been collateralized under a facility agreement entered into with Ningbo Bank, Shanghai branch, this borrowing with the Bank of Shanghai will replace the existing Ningbo Bank facility. As of September 30, 2012, the Company drew down RMB 4,000,000 as short-term loan. The Company drew down RMB 4,000,000 on October 16, 2012, and RMB 7,000,000 on October 26, 2012 as short term loan, respectively.

On ~~May~~July 2112, ~~2009~~ 2012, ~~the Company~~Shanghai ~~entered~~Engineering ~~into~~borrowed aRMB ~~term loan agreement (“Convertible Notes Agreement”) with an investment company (the “Lender”). Pursuant to the Convertible Notes Agreement~~95,000 ~~the lender provided term loan financing~~ (~~“Convertible~~approximately ~~Notes”) to the Company in an amount of up to~~ $515,~~000,000 within~~115 6at ~~months of~~ the ~~making,~~then-existing ~~which may~~exchange berate) ~~drawn~~ from ~~time~~Shanghai ~~to time, in~~Pudong ~~whole~~Development ~~or in installments~~Bank, ~~upon~~Shanghai ~~notice, but once repaid shall not be subject to reborrowing~~Branch. The ~~proceeds~~loan ~~from~~carries ~~this~~an ~~Convertible Note~~annual ~~were~~interest ~~used~~rate ~~for the construction~~ of ~~the~~6.44%. ~~Company’s~~The ~~new~~term ~~plant located in Yangzhou, China including, the purchase~~ of ~~land for~~ the ~~plant,~~loan buildings, equipment, and for the facilitating of financing loans from one or more in-China banks and other institutional lenders. Any amount borrowed will bear interest at 9.5%, payable every six months, calculated and compounded quarterly. Each draw is ~~due twenty-~~four ~~(24)~~ months ~~after~~commencing from ~~the~~July ~~draw down date~~12, ~~together~~2012 ~~with~~to ~~any~~November ~~accrued~~9, ~~and unpaid interest~~2012. The ~~Company~~loan ~~drew~~is ~~down~~secured ~~$5,000,000 on~~by ~~September~~a ~~29,~~pledge ~~2009.~~of ~~The~~several ~~Convertible~~bank ~~Notes~~acceptance ~~could~~notes beowned ~~converted~~by toShanghai ~~2,777,778~~Engineering in ~~shares of common stock at~~ the ~~conversion~~amount ~~price~~ of ~~$1.80.~~ InRMB ~~addition~~100,000 ~~the Company issued the Lender a five-year common stock purchase warrant~~ (~~“Warrants”)~~approximately ~~to purchase up to 1~~$15,~~388,889~~911). ~~shares~~Shanghai ofEngineering ~~the~~repaid ~~Company’s~~RMB ~~common stock~~95,000 ~~which~~on isNovember ~~that~~9, ~~number of shares of the Company’s common stock equal to 50% of the principal sum of these Convertible Note divided by the conversion price of $1~~2012.~~80.~~

~~The~~Interest ~~Lender may recall a Convertible Note~~expense ~~after~~on ~~the~~short-term ~~first~~loans ~~anniversary~~for of the ~~draw~~three ~~down~~months atended aSeptember ~~redemption~~30, ~~price~~2011 ~~equal to the outstanding principal plus any accrued~~ and ~~unpaid interest~~2012 ~~upon~~was ~~the~~$98,370 ~~closing by the Company of any debt~~ and~~/or~~ ~~equity financing (except for debt financings with banks or institutional lenders in China)~~$250,197, ~~in an amount up to 50% of the amount financed~~respectively. ~~Additionally,~~Interest ~~upon~~expense on ~~occurrence~~short-term ofloans ~~certain~~for ~~events,~~ the ~~Lender~~nine ~~can demand~~months ~~the~~ended ~~entire~~September ~~outstanding principal~~30, ~~together~~2011 ~~with any accrued~~ and ~~unpaid~~2012 ~~interest~~was to$224,492 ~~be immediately repaid in full or in part. The Company can also prepay the Convertible Note at any time it desires with accrued~~ and ~~unpaid~~$716,976, ~~interest~~respectively.

2526

~~The embedded conversion feature of the~~Descriptions Convertible Notes was accounted for as an embedded derivative in accordance with ASC 815 “Derivatives and Hedging” because the conversion price is denominated in USD, which is a currency other than the Company’s functional currency, RMB. The conversion feature was accounted for as a derivative liability on the balance sheet and classified as a current liability based on the timing of ~~the~~letters ~~cash flows derived from the convertible notes. The Convertible Notes were recorded with a discount equal to the fair value~~ of the conversion feature at the transaction date and were accreted to the redemption value of the Convertible Notes from the draw down date to September 30, 2011 (the date of extinguishment of the conversion feature) using the effective interest rate method. The change in fair value of the conversion feature derivative liability of $32,741 and $203,916 was recorded in the consolidated statement of operations and other comprehensive (loss) income for the three and six months ended June 30, 2011, respectively with no similar amount for the quarters ended June 30, 2012 due to the termination of the derivative. The interest expense recognized for accretion to the redemption value of the Convertible Notes was $39,637 and $49,618 for the three months ended June 30, 2011 and 2012, respectively. The interest expense recognized for accretion to the redemption value of the Convertible Notes was $76,179 and $95,655 for the six months ended June 30, 2011 and 2012, respectively.credit

~~The~~CER, ~~value of the Warrants at the grant~~through ~~date~~its ~~on May 21~~subsidiary, ~~2009~~CER ~~was~~Yangzhou ~~accounted~~imports ~~for~~goods asfrom aCER ~~commitment~~Hong ~~fee~~Kong, ~~for~~which ~~obtaining~~are ~~the~~purchased ~~Convertible~~from ~~Notes,~~overseas ~~and~~suppliers. ~~therefore~~CER ~~the~~Yangzhou ~~value~~issued a ~~was~~forward ~~recorded as~~letter ~~deferred~~of ~~financing~~credit ~~cost~~(“L/C”) to beCER ~~amortized~~Hong ~~over~~Kong ~~the~~for ~~period~~import ~~from~~purchases ~~the~~in ~~grant date to~~ September ~~30,~~ 2011. ~~(the~~The ~~date~~L/C ofis ~~extinguishment~~collateralized ofby the ~~conversion~~machinery ~~feature)~~ of ~~the~~CER ~~Convertible~~Yangzhou’s ~~Notes~~plant. ~~For~~On ~~the~~September ~~three and six months ended June~~ 30, 2011, ~~$74,352~~CER ~~and~~Hong ~~$148,704~~Kong ~~of deferred~~discounted ~~financing~~the ~~costs~~L/C ~~were~~from ~~amortized~~Standard ~~and~~Chartered Bank’s ~~charged~~Hong toKong ~~interest~~branch ~~expense, respectively with no amounts recognized~~ in ~~2012 due to~~ the ~~cessation~~amount of ~~recognition~~RMB ~~of remaining costs in 2011. The Warrants were recorded as derivative liabilities in accordance with ASC 815~~21,000,000 ~~Derivatives and Hedging~~($3,240,000 ~~because~~at the ~~exercise~~exchange ~~price~~rate ofat ~~the~~such ~~warrants~~date). isThe ~~denominated~~due indate ~~USD, which is a currency~~of ~~other than~~ the ~~Company’s~~L/C ~~functional~~is ~~currency~~January 6, ~~RMB~~2012. ~~Changes~~The indiscount ~~fair~~rate ~~value~~is of5.02% ~~the~~annually. ~~warrants~~CER ~~(Note~~Yangzhou ~~12)~~repaid ~~for~~RMB ~~the~~21,000,000 ~~three~~on ~~and~~January ~~six months ended June 30~~6, ~~2011 and~~ 2012 ~~were recorded in the consolidated statement of operations and other comprehensive (loss) income~~.

On ~~December 31~~November 29, ~~2010~~2011, ~~the~~CER ~~Company~~Shanghai ~~entered into~~issued a ~~loan~~forward ~~agreement~~letter ~~with~~of ~~the~~credit ~~Lender~~(“L/C”) to ~~replace~~CER ~~and~~Yangzhou ~~continue~~for the ~~prior~~purchase ~~lending~~of ~~arrangement~~goods. ~~which~~The ~~was~~L/C is ~~entered~~collateralized ~~into~~by ona ~~May~~building ~~21,~~in ~~2009~~Shanghai, to ~~extend~~which ~~the~~is ~~term~~owned ~~until~~by ~~which~~Jiangsu ~~the~~SOPO. ~~principal~~On ~~amount~~December of12, $52011,~~000,000~~ isCER ~~due~~Yangzhou todiscounted ~~September~~the L/C ~~29,~~from ~~2012,~~Industrial and toCommercial ~~change~~Bank ~~certain~~ of ~~the~~China ~~terms of~~Limited, ~~the~~Zhangjiang ~~loan.~~Branch ~~The~~in ~~aggregate~~the ~~principal~~ amount of ~~the~~RMB ~~loan~~7,980,000 ~~extension~~(approximately is $51,~~000~~260,000~~, and bears interest~~ at the ~~annual~~exchange rate ofat ~~15.1%, calculated~~the ~~on a monthly compounded basis~~time). The ~~principal and accrued interest is~~ due ~~September~~date ~~29,~~of ~~2012; hence~~ the ~~modified~~L/C ~~loan~~ is ~~classified~~May ~~as a current liability as of June 30~~28, 2012. The ~~loan~~discount ~~may~~rate beis ~~prepaid~~6.71% ~~by the Company, without penalty~~annually. The ~~loan~~total ~~agreement~~amount ~~provides~~of ~~for~~ the ~~typical~~letter ~~events~~ of ~~default~~credit ~~(which~~was ~~includes~~repaid ~~default~~on inMay ~~payment~~15, of2012. ~~any~~On ~~part~~May of18, ~~the principal of or interest~~2012, ~~performance or~~CER ~~compliance~~Shanghai ~~with~~renewed the ~~collateral~~issuance ~~agreement,~~of ~~assets~~a ~~attached~~forward orletter ~~seized by any third person and or any part~~ of ~~the loan agreement~~ ~~being~~credit ~~declared~~amounting ~~null~~to ~~and~~RMB ~~void or its enforceability being challenged)~~7,900,000 ~~including~~(approximately a$ ~~cross default clause~~1,235,586) ~~and the Company has made various representations and given various covenants~~ to ~~the~~CER ~~lender,~~Yangzhou ~~which~~for ~~includes~~purchase ~~the audit~~ of ~~the~~goods. ~~Company’s~~The ~~annual~~discount ~~financial statements~~rate ~~and~~is ~~review of the interim financial statements as well as the timely filing of such statements, including any extension~~6.405% ~~periods permitted under SEC rules and regulations~~annually. The ~~Lender~~due ~~continues~~date ~~to have a right~~ of ~~first refusal with respect to future debt and equity fundings and a right to consent to certain debt and equity fundings by~~ the ~~Company~~renewed ~~and~~LC ~~its~~is ~~subsidiaries~~September ~~and affiliates. As a guarantor of the payments under the loan extension~~17, Mr2012. ~~Wu,~~CER ~~the~~Yangzhou ~~Chief~~repaid ~~Executive~~RMB ~~Officer of the Company~~7, ~~pledged 8~~900,000~~,006 of~~ ~~his~~on ~~shares~~September in29, ~~CER for the repayment of the principal due under the loan agreement~~2012.

~~The~~Interest ~~conversion~~expense on ~~feature~~letters ~~expired~~of credit for the three months ended September 30, 2011 and ~~there is~~2012 nowas ~~conversion~~$0 ~~term~~and $22,585, respectively. Interest expense on ~~the~~letters ~~modified~~of ~~convertible~~credit ~~debt~~for ~~described~~the ~~above,~~nine ~~since~~months ended September 30, 2011 and 2012 was $0 and $74,191, respectively.

26Descriptions of Product Financing

~~The~~On August ~~Company~~10, ~~has~~2012, ~~accounted~~CER ~~for~~signed ~~the~~two ~~replacement~~contracts with China Great Wall Industry Corporation (“Great Wall”) for sales and ~~extension~~repurchases of ~~the~~certain ~~loan~~goods ~~agreement~~within a as6-month period which in substance are a ~~modification~~product asfinancing ~~the~~arrangement. ~~changes~~According ~~are~~to ~~not~~these ~~substantial~~two ~~such~~agreements, ~~that~~CER ~~there~~(Yangzhou) ~~has~~will sell ~~been~~certain noequipment ~~accounting~~to Great Wall at a price of RMB 32,454,780 (approximately $5,108,707). The funding to CER consists of three ~~extinguishment~~components, intwo ~~accordance~~of ~~with~~which ~~ASC~~are ~~470~~letters of credit totaling RMB 30,000,000 ~~“Debt~~(approximately –$4,773,300); ~~Modifications~~the ~~and~~rest ~~Extinguishments~~is cash.” ~~Accordingly~~At athe ~~new~~same ~~effective~~time, ~~interest~~Great ~~rate~~Wall ~~was~~agreed ~~determined~~to ~~based~~resell on the ~~carrying~~equipment ~~amount~~to CER (Shanghai) at a price of ~~the~~RMB ~~original~~33,038,966 ~~debt~~(approximately ~~and~~$5,200,664) via a delayed collection arrangement as set forth below, where such amounts represent payments due from CER to Great Wall (or a bank, if the ~~revised~~letters of credit are tendered for cash ~~flows~~equal ofto the ~~new debt.~~principal or face value less the bank’s discount)

Since the loan is fixed in United States dollars, the lender will receive compensation when the Renminbi exchange rate increases against the US dollar as compared to the rate fixed at the borrowing date. Accordingly, the Company has accounted for this indexed feature as an embedded derivative and recognized a derivative liability in the amounts of $21,274 and $0 as of December 31, 2011 and June 30, 2012, respectively. The change in fair value of the derivative liability of $35,918 and $21,274 was recorded in the consolidated statements of operations and comprehensive income/loss for the three and six months ended June 30, 2012, respectively.

	RMB	USD

December 20, 2012	10,180,000	1,619,740

March 15, 2013	20,360,000	3,239,480

April 7, 2013	2,498,965	397,610

Total	33,038,965	5,256,830

As a result of the Company not filing its quarterly report with the Securities and Exchange Commission ("SEC") under the Securities Exchange Act of 1934, as amended, on a timely basis for the quarter ended March 31, 2012, the Company was in violation of the loan covenants on this formerly convertible loan, which will mature on September 29, 2012, with such loan having covenants and default terms with respect the Company’s obligation to timely file SEC reports and comply with applicable laws. The violation of the covenant provision regarding timely filings of SEC reports permits the lender to accelerate the repayment of the full amount of the principal and interest due on the loan which is reported under current portion – long term loan in the consolidated balance sheet. On May 10, 2012, the lender provided to the Company a waiver of the covenant and default terms and also provided sufficient time to make the necessary past due filings, before a covenant violation or default would result again concerning these issues. This matter is no longer outstanding. Also, at June 30, 2012 there were no other instruments of debt or contracts outstanding that had covenants requiring monitoring for compliance.27

~~Note~~In September, 2012, Great Wall issued two letters of credit in the amount of RMB 10 million (approximately $1.6 million) and RMB 20 million (approximately $3.2 million) from Industrial and Commercial Bank of China Co., Ltd., Beijing West Railway Station Branch to CER (Yangzhou) in accordance with the aforementioned agreements, respectively. Then CER (Yangzhou) discounted them to draw down RMB 9.8 –million ~~Notes~~(approximately ~~Payable~~$1.6 million) on September 6, 2012, with the maturity date of December 24, 2012, and draw down RMB 19.4 million (approximately $3.1 million) on September 25, 2012, with the maturity date of March 15, 2013, respectively, for a total amount of RMB 29.2 (approximately $4.7 million) million. The amount of RMB 29.2(approximately $4.7 million) million was recorded as short term loan and RMB 0.8 million (approximately $0.13 million) as debt issue cost which is amortized over the term the product financing at an effective interest rate of 5.37%. For the three months and nine months ended September 30, 2012, the amortization of debt issue cost was RMB 49,041(approximately $7,747). The final payment amounting to RMB 2,454,780 (approximately $390,580) will be paid by Great Wall in November, 2012. The price difference between sales and repurchase of the goods of RMB 584,185 (approximately $91,957) represents interest to be paid to Great Wall. The Company calculated this portion of interest with an effective interest rate of 4.13%. For the three months ended September 30, 2012, the interest payable of RMB 38,448 (approximately $6,073) was recorded as accrued expenses and other liabilities. In addition, China Energy Recovery, Inc., the parent company, guaranteed the repayment of CER Shanghai. There is no other collateral in the contract. This product financing arrangement was entered into to offset concerns related to the Company’s liquidity given the extension of payment terms on accounts receivable due from Zhenjiang Kailin, which are further discussed in Note 16, and the Company’s $5 million long term loan with Hold and Opt Investments originally due on September 29, 2012, and subsequently extended with a new maturity date of no later than December 15, 2012.

~~Notes~~Formerly ~~payable~~convertible ~~represents~~debt ~~bank~~(presented ~~acceptance~~as ~~drafts~~current ~~that~~portion ~~are non-interest bearing and due within six months. The balance~~ of ~~the~~long ~~bank~~term ~~acceptance drafts is $1,396,648 and $4,029,724 as of December 31, 2011 and June 30, 2012, respectively.~~ loan)

On November 24, 2011, bank acceptance drafts amounting to RMB 8.8 million (approximately $1.4 million) were arranged with Industrial and Commercial Bank of China Limited, Shanghai Zhangjiang Branch by CER Shanghai to settle its purchases from certain customers. The bank acceptance drafts are collateralized by a building in Shanghai owned by Jiangsu SOPO. The total amount of the bank acceptance drafts was repaid on May 22, 2012. On May 30, 2012, CER Shanghai renewed the issuance of the same amount of bank acceptance drafts from Industrial and Commercial Bank of China Limited.

Borrowing

Borrowing
date

Interest
rate

Maturity
date

Balance at
Dec. 31, 2011

Balance
at Sep.
30, 2012

Pledge or
guarantee

$ 5 million –

Hold And Opt Investments Limited

Dec. 31, 2010

15.100

Sept. 29, 2012

USD

4,850,945

USD

5,000,000

Collateralized by 8,000,006 of Qinghuan Wu's shares in CER.

On May ~~January 9~~21, ~~2012~~2009, ~~Shanghai~~the ~~Engineering~~ Company entered into a ~~three-year~~term loan ~~facility~~agreement ~~with~~(“Convertible ~~the~~Notes ~~Bank~~Agreement”) with ofan ~~Ningbo,~~investment company ~~Shanghai~~(the ~~Branch~~“Lender”). ~~The~~Pursuant ~~facility~~to isthe ~~RMB~~Convertible 4Notes Agreement,~~500,000~~ the lender provided term loan financing (~~approximately~~“Convertible Notes”) to the Company in an amount of up to $~~713~~5,000,000 within at6 months of the ~~exchange~~making, ~~rate~~which may atbe ~~that~~drawn from time) to time, in whole or in installments, upon notice, but once repaid shall not be subject to reborrowing. The ~~funds~~proceeds ~~have~~from this ~~been~~Convertible ~~drawn~~Note ~~down~~were inused for the ~~form~~construction of ~~bank~~the ~~acceptance~~Company’s ~~drafts~~new plant located in ~~two~~Yangzhou, ~~installments~~China including, the ~~with~~purchase ~~$635,160~~of ~~(RMB~~land ~~4,000,000)~~for ~~and~~the ~~$793~~plant,~~950~~ ~~(RMB~~buildings, 5equipment,~~000,000)~~ ~~being~~and ~~issued~~for by the ~~Bank~~facilitating of ~~Ningbo~~financing onloans ~~March~~from 6,one ~~2012~~or more in-China banks and ~~March~~other 21institutional lenders. Any amount borrowed will bear interest at 9.5%, ~~2012~~payable every six months, calculated and compounded ~~respectively~~quarterly. Each draw is due twenty-four (24) months after the draw down date, together with aany ~~cash~~accrued ~~deposit~~and ~~accounting~~unpaid ~~for~~interest. ~~50%~~The Company ofdrew ~~the~~down ~~total~~$5,000,000 ~~amount~~on ofSeptember ~~bank~~29, ~~acceptance~~2009. The ~~loan~~Convertible ~~has~~Notes ~~been~~could ~~guaranteed~~be byconverted ~~Qinghuan~~to 2,777,778 shares of common stock Wuat ~~and~~the ~~Jialing~~conversion ~~Zhou~~price ~~and~~of ~~also~~$1.80. ~~collateralized~~In byaddition, the Company issued the Lender a ~~building~~five-year ~~located~~common instock ~~Hongkou~~purchase ~~District~~warrant (“Warrants”) to purchase up to 1,388,889 ~~Shanghai~~shares of the Company’s common stock, which is ~~owned~~that bynumber ~~Mr.~~of Wushares ~~and~~of ~~his~~the Company’s ~~son~~common stock equal to 50% of the principal sum of these Convertible Note divided by the conversion price of $1.80.

27The Lender may recall a Convertible Note after the first anniversary of the draw down at a redemption price equal to the outstanding principal plus any accrued and unpaid interest upon the closing by the Company of any debt and/or equity financing (except for debt financings with banks or institutional lenders in China), in an amount up to 50% of the amount financed. Additionally, upon occurrence of certain events, the Lender can demand the entire outstanding principal, together with any accrued and unpaid interest to be immediately repaid in full or in part. The Company can also prepay the Convertible Note at any time it desires with accrued and unpaid interest.

On March 30, 2012, CER Yangzhou entered into a 2 year comprehensive credit facility with the China CITIC Bank, Yangzhou Branch. The facility is RMB 20,000,000 (approximately $3,175,000). The period of the comprehensive line of credit is from March 30, 2012 to March 30, 2014. This facility is guaranteed by Jiangsu SOPO, and guaranteed by Mr. Qinghuan Wu, the Company’s Chief Executive Officer. On April 24, 2012, CER Yangzhou drew down bank acceptance notes amounting to RMB 3,100,178 (approximately $492,287) after making a cash deposit of RMB 1,860,107(approximately $294,882) to the bank. On May 23, 2012, CER Yangzhou drew down bank acceptance notes amounting to RMB 4,200,000 (approximately $664,472) after making cash deposit of RMB 2,520,000 (approximately $395,519) to the bank.28

~~Note~~The 9embedded conversion –feature ~~Taxation~~of the Convertible Notes was accounted for as an embedded derivative in accordance with ASC 815 “Derivatives and Hedging” because the conversion price is denominated in USD, which is a currency other than the Company’s functional currency, RMB. The conversion feature was accounted for as a derivative liability on the balance sheet and classified as a current liability based on the timing of the cash flows derived from the convertible notes. The Convertible Notes were recorded with a discount equal to the fair value of the conversion feature at the transaction date and were accreted to the redemption value of the Convertible Notes from the draw down date to September 30, 2011 (the date of extinguishment of the conversion feature) using the effective interest rate method. The change in fair value of the conversion feature derivative liability of $0 and $203,916 was recorded in the consolidated statement of operations and other comprehensive (loss) income for the three and nine months ended September 30, 2011, respectively with no similar amount for the quarters ended September 30, 2012 due to the termination of the derivative. The interest expense recognized for accretion to the redemption value of the Convertible Notes was $40,535 and $53,401 for the three months ended September 30, 2011 and 2012, respectively. The interest expense recognized for accretion to the redemption value of the Convertible Notes was $116,714 and $149,056 for the nine months ended September 30, 2011 and 2012, respectively.

~~USA~~The value of the Warrants at the grant date on May 21, 2009 was accounted for as a commitment fee for obtaining the Convertible Notes, and therefore the value was recorded as deferred financing cost to be amortized over the period from the grant date to September 30, 2011 (the date of extinguishment of the conversion feature) of the Convertible Notes. For the three and nine months ended September 30, 2011, $66,919 and $215,623 of deferred financing costs were amortized and charged to interest expense, respectively with no amounts recognized in 2012 due to the cessation of recognition of remaining costs in 2011. The Warrants were recorded as derivative liabilities in accordance with ASC 815, Derivatives and Hedging, because the exercise price of the warrants is denominated in USD, which is a currency other than the Company’s functional currency, RMB. Changes in fair value of the warrants (Note 12) for the three and nine months ended September 30, 2011 and 2012 were recorded in the consolidated statement of operations and other comprehensive (loss) income.

~~The~~On December 31, 2010, the Company entered into a loan agreement with the Lender to replace and continue the prior lending arrangement which was entered into on May 21, 2009, to extend the term until which the principal amount of $5,000,000 is ~~subject~~due to USeptember 29, 2012, and to change certain of the terms of the loan.S. ~~income~~The ~~tax~~aggregate principal amount of the loan extension is $5,000,000, and bears interest at athe annual rate of 3415.1%, calculated on a monthly compounded basis. The loan may be prepaid by the Company, without penalty. The loan agreement provides for the typical events of default (which includes default in payment of any part of the principal of or interest, performance or compliance with the collateral agreement, assets attached or seized by any third person and or any part of the loan agreement being declared null and void or its ~~assessable~~enforceability ~~profits~~being challenged), including a cross default clause, and the Company has made various representations and given various covenants to the lender, which includes the audit of the Company’s annual financial statements and review of the interim financial statements as well as the timely filing of such statements, including any extension periods permitted under SEC rules and regulations. The Lender continues to have a right of first refusal with respect to future debt and equity fundings and a right to consent to certain debt and equity fundings by the Company and its subsidiaries and affiliates. As a guarantor of the payments under the loan extension, Mr. Wu, the Chief Executive Officer of the Company, pledged 8,000,006 of his shares in CER for the repayment of the principal due under the loan agreement.

~~Hong~~On ~~Kong~~October 22, 2012, CER entered into an extension to continuation and loan arrangement with Hold And Opt Investments Limited, effective as of September 29, 2012 (“Loan Date”). At the Loan Date, both principal and interest due under the loan agreement remained outstanding. The extended maturity date for the Loan Amount is November 30, 2012, with a grace period not to extend beyond December 15, 2012. CER shall make a mandatory prepayment of $3,000,000 by no later than November 10, 2012. The outstanding principal and interest amount under this extension agreement shall bear interest at a rate of 1.5% per month, commencing on the Loan Date, and continuing until the principal is paid in full. CER repaid $2,000,000 on October 31, 2012.

CER (Hong Kong) subsidiaries were subject to Hong Kong profit tax at a rate of 16.5% on their assessable profits. No Hong Kong profit tax has been assessed as the Group did not have assessable profit that was earned in or derived within the legal boundaries of Hong Kong during the periods presented.29

~~PRC~~The conversion feature expired, and there is no conversion term on the modified convertible debt described above, since September 30, 2011.

The ~~New~~Company has ~~Enterprise~~accounted ~~Income~~for ~~Tax~~the ~~("EIT")~~replacement and extension of the loan agreement as a modification as the changes are not substantial such ~~law~~that ~~was~~there ~~effective~~has ~~January~~been 1no accounting extinguishment in accordance with ASC 470, ~~2008~~“Debt – Modifications and ~~the~~Extinguishments.” Accordingly ~~standard~~a ~~EIT~~new effective interest rate ~~is 25%. Pursuant~~was todetermined ~~the~~based ~~PRC~~on ~~tax~~the ~~law,~~carrying ~~net~~amount ~~operating~~of ~~losses can~~the beoriginal ~~carried~~debt ~~forward~~and 5the ~~years~~revised cash toflows ~~offset~~of ~~future~~the ~~taxable~~new ~~income~~debt.

~~For~~Since the ~~quarter ended March 31, 2012, the~~loan ~~Group’s~~is ~~Hong~~fixed ~~Kong~~in ~~subsidiary,~~United ~~CER~~States ~~(Hong Kong)~~dollars, ~~had, for~~ the ~~first~~lender ~~time,~~will ~~estimated~~receive ~~taxable~~compensation ~~profits~~when ~~earned in~~ the ~~PRC;~~Renminbi ~~CER (Hong~~exchange ~~Kong)~~rate ~~has~~increases ~~generated~~against ~~estimated taxable profits since then. As such, CER (Hong Kong) is likely to be regarded under~~ the ~~PRC~~ ~~tax~~US ~~laws~~dollar as ~~having~~compared ~~permanent~~to ~~establishment for business activities carried out in~~ the ~~PRC,~~rate ~~and~~fixed ~~would be subject to PRC tax~~ at the ~~standard~~ ~~EIT~~borrowing ~~rate of 25%~~date. ~~For interim periods in 2012~~Accordingly, ~~given~~ the ~~Group~~Company ishas ~~likely~~accounted tofor bethis ~~regarded~~indexed feature as ~~having~~an ~~permanent~~embedded ~~establishment, CER~~derivative ~~(Hong~~and ~~Kong)~~recognized ~~provided~~a ~~taxes,~~derivative ~~included~~liability in the ~~consolidated~~amounts ~~tax provision,~~ of $ ~~438~~21,~~161.~~274 ~~The~~and ~~primary~~$0 ~~reason~~as ~~for CER (Hong Kong)’s generation~~ of ~~taxable~~December ~~income~~31, ~~was~~2011 ~~the~~and ~~non-deductibility~~September 30, ~~under PRC tax law~~2012, ~~of a $1~~respectively.5 ~~million~~There ~~expense~~are ~~incurred~~no ~~for~~derivative aliabilities ~~penalty~~under ~~payment to~~the ancompensation ~~EPC~~terms ~~construction~~of ~~contract~~the ~~related~~loan ~~party~~agreement ~~customer~~as ~~which~~the original loan is ~~further described in Note 16~~due. ~~This~~The ~~tax~~change ~~provision, as well as increases~~ in ~~PRC~~fair ~~tax~~value ~~expense~~of ~~for~~ the ~~Group’s~~derivative ~~profitable~~liability ~~subsidiaries,~~of ~~were~~$0 ~~primarily~~and ~~responsible~~$21,274 ~~for~~was recorded ~~the significant increase~~ in the ~~Group’s~~ ~~effective~~unaudited ~~tax~~statements of ~~rate~~operations ~~for~~and ~~interim~~comprehensive ~~periods~~income/loss infor ~~2012~~the asthree ~~compared~~and tonine ~~the~~months ~~corresponding~~ended ~~interim~~September ~~periods~~30, in2012, ~~2011~~respectively.

~~Pursuant~~Note to8 ~~the~~– ~~PRC~~Notes income tax laws, Shanghai Engineering and CER Shanghai are subject to enterprise income tax at a statutory rate of 15% and 12.5% respectively, each for a three year period ending in 2014, as they were recognized as high and new technology entities (“HNTEs”) in April, 2011. CER Yangzhou is subject to enterprise income tax at a statutory rate of 25%. Payable

~~On February 22, 2008, the Ministry of Finance~~Notes ~~(“MOF”)~~payable ~~and~~represents ~~the~~bank ~~State~~acceptance ~~Administration~~drafts ofthat ~~Taxation~~are ~~(“SAT”)~~non-interest ~~jointly~~bearing ~~issued~~and ~~Cai~~due ~~Shui~~within ~~[2008]~~six ~~Circular 1 (“Circular 1”)~~months. ~~According~~The tobalance ~~Article 4~~ of ~~Circular~~the 1,bank ~~distributions of accumulated profits earned by a foreign investment enterprise~~acceptance ~~(“FIE”)~~drafts ~~prior~~is ~~to January~~ $1, ~~2008 to foreign investor(s) in 2008 or after will be exempt from withholding tax (“WHT”) while distribution of the profit earned by an FIE after January 1~~396,648 ~~2008~~and to its foreign investor(s) shall be subject to WHT at a rate up to 10% (lower rate is available under the protection of tax treaties). Since the Company intends to indefinitely reinvest its earnings to further expand the businesses in mainland China$2, ~~the foreign invested enterprises do not intend to declare dividends to their immediate foreign holding companies in the foreseeable future. As a result~~641,254 ~~if any dividends are declared out of the cumulative retained earnings~~ as of December 31, ~~2007, they should be exempt from WHT. Accumulated profits of non-US subsidiaries as of December 31,~~ 2011 and ~~June~~September 30, 2012 ~~were approximately $1~~,~~102,139~~ ~~(RMB 7,687,921), and $3,103,725 (RMB 20,337,770),~~ respectively~~, and they are considered to be indefinitely reinvested~~. Moreover, the Company’s liquidity position does not require transfers of cash outside of the PRC to the parent jurisdiction (U.S.), as all business activity and debt is carried on in the PRC. The Company has not paid dividends on its common shares and does not have an intention of doing so in the foreseeable future. Accordingly, no provision has been made for deferred taxes. No dividends were declared out of cumulative retained earnings as of December 31, 2011 or June 30, 2012.

Borrowing	Draw down date	Maturity date	Balance at Sep. 30, 2012	Pledge or guarantee
RMB 8.8 million – Industrial and Commercial Bank of China Limited, Shanghai Zhangjiang Branch	May. 30, 2012	Nov. 29, 2012	RMB 8,800,000 (USD 1,400,168)	Collateralized by a building in Shanghai owned by Jiangsu SOPO.
RMB 4.7 million – China CITIC Bank, Yangzhou Branch.	May. 23, 2012	Nov 23, 2012	RMB 4,700,000 (USD 747,817)	Guaranteed by Jiangsu SOPO, and guaranteed by Mr. Qinghuan Wu, the Company’s Chief Executive Officer.
RMB 3.1 million – China CITIC Bank, Yangzhou Branch.	Apr. 24, 2012	Oct. 24, 2012	RMB 3,100,178 (USD 493,269)	Guaranteed by Jiangsu SOPO, and guaranteed by Mr. Qinghuan Wu, the Company’s Chief Executive Officer.
Total notes payable			RMB 16,600,178 (USD 2,641,254)

~~The Company is incorporated in the U.S. and incurred a net operating loss for income tax purposes for the three months ended June~~ 30, 2011 and 2012. The net operating loss carry forwards for the U.S. income tax purposes were approximately $8,355,602 and $8,648,569 at December 31, 2011 and June 30, 2012, respectively, which may be available to reduce future years' taxable income. These carry forwards will expire, if not utilized, in 20 years from origination. Management believes that the realization of the benefits arising from these accumulated net operating losses is uncertain due to the Company's limited operating history, continuing losses for United States income tax purposes, and the fact that substantially all of the Company’s business activity is derived from the PRC. Accordingly, the Company has offset substantially all of the gross deferred tax assets for such net operating losses with additional valuation allowances recorded through income tax expense, which are a significant driver of the Company’s effective tax rate, given the history of loss and the uncertainty regarding the future. Remaining net deferred tax assets consist only of those supported by reversing deferred tax liabilities, as well as any deferred tax assets related to the PRC that management has concluded are more likely than not of being realized.

~~As of~~On ~~June~~November 3024, ~~2012~~2011, ~~the~~bank ~~Company~~acceptance ~~did~~drafts ~~not~~amounting ~~have~~to ~~any~~RMB ~~material~~8.8 ~~uncertain~~million ~~tax~~(approximately ~~positions~~$1.4 ~~subject~~million) towere ~~the~~arranged ~~provisions~~with ofIndustrial and ~~ASC~~Commercial ~~740-10;~~Bank asof ~~such~~China Limited, Shanghai Zhangjiang Branch by CER Shanghai to settle its purchases from certain customers. ~~there~~The bank acceptance drafts are nocollateralized ~~liabilities~~by ~~for~~a ~~unrecognized~~building ~~tax~~in ~~benefits~~Shanghai owned by Jiangsu SOPO. AsThe ~~described~~total ~~earlier~~amount inof ~~this~~the ~~Note~~bank acceptance drafts was repaid on May 22, 2012. On May 30, 2012, CER Shanghai renewed the ~~Group~~issuance ~~provided~~of ~~for~~the ~~PRC~~same ~~EIT~~amount ~~tax~~of onbank acceptance drafts ~~profits~~from ~~earned~~Industrial byand ~~the~~Commercial ~~Group’s~~Bank ~~Hong~~of ~~Kong~~China ~~subsidiary~~Limited. inThe expiration date is November 29, 2012. On November 1, 2012, the ~~PRC~~Company repaid RMB 8.8 million (approximately $1.4 million).

~~Note~~On ~~10 –Earnings~~January 9, /2012, Shanghai Engineering entered into a three-year loan facility with the Bank of Ningbo, Shanghai Branch. The facility is RMB 4,500,000 (~~Loss~~approximately $713,000 at the exchange rate at that time). ~~per~~The ~~Share~~funds have been drawn down in the form of bank acceptance drafts in two installments, with $635,160 (RMB 4,000,000) and $793,950 (RMB 5,000,000) being issued by the Bank of Ningbo on March 6, 2012 and March 21, 2012, respectively, with a cash deposit accounting for 50% of the total amount of bank acceptance. The loan has been guaranteed by Qinghuan Wu and Jialing Zhou and also collateralized by a building located in Hongkou District, Shanghai, which is owned by Mr. Wu and his son. Shanghai Engineering repaid RMB 9,000,000 by two installments in September, 2012.

~~The~~On ~~Company~~March ~~reports earnings per share~~30, ~~in accordance with the provisions of ASC 260~~2012, ~~“Earnings~~CER ~~Per~~Yangzhou ~~Share”.~~entered ~~This~~into ~~standard~~a ~~requires~~2 ~~presentation~~year ofcomprehensive ~~basic and~~credit ~~diluted~~facility ~~earnings per share in conjunction~~ with the ~~disclosure~~China ofCITIC ~~the~~Bank, ~~methodology~~Yangzhou ~~used in computing such earnings per share~~Branch. ~~Basic~~ ~~earnings/(losses)~~The ~~per share excludes dilution and~~ facility is ~~computed~~RMB by20,000,000 ~~dividing net income~~ (~~loss~~approximately $3,175,000). ~~available~~The toperiod ~~common~~of ~~stockholders by~~ the ~~weighted~~comprehensive ~~average~~line ~~common~~of ~~shares~~credit ~~outstanding~~is ~~during~~from ~~the~~March ~~period~~30, ~~under~~2012 ~~the~~to ~~two-class~~March ~~method~~30, 2014. ~~Diluted~~This ~~earnings~~facility ~~per~~is ~~share~~guaranteed ~~takes into~~by ~~account~~Jiangsu ~~the~~SOPO, ~~potential dilution that could occur if securities or other contracts to issue common stock were exercised~~ and ~~converted~~ ~~into~~guaranteed ~~common~~by ~~stock~~Mr. InQinghuan ~~computing~~Wu, the ~~dilutive~~Company’s ~~effect~~Chief ofExecutive ~~convertible~~Officer. On ~~securities~~April 24, ~~the~~2012, ~~number~~CER ofYangzhou ~~shares~~drew isdown ~~adjusted~~bank ~~for~~acceptance ~~the additional~~notes ~~common~~amounting ~~stock~~ to beRMB ~~issued~~3,100,178 as(approximately if$493,269) ~~the~~after ~~convertible~~making a ~~securities~~cash ~~are~~deposit ~~converted at the beginning~~ of ~~the~~RMB ~~period~~ 1,860,107(orapproximately ~~at the time of issuance~~$294, ~~if later~~882). Into ~~computing~~ the ~~dilutive~~bank. ~~effect~~On ofMay ~~options~~23, ~~and warrants~~2012, ~~the~~CER ~~treasury~~Yangzhou ~~method~~drew isdown ~~used.~~bank ~~Under~~acceptance ~~this method,~~notes ~~options~~amounting ~~and~~to ~~warrants~~RMB ~~are~~4,700,000 ~~assumed~~(approximately to$747,817) beafter ~~exercised~~making atcash ~~the~~deposit ~~beginning~~ of ~~the~~RMB ~~period~~2,820,000 ~~and~~(approximately as$448,690) ~~if funds obtained thereby were used~~ to ~~purchase~~the ~~common~~bank. ~~stock~~The atexpiration ~~the~~date ~~average~~is ~~market~~November ~~price~~23, ~~during the period~~2012. ~~The~~ ~~following~~On ~~table~~October ~~lists the potentially dilutive securities at June 30~~23, 2012, ~~related~~CER toYangzhou ~~our~~repaid ~~compensation~~RMB ~~plans~~3,100,178 ~~under~~(approximately ~~which shares of our common stock are authorized for issuance~~$493,269).

Potentially Dilutive Securities	Number of Securities to be Issued		Reference Index
Dilutive securities from warrants issued as part of financing with Series A preferred stock		1,852,820	Note 12
Dilutive securities from warrants issued with convertible notes		1,388,889	Note 12
Dilutive securities from options to Ye Tian (director)		500,000	Note 13
Dilutive securities from options to Estelle Lau (director)		60,000	Note 13
Dilutive securities from options to Sum Kung (director)		30,000	Note 13
Dilutive securities from options to Jules Silbert (director)		30,000	Note 13
Total potentially dilutive securities		3,861,709

Note 9 – Taxation

29USA

~~For~~The ~~the three and six months ended June 30, 2011, warrants to purchase 3,241,709 shares of the~~ Company~~’s common stock were not included~~ inis ~~the~~subject ~~calculation of dilutive earnings / (loss) per share because of their anti-dilutive effect while options~~ to ~~purchase~~U.S. ~~560,000 shares~~income ~~were~~tax ~~included~~at ina ~~the~~rate ~~dilutive impact due to the adjustment~~ of ~~their~~34% ~~exercise~~on ~~prices~~its ~~due~~assessable ~~to a second quarter 2011 option modification~~profits.

~~For~~Hong ~~the three~~Kong and six months ended June 30, 2012, warrants to purchase 3,241,709 shares of the Company’s common stock and options to purchase 620,000 shares were excluded from the diluted earnings per share calculation because of their anti-dilutive effects. The exercise price exceeded the current share price for all stock-based options and warrants.

~~The~~CER ~~following~~(Hong ~~are~~Kong) subsidiaries ~~reconciliations~~were subject to Hong Kong profit tax at a rate of ~~the~~16.5% ~~basic~~on ~~and~~their ~~diluted~~assessable ~~earnings per~~profits. ~~share~~No ~~computations~~Hong ~~for~~Kong profit tax has been assessed as the ~~three~~Group ~~and~~did ~~six~~not ~~months~~have ~~ended~~assessable ~~June~~profit ~~30,~~that ~~2011~~was ~~and~~earned ~~2012:~~in or derived within the legal boundaries of Hong Kong during the periods presented.

	Three months ended June 30,
	2011			2012
Numerator:
Net income for the period		861,600			1,921,782
Amount allocated to preferred stockholders		(2,934	)		(6,532	)
Net income available to common stock holders – Basic and diluted		858,666			1,915,250
Denominator:
Denominator for basic earnings per share -weighted average common stocks outstanding		31,026,225			31,084,513
Weighted average stock options		77,317			-
Denominator for diluted earnings per share		31,103,542			31,084,513
Basic (loss)/earnings per share	$	0.03		$	0.06
Diluted (loss)/earnings per share	$	0.03		$	0.06

PRC

	Six months ended June 30,
	2011			2012
Numerator:
Net income for the period		385,153			1,727,506
Amount allocated to preferred stockholders		(1,314	)		(5,872	)
Net income available to common stock holders – Basic and diluted		383,839			1,721,634
Denominator:
Denominator for basic earnings per share -Weighted average common stock outstanding		30,979,564			31,085,182
Weighted average stock options		77,317			-
Denominator for diluted earnings per share		31,056,881			31,085,182
Basic earnings per share	$	0.01		$	0.05
Diluted earnings per share	$	0.01		$	0.05

The New Enterprise Income Tax ("EIT") law was effective January 1, 2008 and the standard EIT rate is 25%. Pursuant to the PRC tax law, net operating losses can be carried forward 5 years to offset future taxable income.

3031

For the quarter ended March 31, 2012, the Group’s Hong Kong subsidiary, CER (Hong Kong), had, for the first time, estimated taxable profits earned in the PRC; CER (Hong Kong) has generated estimated taxable profits since then. As such, CER (Hong Kong) is likely to be regarded under the PRC tax laws as having permanent establishment for business activities carried out in the PRC, and would be subject to PRC tax at the standard EIT rate of 25%. For interim periods in 2012, given the Group is likely to be regarded as having permanent establishment, CER (Hong Kong) provided taxes, included in the consolidated tax provision, of $732,592. The primary reason for CER (Hong Kong)’s generation of taxable income was the non-deductibility, under PRC tax law, of a $1.5 million expense incurred for a penalty payment to an EPC construction contract related party customer which is further described in Note 16 ~~11 –~~and ~~Convertible~~income ~~Preferred~~tax ~~Stock~~for the intra-entity sales of the subsidiary’s shares further described in Note 1. This tax provision, as well as increases in PRC tax expense for the Group’s profitable subsidiaries, were primarily responsible for the significant increase in the Group’s effective tax rate for interim periods in 2012 as compared to the corresponding interim periods in 2011.

~~Series~~Pursuant Ato the ~~Convertible~~PRC ~~Preferred~~income ~~Stock~~tax laws, Shanghai Engineering and CER Shanghai are subject to enterprise income tax at a statutory rate of 15% and 12.5% respectively, each for a three year period ending in 2014, as they were recognized as high and new technology entities (“HNTEs”) in April, 2011. CER Yangzhou is subject to enterprise income tax at a statutory rate of 25%.

On ~~April 15~~February 22, 2008, ~~and~~the asMinistry aof ~~condition~~Finance ~~to closing~~(“MOF”) ofand the ~~Share~~State ~~Exchange,~~Administration ~~CER~~of ~~entered~~Taxation ~~into~~(“SAT”) ~~Securities~~jointly ~~Purchase~~issued Cai ~~Agreements~~Shui ~~with~~[2008] 25Circular ~~accredited~~1 ~~investors~~(“Circular ~~pursuant~~1”). According to ~~which~~Article ~~CER issued~~4 ~~and~~of ~~sold~~Circular an1, ~~aggregate~~distributions of ~~7,874,241~~accumulated ~~units~~profits earned atby a ~~unit~~foreign ~~price~~investment ofenterprise ~~$1.08~~ (~~the "Financing"~~“FIE”). ~~Each~~prior ~~unit~~to ~~consisted~~January of1, ~~one share~~2008 ofto ~~CER'~~foreign investor(s) ~~Series~~in A2008 ~~convertible~~or ~~preferred~~after will ~~stock,~~be ~~par~~exempt ~~value~~from ofwithholding ~~$0.001,~~tax ~~and~~(“WHT”) ~~one~~while ~~warrant~~distribution toof ~~purchase~~the ~~one-half~~profit ofearned ~~one~~by ~~share~~an ofFIE after January 1, 2008 ~~CER'~~to its foreign investor(s) ~~common~~shall ~~stock~~be atsubject anto ~~exercise~~WHT ~~price~~at ofa ~~$1.29~~rate ~~per~~up ~~share.~~to ~~After~~10% ~~the~~(lower ~~1-for-2~~rate ~~reverse~~is ~~stock~~available ~~split~~under ~~conducted~~the onprotection ~~April~~of ~~16,~~tax ~~2008,~~treaties). Since the ~~7,874,241~~Company ~~shares~~intends ofto ~~the~~indefinitely ~~Company’s~~reinvest ~~Series~~its Aearnings ~~convertible~~to ~~preferred~~further ~~stock~~expand ~~are~~the ~~convertible~~businesses ~~into~~in 3mainland China,~~937,121~~ ~~shares~~the ~~of common~~foreign ~~stock~~invested ~~and~~enterprises ~~the~~do ~~warrants~~not ~~are~~intend ~~exercisable~~to ~~into~~declare ~~1,968,561~~dividends ~~shares~~to oftheir immediate foreign holding companies in the ~~Company's~~foreseeable ~~common~~future. As ~~stock~~a atresult, anif ~~exercise~~any ~~price~~dividends are declared out of ~~$2.58~~the ~~per~~cumulative ~~share. The~~retained ~~issuance~~earnings ~~costs~~as of $1December 31,~~859~~ 2007,~~902,~~ ~~including~~they ~~commissions,~~should ~~legal~~be ~~fees~~exempt from ~~and~~WHT. ~~transaction~~Accumulated ~~expenses~~profits ~~were~~of ~~taken~~non-US ~~from~~subsidiaries ~~the~~as ~~proceeds.~~of ~~The net~~December ~~proceeds~~31, 2011 and September 30, 2012 were ~~allocated~~approximately ~~between~~$1,102,139 (RMB ~~the~~7,687,921), ~~Series~~and A$5,151,841 ~~convertible~~(RMB ~~preferred~~33,325,437), ~~stock~~respectively, and ~~warrants~~they ~~based~~are onconsidered ~~their~~to ~~relative~~be ~~fair~~indefinitely ~~values~~reinvested. Moreover, Asthe ofCompany’s ~~the~~liquidity ~~closing~~position ~~date,~~does ~~the~~not ~~fair~~require ~~value~~transfers of ~~Series~~cash Aoutside ~~convertible~~of ~~preferred~~the ~~stock~~PRC isto ~~estimated~~the atparent ~~$1.68~~jurisdiction ~~where~~ (U.S.), as ~~the~~all ~~fair~~business ~~value~~activity ~~of the~~and ~~warrants~~debt is ~~estimated~~carried aton ~~$0.85.~~in Asthe aPRC. ~~result,~~The anCompany ~~aggregate~~has ~~amount~~not ofpaid ~~$5,307,539~~dividends ~~was~~on ~~allocated~~its tocommon ~~Series~~shares Aand ~~convertible~~does ~~preferred~~not ~~stock~~have ~~and~~an ~~$1,336,739~~intention ~~was~~of ~~allocated~~doing toso in the ~~warrants~~foreseeable future. ~~The~~Accordingly, ~~fair~~no ~~value~~provision ofhas ~~the~~been ~~warrants~~made ~~was~~for ~~initially~~deferred ~~valued~~taxes. ~~using~~No ~~the~~dividends were ~~binomial~~declared ~~model with~~out ~~assumptions~~of ~~such~~cumulative ~~as,~~retained ~~stock~~earnings ~~price,~~as ~~volatility,~~of ~~expected~~December ~~term~~31, ~~dividend,~~2011 ~~risk-free~~or ~~interest~~September ~~rate~~30, ~~etc~~2012.

The ~~rights~~Company is incorporated in the U.S. and incurred a net operating loss for income tax purposes for the three months ended September 30, 2011 ~~preferences~~and 2012. The net operating loss carry forwards for the U.S. income tax purposes were approximately $8,355,602 and ~~privileges~~$8,867,820 ~~with~~at ~~respect~~December 31, 2011 and September 30, 2012, respectively, which may be available to reduce future years' taxable income. These carry forwards will expire, if not utilized, in 20 years from origination. Management believes that the ~~Series~~realization Aof ~~convertible~~the ~~preferred~~benefits arising ~~stock~~from these accumulated net operating losses is uncertain due to the Company's limited operating history, continuing losses for United States income tax purposes, and the fact that substantially all of the Company’s business activity is derived from the PRC. Accordingly, the Company has offset substantially all of the gross deferred tax assets for such net operating losses with additional valuation allowances recorded through income tax expense, which are a significant driver of the Company’s effective tax rate, given the history of loss and the uncertainty regarding the future. Remaining net deferred tax assets consist only of those supported by reversing deferred tax liabilities, as ~~follows:~~well as any deferred tax assets related to the PRC that management has concluded are more likely than not of being realized.

~~Voting~~As of September 30, 2012, the Company did not have any material uncertain tax positions subject to the provisions of ASC 740-10; as such, there are no liabilities for unrecognized tax benefits. As described earlier in this Note, the Group provided for PRC EIT tax on profits earned by the Group’s Hong Kong subsidiary in the PRC.

Holders of Series A convertible preferred stock are entitled to the number of votes equal to the number of shares of common stock into which such shares of preferred stock could be converted and to vote as a single class.32

~~Dividends~~Note 10 –Earnings / (Loss) per Share

~~Holders~~The Company reports earnings per share in accordance with the provisions of ~~Series~~ASC 260, “Earnings Per Share”. This standard Arequires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings/(losses) per share excludes dilution and is computed by dividing net income (loss) available to common stockholders by the weighted average common shares outstanding during the period under the two-class method. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. In computing the dilutive effect of convertible ~~preferred~~securities, the number of shares is adjusted for the additional common stock to be issued as if the convertible securities are ~~entitled~~converted toat ~~dividends~~the ~~when~~beginning of ~~dividends~~the period (or at the time of issuance, if later). In computing the dilutive effect of options and warrants, the treasury method is used. Under this method, options and warrants are ~~declared~~assumed ~~for~~to be exercised at the beginning of the period and as if funds obtained thereby were used to purchase common ~~stockholders~~stock at the average market price during the period. The ~~There~~following ~~have~~table ~~been~~lists nothe ~~dividends~~potentially ~~declared~~dilutive securities at September 30, 2012 related to ~~date~~our compensation plans under which shares of our common stock are authorized for issuance.

Liquidation

Potentially Dilutive Securities	Number of Securities to be Issued		Reference Index
Dilutive securities from warrants issued as part of financing with Series A preferred stock		1,852,820	Note 12
Dilutive securities from warrants issued with convertible notes		1,388,889	Note 12
Dilutive securities from options to Ye Tian (director)		500,000	Note 13
Dilutive securities from options to Estelle Lau (director)		60,000	Note 13
Dilutive securities from options to Sum Kung (director)		30,000	Note 13
Dilutive securities from options to Jules Silbert (director)		30,000	Note 13
Total potentially dilutive securities		3,861,709

InFor the ~~event of any~~three ~~liquidation,~~months ~~dissolution~~and ornine ~~winding~~months upended ofSeptember ~~the~~30, ~~Company~~2011, ~~the~~warrants ~~holders~~to ofpurchase ~~Series~~3,241,709 Ashares ~~convertible~~of ~~preferred~~the ~~stock~~Company’s ~~shall~~common bestock ~~entitled~~and options to ~~receive~~ ~~the~~purchase ~~amount~~575,000 ofshares ~~the~~were ~~original~~excluded ~~issue~~from ~~price per share (as adjusted for~~ the ~~1-for-2~~diluted ~~reverse~~earnings ~~stock~~per ~~split)~~share ~~for~~calculation ~~each~~because ~~share~~ of ~~Series A~~their ~~convertible preferred stock, plus all declared and unpaid dividends~~anti-dilutive effect.

~~Conversion~~For the three and nine months ended September 30, 2012, warrants to purchase 3,241,709 shares of the Company’s common stock and options to purchase 635,000 shares were excluded from the diluted earnings per share calculation because of their anti-dilutive effects. The exercise price exceeded the current share price for all stock-based options and warrants.

~~Each~~The ~~share~~following ofare ~~Series~~reconciliations ~~A convertible preferred stock is convertible into common stock on a one-for-one basis, anytime at the option~~ of the ~~holder.~~basic ~~The current~~and ~~conversion~~diluted ~~price~~earnings isper ~~$2.16~~share ~~after~~computations ~~taking~~for ~~into effect~~ the ~~1-for-2~~three ~~reverse stock split,~~ and ~~the~~nine ~~conversion~~months ~~price~~ended isSeptember ~~subject to~~30, ~~adjustment~~2011 inand ~~accordance with the anti-dilution clause.~~2012:

	Three months ended September 30,
	2011			2012
Numerator:
Net income for the period		2,278,413			900,619
Amount allocated to preferred stockholders		(7,744	)		(3,062	)
Net income available to common stock holders – Basic and diluted		2,270,669			897,557
Denominator:
Denominator for basic earnings per share -weighted average common stocks outstanding		31,085,859			31,078,083
Weighted average stock options		16,956			-
Denominator for diluted earnings per share		31,102,815			31,078,083
Basic (loss)/earnings per share		0.07			0.03
Diluted (loss)/earnings per share		0.07			0.03

~~Adjustment of Series A Convertible Preferred Stock Conversion Price and Warrant Exercise Price~~33

In accordance to the anti-dilution clause of the afore-mentioned Financing, if the Company shall issue additional shares without consideration or for consideration per share less than the conversion price and/or the warrant exercise price immediately prior to the issuance, such conversion price and exercise price shall be adjusted.

	Nine months ended September 30,
	2011			2012

Numerator:
Net income for the period		2,663,566			2,628,125
Amount allocated to preferred stockholders		(9,074	)		(8,934	)
Net income available to common stock holders – Basic and diluted		2,654,492			2,619,191
Denominator:
Denominator for basic earnings per share -Weighted average common stock outstanding		31,015,385			31,082,790
Weighted average stock options		16,956			-
Denominator for diluted earnings per share		31,032,341			31,082,790
Basic earnings per share		0.09			0.08
Diluted earnings per share		0.09			0.08

~~For~~Note ~~the~~11 – ~~year and six months ended December~~Convertible ~~31,~~Preferred ~~2011 and June 30, 2012, no shares of Series A convertible preferred stock were converted.~~Stock

~~As of December 31, 2011 and June 30, 2012, the Company had 200,000 shares of~~ Series A ~~convertible~~Convertible ~~preferred~~Preferred Stock ~~stock issued and outstanding.~~

~~Note~~On ~~12 –~~April ~~Warrant~~15, 2008 and ~~Derivative~~as ~~Liabilities~~a condition to closing of the Share Exchange, CER entered into Securities Purchase Agreements with 25 accredited investors pursuant to which CER issued and sold an aggregate of 7,874,241 units at a unit price of $1.08 (the "Financing"). Each unit consisted of one share of CER's Series A convertible preferred stock, par value of $0.001, and one warrant to purchase one-half of one share of CER's common stock at an exercise price of $1.29 per share. After the 1-for-2 reverse stock split conducted on April 16, 2008, the 7,874,241 shares of the Company’s Series A convertible preferred stock are convertible into 3,937,121 shares of common stock and the warrants are exercisable into 1,968,561 shares of the Company's common stock at an exercise price of $2.58 per share. The issuance costs of $1,859,902, including commissions, legal fees and transaction expenses were taken from the proceeds. The net proceeds were allocated between the Series A convertible preferred stock and warrants based on their relative fair values. As of the closing date, the fair value of Series A convertible preferred stock is estimated at $1.68 where as the fair value of the warrants is estimated at $0.85. As a result, an aggregate amount of $5,307,539 was allocated to Series A convertible preferred stock and $1,336,739 was allocated to the warrants. The fair value of the warrants was initially valued using the binomial model with assumptions such as, stock price, volatility, expected term, dividend, risk-free interest rate, etc.

Under authoritative FASB Accounting Standards Codification guidance pertaining to whether an instrument (or embedded feature) is indexed to an entity’s own stock, instruments that do not have fixed settlement provisions are deemed to be derivative instruments. The conversion feature embedded derivative that extinguished in 2011 and the embedded derivative related to exchange rate settlement differentials of the Company’s convertible note (described in Note 7), the related warrants issued with the convertible note, and the warrants issued in connection with Series A convertible preferred stock do not have fixed settlement provisions because their conversion and exercise prices are denominated in USD, which is a currency other than the Company’s functional currency, RMB. Additionally, the Company was required to include the reset provision in order to protect the holders from potential dilution associated with future financings. In accordance with the FASB authoritative guidance, the conversion feature embedded derivative and exchange rate settlement differential embedded derivative of the Convertible Notes were separated from the host contract (i.e. the Convertible Notes) and recognized as derivative liabilities in the balance sheet, and the derivatives associated with warrants issued in connection with the Convertible Notes and Series A preferred stocks have been recorded as warrant liabilities in the balance sheet to be re-measured at the end of every reporting period with changes in fair value reported in the consolidated statements of income and other comprehensive income.34

AsThe ~~of September 30~~rights, preferences ~~2011,~~and ~~the~~privileges ~~conversion feature~~with ~~expired~~respect onto the ~~formerly~~Series A convertible ~~debt~~preferred ~~and~~stock ~~there~~are isas ~~no longer any conversion term on the modified loan.~~follows:

~~The~~Voting derivative liabilities were valued using both the Black-Scholes and Binomial valuation techniques with the following assumptions. We calculated the fair value of the derivative liability related to the formerly convertible notes on exchange rate at repayment versus exchange rate at loan origination differential, which relates to the repayment of the notes and is distinct and separate from the embedded derivative liability formerly recorded for the now-expired conversion feature, based on the following key assumptions.

Derivative liability from convertible notes	December 31, 2011			June 30, 2012
Estimated forward rate		6.34			6.39
Discount rate		0.64	%		0.44	%
Discount factor		0.995			0.999
Fair value	$	21,274		$	-

32Dividends

~~Derivative~~Holders of ~~liability~~Series ~~associated~~A ~~with~~convertible ~~warrants~~preferred ~~issued~~stock inare ~~connection~~entitled to dividends when dividends are declared for common stockholders. There have ~~with~~been ~~convertible~~no ~~notes:~~dividends declared to date.

	December 31, 2011			June 30, 2012
Number of shares exercisable		1,388,889			1,388,889
Stock price		0.38			0.30
Exercise price		1.8			1.8
Expected dividend yield (d)		-			-
Expected life (in years) (c)		2.39			1.89
Risk-free interest rate (a)		0.32	%		0.31	%
Expected volatility (b)		61	%		58.5	%
Fair Value:
Derivative liability - warrants issued in connection with Convertible Notes		20,920			3,537

Liquidation

In the event of any liquidation, dissolution or winding up of the Company, the holders of Series A convertible preferred stock shall be entitled to receive the amount of the original issue price per share (a)as ~~The~~adjusted ~~risk~~for the 1-~~free~~for-2 ~~interest~~reverse ~~rate~~stock issplit) ~~based~~for each onshare ~~U.S.~~of ~~Treasury~~Series ~~securities~~A ~~with~~convertible ~~compatible~~preferred ~~life~~stock, ~~terms~~plus all declared and unpaid dividends.

~~(b) Due to the short trading history of the Company’s stock, the Company uses the volatility of comparable guideline companies to estimate volatility.~~Conversion

~~(c)~~Each share ~~The~~of ~~expected~~Series ~~life~~A ofconvertible ~~the~~preferred ~~conversion~~stock ~~feature~~is ofconvertible ~~the~~into ~~notes~~common ~~was~~stock ~~based~~ on a one-for-one basis, anytime at the ~~term~~option of the ~~notes~~holder. ~~and~~The ~~the~~current ~~expected~~conversion ~~life~~price ofis $2.16 after taking into effect the ~~warrants~~1-for-2 ~~was~~reverse ~~determined~~stock bysplit, and the ~~expiration~~conversion price ~~date~~is ofsubject to adjustment in accordance with the ~~warrants~~anti-dilution clause.

~~(d)~~Adjustment ~~The~~of ~~expected~~Series ~~dividend~~A Convertible ~~yield~~Preferred ~~was~~Stock ~~based~~Conversion onPrice ~~the fact that the Company has not paid dividends to common shareholders in the past~~ and ~~does~~Warrant ~~not~~Exercise ~~expect to pay dividends to common shareholders in the future.~~Price

~~Note~~In 13accordance to the anti-dilution ~~Stock~~clause of the afore-~~Based~~mentioned ~~Compensation~~Financing, if the Company shall issue additional shares without consideration or for consideration per share less than the conversion price and/or the warrant exercise price immediately prior to the issuance, such conversion price and exercise price shall be adjusted.

~~Stock~~For ~~Option~~the ~~Plan~~year and nine months ended December 31, 2011 and September 30, 2012, no shares of Series A convertible preferred stock were converted.

InAs ~~September 2008, the board~~ of ~~directors~~December ~~approved~~31, ~~the~~2011 ~~Company’s Stock Option Plan~~ and ~~granted~~September ~~335~~30,~~000~~ ~~options~~2012, ~~to acquire~~ the Company’s ~~common~~had ~~stock at $2.90 per share to five non-employee directors and consultants under the 2008 Plan. The option plan was revised and approved at the shareholders’ meeting as of November 20~~200,000 ~~2011~~shares ~~(there were no significant changes impacting valuation or accounting for share based compensation). Detailed terms~~ of ~~the~~Series ~~plan~~A ~~are~~convertible ~~described~~preferred asstock ~~follows~~issued ~~with~~and ~~each grant~~outstanding.

~~Stock~~Note ~~Options~~12 – Warrant and Derivative Liabilities

OnUnder ~~June~~authoritative FASB ~~24,~~Accounting ~~2009~~Standards Codification guidance pertaining to whether an instrument (or embedded feature) is indexed to an entity’s own stock, ~~the~~instruments ~~Company~~that ~~appointed~~do not have fixed settlement provisions are deemed to be derivative instruments. The conversion feature ~~one~~embedded ~~independent~~derivative ~~director~~that extinguished in 2011 and ~~granted~~the ~~him~~embedded ~~stock~~derivative ~~options~~related to ~~purchase~~exchange ~~500,000~~rate ~~shares~~settlement ofdifferentials of the Company’s ~~common~~convertible ~~stock.~~note ~~The~~(described ~~options will~~in ~~vest~~Note 7), the related warrants issued with the convertible note, and ~~become~~the ~~exercisable~~warrants issued in ~~eight~~connection ~~equal~~with ~~installments evenly~~Series ~~spread~~A ~~out~~convertible ~~during~~preferred ~~the~~stock ~~three~~do ~~year~~not ~~period~~have ~~beginning~~fixed ~~from~~settlement provisions because their conversion ~~July~~and 1,exercise ~~2009.~~prices Onare ~~September~~denominated 7,in ~~2009~~USD, which is a currency other than the Company’s ~~appointed~~functional ~~another~~currency, ~~independent~~RMB. ~~director~~Additionally, the ~~and~~Company ~~granted~~was ~~her~~required ato ~~stock~~include ~~option~~the reset provision in order to ~~purchase~~protect the holders from potential dilution associated with 60future financings. In accordance with the FASB authoritative guidance,~~000~~ ~~shares~~the conversion feature embedded derivative and exchange rate settlement differential embedded derivative of the ~~Company’s~~Convertible ~~common~~Notes ~~stock;~~were ~~these~~separated ~~options~~from ~~fully~~the ~~vested~~host bycontract ~~October 2011~~(i.e. ~~Unvested~~the ~~options~~Convertible Notes) ~~shall~~and berecognized ~~terminated~~as derivative liabilities in the balance sheet, and the derivatives associated with warrants issued in connection with the Convertible Notes and ~~forfeited~~Series ~~upon~~A preferred stocks have been recorded as warrant liabilities in the ~~termination~~balance sheet to be re-measured at the end of aevery ~~holder’s~~reporting ~~director~~period ~~status~~with changes in fair value reported in the consolidated statements of income and other comprehensive income.

On June 7, 2011, the Board of Directors resolved to modify these option grants and adjusted the exercise price of one incumbent director’s options from $1.22 to $0.73 per share and another director’s options from $1.58 to $0.73 per share. The Board also resolved to accelerate the vesting period of one retired director, such that all the shares underlying the option were deemed vested as of June 7, 2011. The total incremental compensation cost in respect of such acceleration and option modification was $202,106, which was recorded in the second quarter of 2011.35

OnAs ~~June~~of 13September 30, 2011, ~~with~~ the ~~resignation of~~conversion ~~two~~feature ~~former~~expired ~~directors,~~on the ~~Company~~formerly ~~appointed~~convertible ~~another~~debt ~~two directors~~ and ~~granted~~there ~~them~~is ~~both~~no ~~stock~~longer ~~options~~any toconversion ~~purchase~~term ~~60,000~~on ~~shares of~~ the ~~Company’s common stock. The options will vest and become exercisable in eight equal quarterly installments evenly~~modified ~~spread out during the two year period beginning from July 1, 2011~~loan. ~~Unvested options shall be terminated and forfeited upon the termination of a holder’s director status.~~

33The derivative liabilities were valued using both the Black-Scholes and Binomial valuation techniques with the following assumptions. We calculated the fair value of the derivative liability related to the formerly convertible notes on exchange rate at repayment versus exchange rate at loan origination differential, which relates to the repayment of the notes and is distinct and separate from the embedded derivative liability formerly recorded for the now-expired conversion feature, based on the following key assumptions. As at September 30, 2012, the fair value of derivative liabilities associated with convertible notes was $0 as the terms of exchange rate differential payment expired on September 29, 2012. Accordingly, the amount to be paid due to the exchange difference in the principal was $20,107, which was recorded in accrued expenses and other liabilities as of September 30, 2012.

The Company used the Black-Scholes Model to value the options at the time they were granted. The following table summarizes the assumptions used in the Black-Scholes Model when calculating the fair value of the options at the grant dates (for 2011, as there were no grants in 2012).

Derivative liability from convertible notes	December 31, 2011			September 30, 2012

Estimated forward rate		6.34			-
Discount rate		0.64	%		-
Discount factor		0.995			-

Fair value	$	21,274		$	-

Fair value per share	$	0.39- $ 0.47
Expected Term(Years)		4.00-5.56
Exercise Price	$	0.73
Expected Volatility		72%-76	%
Risk Free Interest Rate		1.16%-1.82	%

Derivative liability associated with warrants issued in connection with convertible notes:

Since the Company does not have sufficient applicable history of employee stock options activity, the Company uses the simplified method to estimate the life of the options by taking the sum of the vesting period and the contractual life and then calculating the midpoint which is the estimated term of the options.

	December 31, 2011			September 30, 2012
Number of shares exercisable		1,388,889			1,388,889
Stock price		0.38			0.30
Exercise price		1.8			1.8
Expected dividend yield (d)		-			-
Expected life (in years) (c)		2.39			1.64
Risk-free interest rate (a)		0.32	%		0.21	%
Expected volatility (b)		61	%		60	%
Fair Value:
Derivative liability - warrants issued in connection with Convertible Notes		20,920			8,188

~~For~~(a) ~~the~~The ~~three months~~risk-free ~~ended~~interest ~~June~~rate ~~30,~~is ~~2011~~based ~~and~~on ~~2012, the Company recognized $205,815 and $7,067 of compensation expense, respectively~~U.S. ~~For~~Treasury ~~the~~securities ~~six~~with ~~months~~compatible ~~ended~~life ~~June 30, 2011 and 2012, the Company recognized $241,068 and $14,133 of compensation expense, respectively~~terms.

~~Following~~(b) isDue ato ~~summary~~the short trading history of the ~~status~~Company’s stock, the Company uses the volatility of ~~options outstanding~~ atcomparable ~~June~~guideline ~~30,~~companies ~~2012:~~to estimate volatility.

Outstanding Options						Exercisable Options
				Remaining						Remaining
Exercise				contractual		Exercise				contractual
price		Number		term (years)		price		Number		term (years)
$	0.73		60,000		7.25	$	0.73		60,000		7.25
$	0.73		500,000		7.00	$	0.73		500,000		7.00
$	0.73		60,000		9.00	$	0.73		30,000		9.00
$	0.73		60,000		9.00	$	0.73		30,000		9.00
	Total		680,000						620,000

(c)

The expected life of the conversion feature of the notes was based on the term of the notes and the expected life of the warrants was determined by the expiration date of the warrants.

~~Following~~(d) isThe aexpected ~~summary~~dividend ofyield was based on the ~~option~~fact ~~activity:~~that the Company has not paid dividends to common shareholders in the past and does not expect to pay dividends to common shareholders in the future.

Outstanding as of December 31, 2010			560,000
Granted			120,000
Forfeited			-
Exercised			-
Outstanding as of December 31, 2011			680,000
Granted			-
Forfeited			-
Exercised			-
Outstanding as of June 30, 2012			680,000
Vested and exercisable as of June 30, 2012			620,000

34Note 13 - Stock-Based Compensation

~~Note~~Stock ~~14– Interest Expense, Net~~Option Plan

~~For~~In aSeptember 2008, ~~detailed~~the ~~discussion~~board of ~~borrowings~~directors ~~and~~approved ~~balances~~the ~~underlying interest~~Company’s ~~expense,~~Stock ~~see~~Option ~~Note~~Plan 7.and ~~Interest~~granted ~~income~~335,000 ~~recorded~~options ~~for~~to ~~Zhenjiang~~acquire ~~Kailin~~the Company’s common stock at $2.90 per share to five non-employee directors and ~~Jiangsu~~consultants ~~SOPO~~under ~~long~~the ~~term~~2008 ~~accounts~~Plan. The ~~receivable~~option plan was revised ~~accretion,~~and ~~which~~approved isat the ~~cause~~shareholders’ meeting as of ~~increases~~November in20, ~~interest~~2011 ~~income~~(there were no significant changes impacting valuation or accounting for ~~the~~share ~~comparative~~based ~~periods,~~compensation). isDetailed ~~further~~terms of the plan are described inas ~~Note~~follows 14with each grant.

	Three months ended June 30,
	2011			2012
Interest on current portion of long term loan	$	59,632			173,549
Interest on long-term loans		164,076			-
Amortization of deferred financing costs		74,352			-
Accretion to face value on loans		105,692			49,618
Expense of common stock issued in relation to long term loan		144,498			-
Interest on short-term loans and letters of credit		62,721			273,993
Bank note discount interest		511			56,913
Interest capitalized		-			(18,038	)
Interest income		(5,743	)		(437,004	)
Total	$	605,739			99,031

Stock Options

	Six months ended June 30,
	2011			2012
Interest on current portion of long term loan	$	187,651			341,749
Interest on long-term loans		323,094			-
Amortization of deferred financing costs		148,704			-
Accretion to face value on loans		158,049			95,655
Expense of common stock issued in relation to long term loan		144,498			-
Common stock issued in relation to consulting services		40,308
Interest on short-term loans and letters of credit		126,122			518,385
Bank note discount interest		84,178			56,913
Warrant cancellation		(15,547	)		-
Interest capitalized		-			(43,078	)
Interest income		(221,793	)		(439,804	)
Total	$	975,264			529,820

On June 24, 2009, the Company appointed one independent director and granted him stock options to purchase 500,000 shares of the Company’s common stock. The options will vest and become exercisable in eight equal installments evenly spread out during the three year period beginning from July 1, 2009. On September 7, 2009, the Company appointed another independent director and granted her a stock option to purchase 60,000 shares of the Company’s common stock; these options fully vested by October 2011. Unvested options shall be terminated and forfeited upon the termination of a holder’s director status.

~~Note~~On 15June –7, 2011, ~~Other~~the ~~Non-operating~~Board of Directors resolved to modify these option grants and adjusted the exercise price of one incumbent director’s ~~Income~~options ~~(Expense)~~from $1.22 to $0.73 per share and another director’s options from $1.58 to $0.73 per share. The Board also resolved to accelerate the vesting period of one retired director, ~~Net~~such that all the shares underlying the option were deemed vested as of June 7, 2011. The total incremental compensation cost in respect of such acceleration and option modification was $202,106, which was recorded in the second quarter of 2011.

~~Other~~On ~~non-operating~~June ~~expenses~~13, 2011, ~~consist~~with ~~primarily~~the resignation of two former directors, the Company appointed another two directors and granted them both stock options to purchase 60,000 shares of ~~foreign~~the ~~exchange~~Company’s ~~losses~~common onstock. ~~purchasing~~The ~~transactions~~options will vest and become exercisable in eight equal quarterly installments evenly spread out during the two year period beginning from July 1, 2011. Unvested options shall be terminated and forfeited upon the termination of a holder’s director status.

	For the three months ended June 30,
	2011			2012
	(Note 2(v))
Foreign exchange losses (gains)		240,156			(225,475	)
Other non-operating expenses (income)		(26,646	)		(46,561	)
Total other non-operating expenses (income), net	$	213,510		$	(272,036	)

Fair value per share			$ 0.39- $ 0.47
Expected Term(Years)			4.00-5.56
Exercise Price			$0.73
Expected Volatility			72%-76%
Risk Free Interest Rate			1.16%-1.82%

	For the six months ended June 30,
	2011		2012
	(Note 2(v))
Foreign exchange losses (gains)		394,191		(248,742	)
Other non-operating expenses (income)		9,936		(83,351	)
Total other non-operating expenses (income), net	$	404,127	$	(332,093	)

AsFor ~~further~~the ~~described~~three months inended ~~Note~~September ~~2(v)~~30, ~~foreign exchange~~2011 ~~losses~~and ~~were~~2012, ~~adjusted~~the ~~for~~Company ~~2011~~recognized ~~quarterly~~$12,090 ~~periods~~and ~~pursuant~~$7,067 toof acompensation ~~restatement~~expense, ofrespectively. For the ~~Company’s~~nine ~~quarterly~~months ~~financial~~ended ~~statements for~~September ~~the~~30, ~~first~~2011 and 2012, ~~second~~the Company recognized $253,158 and ~~third~~$21,200 ~~quarters~~ of ~~2011~~compensation expense, respectively.

The transaction gains for the three and six months ended June 30, 2012 arose as a result of cash advances made for purchase transactions in which goods were acquired outside of mainland China and imported to the Company’s onshore PRC subsidiaries. Appreciation of the U.S. dollar against the RMB over the six months ended June 30, 2012 led to an increase in the RMB value of purchased goods subsequently received relative to the asset already recorded for the refundable purchase advance, resulting in gains as the RMB value of assets physically received exceeded the RMB value of the refundable purchase advances originally recorded.37

~~Note~~Following 16is a –summary of the status of options ~~Related~~outstanding ~~Party~~at ~~Transactions~~September 30, 2012:

On February 1, 2010, Mr. Qinghuan Wu arranged for a $1,000,000 loan from Haide, a company controlled by Mr. Qinghuan Wu, to the Company. The proceeds of this loan were used by CER Yangzhou for additional paid-in capital which helped fund the Company’s new plant in Yangzhou, China. The loan was an interest only loan, bearing interest at the annual rate of 9.5%, and was unsecured. The Company paid the sum of $23,750 at the end of every three calendar months. The principal is due in full on January 30, 2012, hence the remaining loan is classified as long-term loan to be repaid within one year. The loan is unsecured and there are no guarantees of the interest or principal. Shanghai Engineering has subordinated its loan to those under the loan agreements. The Company repaid principal of $ 460,000 in December 2010. On October 10, 2011, CER paid the remaining outstanding principal due under the long-term loan. The prepayment sum of $548,550 represented the principal amount and the interest due.

Outstanding Options						Exercisable Options
				Remaining						Remaining
Exercise				contractual		Exercise				contractual
price		Number		term (years)		price		Number		term (years)

$	0.73		60,000		7.00	$	0.73		60,000		7.00
$	0.73		500,000		6.75	$	0.73		500,000		6.75
$	0.73		60,000		8.75	$	0.73		37,500		8.75
$	0.73		60,000		8.75	$	0.73		37,500		8.75
	Total		680,000						635,000

OnFollowing ~~October~~is ~~20, 2011, CER (Hong Kong) entered into an advanced payment agreement amounting to $669,800 with Haide,~~ a ~~company~~summary ~~controlled by Mr. Qinghuan Wu. The substance~~ of ~~this~~ ~~arrangement was a short term borrowing from a related party. Pursuant to~~ the ~~agreement, Haide on behalf of CER (Hong Kong)~~option paid to certain vendors $450,000 on October 20, 2011 and $219,800 on November 1, 2011, respectively. The terms of the agreement provide for zero interest. CER (Hong Kong) repaid $550,000 to Haide on November 25, 2011. As of June 30, 2012, the remaining balance of $119,800 was recorded in accrued expenses and other liabilities.activity:

In March 2012, Mrs. Jialing Zhou, a shareholder and wife of Mr. Qinghuan Wu, provided an interest-free loan of RMB 1,600,000 (approximately $251,856) to Shanghai Engineering by two installments. The remaining balance of RMB 1,600,000 (approximately$251,856) is expected to be repaid by the end of August, 2012 and is classified in accrued expenses and other liabilities.

Outstanding as of December 31, 2010			560,000
Granted			120,000
Forfeited			-
Exercised			-
Outstanding as of December 31, 2011			680,000
Granted			-
Forfeited			-
Exercised			-
Outstanding as of September 30, 2012			680,000
Vested and exercisable as of September 30, 2012			635,000

36Note 14– Interest Expense, Net

For a detailed discussion of borrowings and balances underlying interest expense, see Note 7. Interest income recorded for Zhenjiang Kailin’s and ~~EPC~~Jiangsu ~~project~~SOPO long term accounts receivable accretion, which is the cause of increases in interest income for the comparative periods, is further described in Note 14.

On January 8, 2011, CER signed a contract for the design, manufacture, and installation of a major waste heat recovery system with Zhenjiang Kailin Clean Heat Energy Co., Ltd. (“Zhenjiang Kailin”) of Zhenjiang City. The contract was valued at RMB 300 million (approximately $46 million), including the engineering part of RMB 8 million (approximately $1 million), procurement part of RMB 240 million (approximately $37 million) and construction part of RMB 52 million (approximately $8 million). The system, which is now completed, is part of a new sulfuric acid plant and is capable of producing up to 122 tons of steam-per-hour at 485° C and 5.4 MPa from operations at the plant. Transactions between CER and Zhenjiang Kailin are presented as related party transactions because the Chairman, Chief Executive Officer and majority shareholder of Green Asia Resources, Inc. (“Green Asia”), the parent company of Zhenjiang Kailin, is the owner of a significant creditor, Hold and Opt Investments Limited (as discussed in Note 7, Short-Term Loans) and is a less than 5% shareholder of CER, our executive officers own, as a result of a private placement and prior consulting arrangement, a small number (less than 1%) of shares in Green Asia, and, that at the time the contract was signed, a less than 5% shareholder of both CER and Green Asia was a member of CER’s Board of Directors. Management of each company is different and the directors at Green Asia and Zhenjiang Kailin are independent of CER. For the three and six months ended June 30, 2012, revenue earned from the contract amounted to $816,571 and $6,647,487, respectively.

	Three months ended September 30,
	2011			2012
Interest on current portion of long term loan	$	161,651			179,06
Interest on long-term loans		12,825			-
Amortization of deferred financing costs		66,919			-
Accretion to face value on loans		40,535			53,401
Interest on short-term loans and letters of credit		98,370			278,855
Debt issue cost amortization		-			7,747
Bank note discount interest		566			30,141
Expense of exchange rate differential payment in relation to formerly convertible debt		-			20,107
Interest capitalized		(6,829	)		(12,304	)
Interest income		(3,637	)		(500,312	)
Total	$	370,400			56,703

~~Guarantees related to Zhenjiang Kailin project~~38

On November 25, 2011, CER Yangzhou entered into the first of two guaranty contracts regarding the Zhenjiang Kailin contract with third party CGN Energy Service Co., Ltd. (“CGN Energy”). CER Yangzhou and Zhenjiang Kailin agreed to engage CGN Energy to provide financing for a portion of the project contract price. CER sold certain equipment integral to the project to CGN Energy at a price of RMB24.1 million (approximately $3.82 million). As the financing party, CGN Energy resold the equipment to Zhenjiang Kailin via a structured payment arrangement covering a 24 month period. The substance of this transaction is Zhenjiang Kailin obtaining financing from third party CGN Energy to pay CER. CER Yangzhou entered into a guaranty contract with CGN Energy for the equipment sold, which was installed in the sulfuric acid waste heat recovery project. If there is any default by Zhenjiang Kailin, the first in guarantee order is Zhenjiang Kailin’s pledge for payment of its structured note with CGN Energy. The second in guarantee order is Jiangsu SOPO, a third party customer of CER and related party of Zhenjiang Kailin. Third in guarantee order is CER Yangzhou, which provided CGN Energy with an unconditional and irrevocable guarantee with joint responsibility to ensure that Zhenjiang Kailin will fulfill the duties and responsibilities to pay CGN Energy on time under the project contract. The amount of the guarantee, RMB 24.1 million, represents 7.8% of the RMB300 million project price.

	Nine months ended September 30,
	2011			2012
Interest on current portion of long term loan	$	484,745			520,817
Interest on long-term loans		200,476			-
Amortization of deferred financing costs		215,623			-
Accretion to face value on loans		198,584			149,055
Expense of common stock issued in relation to long term loan		144,498			-
Common stock issued in relation to consulting services		40,308			-
Interest on short-term loans and letters of credit		224,492			797,240
Debt issue cost amortization		-			7,747
Bank note discount interest		84,744			87,055
Warrant cancellation		(15,547	)		-
Expense of exchange rate differential payment in relation to formerly convertible debt		-			20,107
Interest capitalized		(6,829	)		(55,382	)
Interest income		(225,430	)		(940,116	)
Total	$	1,345,664			586,523

OnNote ~~March 20, 2012, CER and Zhenjiang Kailin~~15 ~~agreed~~– toOther ~~engage~~Non-operating ~~CGN~~Income ~~Energy to provide financing for another portion of the project contract price~~ (~~similar to the financing arrangement with CGN Energy in 2011~~Expense)~~. CER sold certain equipment integral to the project to CGN Energy at a price of RMB30 million (approximately $4.8 million). As the financing party~~, CGN Energy resold the equipment to Zhenjiang Kailin via a structured payment arrangement covering a 24 month period. CER Yangzhou also entered into a second guaranty contract with CGN Energy for the equipment sold, which was installed in the sulfuric acid waste heat power generation project. The guarantee contract is of the same character as the first financing arrangement, Zhenjiang Kailin’s pledge for payment of its structured note with CGN Energy is in the first guarantee order, Jiangsu SOPO in second guarantee order and CER Yangzhou in the third guarantee order, which provided CGN Energy with an unconditional and irrevocable guarantee with joint responsibility to ensure that Zhenjiang Kailin will fulfill the duties and responsibilities to pay CGN Energy on time under the project contract. The amount of the guarantee, RMB 30 million, represents 10% of the RMB 300 million project price.Net

37Other non-operating expenses consist primarily of foreign exchange losses on purchasing transactions.

There are no other guarantees for any other elements of the Zhenjiang Kailin project. The Company assessed the arrangement under SAB 104 revenue recognition criteria and concluded the criteria, particularly the criterion regarding collectability being reasonably assured, were met. As a similar guaranty could be obtained from a third party financial institution and performance of the contract is probable, the Company separated the deliverable represented by the guaranty from the rest of the contract price and recognized the initial fair value of the guaranty liability arising from the guaranty contract as deferred revenue. As of June 30, 2012, the deferred revenue was $178,975. This amount will be amortized to revenue according to applicable GAAP accounting requirements as the underlying structured payment obligation is satisfied by Zhenjiang Kailin’s payments to CGN Energy. As of June 30, 2012, Zhenjiang Kailin has made all required payments to CGN Energy in compliance with the payment schedule.

	For the three months ended September 30,
	2011			2012
	(Note 2(v))

Foreign exchange losses		578,086			152,652
Other non-operating income		(908,627	)		(80,035	)
Total other non-operating expenses (income), net		(330,541	)		72,617

Zhenjiang Kailin EPC project penalty and upgrade contract

	For the nine months ended September 30,
	2011			2012
	(Note 2(v))

Foreign exchange losses (gains)		972,277			(96,090	)
Other non-operating income		(898,691	)		(163,386	)
Total other non-operating expenses (income), net		73,586			(259,476	)

OnAs ~~May 8, 2012, CER and Zhenjiang Kailin~~further ~~entered~~described ~~into~~in anNote ~~agreement whereby CER was to pay Zhenjiang Kailin RMB 8.9 million~~ 2(~~approximately $1.5 million~~v), asforeign aexchange ~~penalty (“the penalty”) for the economic~~ losses ~~suffered~~were byadjusted ~~Zhenjiang~~for ~~Kailin resulting from project delays past the originally expected completion date of December 31,~~ 2011. ~~The~~quarterly ~~original~~periods ~~contract~~pursuant ~~for the construction of the facility did not contain any provisions for late completion or liquidated damages. As part of this agreement, CER agreed~~ to ~~assumed~~a ~~additional~~restatement ~~costs to bring the capacity~~ of the ~~sulfuric acid waste heat recovery system to original specifications and to install additional electric utilities. The penalty~~Company’s ~~payment~~quarterly isfinancial ~~included~~statements infor the ~~accrued~~first, ~~expenses~~second, and ~~other~~third ~~liabilities~~quarters as of ~~June 30, 2012~~2011.

~~Also,~~The ~~subsequent~~transaction gains tofor the ~~first~~three ~~quarter, on~~and ~~the~~nine ~~same~~months ~~date~~ended September 30, ~~the~~2012 ~~two~~arose ~~parties~~as ~~also~~a ~~signed~~result anof ~~upgrade~~cash ~~contract~~advances made for ~~the~~purchase ~~same~~transactions in ~~facility~~which ~~valued~~goods atwere ~~RMB~~acquired 8outside ~~million~~of ~~(approximately $1.2~~mainland ~~million).~~China ~~The~~and ~~purpose~~imported ofto the ~~enhancements~~Company’s ~~contemplated~~onshore inPRC ~~this~~subsidiaries. ~~contract~~Appreciation of ~~was~~the toU.S. ~~raise~~dollar against the ~~capacity~~RMB ofover the ~~system~~nine ~~from~~months ~~800k tons~~ended September 30, 2012 led to ~~900k~~an ~~tons~~increase in the RMB value of ~~sulfuric~~purchased goods ~~acid~~subsequently ~~per~~received ~~year.~~relative ~~This~~to ~~enhancement~~the ~~project~~asset ~~was~~already ~~completed~~recorded atfor the ~~end~~refundable ofpurchase ~~May~~advance, ~~2012~~resulting ~~and~~in ~~permits~~gains ~~$1.2 million~~as the RMB value of ~~additional~~assets ~~billings~~physically ~~which~~received ~~are~~exceeded ~~included~~the inRMB ~~current~~value ~~accounts~~of ~~receivable~~the onrefundable anpurchase ~~undiscounted~~advances ~~basis~~originally recorded.

~~Zhenjiang Kailin payment schedule and discounting of receivables~~39

AsOther ~~further~~non-operating income ~~described~~mainly inconsisted ~~Note~~of 3subsidy ~~regarding accounts~~income ~~receivable,~~received ~~subsequent~~by toCER ~~March~~Yangzhou ~~30,~~from ~~2012~~a ~~CER~~research and ~~Zhenjiang~~development ~~Kailin~~fund ~~agreed~~from ~~to revise~~ the ~~payment~~Yizheng ~~schedule of outstanding~~industrial ~~accounts~~park. ~~receivable~~This ~~(excluding~~subsidy ~~the~~income ~~enhancement~~is ~~project~~not ~~completed~~tied atto ~~the~~any ~~end~~specific element of ~~May 2012 described in~~ the ~~preceding section~~business, ~~for which~~and ~~receivables~~cannot ~~are~~be ~~current~~reclaimed inby ~~nature)~~the asresearch ~~below.~~and ~~These amounts represent undiscounted payments~~development fund.

Maturity date	Amount due
August 31, 2012		4,722,300
June 30, 2013		2,833,380
September 30, 2013		3,148,200
December 31, 2013		3,302,851
Total		14,006,731

Note 16 – Related Party Transactions

AsOn ~~further~~February 1, ~~described~~2010, inMr. Qinghuan Wu arranged for a $1,000,000 loan from Haide, a company controlled by Mr. Qinghuan Wu, to the Company. The proceeds of this loan were used by CER Yangzhou for additional paid-in capital which helped fund the Company’s ~~filing~~new plant onin ~~Form~~Yangzhou, ~~10-Q~~China. ~~for~~The loan bore interest at the ~~quarter~~annual ~~ended~~rate ~~March~~of ~~31,~~9.5% ~~2012~~and was unsecured. The Company paid the sum of $23,750 at the ~~undiscounted~~end ~~payments~~of ~~depicted~~every inthree ~~the~~calendar ~~foregoing~~months. ~~table~~The ~~were~~principal ~~discounted~~is ~~pursuant to~~due ~~applicable~~in ~~accounting~~full ~~guidance~~on January 30, ~~with~~2012; hence the ~~discount,~~remaining ~~which~~loan ~~represented~~is anclassified as ~~apportionment~~long-term ofloan ~~the~~to ~~total~~be ~~agreed~~repaid ~~contract~~within ~~value~~one year. Shanghai Engineering has subordinated its loan to those under the loan agreements. ~~future~~The ~~interest~~Company ~~income~~repaid ~~rather~~principal ~~than~~of ~~revenue~~$460,000 ~~reflected~~ in ~~revenue~~December ~~for~~2010. On October 10, 2011, CER paid the ~~quarter~~remaining ~~then~~outstanding ~~ended~~principal and interest of $548,550 under the long-term loan.

38On October 20, 2011, CER (Hong Kong) entered into an advanced payment agreement amounting to $669,800 with Haide, a company controlled by Mr. Qinghuan Wu. The substance of this arrangement was a short term borrowing from a related party. Pursuant to the agreement, Haide on behalf of CER (Hong Kong) paid to certain vendors $450,000 on October 20, 2011 and $219,800 on November 1, 2011, respectively. The terms of the agreement provide for zero interest. CER (Hong Kong) repaid $550,000 to Haide on November 25, 2011. As of September 30, 2012, the remaining balance of $119,800 was recorded in accrued expenses and other liabilities.

In ~~August~~March 2012, ~~based on developments subsequent~~ ~~to the balance sheet date, including communication with Zhenjiang Kailin, it was determined that the first payment would be delayed to December 2012~~Mrs. ~~Zhenjiang~~Jialing Kailin only begun to generate cash flow commencing in May 2012 due to the delayed opening of its facility following CER’s completion thereof and required extra time to pay by December 2012. There were no other payment installments that were subject to delayZhou, ~~and~~a ~~based~~significant ~~upon~~shareholder ~~an evaluation of all the facts~~ and ~~circumstances,~~wife ~~including consideration~~ of ~~the counterparty’s financial flexibility and liquidity, the Company determined that it expected to fully collect all amounts due over the revised payment schedule~~Mr. ~~After~~Qinghuan ~~considering the further extension of the first installment payment to December 31~~Wu, ~~2012,~~provided ~~the~~an ~~Company reassessed the discount impact applicable to this payment extension using the original~~ interest ~~rate of 10.65% (which considered the risk~~ -free ~~rate~~loan ~~and Zhenjiang Kailin’s credit risk) and reflected the related discount about~~ of ~~$161,871~~RMB ~~in the remaining project revenue. The discounts reflected as reductions to revenue in the statement of operations arising from this extension of payment terms were $161,871 and $~~1,~~706~~900,~~280~~000 ~~for the three and six months ended June 30, 2012, respectively; the accretion for interest income~~(approximately ~~included in interest income was~~ $~~329~~251,~~435~~856) ~~for the six months ended June 30, 2012 (there was no accretion for the quarter ended March 31, 2012 due~~ to ~~the~~Shanghai ~~timing~~Engineering ofby ~~the~~several ~~repayment agreement)~~installments. OfThe ~~the~~ total ~~balance~~amount ofwas ~~$13,912,027~~repaid as of ~~accounts~~September ~~receivable at June~~ 30, ~~2012,~~ ~~$5,613,367 represented the non-current balance due from Zhenjiang Kailin which is to be collected in over one year; the remaining $8,298,660 is included in current receivables~~2012.

Pursuant to applicable construction contract accounting and other accounting guidance, the additional $1.2 million of revenue for the system upgrade project, the $1.5 million penalty for economic losses incurred by CER’s customer, and the discount effects arising from the payment term extensions were added to (or subtracted from, for the latter two items) the total contract revenue for the Zhenjiang ~~Kailin project. The Company~~ ~~re-assessed all developments regarding this project, including the two guaranty arrangements entered into and the extensions afforded to Zhenjiang~~ Kailin ~~for~~EPC remaining payments, under SAB 104 revenue recognition criteria and concluded the criteria, particularly the criterion regarding collectability being reasonably assured, were met. Accordingly, the deferred revenue related to the guaranty arrangements, and the discounts reflected in revenue for the payment extensions afforded to Zhenjiang Kailin, will be reflected as future interest income. As of August 2012, CER management concluded, on the basis of discussions with and evaluation of the counterparty’s financial viability and financing sources, that repayment was not significantly in question, but will continue to monitor the counterparty’s financial viability. Further supporting management’s conclusions was the fact that Zhenjiang Kailin has made required payments to date on a timely basis, excluding only the August installment delay.project

~~For~~On January 8, 2011, CER signed a contract for the ~~three~~design, manufacture, and ~~six~~installation ~~months~~of ~~ended~~a ~~June~~major waste heat recovery system with Zhenjiang ~~30,~~Kailin ~~2012~~Clean Heat Energy Co., ~~revenue~~Ltd. ~~earned~~(“Zhenjiang ~~from~~Kailin”) ~~the~~of Zhenjiang City. The contract ~~amounted~~was tovalued at RMB 300 million (approximately $~~816~~46 million),~~571~~ ~~and~~including the engineering part of RMB 8 million (approximately $61 million),~~647,487~~ procurement part of RMB 240 million (approximately $37 million) and construction part of RMB 52 million (approximately $8 million). The ~~cost~~system, which is now completed, is part of ~~revenues~~a ~~associated~~new ~~with~~sulfuric ~~the~~acid ~~original~~plant and is capable of producing up to 122 tons of steam-per-hour at 485° ~~contract~~C and 5.4 MPa from operations at the ~~additional~~plant. ~~agreements~~Transactions ~~entered~~between ~~into~~CER ~~was~~and $1Zhenjiang Kailin are presented as related party transactions because the Chairman,~~007,693~~ Chief Executive Officer and $8majority shareholder of Green Asia Resources,~~512~~ Inc. (“Green Asia”),~~994~~ the ~~for~~parent company of Zhenjiang Kailin, is the ~~three~~owner of a significant creditor, Hold and ~~six~~Opt ~~months~~Investments ~~ended~~Limited ~~June~~(as 30discussed in Note 7, ~~2012.~~Short-Term Loans) and is a less than 5% shareholder of CER, our executive officers own, as a result of a private placement ~~The~~and ~~revenue~~prior consulting arrangement, a small number (less ~~the~~than ~~discount~~1%) ~~effects~~of ~~reflected~~shares in ~~revenue~~Green Asia, and, ~~penalty~~that ~~assumed~~at ~~reflected~~the intime ~~revenue~~the contract was signed, a less than 5% shareholder of both CER and Green Asia was ~~not~~a ~~fully~~member ~~offset~~of byCER’s ~~the additional~~Board ~~revenue~~of ~~agreed~~Directors. ~~to;~~Management ~~further,~~of ~~additional~~each company ~~incurred~~is ~~costs~~different ~~reduced~~and the ~~margin~~directors onat ~~the~~Green ~~project~~Asia toand ~~negative~~Zhenjiang ~~25%~~Kailin ~~for~~are independent of CER. For the ~~six months~~three and nine months ended ~~June~~September 30, 2012, revenue earned from the contract amounted to $12,672 and $6,660,158, respectively.

~~Note 17 – Retirement Benefits~~40

~~As stipulated by the relevant laws and~~Guarantees ~~regulations~~related ~~applicable~~ to ~~enterprises~~Zhenjiang ~~operating~~Kailin in the PRC, the Company and its PRC subsidiaries and affiliates are required to maintain a defined contribution retirement plan for all of its employees who are residents of the PRC. The Company contributes to a statutory government retirement plan approximately 22% of the base salary of each of its employees and has no further obligations for the actual pension payments or post-retirement benefits beyond the annual contributions. The statutory government retirement plan is responsible for the entire pension obligations payable for all past and present employees.project

~~The~~On ~~Company~~November 25, ~~made~~2011, ~~contributions~~CER Yangzhou entered into the first of ~~$46,783~~two guaranty contracts regarding the Zhenjiang Kailin contract with third party CGN Energy Service Co., Ltd. (“CGN Energy”). CER Yangzhou and Zhenjiang Kailin agreed to engage CGN Energy to provide financing for a portion of the project contract price. CER sold certain equipment integral to the project to CGN Energy at a price of RMB24.1 million (approximately $~~138~~3.82 million). As the financing party,~~967~~ CGN Energy resold the equipment to Zhenjiang Kailin via a structured payment arrangement covering a 24 month period. The substance of this transaction is Zhenjiang Kailin obtaining financing from third party CGN Energy to pay CER. CER Yangzhou entered into a guaranty contract with CGN Energy for ~~employment~~the ~~benefits~~equipment sold, ~~including~~which ~~pension~~was ~~payments~~installed ~~for~~in the ~~three~~sulfuric ~~months~~acid ~~ended~~waste ~~June~~heat ~~30,~~recovery ~~2011~~project. ~~and~~If ~~2012~~there is any default by Zhenjiang Kailin, ~~respectively.~~the first ~~The~~in ~~Company~~guarantee ~~made~~order ~~contributions~~is Zhenjiang Kailin’s pledge for payment of ~~$114~~its structured note with CGN Energy. The second in guarantee order is Jiangsu SOPO,~~158~~ a third party customer of CER and ~~$276,775~~related ~~for~~party ~~employment~~of ~~benefits~~Zhenjiang Kailin. Third in guarantee order is CER Yangzhou, which ~~including~~provided ~~pension~~CGN ~~payments~~Energy ~~for~~with ~~the~~an ~~six~~unconditional ~~months~~and irrevocable guarantee with joint responsibility to ensure that Zhenjiang Kailin ~~ended~~will ~~June~~fulfill ~~30,~~the ~~2011~~duties and ~~2012~~responsibilities to pay CGN Energy on time under the project contract. The amount of the guarantee, RMB ~~respectively~~24.1 million, represents 7.8% of the RMB300 million project price.

39On March 20, 2012, CER and Zhenjiang Kailin agreed to engage CGN Energy to provide financing for another portion of the project contract price (similar to the financing arrangement with CGN Energy in 2011). CER sold certain equipment integral to the project to CGN Energy at a price of RMB30 million (approximately $4.8 million). As the financing party, CGN Energy resold the equipment to Zhenjiang Kailin via a structured payment arrangement covering a 24 month period. CER Yangzhou also entered into a second guaranty contract with CGN Energy for the equipment sold, which was installed in the sulfuric acid waste heat power generation project. The guarantee contract is of the same character as the first financing arrangement, Zhenjiang Kailin’s pledge for payment of its structured note with CGN Energy is in the first guarantee order, Jiangsu SOPO in second guarantee order and CER Yangzhou in the third guarantee order, which provided CGN Energy with an unconditional and irrevocable guarantee with joint responsibility to ensure that Zhenjiang Kailin will fulfill the duties and responsibilities to pay CGN Energy on time under the project contract. The amount of the guarantee, RMB 30 million, represents 10% of the RMB 300 million project price.

~~Note~~On October 18 –, ~~Statutory~~2012, ~~Reserves~~CER (Yangzhou) entered into a guaranty contract with Zhenjiang Kailin and CGN Energy in connection with a third financing for Zhenjiang Kailin project (similar to the financing arrangement with CGN Energy in 2011). CER Shanghai and Shanghai Engineering signed two contracts to sell certain equipment integral to the Zhenjiang Kailin sulfuric acid waste heat power generation project to CGN Energy each at a price of RMB9.9 million (approximately $1.57 million), for a total amount RMB 19.8 million (approximately $3.14 million). As the financing party, CGN Energy resold the equipment to Zhenjiang Kailin via a structured payment arrangement covering a 30 month period at a price of RMB23.4 million ( approximately $3.7 million).

AsThere ~~stipulated~~are byno other guarantees for any other elements of the ~~relevant~~Zhenjiang ~~laws~~Kailin ~~and regulations~~project. ~~applicable~~The toCompany ~~enterprises~~assessed ~~operating~~the inarrangement under SAB 104 revenue recognition criteria and concluded the ~~PRC~~criteria, particularly the ~~Company~~criterion ~~and~~regarding ~~its~~collectability ~~PRC~~being ~~subsidiaries~~reasonably ~~and~~assured, were ~~affiliates~~met. ~~are~~As ~~required~~a ~~to make~~similar ~~annual~~guaranty ~~appropriations~~could tobe obtained from a ~~statutory~~third ~~surplus~~party ~~reserve~~financial ~~fund.~~institution ~~Specifically~~and performance of the contract is probable, the Company isseparated ~~required~~the todeliverable ~~deposit~~represented ~~10%~~by the guaranty from the rest of ~~its~~the ~~profits~~contract price and recognized ~~after~~the ~~taxes,~~initial fair value of the guaranty liability arising from the guaranty contract as ~~determined~~deferred inrevenue ~~accordance~~based ~~with~~on the ~~PRC~~quote ~~accounting~~guarantee fee ~~standards~~percentage ~~applicable~~for toloans with similar terms from financial institutions. As of September 30, 2012, the ~~Company~~deferred revenue was $154,273. This amount will be amortized to arevenue ~~statutory~~according ~~surplus~~to ~~reserve~~applicable GAAP accounting requirements as the underlying structured payment ~~until~~obligation ~~such~~is ~~reserve~~satisfied ~~reaches~~by ~~50%~~Zhenjiang ofKailin’s ~~the~~payments ~~registered~~to ~~capital~~CGN Energy. As of September 30, 2012, Zhenjiang Kailin has made all required payments to CGN Energy in compliance with the ~~Company~~payment schedule.

The transfer to these reserves must be made before distribution of any dividends to shareholders. For the years ended December 31, 2011, there were $376,794 of transfers to statutory reserves for these subsidiaries and affiliates of the Company generating profits. Statutory reserves were $509,596 as of December 31, 2011 and June 30, 2012.41

~~The surplus~~Zhenjiang ~~reserve~~Kailin ~~fund~~EPC isproject ~~non-distributable~~penalty ~~other than during liquidation~~ and ~~can~~upgrade be used to fund previous years' losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such issue is not less than 50% of the registered capital. The remaining required contributions to the statutory reserves required were approximately $ 8,015,475 as of June 30, 2012. contract

~~Note~~On 19May –8, ~~Commitments~~2012, CER and ~~Contingencies~~Zhenjiang Kailin entered into an agreement whereby CER was to pay Zhenjiang Kailin RMB 8.9 million (approximately $1.5 million) as a penalty (“the penalty”) for the economic losses suffered by Zhenjiang Kailin resulting from project delays past the originally expected completion date of December 31, 2011. The original contract for the construction of the facility did not contain any provisions for late completion or liquidated damages. As part of this agreement, CER agreed to assume additional costs to bring the capacity of the sulfuric acid waste heat recovery system to original specifications and to install additional electric utilities. The penalty payment is included in the accrued expenses and other liabilities as of September 30, 2012.

~~Subsequent~~Also, subsequent to the first quarter, on ~~May 8,~~the ~~2012~~same date, ~~CER~~the ~~and~~two ~~Zhenjiang~~parties ~~Kailin~~also ~~entered~~signed ~~into~~ an ~~agreement~~upgrade ~~whereby~~contract ~~CER~~for ~~will~~the ~~pay~~same ~~Zhenjiang~~facility ~~Kailin~~valued at RMB 8.9 million (approximately $1.52 million). asThe apurpose ~~penalty~~of ~~for~~ the ~~economic~~enhancements ~~loss~~contemplated ~~suffered~~in bythis ~~Zhenjiang~~contract ~~Kailin~~was ~~resulting~~to ~~from~~raise ~~project~~the ~~delays~~capacity of ~~past~~ the ~~originally expected~~system ~~completion~~from ~~date~~800k tons to 900k tons of ~~December~~sulfuric ~~31,~~acid ~~2011~~per year. ~~The~~This ~~penalty~~enhancement isproject ~~included~~was incompleted ~~accrued~~at ~~expenses~~the end of May 2012 and ~~other~~permits ~~liabilities~~$1.2 ~~See~~million ~~Note~~of 16additional ~~for further~~billings ~~details~~which are included in current accounts receivable on an undiscounted basis.

~~Note~~Zhenjiang Kailin 20payment –schedule ~~Subsequent~~and ~~events~~discounting of receivables

OnAs ~~March~~further described ~~29,~~in ~~2012,~~Note ~~CER~~3 ~~Shanghai~~regarding ~~entered into~~accounts areceivable, ~~loan~~subsequent ~~contract~~ to ~~borrow~~March ~~RMB 5~~30,~~000,000~~ ~~(approximately~~2012 ~~$795,000~~CER atand ~~the~~Zhenjiang ~~exchange~~Kailin ~~rate~~agreed atto ~~that~~revise ~~time) from Industrial and Commercial~~the ~~Bank~~payment schedule of ~~China~~outstanding ~~Limited,~~accounts ~~Zhangjiang~~receivable ~~Branch.~~(excluding ~~The~~the ~~loan~~enhancement ~~carries~~project ancompleted ~~annual~~at ~~interest~~the ~~rate~~end of ~~6.405%.~~May ~~The~~2012 ~~term~~described in of the ~~loan~~preceding ~~is six months commencing from March 29~~section, ~~2012.~~for Inwhich ~~mid-July,~~receivables ~~CER~~are ~~Shanghai~~current ~~repaid~~in ~~RMB~~nature) ~~3,000,000~~as ~~under~~below. ~~the~~These ~~repayment~~amounts ~~schedule~~represent ofundiscounted ~~the loan~~payments.

CER Shanghai began to repay RMB 900,000 per month to Shanghai Pudong Zhanjiang Micro-credit Co., Ltd from April 2012 under the loan contract of RMB 10 million described in Note 7. The loan carries an annual interest rate of 12% and the due date of the loan is February 20, 2013. Amounts totaling RMB 3,600,000 had been repaid as of August 15, 2012.

Maturity date	Amount due
December 31, 2012		4,773,300
June 30, 2013		2,863,980
September 30, 2013		3,182,200
December 31, 2013		3,338,521
Total		14,158,001

OnAs ~~August 10, 2012, CER signed two contracts~~further ~~with~~described ~~China Great Wall Industry Corporation (“Great Wall”) for sales and repurchases of certain goods within a 6-month period which~~ in ~~substance are a product financing arrangement. According to these two agreements,~~ CER’s ~~(Yangzhou)~~filing ~~will~~on ~~sell~~Form ~~certain equipment~~10-Q tofor ~~Great~~the ~~Wall~~quarter atended aMarch ~~price of RMB 32~~31,~~454,780~~ ~~(approximately $5~~2012,~~108,707).~~ ~~The~~the ~~funding~~undiscounted topayments ~~CER~~depicted ~~consists~~in ofthe ~~three components,~~foregoing ~~two~~table ofwere ~~which~~discounted ~~are~~pursuant ~~letters~~to ofapplicable ~~credit~~accounting ~~totaling RMB 30~~guidance,~~000,000;~~ ~~the~~with ~~rest is cash. At~~ the ~~same time~~discount, ~~Great~~which ~~Wall~~represented ~~agreed~~an toapportionment ~~resell~~of the ~~equipment~~total toagreed ~~CER~~contract ~~(Shanghai)~~value atto afuture ~~price~~interest ofincome ~~RMB~~rather ~~33,038,966~~than ~~(approximately $5~~revenue,~~200,664)~~ ~~via~~reflected ain ~~delayed~~revenue ~~collection arrangement as below, where such amounts represent payments due from CER to Great Wall (or a bank, if the letters of credit are tendered~~ for ~~cash equal to~~ the ~~principal~~quarter orthen ~~face value less the bank’s discount)~~ended.

40In August 2012, including discussions with Zhenjiang Kailin, it was determined that the first payment would be delayed to December 2012. Zhenjiang Kailin only begun to generate cash flow commencing in May 2012 due to the delayed opening of its facility following CER’s completion thereof and required extra time to pay by December 2012. There were no other payment installments that were subject to delay, and based upon an evaluation of all the facts and circumstances, including consideration of the counterparty’s financial flexibility and liquidity, the Company determined that it expected to fully collect all amounts due over the revised payment schedule. After considering the further extension of the first installment payment to December 31, 2012, the Company reassessed the discount impact applicable to this payment extension using the original interest rate of 10.65% (which considered the risk free rate and Zhenjiang Kailin’s credit risk) and reflected the related discount about of $161,871 in the remaining project revenue. The discounts reflected as reductions to revenue in the statement of operations arising from this extension of payment terms were $0 and $1,703,369 for the three and nine months ended September 30, 2012, respectively; the accretion for interest income included in interest income was $661,093 for the nine months ended September 30, 2012 (there was no accretion for the quarter ended March 31, 2012 due to the timing of the repayment agreement). Of the total balance of $14,396,913 of accounts receivable at September 30, 2012, $2,951,128 represented the non-current balance due from Zhenjiang Kailin which is to be collected in over one year; the remaining $11,445,785 is included in current receivables.

	RMB		USD
December 25, 2012		10,180,000		1,602,434
March 10, 2013		20,360,000		3,204,868
April 7, 2013		2,498,965		393,362
Total		33,038,965		5,200,663

InPursuant ~~substance,~~to applicable ~~Great~~construction ~~Wall~~contract isaccounting ~~substituting its~~and ~~financing~~other toaccounting ~~provide~~guidance, ~~letters~~the additional $1.2 million of ~~credit~~revenue ~~that~~for ~~CER~~the ~~may~~system upgrade ~~discount~~project, ~~and~~the ~~CER~~$1.5 ~~will~~million ~~discount~~penalty ~~the~~for ~~L/C~~economic inlosses ~~other~~incurred ~~banks~~by asCER’s ~~cash~~customer, ~~financing at~~and the ~~cost~~discount ofeffects ~~discount~~arising from ~~fees,~~the ~~which~~payment ~~would~~term beextensions ~~reported~~were asadded ~~interest~~to ~~expense~~(or ~~and~~subtracted ~~usually~~from, ~~represent~~for 5%the oflatter two items) the total ~~amount~~contract revenue for the Zhenjiang Kailin project. The ~~price difference~~Company ~~between~~re-assessed ~~sales~~all ~~and~~developments ~~repurchase~~regarding ofthis project, including the ~~goods~~two ofguaranty ~~RMB~~arrangements entered ~~584,185(approximately~~into ~~$91,957)~~and ~~represents~~the ~~interest~~extensions afforded to beZhenjiang ~~paid~~Kailin tofor ~~Great~~remaining payments, under SAB 104 revenue recognition criteria ~~Wall.~~and Inconcluded ~~addition~~the criteria, ~~China~~particularly ~~Energy~~the ~~Recovery~~criterion regarding collectability being reasonably assured, ~~Inc~~were met. Accordingly, the deferred revenue related to the ~~parent~~guaranty ~~company~~arrangements, ~~guaranteed~~and the ~~repayment~~discounts ofreflected ~~CER~~in ~~Shanghai.~~revenue ~~There~~for isthe nopayment ~~other~~extensions afforded ~~collateral~~to inZhenjiang ~~the~~Kailin, ~~contract.~~will ~~This~~be ~~product~~reflected ~~financing~~as ~~arrangement~~future ~~was~~interest ~~entered~~income. ~~into~~As toof ~~offset~~August ~~concerns~~2012, ~~related~~CER tomanagement ~~the~~concluded, ~~Company’s liquidity~~on ~~given~~ the ~~extension~~basis of discussions ~~payment~~with ~~terms~~and onevaluation ~~accounts~~of ~~receivable~~the ~~due~~counterparty’s ~~from~~financial ~~Zhenjiang~~viability ~~Kailin~~and financing sources, ~~which~~that ~~are~~repayment ~~further~~was ~~discussed~~not significantly in ~~Note~~ 16question, ~~and~~but ~~the~~will ~~debt~~continue ~~due~~to inmonitor the ~~quarter~~counterparty’s ~~ended~~financial ~~September~~viability. ~~30,~~Further ~~2012,~~supporting ~~principally~~management’s conclusions was the ~~Company’s~~fact ~~long~~that ~~term~~Zhenjiang ~~loan~~Kailin ~~with~~has ~~Hold~~made ~~and Opt~~required ~~Investments~~payments to date on a timely basis, ~~Limited~~excluding only the August installment delay.

~~CAUTIONARY~~For ~~STATEMENT~~the ~~REGARDING~~three and ~~FORWARD-LOOKING~~nine months ended September 30, 2012, revenue earned from the contract amounted to $12,672 and $6,660,158. The cost of revenues ~~STATEMENTS~~associated with the original contract and the additional agreements entered into was $0 and $8,500,010 for the three and nine months ended September 30, 2012. The revenue, less the discount effects reflected in revenue and penalty assumed reflected in revenue, was not fully offset by the additional revenue agreed to; further, additional incurred costs reduced the margin on the project to negative 28% for the nine months ended September 30, 2012.

~~This~~Note ~~Quarterly Report on Form 10-Q contains~~17 – Retirement disclosures which are forward-looking statements. Forward-looking statements include all statements that do not relate solely to historical or current facts, such as, but not limited to, the discussion of economic conditions in market areas and their effect on revenue growth, the discussion of our growth strategy, the potential for and effect of future governmental regulation, fluctuation in global energy costs, the effectiveness of our management information systems, and the availability of financing and working capital to meet funding requirements, and can generally be identified by the use of words such as "may," "believe," "will," "expect," "project," "estimate," "anticipate," "plan" or "continue." These forward-looking statements are based on the current plans and expectations of our management and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated. These factors include, but are not limited to: the general economic conditions that may affect our customers desire or ability to invest in energy recovery systems; the cost of raw materials; the availability of environmental credits; the positive and adverse effect of governmental regulation affecting energy recovery systems; our reliance on customers in heavy industry, such as chemicals and steel production, and state owned or controlled enterprises; competition in the industry of heat and energy recovery systems; the availability of and costs associated with potential sources of financing; difficulties associated with managing future growth; our ability to increase manufacturing capacity to meet demand; fluctuations in currency exchange rates; restrictions on foreign investments in China; uncertainties associated with the Chinese legal system; the loss of key personnel; and our ability to attract and retain new qualified personnel.Benefits

~~These~~As ~~forward-looking~~stipulated by ~~statements~~the ~~speak only~~relevant aslaws ofand regulations applicable to enterprises operating in the ~~date~~PRC, the Company and its PRC subsidiaries and affiliates are required to maintain a defined contribution retirement plan for all of ~~this~~its ~~Quarterly~~employees ~~Report~~who onare ~~Form~~residents ~~10-Q~~of the PRC. The ~~Except~~Company ascontributes ~~required~~to bya ~~law,~~statutory wegovernment ~~undertake~~retirement noplan ~~obligation~~approximately to22% ~~publicly~~of ~~update~~the base salary of each of its employees orand ~~revise~~has ~~any~~no ~~forward~~further obligations for the actual pension payments or post-~~looking~~retirement ~~statements,~~benefits ~~whether~~beyond asthe aannual ~~result~~contributions. ofThe statutory ~~new~~government ~~information,~~retirement ~~future~~plan ~~events~~is orresponsible ~~otherwise~~for the entire pension obligations payable for all past and present employees.

41The Company made contributions of $108,269 and $140,734 for employment benefits, including pension payments for the three months ended September 30, 2011 and 2012, respectively. The Company made contributions of $222,427 and $417,509 for employment benefits, including pension payments for the nine months ended September 30, 2011 and 2012, respectively.

~~Item~~Note 218 – ~~Management's Discussion and Analysis of Financial~~Statutory ~~Condition and Results of Operations~~Reserves

~~Overview~~As stipulated by the relevant laws and regulations applicable to enterprises operating in the PRC, the Company and its PRC subsidiaries and affiliates are required to make annual appropriations to a statutory surplus reserve fund. Specifically, the Company is required to deposit 10% of its profits after taxes, as determined in accordance with the PRC accounting standards applicable to the Company, to a statutory surplus reserve until such reserve reaches 50% of the registered capital of the Company.

China Energy Recovery, Inc. (the "Company," "we," "us," or "our") is headquartered in Shanghai, China, and, through its subsidiaries and affiliates, is in the business of designing, fabricating, implementing and servicing industrial energy recovery systems. The Company's energy recovery systems capture industrial waste energy for reuse in industrial processes or to produce electricity and thermal power, thereby allowing industrial manufacturers to reduce their energy costs, shrink their emissions and generate sellable emissions credits. All of the manufacturing takes place at the Company's manufacturing facility in Yangzhou, China. The Company transports the manufactured systems in parts via truck, train or ship to the customers' facilities where the systems are assembled and installed. The Company has primarily sold energy recovery systems to chemical manufacturing plants to reduce their energy costs by increasing the efficiency of their manufacturing equipment. The Company mainly sells its energy recovery systems and services directly to customers.43

OnThe ~~January 24, 2008, we entered into a~~transfer ~~Share~~to ~~Exchange~~these ~~Agreement~~reserves ~~(the~~must ~~"Share~~be ~~Exchange~~made ~~Agreement")~~before ~~with~~distribution ~~Poise~~of ~~Profit~~any ~~International,~~dividends ~~Ltd.~~to ~~("Poise Profit") and the~~ shareholders ~~of Poise Profit~~. ~~Pursuant~~For to the ~~Share~~years ~~Exchange~~ended ~~Agreement~~December 31, we2011, ~~acquired~~there were ~~100%~~$376,794 of ~~the~~transfers ~~issued~~to ~~and~~statutory ~~outstanding shares~~reserves ~~of Poise Profit's common stock in exchange~~ for ~~the~~these ~~issuance~~subsidiaries ofand ~~41,514,179~~affiliates ~~(pre reverse split) shares~~ of ~~our common stock to~~ the ~~shareholders~~Company ofgenerating ~~Poise Profit~~profits. ~~The~~Statutory reserves ~~share~~were ~~exchange~~$509,596 ~~(the~~as ~~"Share~~of ~~Exchange")~~December ~~transaction~~31, ~~was~~2011 ~~consummated~~and onSeptember ~~April 15~~30, ~~2008~~ 2012.

AsThe asurplus reserve ~~result~~fund ofis ~~the~~non-distributable ~~Share~~other ~~Exchange,~~than ~~our business~~during ~~operations~~liquidation ~~consist~~and ofcan ~~those~~be ofused ~~Poise~~to ~~Profit's~~fund ~~Chinese~~previous ~~subsidiary~~years' losses, ~~Hi-tech~~if any, ~~which~~and ~~were~~may be ~~subsequently~~utilized ~~transferred~~for business expansion or converted into share capital by issuing new shares to ~~CER~~existing shareholders in proportion ~~Hong~~to ~~Kong~~their onshareholding ~~December~~or 3,by ~~2008.~~increasing ~~CER~~the ~~Hong~~par ~~Kong~~value isof ~~principally~~the ~~engaged~~shares incurrently ~~designing,~~held ~~marketing,~~by ~~licensing~~them, ~~fabricating,~~provided ~~implementing~~that the remaining reserve ~~and~~balance ~~servicing~~after ~~industrial~~such ~~energy~~issue ~~recovery~~is ~~systems~~not ~~capable~~less ofthan ~~capturing~~50% ~~industrial~~of ~~waste~~the ~~energy~~registered ~~for~~capital. The ~~reuse~~remaining inrequired ~~industrial~~contributions ~~processes~~to the orstatutory toreserves ~~produce~~required ~~electricity~~were ~~and~~approximately ~~thermal~~$ ~~power~~8,015,475 as of September 30, 2012.

~~CER Hong~~Note ~~Kong~~19 ~~carries~~– ~~out its operations through its subsidiaries CER Shanghai~~ Commitments and CER Yangzhou and an affiliated entity (variable interest entity (“VIE”)) with which CER Hong Kong has a contractual relationship, Shanghai Engineering. Effective as of May 1, 2003, Shanghai Engineering's manufacturing activities were carried out by Vessel Works Division located in Shanghai, China, through a lease agreement with Vessel Works Division's owner, which was terminated April 2011. From May 2011, all of our production is carried out in CER Yangzhou, where we completed the first phase of construction of the plant by January 2011. The term “Company” refers to the group of companies described above.Contingencies

~~The energy recovery systems that we produce~~Subsequent ~~capture industrial waste energy for reuse in industrial processes or~~ to ~~produce~~the ~~electricity~~first ~~and thermal power~~quarter, ~~which~~on ~~allow~~May ~~industrial manufacturers~~8, to2012, ~~reduce~~CER aand ~~portion~~Zhenjiang ofKailin ~~their~~entered ~~energy~~into ~~costs,~~an ~~shrink~~agreement ~~their~~whereby ~~emissions~~CER ~~and~~will ~~potentially~~pay ~~generate~~Zhenjiang ~~saleable~~Kailin RMB ~~emissions credits~~8. We9 ~~have~~million ~~primarily~~(approximately ~~sold~~$1.5 ~~energy~~million) ~~recovery~~as ~~systems~~a topenalty ~~chemical~~for ~~manufacturing~~the ~~plants~~economic toloss ~~reduce~~suffered ~~their~~by ~~energy~~Zhenjiang ~~costs~~Kailin byresulting ~~increasing~~from ~~the~~project ~~efficiency~~delays ofpast ~~their~~the ~~manufacturing~~originally ~~equipment~~expected ~~and~~completion ~~help~~date ~~control~~of ~~their~~December ~~pollution~~31, ~~output~~2011. WeThe ~~have~~penalty ~~installed~~is ~~more~~included ~~than~~in ~~140~~accrued ~~energy~~expenses ~~recovery systems throughout China~~ and inother liabilities. aSee ~~variety~~Note of16 ~~international~~for ~~markets~~further details.

InNote ~~September~~20 ~~2011,~~– ~~the State Council issued~~Subsequent the work plan for fulfilling the target of energy savings and emissions reduction during the PRC’s 12th five year plan for national economic development. The work plan addressed the importance of energy savings in industries such as coal, fossil fuels, paper manufacturing, and chemicals. The work plan also specified heat or pressure recovery as one of the projects especially encouraged and supported by the government.events

~~Facing~~On ~~a possible large market opportunity~~October ~~and~~15, ~~potential government support~~2012, weCER ~~decided~~Shanghai tobegan ~~enlarge our production capacity by setting up a new production base. Our plan is~~ to ~~establish~~repay ~~CER~~RMB ~~Yangzhou as a world-class international manufacturing facility of waste heat equipment~~900,000 inper ~~both~~month ~~products and technology. We plan~~ to ~~make~~Shanghai ~~highly~~Pudong ~~efficient~~Zhanjiang ~~energy~~Micro-~~saving~~credit ~~products~~Co., ~~using~~Ltd. ~~advanced~~under ~~manufacturing processes and equipment, We intend for this manufacturing facility to embody a completely new look of a modern factory, thus making~~ the ~~Company more competitive, while promoting~~loan ~~the~~contract ~~development~~ of ~~the~~RMB ~~local~~10 ~~economy~~million ~~and~~described ~~further exploiting the manufacturing advantages~~ in ~~renewable~~Note ~~energy equipment and waste heat recovery core equipment~~7. ~~In January 2011, Phase One construction of the plant was completed.~~ The ~~Phase~~loan ~~One~~carries ~~facility~~an isannual ~~about 14,000~~interest ~~square~~rate ~~meters. Many technologically advanced pieces~~ of ~~equipment~~12% ~~have~~and ~~been installed in~~ the ~~new~~due ~~factory.~~date ~~The new facility significantly expands our ability to accept new orders and will speed delivery~~ of ~~large-scale~~the ~~waste~~loan ~~heat systems for new and retro-fitted~~is ~~industrial~~February ~~plants~~20, ~~located in China and other international markets overseas~~2013. ~~Phase Two is under construction.~~

42On October 18, 2012, CER (Yangzhou) entered into a guaranty contract with Zhenjiang Kailin and CGN Energy in connection with a third financing for Zhenjiang Kailin project (similar to the financing arrangement with CGN Energy in 2011). CER Shanghai and Shanghai Engineering signed two contracts to sell certain equipment integral to the Zhenjiang Kailin sulfuric acid waste heat power generation project to CGN Energy each at a price of RMB9.9 million (approximately $1.57 million), for a total amount RMB 19.8 million (approximately $3.14 million). As the financing party, CGN Energy resold the equipment to Zhenjiang Kailin via a structured payment arrangement covering a 30 month period at a price of RMB23.4 million ( approximately $3.7 million). CER Yangzhou entered into a guaranty contract with CGN Energy for the equipment sold, which was installed in the sulfuric acid waste heat power generation project. If there is any default by Zhenjiang Kailin, the first in guarantee order is Zhenjiang Kailin’s pledge for payment of its structured note with CGN Energy. The second in guarantee order is Jiangsu SOPO, a third party customer of CER and related party of Zhenjiang Kailin. Third in guarantee order is CER Yangzhou, which provided CGN Energy with an unconditional and irrevocable guarantee with joint responsibility to ensure that Zhenjiang Kailin will fulfill the duties and responsibilities to pay CGN Energy on time under the waste heat power generation project contract.

~~With~~On ~~Phase~~October ~~One~~22, of2012, ~~the~~CER ~~new~~entered ~~facilities~~into ~~completed,~~an extension weto ~~are~~continuation ~~prepared~~and toloan ~~expand~~arrangement ~~our~~with ~~customer~~Hold ~~base~~And ~~and~~Opt ~~enter~~Investments ~~into~~Limited, ~~more~~effective ~~sectors.~~as Weof ~~expect~~September to29, ~~incur~~2012 ~~separate~~ (~~unrelated~~“Loan toDate”). At the ~~any~~Loan ~~particular customer~~Date, ~~project)~~both ~~research~~principal and ~~development~~interest ~~expenditures~~due tounder ~~support~~the anloan ~~expansion~~agreement ~~into~~remained ~~new~~outstanding. ~~sectors,~~The ~~such~~extended asmaturity ~~coke~~date ~~refining~~for ~~and~~the Loan ~~cement~~Amount is November 30, ~~including~~ ~~adding~~2012, ~~more~~with ~~specialized~~a ~~skills~~grace period not to ~~our~~extend ~~engineering~~beyond ~~and~~December ~~design~~15, ~~team~~2012. WeCER ~~are~~shall ~~also~~make ~~planning~~a mandatory prepayment of $3,000,000 by no later than November 10, 2012. CER repaid $2,000,000 on ~~entering~~October ~~into~~31, ~~marketing~~2012 ~~partnerships~~ and ~~licensing~~the ~~deals~~other ~~that~~$1,000,000 ~~should~~is ~~enable~~expected to usbe torepaid ~~reach~~with athe ~~boarder~~remaining ~~segment~~principal ofin the ~~market~~next quarter. WeThe ~~believe~~outstanding ~~that~~principal ~~there~~and isinterest ~~significant~~amount ~~opportunity~~under this extension inagreement ~~international~~shall ~~markets~~bear ~~and~~interest weat ~~intend~~a torate ~~enter~~of ~~these~~1.5% ~~markets~~per ~~through~~month, ~~partnerships~~commencing on the Loan Date, and continuing until the principal is paid in full.

On January 8, 2011, CER signed an EPC contract for a major waste heat recovery system with Zhenjiang Kailin, a related party of CER. The contract was valued at RMB 300 million (approximately $46 million). This project was fully completed by June 30, 2012.44

~~During~~On ~~2011~~October 25, ~~and of the first half of~~ 2012, ~~the~~ ~~demand~~CER ~~for~~Yangzhou ~~energy~~entered ~~recovery~~into ~~systems significantly recovered in response to~~ a ~~series~~one-year ofshort ~~factors,~~term ~~including~~loan ~~the~~contract ~~recovery~~to ofborrow ~~the global~~RMB ~~economy~~5, ~~especially the Chinese economy~~000,000 ~~government~~(approximately ~~support~~$793,059) ~~the~~with China ~~implementation~~Construction ofBank, ~~incentive~~Yizheng ~~policies~~Branch. ~~for~~The ~~energy~~loan ~~savings industries,~~carries ~~and~~an ~~increasing~~annual ~~availability~~interest rate of ~~financing~~6.3%. ~~With~~The ~~our~~term ~~new~~of ~~manufacturing~~the ~~facility~~loan incommence ~~operation~~from October ~~and~~25, ~~our~~2012 ~~ability~~ to ~~perform more~~October ~~EPC contracts~~24, ~~based~~2013. onThis ~~our~~loan ~~currently~~is ~~signed~~guaranteed ~~contracts,~~by ~~forecasts~~CER Shanghai, and ~~production~~collateralized ~~schedule,~~by wea ~~anticipate~~mechanical ~~positive~~equipment ~~results~~book invalued ~~the~~at ~~next~~RMB ~~few~~20,171,625 ~~years~~owned by CER Yangzhou.

~~Critical~~CAUTIONARY STATEMENT ~~Accounting~~REGARDING ~~Policies~~FORWARD-LOOKING ~~and Estimates~~STATEMENTS

~~While~~This ~~our~~Quarterly Report ~~significant~~on ~~accounting~~Form ~~policies~~ 10-Q contains disclosures which are ~~more~~forward-looking ~~fully~~statements. ~~described~~Forward-looking instatements ~~Note~~include 2all statements that do not relate solely to ~~our~~historical ~~Notes~~or current facts, such as, but not limited to, the ~~Consolidated~~discussion ~~Financial~~of ~~Statements~~economic conditions in market ~~this~~areas ~~Quarterly~~and ~~Report~~their effect on ~~Form~~revenue ~~10-Q~~growth, the discussion of our growth strategy, the potential for and effect of future wegovernmental ~~believe~~regulation, ~~that~~fluctuation in global energy costs, the ~~accounting~~effectiveness ~~policies~~of ~~described~~our ~~below~~management ~~are~~information systems, and the availability ~~most~~of ~~critical~~financing toand ~~aid~~working ~~you~~capital into ~~fully~~meet ~~understanding~~funding requirements, and ~~evaluating~~can generally be identified by the use of words ~~this~~such as "may," "believe," "will," "expect," "project," "estimate," "anticipate," "plan" or "continue." These forward-looking statements are based on the current plans and expectations of our management ~~discussion~~and are subject to certain risks and ~~analysis~~uncertainties that could cause actual results to differ materially from historical results or those anticipated. ~~Management~~These ~~believes~~factors ~~that~~include, ~~there~~but are ~~certain~~not ~~accounting~~limited ~~estimates~~to: ~~and~~the ~~management~~general ~~judgments~~economic conditions that ~~have~~may ~~greater~~affect ~~influence~~our oncustomers desire or ability to invest in energy recovery systems; the ~~financial~~cost ~~statements,~~of ~~including~~raw materials; the ~~process~~availability of environmental credits; the positive and adverse effect of ~~determining~~governmental ~~percentage~~regulation ~~completion~~affecting onenergy ~~EPC~~recovery ~~project~~systems; our reliance ~~contracts,~~on ~~allowances~~customers ~~for~~in ~~doubtful~~heavy ~~accounts~~industry, ~~provisioning~~such ~~for~~as ~~inventory~~chemicals and steel production, ~~measurement~~and state owned or controlled enterprises; competition in the industry of ~~deferred~~heat ~~taxes~~and energy recovery systems; the availability of and ~~related~~costs ~~valuation~~associated ~~allowances,~~with potential sources of financing; ~~and~~difficulties ~~various~~associated ~~fair~~with ~~value~~managing ~~measurements.~~future ~~The~~growth; ~~most~~our ~~critical~~ability ~~policies~~to ~~are~~increase ~~discussed~~manufacturing ~~further~~capacity ~~herein~~to ~~and~~meet demand; fluctuations in ~~Note~~currency 2exchange torates; restrictions on foreign investments in China; uncertainties associated with the ~~financial~~Chinese ~~statements~~legal system; the loss of key personnel; and our ability to attract and retain new qualified personnel.

~~Revenue~~These ~~Recognition~~forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise

~~The~~Item ~~Company~~2 ~~derives~~Management's ~~revenues principally~~Discussion ~~from~~and Analysis of Financial Condition and Results of Operations

China Energy Recovery, Inc. (bthe "Company," "we," "us," or "our") ~~Sales~~is headquartered in Shanghai, China, and, through its subsidiaries and affiliates, is in the business of designing, fabricating, implementing and servicing industrial energy recovery systems;. The Company's energy recovery systems capture industrial waste energy for reuse in industrial processes or to produce electricity and thermal power, thereby allowing industrial manufacturers to reduce their energy costs, shrink their emissions and generate sellable emissions credits. All of the manufacturing takes place at the Company's manufacturing facility in Yangzhou, China. The Company transports the manufactured systems in parts via truck, train or ship to the customers' facilities where the systems are assembled and installed. The Company has primarily sold energy recovery systems to chemical manufacturing plants to reduce their energy costs by increasing the efficiency of their manufacturing equipment. The Company mainly sells its energy recovery systems and services directly to customers.

On January 24, 2008, we entered into a Share Exchange Agreement (cthe "Share Exchange Agreement") ~~Provision~~with Poise Profit International, Ltd. ("Poise Profit") and the shareholders of ~~design~~Poise ~~services~~Profit. Pursuant to the Share Exchange Agreement, we acquired 100% of the issued and outstanding shares of Poise Profit's common stock in exchange for the issuance of 41,514,179 (pre reverse split) shares of our common stock to the shareholders of Poise Profit. The share exchange (the "Share Exchange") transaction was consummated on April 15, 2008.

4345

InAs ~~accordance~~a ~~with the~~result ~~accounting standard regarding performance~~ of ~~construction-type~~the ~~and~~Share ~~certain production-type contracts~~Exchange, ~~and~~our ~~long-term~~business ~~construction-type contracts,~~operations ~~the~~consist ~~Company adopted the percentage~~ of ~~completion~~those ~~method to recognize revenues and cost~~ of ~~sales~~Poise ~~for~~Profit's ~~EPC~~Chinese ~~contracts.~~subsidiary, ~~EPC contracts are long~~Hi-~~term~~tech, ~~complex contracts involving multiple elements, such as design, manufacturing and installation,~~ which ~~all form~~were ~~one integral EPC project. The energy recovery system involved in an EPC project is highly customized to the specific customer's~~subsequently ~~facilities~~transferred ~~and essentially not transferable~~ to ~~any~~CER ~~other~~Hong ~~facilities~~Kong ~~without~~on ~~significant~~December ~~modification~~3, ~~and cost~~2008. ItCER ~~would~~Hong beKong ~~difficult, if~~is ~~not~~principally ~~impossible,~~engaged ~~to beneficially use a single element of a specific EPC project on a standalone basis other than~~ in ~~connection with the facilities for which it was intended. EPC contracts are by nature long-term construction-type contracts~~designing, ~~usually lasting more than one accounting period~~marketing, ~~and the Company is able to reasonably estimate the progress toward completion~~licensing, ~~including~~fabricating, ~~contract~~implementing ~~revenues~~ and ~~contract~~servicing ~~costs.~~industrial ~~EPC~~energy ~~contacts~~recovery ~~specify~~systems ~~the~~capable ~~customers'~~of ~~rights~~capturing toindustrial ~~the~~waste ~~goods,~~energy ~~the~~for ~~consideration~~reuse toin ~~be paid and~~industrial ~~received,~~processes ~~and~~or ~~the terms of payment. Specifically, the Company has the right~~ to ~~require~~produce aelectricity ~~customer to make progress payments upon completion of determined stages of the project which serve as evidence of the customer's approval~~ and ~~acceptance~~thermal ~~of the work completed to date as complying with the terms of the particular EPC contract~~power.

~~Sales of the Company's~~CER ~~energy~~Hong ~~recovery~~Kong ~~systems~~carries ~~and~~out ~~related~~its ~~products~~operations ~~are~~through ~~essentially~~its ~~product~~subsidiaries ~~sales.~~CER ~~The~~Shanghai ~~products~~and ~~consist~~CER ~~mainly~~Yangzhou ofand ~~waste~~an ~~heat~~affiliated ~~boilers~~entity ~~and~~(variable ~~other~~interest ~~related~~entity ~~equipment~~(“VIE”)) with ~~manufactured~~which ~~according~~CER toHong ~~specific~~Kong ~~customers'~~has ~~specifications.~~a ~~Once~~contractual ~~manufactured~~relationship, ~~the~~Shanghai ~~Company ships the products to its customers in their entirety in one batch~~Engineering. ~~The~~Effective ~~Company’s~~as ~~service~~of ~~arrangement~~May ~~also~~1, ~~includes~~2003, aShanghai ~~limited warranty~~Engineering's tomanufacturing ~~its~~activities ~~customers~~were ~~pursuant~~carried toout ~~which~~by ~~the~~Vessel ~~customers~~Works ~~retain~~Division ~~between~~located 5%in ~~and~~Shanghai, ~~10%~~China, ofthrough ~~the~~a ~~particular~~lease ~~contract~~agreement ~~price~~with Vessel asWorks ~~retainage~~Division's ~~during the~~owner, ~~limited~~which ~~warranty~~was ~~period~~terminated ~~(usually~~April ~~12-18 months)~~2011. ~~The~~From ~~Company~~May ~~generally~~2011, ~~recognizes~~all ~~revenues including retainage from product sales when (i) persuasive evidence~~ of anour ~~arrangement~~production ~~exists, which~~ is ~~generally~~carried ~~represented~~out byin aCER ~~contract~~Yangzhou, where ~~between~~we ~~the~~completed ~~Company and~~ the ~~customer;~~first ~~(ii)~~phase ~~products are shipped; (iii) title and risks~~ of ~~ownership~~construction ~~have passed to the customer, which generally occurs at the time~~ of ~~delivery; (iv)~~ the ~~customer~~plant ~~accepts the products upon a quality inspection performed~~ by ~~them;~~January ~~(v)~~2011. ~~the~~The ~~purchase~~term ~~price~~“Company” isrefers ~~agreed~~ to ~~between~~ the ~~Company~~group ~~and the customer; and (vi) collectability is reasonably assured. Net revenues represent the invoiced value~~ of ~~products,~~companies ~~less~~described ~~returns and discounts, and are net of value-added tax~~above.

InThe ~~providing design~~energy ~~services,~~recovery ~~the~~systems ~~Company~~that ~~designs~~we ~~energy~~produce ~~recovery~~capture ~~systems~~industrial ~~and~~waste ~~other~~energy ~~related~~for ~~systems~~reuse ~~based~~in onindustrial aprocesses ~~customer's~~or ~~requirements~~to ~~and~~produce ~~the~~electricity ~~deliverable~~and ~~consists~~thermal ofpower, ~~engineering~~which ~~drawings.~~allow ~~The~~industrial ~~customer~~manufacturers ~~may elect~~ to ~~engage~~reduce ~~the~~a ~~Company~~portion toof ~~manufacture~~their ~~the~~energy ~~designed~~costs, ~~system~~shrink ortheir ~~choose~~emissions toand potentially ~~present~~generate ~~the~~saleable ~~Company's~~emissions ~~drawings~~credits. toWe ~~other~~have ~~manufacturers~~primarily ~~for~~sold ~~manufacturing~~energy ~~and~~recovery ~~installation.~~systems ~~The~~to ~~Company~~chemical ~~recognizes~~manufacturing ~~revenues~~plants ~~from~~to reduce ~~design~~their ~~services~~energy ~~when~~costs ~~the~~by ~~services~~increasing ~~are~~the ~~provided,~~efficiency ~~the~~of ~~design~~their ~~drawings~~manufacturing ~~are~~equipment ~~delivered,~~and ~~invoices~~help ~~are~~control ~~issued~~their ~~and~~pollution ~~collectability~~output. isWe ~~reasonably~~have ~~assured.~~installed ~~The~~more ~~Company~~than ~~generally~~140 ~~delivers~~energy ~~the~~recovery ~~drawings~~systems throughout China and in ~~one~~a ~~batch~~variety of international markets.

~~Consolidation~~In September 2011, the State Council issued the work plan for fulfilling the target of ~~Variable~~energy ~~Interest~~savings and emissions reduction during the PRC’s ~~Entities~~12th five year plan for national economic development. The work plan addressed the importance of energy savings in industries such as coal, fossil fuels, paper manufacturing, and chemicals. The work plan also specified heat or pressure recovery as one of the projects especially encouraged and supported by the government.

InFacing ~~accordance~~a ~~with~~possible ~~U.S.~~large ~~GAAP,~~market ~~variable~~opportunity ~~interest~~and ~~entities~~potential ~~are~~government ~~generally~~support, ~~entities~~we ~~that~~decided ~~lack~~to ~~sufficient~~enlarge ~~equity~~our toproduction ~~finance~~capacity ~~their~~by ~~activities~~setting ~~without~~up ~~additional~~a new production ~~financial~~base. ~~support~~Our ~~from~~plan ~~other~~is ~~parties~~to orestablish ~~whose~~CER ~~equity~~Yangzhou ~~holders~~as ~~lack~~a ~~adequate~~world-class ~~decision~~international ~~making~~manufacturing ~~ability.~~facility ~~Each~~of ~~variable~~waste ~~interest~~heat ~~entity~~equipment, in ~~with~~both ~~which~~products ~~the~~and ~~Company~~technology. isWe ~~affiliated~~plan ~~must~~to bemake ~~evaluated~~highly efficient energy-saving products, using advanced manufacturing processes and equipment, We intend for this manufacturing facility to ~~determine~~embody ~~who~~a completely new look of a modern factory, thus making the Company ~~primary~~more ~~beneficiary~~competitive, while promoting the development of the ~~risks~~local economy and ~~rewards~~further ofexploiting ~~ownership~~the manufacturing advantages in renewable energy equipment and waste heat recovery core equipment. In January 2011, Phase One construction of the ~~variable~~plant ~~interest entity~~was completed. The ~~primary~~Phase ~~beneficiary~~One facility is ~~required~~about to14,000 ~~consolidate~~square meters. Many technologically advanced pieces of equipment have been installed in the ~~variable~~new ~~interest~~factory. ~~entity's~~The ~~financial~~new ~~information~~facility significantly expands our ability to accept new orders and will speed delivery of large-scale waste heat systems for ~~financial~~new ~~reporting~~and ~~purposes~~retro-fitted industrial plants located in China and other international markets overseas. Phase Two is under construction.

WeWith ~~have concluded~~Phase ~~that~~One ~~Shanghai~~of ~~Engineering~~the isnew afacilities ~~variable~~completed, ~~interest~~we ~~entity~~are ~~and~~prepared ~~that CER Hong Kong is the primary beneficiary thereof. Pursuant~~ to ~~the~~expand ~~contractual~~our ~~arrangements~~customer ~~described~~base ~~elsewhere~~and inenter ~~this~~into ~~filing~~more onsectors. ~~Form~~We ~~10-Q,~~expect ~~the~~to ~~Company recovers substantially all of the~~incur ~~profits~~separate ~~of its VIE through service fees charged~~ (~~particularly~~unrelated ~~under~~to ~~the~~any ~~consulting~~particular ~~and~~customer ~~service agreement~~project) research and ~~has~~development ~~the~~expenditures ~~unilateral ability~~ to dosupport soan ~~through~~expansion ~~its~~into ~~wholly owned subsidiaries. Accordingly~~new sectors, ~~through~~ such ~~contractual~~as ~~arrangements,~~coke ~~the~~refining ~~Company~~and ~~(as applicable~~cement, ~~through~~ ~~wholly-owned~~including ~~subsidiaries)~~adding ~~has~~more ~~the~~specialized ~~power~~skills to ~~direct~~our ~~the~~engineering ~~activities most significant to the economic performance of the VIE~~ and ~~absorbs~~design ~~all, or substantially all, of the profits or losses; therefore, the Company is the primary beneficiary~~team. ~~Under~~We ~~the requirements~~are ofalso ~~the~~planning ~~FASB’s~~on ~~accounting~~entering ~~standard~~into ~~regarding~~marketing ~~VIEs,~~partnerships ~~CER~~and ~~Hong~~licensing ~~Kong~~deals ~~consolidates~~that ~~the~~should ~~financial~~enable ~~statements~~us ~~of Shanghai Engineering. As all companies are under common control (see Note 1~~ to ~~our~~reach ~~consolidated~~a ~~financial~~boarder ~~statements),~~segment ~~the consolidated financial statements~~of ~~have been prepared as if~~ the ~~arrangements~~market. byWe ~~which~~believe ~~these~~that ~~entities~~there ~~became~~is ~~variable~~significant ~~interest~~opportunity ~~entities~~in ~~had~~international ~~occurred~~markets ~~retroactively. We have~~and ~~eliminated~~we ~~inter-company~~intend ~~items~~to ~~from~~enter ~~our~~these ~~consolidated~~markets ~~financial statements~~through partnerships.

4446

~~Fair~~On ~~Value~~January 8, ~~Measurements~~2011, CER signed an EPC contract for a major waste heat recovery system with Zhenjiang Kailin, a related party of CER. The contract was valued at RMB 300 million (approximately $46 million). This project was fully completed by June 30, 2012.

~~The~~During ~~accounting standard~~2011 ~~regarding fair value measurements defines financial instruments~~ and ~~requires~~of ~~fair~~the ~~value~~first ~~disclosures for those financial instruments. The fair value standard also establishes a~~ three~~-level~~ ~~valuation~~quarters ~~hierarchy for disclosures~~ of ~~fair~~2012, ~~value~~the ~~measurement~~demand ~~and enhances disclosure requirements~~ for ~~fair~~energy ~~value~~recovery ~~measurements. The~~systems ~~carrying~~significantly ~~amounts~~recovered ~~reported~~ in ~~the~~response ~~accompanying~~to ~~consolidated~~a series ~~balance~~of ~~sheets~~factors, ~~for~~including ~~current~~the ~~assets~~recovery ~~and~~of ~~current~~the ~~liabilities~~global ~~such~~economy, asespecially ~~cash,~~the ~~restricted~~Chinese ~~cash~~economy, ~~accounts~~government ~~and notes receivable~~support, ~~long~~the ~~term~~implementation ~~accounts~~of ~~receivable,~~incentive ~~short~~policies ~~term~~for ~~loans,~~energy ~~accounts~~savings ~~payable~~industries, and ~~other~~increasing ~~payables~~availability ~~qualify~~of ~~as financial instruments~~financing. ~~Management~~With ~~concluded the~~our ~~carrying~~new ~~values~~manufacturing offacility in ~~these~~operation ~~financial instruments~~and ~~are~~our ~~reasonable~~ability ~~approximations~~to ofperform ~~their~~more ~~respective~~EPC ~~fair~~contracts, ~~values~~based ~~because~~on ~~of the~~our ~~short~~currently ~~period~~signed ofcontracts, ~~time~~forecasts ~~between the origination of such instruments~~ and ~~their expected realization and the current market rates~~production ofschedule, ~~interest. The~~we ~~three~~anticipate ~~levels~~positive ofresults in the ~~valuation~~next ~~hierarchy~~few ~~are defined as follows:~~years.

	Level 1	Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
	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 assets or liabilities, either directly or indirectly, for substantially the full term of the financial instruments.
	Level 3	Inputs to the valuation methodology are unobservable and significant to the fair value. Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

Critical Accounting Policies and Estimates

~~Recent~~While ~~Accounting~~our ~~Pronouncements~~significant accounting policies are more fully described in Note 2 to our Notes to the Consolidated Financial Statements in this Quarterly Report on Form 10-Q, we believe that the accounting policies described below are the most critical to aid you in fully understanding and evaluating this management discussion and analysis. Management believes that there are certain accounting estimates and management judgments that have greater influence on the financial statements, including the process of determining percentage completion on EPC project contracts, allowances for doubtful accounts, provisioning for inventory, measurement of deferred taxes and related valuation allowances, and various fair value measurements. The most critical policies are discussed further herein and in Note 2 to the financial statements.

~~In May 2011, the Financial Accounting Standards~~Revenue Board issued Accounting Standards Update 2011-04, “Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (ASU 2011-04). Key provisions of the amendments in ASU 2011-04 include: (1) a prohibition on grouping financial instruments for purposes of determining fair value, except in limited cases; (2) an extension of the prohibition against the use of a blockage factor to all fair value measurements; and (3) a requirement that for recurring Level 3 fair value measurements, entities disclose quantitative information about unobservable inputs, a description of the valuation process used, and qualitative details about the sensitivity of the measurements. For items not carried at fair value but for which fair value is disclosed, entities will be required to disclose the level within the fair value hierarchy that applies to the fair value measurements disclosed. This ASU is effective for interim and annual periods beginning after December 15, 2011. The adoption of this guidance, effective with the quarter ended March 31, 2012, did not have a material impact to CER’s financial statements as management concluded CER’s Level 3 fair value measurements were not material for purposes of additional disclosure.Recognition

~~In June 2011, the FASB issued Accounting Standards Update 2011-05, “Comprehensive Income: Presentation of Comprehensive Income.”~~ The ~~amendment~~Company ~~requires that~~derives ~~all~~revenues ~~non-owner~~principally changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance is effective retrospectively for interim periods and annual periods beginning after December 15, 2011 and has been adopted by CER. Further, the requirement for presentation of reclassifications from other comprehensive income to net income on a line item basis contained in the new accounting standards update is presently subject to indefinite deferral by the FASB pursuant to Accounting Standards Update 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05.” The adoption of this collective guidance has not impacted CER’s financial statements as the company presently prepares, and continues to prepare, a consolidated statement of operations and comprehensive income (loss).

45(a) Provision of Engineering, Procurement and Construction ("EPC") services, which are essentially turnkey contracts where the Company provides all services in the whole construction process from design, development, engineering, manufacturing, and procurement to installation;

~~Results~~(b) Sales of ~~Operations~~energy recovery systems; and

~~Comparison~~(c) Provision of ~~Three~~design ~~Months Ended June 30, 2011 and June 30, 2012~~services.

~~The~~In accordance ~~following~~with ~~table~~the ~~sets~~accounting ~~forth~~standard regarding performance of construction-type and certain production-type contracts, and long-term construction-type contracts, the ~~results~~Company adopted the percentage of ~~our~~completion ~~operations~~method to recognize revenues and cost of sales for ~~the~~EPC ~~periods~~contracts. ~~indicated~~EPC contracts are long-term, complex contracts involving multiple elements, such as design, manufacturing and installation, which all form one integral EPC project. The energy recovery system involved in an EPC project is highly customized to the specific customer's facilities and essentially not transferable to any other facilities without significant modification and cost. It would be difficult, if not impossible, to beneficially use a ~~percentage~~single element of a specific EPC project on a standalone basis other than in connection with the facilities for which it was intended. EPC contracts are by nature long-term construction-type contracts, usually lasting more than one accounting period, and the Company is able to reasonably estimate the progress toward completion, including contract revenues: and contract costs. EPC contacts specify the customers' rights to the goods, the consideration to be paid and received, and the terms of payment. Specifically, the Company has the right to require a customer to make progress payments upon completion of determined stages of the project which serve as evidence of the customer's approval and acceptance of the work completed to date as complying with the terms of the particular EPC contract.

	Three months ended June 30,
	2011			% of Revenue			2012			% of Revenue
REVENUES
Third parties
EPC - third parties		2,223,034			12.2	%		23,731,400			88.8	%
EPC - related party		11,293,381			61.8	%		816,571			3.1	%
Total EPC revenues		13,516,415			74.0	%		24,547,971			91.9	%
Products - third parties		4,753,411			26.0	%		2,165,931			8.1	%
Total revenue		18,269,826			100.0	%		26,713,902			100.0	%
COST OF REVENUES
Cost of revenues – EPC		(11,638,820	)		(63.7	)%		(20,312,685	)		(76.0	)%
Cost of revenues - products		(3,488,835	)		(19.1	)%		(1,627,098	)		(6.1	)%
Total cost of revenues		(15,127,655	)		(82.8	)%		(21,939,783	)		(82.1	)%
GROSS PROFIT		3,142,171			17.2	%		4,774,119			17.9	%
Selling, general, and administrative expenses		(2,063,067	)		(11.3	)%		(2,631,951	)		(9.9	)%
INCOME FROM OPERATIONS		1,079,104			5.9	%		2,142,168			8.0	%
OTHER INCOME / (EXPENSE):
Change in fair value of derivative liability for warrant		437,901			2.4	%		46,020			0.2	%
Change in fair value of derivative liability for loan		161,501			0.9	%		35,918			0.1	%
Other non-operating (expenses) income, net		(213,510	)		(1.2	)%		272,036			1.0	%
Investment income		-			-			2,972			0.0	%
Interest expense, net		(605,739	)		(3.3	)%		(99,031	)		(0.4	)%
Total other income (expense), net		(219,847	)		(1.2	)%		257,915			1.0	%
INCOME BEFORE TAXES		859,257			4.7	%		2,400,083			9.0	%
BENEFIT / (PROVISION) FOR INCOME TAXES		2,343			0.0	%		(478,301	)		(1.8	)%
NET INCOME		861,600			4.7	%		1,921,782			7.2	%
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation adjustment		86,813			0.5	%		(263,579	)		(1.0	)%
COMPREHENSIVE INCOME		948,413			5.2	%		1,658,203			6.2	%

46Sales of the Company's energy recovery systems and related products are essentially product sales. The products consist mainly of waste heat boilers and other related equipment manufactured according to specific customers' specifications. Once manufactured, the Company ships the products to its customers in their entirety in one batch. The Company’s service arrangement also includes a limited warranty to its customers pursuant to which the customers retain between 5% and 10% of the particular contract price as retainage during the limited warranty period (usually 12-18 months). The Company generally recognizes revenues including retainage from product sales when (i) persuasive evidence of an arrangement exists, which is generally represented by a contract between the Company and the customer; (ii) products are shipped; (iii) title and risks of ownership have passed to the customer, which generally occurs at the time of delivery; (iv) the customer accepts the products upon a quality inspection performed by them; (v) the purchase price is agreed to between the Company and the customer; and (vi) collectability is reasonably assured. Net revenues represent the invoiced value of products, less returns and discounts, and are net of value-added tax.

~~Revenues. Revenue was $26,713,902 for~~In ~~the three~~providing ~~months~~design ~~ended June 30~~services, ~~2012,~~the asCompany ~~compared~~designs toenergy ~~$18,269,826~~recovery ~~for~~systems ~~the~~and ~~three~~other ~~months~~related ~~ended~~systems ~~June~~based ~~30,~~on ~~2011,~~a ancustomer's ~~increase of~~requirements ~~$8,444,075~~and ~~or 46%. This increase was mainly due to~~ the ~~increase~~deliverable inconsists ~~the number~~ of ~~EPC~~engineering ~~contracts~~drawings. The ~~number~~customer ofmay ~~EPC~~elect ~~contracts~~to ~~increased by~~engage ~~5 from 6 for~~ the ~~three~~Company ~~months ended June 30, 2011~~ to 11manufacture ~~for~~ the ~~three months ended June 30, 2012, most of which were signed~~designed insystem ~~early~~ or ~~mid-2011~~choose ~~due~~ to ~~our~~present ~~strategic focus on EPC contracts since late 2010, and carried out from late 2011 or early 2012. The average revenue per EPC contract decreased by $21,102, from $2,252,736 per contract for~~ the ~~three~~Company's ~~months~~drawings ~~ended June 30, 2011~~ to ~~$2,231,634~~other ~~per~~manufacturers ~~contract~~ for ~~the~~manufacturing ~~three~~and ~~months ended June 30, 2012~~installation. ~~This~~The ~~was~~Company ~~mainly due to one significant EPC contract signed~~recognizes ~~with~~revenues ~~a related party in mid-2010, Zhenjiang Kailin, lasting more than one year~~ from ~~early~~design ~~2011~~services towhen ~~mid-2012, for which~~ the ~~revenue amounted~~services toare ~~$11 million for the three months ended June 30~~provided, ~~2011, accounting for 40% of~~ the total revenue at that time, whereas only $1 million was recognized in the comparable period of 2012 due to the completion of the project. Largely offsetting the above effect is one significant EPC contract signed with third party Ningbo Xinfu in early 2011, which is a general contract containing engineering, construction, electric, and water supply and drainage engineering components related to the entire HRS system valued at RMB 175.32 million (approximately $27.8 million). Due to the larger size of the project and more complicated technology requiring more time for design ~~and~~drawings ~~purchasing,~~are ~~this project did not commence activities until the first quarter of 2012. For the three months ended June 30~~delivered, ~~2012,~~invoices ~~revenues~~are ~~amounting~~issued ~~to $6.4 million were recognized~~ and ~~accounted for 26% of the total EPC revenues, with no~~collectability ~~such~~is ~~amount~~reasonably ~~in the comparable period of 2011~~assured. ~~Further,~~The aCompany ~~new~~generally ~~contract~~delivers ~~with a third party customer, Jiangsu SOPO, commenced in~~ the ~~first~~ ~~half~~drawings ~~of 2012, which led to $2.9 million of revenue~~ in ~~the~~one ~~current period, accounting for 12% of the total EPC revenue~~batch.

~~Although the number of product contracts~~Consolidation increased by 4 from 7 to 11 for the three months ended June 30, 2011 versus the three months ended June 30, 2012, the average revenue per product contract decreased by $482,156 from $679,059 for the three months ended June 30, 2011 to $196,903 for the same period of ~~2012.~~Variable ~~This~~Interest is mainly affected by the strategy of the Company, which put more focus on EPC projects than product sales since the beginning of this year. The continuing global economic downturn also contributed to market prices lower than the comparable period of 2011.Entities

47In accordance with U.S. GAAP, variable interest entities are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision making ability. Each variable interest entity with which the Company is affiliated must be evaluated to determine who the primary beneficiary of the risks and rewards of ownership of the variable interest entity. The primary beneficiary is required to consolidate the variable interest entity's financial information for financial reporting purposes.

AnWe have ~~analysis~~concluded that Shanghai Engineering is a variable interest entity and that CER Hong Kong is the primary beneficiary thereof. Pursuant to the contractual arrangements described elsewhere in this filing on Form 10-Q, the Company recovers substantially all of the ~~revenues~~profits of its VIE through service fees charged (particularly under the consulting and service agreement) and has the unilateral ability to do so through its wholly owned subsidiaries. Accordingly, through such contractual arrangements, the Company (as applicable, through wholly-owned subsidiaries) has the power to direct the activities most significant to the economic performance of the VIE and absorbs all, or substantially all, of the profits or losses; therefore, the Company is the primary beneficiary. Under the requirements of the FASB’s accounting standard regarding VIEs, CER Hong Kong consolidates the financial statements of Shanghai Engineering. As all companies are under common control (see Note 1 to our consolidated financial statements), the consolidated financial statements have been prepared as ~~follows:~~if the arrangements by which these entities became variable interest entities had occurred retroactively. We have eliminated inter-company items from our consolidated financial statements.

	Three months ended June 30,
	2011		2012		Change ($)			Change (%)
Average Revenue per Contract
EPC		2,252,736		2,231,634		(21,102	)		(0.9	)%
Products	$	679,059		196,903		(482,156	)		(71.0	)%
Average Revenue per Contract	$	2,931,795		2,544,492		(387,303	)		(13	)%
Number of Contracts Completed
EPC		6		11		5			83	%
Products		7		11		4			57	%
Total Number of Contracts Completed		13		22		9			69	%

Fair Value Measurements

~~Cost of Revenues. Cost of revenues~~The ~~increased~~accounting tostandard ~~$21,939,783~~regarding ~~for~~fair ~~the~~value ~~three~~measurements ~~months~~defines ~~ended~~financial ~~June~~instruments ~~30,~~and ~~2012,~~requires asfair ~~compared~~value todisclosures ~~$15,127,655~~ for ~~the three months ended June 30,~~those ~~2011,~~financial ~~an increase of $6,812,128, or 45%~~instruments. The ~~absolute~~fair ~~increase~~value isstandard ~~consistent~~also ~~with~~establishes ~~the increase of revenue. As~~ a ~~percentage~~three-level ofvaluation ~~revenues, cost~~hierarchy ~~of revenues decreased from 82.8%~~ for ~~the~~disclosures ~~three~~of ~~months~~fair ~~ended~~value measurement ~~June~~and ~~30,~~enhances ~~2011~~disclosure torequirements ~~82.1%~~ for ~~the~~fair ~~three~~value ~~months ended June 30, 2012, a decrease of 0~~measurements.~~7%.~~ The ~~largest~~carrying ~~driver~~amounts ofreported ~~total~~in ~~gross~~the accompanying ~~margin~~consolidated isbalance ~~that~~sheets wefor ~~shifted~~current ~~production~~assets ~~into our new manufacturing facility~~ and ~~began~~current toliabilities ~~incur~~such ~~anticipated~~as ~~lower~~cash, ~~costs~~restricted ~~related~~cash, toaccounts ~~our new facility which lowers the cost. The gross profit margin on EPC contracts~~and ~~increased~~notes ~~from~~receivable, ~~13.9%~~long ~~for~~term ~~the~~accounts ~~three~~receivable, ~~months~~short ~~ended~~term ~~June 30~~loans, ~~2011~~accounts topayable, ~~17.2%~~and ~~for~~other ~~the~~payables ~~three~~qualify ~~months~~as ~~ended~~financial ~~June 30, 2012, an increase of 3~~instruments.~~4%,~~ Management ~~mainly~~concluded ~~due to~~ the ~~two~~carrying ~~new~~values ~~significant~~of ~~EPC~~these ~~contracts~~financial instruments ~~for~~are ~~customers~~reasonable ~~Ningbo~~approximations ~~Xinfu~~of ~~and~~their ~~Wuxi~~respective fair ~~Gelin,~~values ~~which~~because ~~made up 45%~~ of ~~total EPC~~the ~~revenue,~~short ~~having~~period ~~a higher margin~~ of ~~around~~time ~~18%.~~between ~~Offsetting~~ the ~~gross~~origination ~~margin~~of ~~impact~~such ~~from~~instruments ~~EPC~~and ~~contracts,~~their ~~the~~expected ~~gross~~realization ~~profit margin~~and onthe ~~product~~current ~~sales~~market ~~decreased~~rates ~~from~~of 26interest.6% The tothree ~~24.9%~~levels ~~owing to a focus on EPC contracts (which comprise almost 90%~~ of ~~revenue) from late 2011,~~ the ~~revenue~~valuation ~~from~~hierarchy ~~EPC~~are ~~contracts~~defined ~~accounted~~as ~~for a greater proportion of total revenue; however, such contracts have lower margins than product contracts.~~follows:

~~The following table sets forth the analysis of cost of revenues and margin:~~48

		Three months ended June 30,
¨	Level 1	Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
		2011			2012
¨	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 assets or liabilities, either directly or indirectly, for substantially the full term of the financial instruments.
Cost of Revenues:
¨	Level 3	Inputs to the valuation methodology are unobservable and significant to the fair value. Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
EPC			11,638,820			20,312,685
Products			3,488,835			1,627,098
Total Cost of Revenues		$	15,127,655			21,939,783
Gross Margin:
EPC			13.9	%		17.2	%
Products			26.6	%		24.9	%
Gross Profit Margin			17.2	%		17.9	%

~~Gross~~Recent ~~Profit.~~Accounting Gross profit was $4,774,119 for the three months ended June 30, 2012, as compared to $3,142,171 for the three months ended June 30, 2011, an increase of $1,631,947 or 52%. The gross margins were 17.2% and 17.9%, respectively, for the three months ended June 30, 2011 and 2012. The higher gross profit is mainly due to the increase of revenue and higher margin from EPC contracts.Pronouncements

48In December 2011, the FASB issued ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (ASU 2011-11). This newly issued accounting standard requires an entity to disclose both gross and net information about instruments and transactions eligible for offset in the statements of financial position as well as instruments and transactions executed under a master netting or similar arrangement and was issued to enable users of financial statements to understand the effects or potential effects of those arrangements on their financial position. This ASU is required to be applied retrospectively and is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. As this accounting standard only requires enhanced disclosure, the adoption of this standard is not expected to have an impact on the Company’s financial position.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $2,631,951 for the three months ended June 30, 2012, as compared to $2,063,067 for the three months ended June 30, 2011, an increase of $568,884 or 28%. Selling, general and administrative expenses, as a percentage of revenues, decreased from 11.3% for the three months ended June 30, 2011 to 9.9% for the three months ended June 30, 2012, a decrease of 1.4%. This decreased effect as a percentage of sales resulted from the larger business and sales volume for the three months ended June 30, 2012 compared to the same period of 2011 when compared to costs which are less variable than sales. The absolute increase is mainly due to the effect of higher salaries as well as increased depreciation and amortization expense and traveling and transportation fees, offset by decreases in stock based compensation and rental expenses. Firstly, salary expenses increased by $515,655 or 64% for the three months ended June 30, 2012 as compared to the same period in 2011, as a result of additional administration staff needed for the new plant in Yangzhou, the addition of top and middle level management, and gradual increases in personnel salaries. Secondly, the selling expenses related to transportation and traveling increased by $169,987, which is consistent with the increase in sales volume. Thirdly, depreciation and amortization expenses increased by $116,029, mainly due to the new office building which was purchased in June 2011 in Shanghai, and the purchase of more office equipment and software. Fourthly, offsetting the above increases is a large decrease in share based compensation expense because of the modification of options granted under the Company’s Option Plan in June 2011, when the Board of Directors resolved to adjust the exercise price of two Directors’ options from $1.22 to $0.73 per share and from $1.58 to $0.73 per share. The Board also resolved to accelerate the vesting period of one Director’s options from 3 years to 2 years, such that all the shares underlying the option were deemed vested as of June 7, 2011. The modification of the options pursuant to US GAAP required the Company to record any incremental fair value arising from the modification as compensation cost. The total incremental compensation cost in respect of such acceleration and option modification was $202,106, with no such amounts incurred in the current period. Fifthly, rental expense decreased by $70,541 because we terminated the leasing and operation agreement entered into with Shanghai Sifang related to our former production facility and moved our production to the new Yangzhou facility in the end of second quarter of 2011. Sixthly, administration fees decreased by $68,238, which is mainly due to the property title deed tax of approximately $220,000 for the new office building in Shanghai in June 2011.49

~~The~~Results ~~following~~of ~~table sets forth the principal changes in selling, general and administrative expenses:~~Operations

	Three months ended June 30,
	2011		2012		Change($)			Change (%)
Salary expenses		807,046		1,322,702		515,656			64	%
Administration fees		398,882		330,644		(68,238	)		(17	)%
Traveling and transportation fees		154,757		324,744		169,987			110	%
Depreciation and amortization expense		85,034		201,063		116,029			136	%
Rental expenses		105,158		34,617		(70,541	)		(67	)%
Stock based compensation		205,815		7,067		(198,748	)		(97	)%
Subtotal		1,756,692		2,220,837		464,145			26	%

Comparison of Three Months Ended September 30, 2011 and September 30, 2012

~~Income~~The ~~from~~following ~~Operations.~~table Assets aforth ~~result~~the results of ~~the~~our ~~above, income from~~ operations ~~totaled $2,142,168~~ for the ~~three~~periods ~~months~~indicated ~~ended June 30, 2012,~~ as ~~compared to income of $1,079,104 for the same period in 2011, an increase of $1,063,063, or 99%. As~~ a percentage of revenues, income from operations represents 8.0% of total revenue for the three months ended June 30, 2012 and 5.9% for the three months ended June 30, 2011. The change is mainly attributable to the increase in revenue and gross profit.:

Other Income / (Expense), net. For the three months ended June 30, 2012, the Company incurred other income of $257,915 as compared to other expense of $219,847 for the three months ended June 30, 2011, an absolute difference of $477,762, as further described in the next three paragraphs.

	Three months ended September 30,
	2011			% of Revenue			2012			% of Revenue
REVENUES
Third parties
EPC - third parties		16,600,366			56.5	%		16,758,871			80.0	%
EPC - related party		10,563,393			35.9	%		12,672			0.1	%
Total EPC revenues		27,163,759			92.4	%		16,771,543			80.1	%
Products - third parties		2,222,699			7.6	%		4,176,683			19.9	%
Total revenue		29,386,458			100.0	%		20,948,226			100.0	%

COST OF REVENUES
Cost of revenues – EPC		(22,691,015	)		(77.2	)%		(13,736,857	)		(65.6	)%
Cost of revenues - products		(1,607,384	)		(5.5	)%		(2,930,514	)		(14.0	)%
Total cost of revenues		(24,298,399	)		(82.7	)%		(16,667,371	)		(79.6	)%

GROSS PROFIT		5,088,059			17.3	%		4,280,855			20.4	%

Selling, general, and administrative expenses		(2,490,222	)		(8.5	)%		(2,650,738	)		(12.7	)%

INCOME FROM OPERATIONS		2,597,837			8.8	%		1,630,117			7.8	%

OTHER INCOME / (EXPENSE):
Change in fair value of derivative liability for warrant		248,332			0.8	%		(4,651	)		(0.0	)%
Change in fair value of derivative liability for loan		72,764			0.2	%		-			-
Other non-operating (expenses) income, net		330,541			1.1	%		(72,617	)		(0.3	)%
Investment income		-						-			-
Interest expense, net		(370,400	)		(1.3	)%		(56,703	)		(0.3	)%
Total other income (expense), net		281,237			1.0	%		(133,971	)		(0.6	)%

INCOME BEFORE TAXES		2,879,074			9.8	%		1,496,146			7.1	%

BENEFIT / (PROVISION) FOR INCOME TAXES		(600,661	)		(2.0	)%		(595,527	)		(2.8	)%

NET INCOME		2,278,413			7.8	%		900,619			4.3	%

OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation adjustment		458,788			1.6	%		344,248			1.6	%

COMPREHENSIVE INCOME		2,737,201			9.3	%		1,244,867			5.9	%

Change in fair value of derivative liabilities for warrants and loan - This resulted from the valuation of warrants and derivative liabilities. The $599,402 gain recognized in the second quarter of 2011 was due to significant declines in the Company's stock price, whereas a smaller gain of $81,938 was recognized in 2012 as the related contracts approached maturity.50

49 Revenues. Revenue was $20,948,226 for the three months ended September 30, 2012, as compared to $29,386,458 for the three months ended September 30, 2011, a decrease of $8,438,231 or 29%. This decrease was mainly due to the decrease in average revenue per EPC and product contracts. Although the number of EPC contracts increased by 1 from 8 for the three months ended September 30, 2011 to 9 for the three months ended September 30, 2012, the average revenue recognized per EPC contract decreased by $1,522,525, from $3,395,470 per contract for the three months ended September 30, 2011 to $1,872,945 per contract for the three months ended September 30, 2012. This was mainly due to three of these projects carried out in the third quarter of 2012 were in the stage of completion and settlement, which resulted in less revenue being recognized for the three months ended September 30, 2012. Further, one significant EPC contract signed with a related party in mid-2010, Zhenjiang Kailin, lasting more than one year from early 2011 to mid-2012, which lead to more than $10 million of revenue for the three months ended September 30, 2011, accounting for 35% of the total revenue at that time, whereas none was recognized in the comparable period of 2012 due to the project has been completed as of June 30, 2012. Largely offsetting the above effect is one significant EPC contract signed with third party Ningbo Xinfu in early 2011, which is a general contract containing engineering, construction, electric, and water supply and drainage engineering components related to the entire HRS system valued at RMB 175.32 million (approximately $27.8 million). Due to the large size of the project and more complicated technology requiring more time for design and purchasing, this project did not commence activities until the first quarter of 2012. For the three months ended September 30, 2012, revenues amounting to $4.8 million were recognized and accounted for 28% of the total EPC revenues, with no such amount in the comparable period of 2011.

~~Non-operating~~Although ~~Income/(expenses), net~~the –number ~~During~~of ~~the~~product ~~three~~contracts ~~months~~increased ~~ended~~by ~~June~~10 ~~30,~~from ~~2011,~~4 ~~CER purchased imported equipment via advance payments~~ to ~~suppliers~~14 ~~through~~ for the ~~holding~~three ~~company~~months ~~CER~~ended ~~Hong~~September ~~Kong~~30, ~~which~~2011 ~~then~~versus ~~resold~~ the ~~equipment~~three ~~to mainland PRC inter-company subsidiaries (CER Shanghai and~~months ~~CER~~ended ~~Yangzhou).~~September ~~With~~30, ~~RMB~~2012, ~~appreciation~~the ~~against~~average ~~the~~revenue USper ~~dollar~~product ~~from~~contract ~~RMB6.56~~decreased toby $1263,409 tofrom ~~RMB6.47 to~~ $1555,675 ~~over~~for the three months ended ~~June~~ September 30, 2011, anto ~~exchange loss of~~ $~~240~~292,~~156~~266 ~~was realized~~ for the ~~three~~same ~~months~~period ~~ended~~of ~~June~~2012. ~~30,~~This ~~2011~~is ~~due~~mainly toa ~~the~~result ~~large amount~~ of ~~import transactions~~the ~~related~~strategy toof ~~CER~~the ~~Yangzhou~~Company, ~~whereas~~which ~~due~~put more tofocus ~~the~~on ~~depreciation~~EPC ofprojects ~~RMB~~than ~~against~~product ~~USD~~sales ~~from~~since ~~RMB6.30~~the tobeginning $1of tothis ~~RMB6~~year.35 toThe $1continuing ~~over the~~global ~~three~~economic ~~months~~downturn ~~ended~~also ~~June~~contributed to ~~30,~~market ~~2012,~~prices anlower ~~exchange~~than ~~gain of $225,475 was realized for~~ the ~~three~~comparable ~~months~~period ~~ended~~of ~~June 30, 2012~~2011.

~~Interest~~An ~~Expense,~~analysis ~~net - Interest expense was $99,031 for the three months ended June 30, 2012, as compared to interest expense~~ of ~~$605,739 for~~ the ~~three~~revenues ~~months ended June 30, 2011, a decrease of $506,708. This decrease was mainly due to the net-off impact of interest income recorded for Zhenjiang Kailin accounts receivable accretion, which~~ is ~~further described in Note 14.~~as follows:

Income From Operations Before Income Taxes. As a result of the foregoing, income before provision for income taxes was $2,400,083 for the three months ended June 30, 2012, as compared to income of $859,257 for the three months ended June 30, 2011, an increase of $1,540,825 or 179%.

	Three months ended September 30,
	2011		2012		Change ($)			Change (%)
Average Revenue per Contract
EPC		3,395,470		1,872,945		(1,522,525	)		(45	)%
Products	$	555,675		292,266		(263,409	)		(47	)%
Average Revenue per Contract	$	3,951,145		2,165,211		(1,785,934	)		(45	)%
Number of Contracts Completed
EPC		8		9		1			13	%
Products		4		14		10			250	%
Total Number of Contracts Completed		12		23		11			92	%

~~Income~~Cost ~~Tax~~of Revenues. ~~Benefit/(Expense)~~Cost of revenues decreased to $16,667,371 for the three months ended September 30, 2012, as compared to $24,298,399 for the three months ended September 30, 2011, a decrease of $7,631,028, or 31%. The absolute decrease is consistent with the ~~normal~~decrease ~~applicable~~of ~~income~~revenue. ~~tax~~As ~~rate~~a percentage of revenues, cost of revenues decreased from 82.7% for the ~~operating~~three ~~entities~~months inended ~~China~~September is30, 2011 ~~25%~~to 79. ~~Pursuant~~6% tofor the ~~PRC~~three ~~income~~months ~~tax~~ended ~~laws~~September 30, ~~Shanghai~~2012, a decrease of 3.1%. The largest driver of total gross margin is that ~~Engineering~~we ~~and~~shifted ~~CER~~production ~~Shanghai~~into ~~are~~our ~~subject~~new manufacturing facility and began to ~~enterprise~~incur ~~income~~anticipated ~~tax~~lower atcosts arelated ~~statutory~~to ~~rate~~our new facility which lowers the cost of ~~15%~~revenue. ~~and~~The 12gross profit margin on EPC contracts increased from 16.5% ~~respectively~~for as the ~~high~~three months ended September ~~technology~~30, ~~entities~~2011 to 18.0% ~~For~~for the three months ended ~~June~~September 30, 2012, ~~the~~an ~~Company~~increase ~~incurred~~of ~~$478~~1.5%,~~301~~ mainly due to one big EPC contracts for customer Wuxi Gelin, undertaken in early 2012, which made up 21% of ~~income~~total ~~tax~~EPC ~~provision~~revenue, ashaving ~~compared~~a high margin of around 20%. Furthermore, one significant EPC contract for customer Zhenjiang Kailin, commencing from early 2011 to anmid-2012, ~~income~~which ~~tax~~made ~~benefit~~up 39% of ~~$2,343~~total EPC revenue for the three months ended ~~June~~September 30, 2011, anbears ~~absolute change~~a relatively lower profit margin of ~~$480~~15% (excluding the impact of discounted revenue and penalty at that time) considering the contract value is very high. In addition,~~644~~ the gross profit margin on product sales increased from 27.7% to 30.5% owing to two export contracts which had higher margins.

For the quarter ended March 31, 2012, the Group’s Hong Kong subsidiary, CER (Hong Kong), had, for the first time, estimated taxable profits earned in the PRC. CER (Hong Kong) also has estimated taxable profits in the PRC for the quarter ended June 30, 2012. As such, CER (Hong Kong) is likely to be regarded under the PRC tax laws as having permanent establishment for business activities carried out in the PRC, and would be subject to PRC tax at the standard EIT rate of 25%. For the quarter ended June 30, 2012, given the Group is likely to be regarded as having permanent establishment, CER (Hong Kong) provided taxes, included in the consolidated tax provision, of $188,531. The primary reason for CER (Hong Kong)’s generation of taxable income was the non-deductibility, under PRC tax law, of a $1.5 million expense incurred for a penalty payment to an EPC construction contract related party customer which is further described in Note 16. This tax provision, as well as increases in PRC tax expense for the Group’s profitable subsidiaries, were primarily responsible for the significant increase in the Group’s effective tax rate for the quarter ended June 30, 2012 as compared to the quarter ended June 30, 2011.51

~~Net~~The ~~Income~~following ~~Net~~table ~~income was~~sets ~~$1,921,782 for~~forth the analysis ~~three months ended June 30, 2012, as compared to a net income~~ of ~~$861,600~~cost ~~for the three months ended June 30, 2011, an increase~~ of ~~$1,060,181,~~revenues ~~or 123%. The increased net income primarily attribute to the higher revenue~~ and ~~gross profit.~~margin:

	Three months ended September 30,
	2011			2012
Cost of Revenues:
EPC		22,691,015			13,736,857
Products		1,607,384			2,930,514

Total Cost of Revenues	$	24,298,399			16,667,371
Gross Margin:
EPC		16.5	%		18.0	%
Products		27.7	%		30.5	%
Gross Profit Margin		17.3	%		20.4	%

~~Comparison~~Gross ofProfit. Gross ~~Six~~profit ~~Months~~was ~~Ended~~$4,280,855 for ~~June~~the three months ended September 30, 2012, as compared to $5,088,059 for the three months ended September 30, 2011, a decrease of $807,203 or 16%. The gross margins were 17.3% and ~~June~~20.4%, 30respectively, for the three months ended September 30, 2011 and 2012. The higher gross profit is mainly due to the higher margin from product contracts.

~~The~~Selling, General ~~following~~and ~~table~~Administrative ~~sets~~Expenses. ~~forth~~Selling, general and administrative expenses increased to $2,650,738 for the ~~results~~three months ended September 30, 2012, as compared to $2,490,222 for the three months ended September 30, 2011, an increase of ~~our~~$ ~~operations~~160,516 or 6%. Selling, general and administrative expenses, as a percentage of revenues, increased from 8.5% for the ~~periods~~three ~~indicated~~months ended September 30, 2011 to 12.7% for the three months ended September 30, 2012, an increase of 4.2%. This increased effect as a percentage of sales ~~revenues:~~resulted from the lower business and sales volume for the three months ended September 30, 2012 compared to the same period of 2011 when compared to costs which are less variable than sales. The absolute increase is mainly due to the effect of higher salaries as well as increased administration fees, offset by decreases in consulting service fee and traveling and transportation fee. Firstly, salary expenses increased by $267,647 or 25% for the three months ended September 30, 2012 as compared to the same period in 2011, as a result of additional administration staff needed for the new plant in Yangzhou, the addition of top and middle level management, and gradual increases in personnel salaries. Secondly, administration fees increased by $123,248, which is mainly due to the increase of import agent fee and customs clearance charges resulted from more goods imported from oversees. Thirdly, offsetting the above increases is a large decrease in consulting service fees and traveling and transportation fees, which is consistent with reducing of business volume.

	Six months ended June 30,
	2011			% of Revenue			2012			% of Revenue
REVENUES
Third parties
EPC - third parties		6,664,914			26.0	%		43,143,094			77.6	%
EPC - related party		13,068,038			50.9	%		6,647,487			12.0	%
Total EPC revenues		19,732,952			76.9	%		49,790,581			89.6	%
Products - third parties		5,916,933			23.1	%		5,763,419			10.4	%
Total revenue		25,649,885			100.0	%		55,554,000			100.0	%
COST OF REVENUES
Cost of revenues – EPC		(16,618,538	)		(64.8	)%		(43,771,552	)		(78.8	)%
Cost of revenues - products		(4,650,258	)		(18.1	)%		(4,266,259	)		(7.7	)%
Total cost of revenues		(21,268,796	)		(82.9	)%		(48,037,811	)		(86.5	)%
GROSS PROFIT		4,381,089			17.1	%		7,516,189			13.5	%
Selling, general, and administrative expenses		(3,876,148	)		(15.1	)%		(4,685,286	)		(8.4	)%
INCOME FROM OPERATIONS		504,941			2.0	%		2,830,903			5.1	%
OTHER INCOME / (EXPENSE):
Change in fair value of derivative liability for warrant		915,790			3.6	%		19,269			0.0	%
Change in fair value of derivative liability for loan		323,718			1.3	%		21,274			0.1	%
Other non-operating (expenses) income, net		(404,127	)		(1.6	)%		332,093			0.6	%
Investment income								2,972			0.0	%
Interest expense, net		(975,264	)		(3.8	)%		(529,820	)		(1.0	)%
Total other income (expense), net		(139,883	)		(0.5	)%		(154,212	)		(0.3	)%
INCOME BEFORE INCOME TAXES		365,058			1.4	%		2,676,691			4.8	%
BENEFIT / (PROVISION) FOR INCOME TAXES		20,095			0.1	%		(949,185	)		(1.7	)%
NET INCOME		385,153			1.5	%		1,727,506			3.1	%
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation adjustment		307,582			1.2	%		(223,552	)		(0.4	)%
COMPREHENSIVE INCOME		692,735			2.7	%		1,503,954			2.7	%

The following table sets forth the principal changes in selling, general and administrative expenses:

	Three months ended September 30,
	2011		2012		Change($)			Change (%)

Salary expenses		1,051,779		1,319,426		267,647			25	%
Administration fees		161,264		284,512		123,248			76	%
Consulting service fee		396,392		180,591		(215,801	)		(54	)%
Traveling and transportation fee		471,872		307,213		(164,659	)		(35	)%
Subtotal		2,081,307		2,091,742		10,435			1	%

~~Revenues~~Income from Operations. ~~Revenue~~As ~~was~~a ~~$55,554,000 for the six~~result ~~months~~of ~~ended~~the ~~June 30~~above, ~~2012,~~income asfrom ~~compared~~operations tototaled $251,~~649~~630,~~885~~117 for the ~~six~~three months ended ~~June~~September 30, ~~2011~~2012, ~~an increase of $29,904,115~~ as orcompared ~~117%. This increase was mainly due~~ to ~~the~~income ~~increase in the number~~ of ~~EPC contracts and the increase in the average revenue recognized per EPC contract. The average revenue per EPC contract increased by~~ $~~1,363,920, from $~~2,~~192~~597,~~550~~837 ~~per contract~~ for the ~~six~~same ~~months ended~~period ~~June 30, 2011 to $3,556,470 per contract for the six months ended June 30, 2012. This was mainly due to one significant EPC contract signed with third party Ningbo Xinfu~~ in ~~early~~ 2011, ~~which is~~ a ~~general~~decrease ~~contract~~of ~~containing engineering, construction, electric, and water supply and drainage engineering components related to the entire HRS system valued at RMB 175.32 million (approximately~~ $~~27.8 million). Due to this larger project with more complicated technology requiring more time for design and purchasing activities~~967, ~~this project did not commence until the first quarter of 2012. For the six months ended June 30~~719, ~~2012,~~or ~~revenues amounting to $10.2 million were recognized and accounted for 18~~37% ~~of the total EPC revenues, with no such amount in the comparable period of 2011~~. ~~Further,~~ As a ~~new~~percentage ~~contract with a third party customer, Jiangsu SOPO, commenced in the first half~~ of ~~2012~~revenues, ~~which led to $8.2 million~~ ofincome ~~revenue~~from inoperations ~~the~~represents ~~first half of 2012, accounting for 18~~7.8% of ~~the~~ total ~~EPC~~ revenue. ~~Also contributing to the increase in total revenues and revenue per EPC contract were two new large contracts with third party customers,~~ for ~~which EPC revenues of $5.6 million and $4.4 million were recognized for~~ the ~~six~~three months ended ~~June~~September 30, 2012, ~~respectively,~~and ~~with no such amounts in the comparable prior period~~8.8% ~~Offsetting the above increase is one significant EPC contract signed with a related party in mid-2010, Zhenjiang Kailin, lasting more than one year from early 2011 to mid-2012,~~ for ~~which~~ the ~~revenue~~three ~~amounted to $13.1 million for the six~~ months ~~ended~~ June 30, 2011, whereas $6.6 million was recognized in the comparable period of 2012 due to the completion of the project. In addition, the average revenue per product contract decreased by $10,234 from $394,462 for the six months ended ~~June~~September 30, 2011 ~~to $384,228 for the same period of 2012~~. ~~This~~The change is mainly ~~affected~~attributable byto the ~~Company~~decrease toin ~~focus~~gross ~~more~~profit ~~on EPC projects~~ and ~~strategy~~the toincrease ~~generate~~of ~~more~~administrative ~~profit on EPC projects~~expenses.

~~An analysis of the revenues is as follows:~~52

	Six months ended June 30,
	2011		2012		Change ($)			Change (%)
Average Revenue per Contract
EPC		2,192,550		3,556,470		1,363,920			62	%
Products	$	394,462		384,228		(10,234	)		(3	)%
Average Revenue per Contract	$	2,615,188		4,031,806		1,444,794			55	%
Number of Contracts Completed
EPC		9		14		5			56	%
Products		15		15		-			-
Total Number of Contracts Completed		24		29		5			21	%

Other Income / (Expense), net. For the three months ended September 30, 2012, the Company incurred other expense of $133,971 as compared to other income of $281,237 for the three months ended September 30, 2011, an absolute difference of $415,208, as further described in the next three paragraphs.

~~Cost~~Change ofin fair ~~Revenues.~~value ~~Cost~~ of ~~revenues increased~~derivative toliabilities ~~$48,037,811~~ for ~~the~~warrants ~~six~~and ~~months~~loan ~~ended~~- ~~June~~This ~~30,~~resulted ~~2012,~~from ~~as compared to $21,268,796 for~~ the ~~six~~valuation ~~months ended June 30, 2011, an increase~~ of ~~$26,769,015,~~warrants orand ~~126%.~~derivative ~~The absolute increase is mostly consistent with the increase of revenue~~liabilities. ~~As a percentage of~~ ~~revenues,~~The ~~cost of revenues increased from 82.9% for the six months ended June 30~~$321,096 ~~2011~~gain torecognized ~~86.5%~~in ~~for~~ the ~~six~~third ~~months~~quarter ~~ended June 30, 2012, an increase~~ of ~~3.6%. As the largest driver of total gross margin, the gross profit margin on EPC contracts decreased from 15.8% for the six months ended June 30,~~ 2011 towas ~~12.0% for the six months ended June 30, 2012, mainly~~ due to ~~the~~significant ~~two~~declines big EPC contracts for customers Zhenjiang Kailin and Jiangsu SOPO, which made up 27% of total EPC revenue. The gross margin for the Zhenjiang Kailin project decreased to a negative 28% for the six months ended June 30, 2012 (as further discussed in ~~Note 16 to~~ the Company’'s ~~Consolidated~~ ~~Financial~~stock Statements) while the Jiangsu SOPO contract gross margin was about 11% (such contract is a normal construction contract which is not related to energy saving activities). Offsetting the gross margin impact from EPC contractsprice, ~~the gross profit~~whereas ~~margin on product sales increased from 21.4% to 25.9% as we shifted production into our new manufacturing facility and began to incur anticipated lower costs related to our new facility. Owing to~~ a ~~focus~~smaller onloss ~~EPC contracts (which comprise almost 90%~~ of ~~revenue) from late 2011~~$4,651 ~~the~~was ~~revenue~~recognized ~~from~~in ~~EPC~~2012 ~~contracts~~as ~~accounted~~the ~~for~~related ~~a greater proportion of total revenue; however, such~~ contracts ~~have lower~~approached ~~margins than product contracts~~maturity.

52Non-operating Income/(expenses), net – During the three months ended September 30, 2011, CER received a subsidy income $1,022,984 through CER Yangzhou from a research and development fund from the Yizheng industrial park while there is only $89,000 for the three months ended September 30, 2012. The subsidy income is not tied to any specific element of the business, and cannot be reclaimed by the research and development fund. Meanwhile, during the three months ended September 30, 2011, CER purchased imported equipment via advance payments to suppliers through the holding company CER Hong Kong, which then resold the equipment to mainland PRC inter-company subsidiaries (CER Shanghai and CER Yangzhou). With RMB appreciation against the US dollar from RMB6.47 to $1 to RMB6.35 to $1 over the three months ended September 30, 2011, an exchange loss of $578,086 was realized for the three months ended September 30, 2011 due to the large amount of import transactions related to CER Yangzhou, whereas due to the appreciation of RMB against USD from RMB6.35 to $1 to RMB6.28 to $1 over the three months ended September 30, 2012, an exchange loss of $152,652 was realized for the three months ended September 30, 2012.

~~The~~Interest Expense, ~~following~~net ~~table~~- ~~sets~~Interest ~~forth~~expense was $56,703 for the ~~analysis~~three months ended September 30, 2012, as compared to interest expense of ~~cost~~$370,400 for the three months ended September 30, 2011, a decrease of ~~revenues~~$313,697. This decrease was mainly due to the net-off ~~and~~impact ~~margin:~~of interest income recorded for Zhenjiang Kailin accounts receivable accretion, which is further described in Note 14.

	Six months ended June 30,
	2011			2012
Cost of Revenues:
EPC		16,618,538			43,771,552
Products		4,650,258			4,266,259
Total Cost of Revenues	$	21,268,796			48,037,811
Gross Margin:
EPC		15.8	%		12.0	%
Products		21.4	%		26.0	%
Gross Profit Margin		17.1	%		13.5	%

Income From Operations Before Income Taxes. As a result of the foregoing, income before provision for income taxes was $1,496,146 for the three months ended September 30, 2012, as compared to income of $2,879,074 for the three months ended September 30, 2011, a decrease of $1,382,927 or 48%.

~~Gross~~Income ~~Profit~~Tax Benefit/(Expense). ~~Gross~~The ~~profit~~normal ~~was~~applicable ~~$7,516,189~~ income tax rate for the ~~six~~operating ~~months~~entities ~~ended~~in ~~June~~China ~~30,~~is ~~2012,~~25%. Pursuant asto ~~compared~~the PRC toincome $4tax laws,~~381,089 for~~ ~~the~~Shanghai ~~six~~Engineering ~~months~~and ~~ended~~CER ~~June~~Shanghai ~~30,~~are ~~2011,~~subject anto ~~increase~~enterprise ofincome ~~$3,135,100 or~~tax ~~72%. The~~at ~~gross~~a ~~margins~~statutory ~~were~~rate ~~17.1~~of 15% and 13 12.5%, respectively, ~~for~~as the ~~six~~high technology entities. For the three months ended ~~June~~September 30, ~~2011~~2012, ~~and~~the ~~2012.~~Company ~~The~~incurred ~~lower~~$595,527 ~~gross~~of ~~profit~~income istax ~~mainly~~provision, ~~due~~as compared to ~~the~~an ~~lower~~income ~~margins~~tax ~~generated~~provision ~~from~~of ~~EPC contracts~~$600,661 ~~which~~for ~~accounted~~the ~~for~~three amonths ~~larger~~ended ~~proportion~~September of30, ~~total~~2011, an ~~revenue~~absolute change of $5,134.

~~Selling,~~For ~~General and Administrative Expenses. Selling, general and administrative expenses increased to $4,685,286 for~~ the ~~six months~~ quarter ended ~~June~~March 3031, 2012, ~~as compared to $3,876,148 for~~ the ~~six~~Group’s ~~months~~Hong ~~ended~~Kong ~~June 30~~subsidiary, ~~2011,~~CER an(Hong ~~increase of $809~~Kong),~~138~~ ~~or 21%. Selling~~had, ~~general and administrative expenses, as a percentage of revenues, decreased from 15.1%~~ for the ~~six~~first ~~months ended June 30~~time, ~~2011~~estimated totaxable ~~8.4%~~profits earned ~~for~~in the ~~six months ended June 30, 2012, a decrease of 6~~PRC.~~7%.~~ ~~This~~CER ~~decreased~~(Hong ~~effect~~Kong) asalso ahas ~~percentage~~estimated oftaxable ~~sales~~profits ~~resulted~~in ~~from~~ the ~~larger~~PRC ~~business and sales volume~~ for the ~~six~~quarter ~~months~~ ended ~~June~~September 30, 2012. ~~compared~~As such, toCER ~~the~~(Hong ~~same~~Kong) ~~period~~is oflikely ~~2011 when compared~~ to ~~costs~~be ~~which~~regarded ~~are~~under ~~less variable than sales. The absolute increase is mainly due to~~ the ~~effect~~PRC oftax ~~higher~~laws ~~salaries~~ as ~~well~~having aspermanent ~~increased~~establishment ~~depreciation~~for ~~and~~business ~~amortization~~activities ~~expense~~carried ~~and~~out ~~traveling~~in ~~and~~the ~~transportation fee~~PRC, ~~offset by decreases in administration~~ and ~~option~~would ~~fees~~be assubject ~~well~~to asPRC ~~rental~~tax ~~expenses. Firstly,~~at ~~salary~~the ~~expenses~~standard ~~increased~~EIT byrate ~~$1,132,240~~of ~~or 82~~25%. ~~for~~For the ~~six~~quarter ~~months~~ ended ~~June~~September 30, 2012, given asthe ~~compared~~Group tois ~~the~~likely ~~same~~to ~~period~~be ~~in 2011,~~regarded as ahaving ~~result~~permanent ofestablishment, ~~additional~~CER ~~administration~~(Hong ~~staff~~Kong) ~~needed~~provided ~~for~~taxes, ~~the~~included ~~new plant~~ in ~~Yangzhou,~~ the ~~addition of top and middle level~~consolidated ~~management,~~tax ~~and gradual increases in personnel salaries. Secondly~~provision, ~~depreciation~~of ~~and amortization expenses increased by~~ $~~250~~294,~~024, mainly~~431. ~~due~~The toprimary ~~the~~reason ~~new~~for ~~office~~CER ~~building~~(Hong ~~which~~Kong)’s ~~was~~generation ~~purchased in June 2011 in Shanghai, and the purchase~~ of ~~more~~taxable ~~office~~income ~~equipment~~was ~~and software. Thirdly,~~ the ~~selling expenses related to transportation and traveling increased by $107~~non-deductibility,~~429, which is consistent with~~ ~~the~~under ~~increase~~PRC intax ~~sales volume. Fourthly~~law, ~~offsetting~~of ~~the above increases is~~ a ~~decrease~~$1.5 inmillion ~~administrative~~ expense ofincurred ~~$461,608~~for ~~due to~~a ~~the~~penalty ~~Company~~payment ~~incurring~~to ~~one-time~~an ~~costs~~EPC inconstruction ~~the~~contract ~~closing~~related ofparty ~~its former production facility, which generated total removal charges~~customer ~~and transfer costs of $135,000 and the opening costs for the Yangzhou plant~~ which ~~amounted~~is tofurther ~~$150,000~~described in ~~early~~Note ~~2011.~~16 ~~Furthermore, the~~and ~~property~~income ~~title deed~~ tax ~~of approximately $220,000~~ for the ~~new~~intra-entity ~~office~~sales ~~building in Shanghai incurred in June 2011 also contributed to the decrease~~ of ~~administration fees. Fifthly, option expense decreased by $226,935 because of~~ the ~~modification of options granted under the Company~~subsidiary’s ~~Option~~shares ~~Plan~~further described in ~~June~~Note ~~2011, when the Board of Directors resolved to adjust the exercise price of two Directors’ options from $~~1.22 toThis ~~$0.73~~tax ~~per~~provision, ~~share~~as ~~and~~well ~~options~~as ~~from~~increases ~~$1.58~~in toPRC ~~$0.73~~tax ~~per~~expense ~~share.~~for ~~The Board also resolved to accelerate~~ the ~~vesting period of one Director~~Group’s ~~options~~profitable ~~from 3 years to 2 years~~subsidiaries, ~~such that all the shares underlying the option~~ were ~~deemed vested~~primarily asresponsible offor ~~June~~the 7,significant ~~2011.~~increase ~~The~~in ~~modification of~~ the ~~options~~Group’s ~~pursuant~~effective totax USrate ~~GAAP~~for ~~required~~ the ~~Company~~quarter toended ~~record~~September ~~any~~30, ~~incremental~~2012 ~~fair value arising from the modification~~ as ~~compensation cost. The total incremental compensation cost in respect of such acceleration and~~compared ~~option~~to ~~modification is $202,106, with no such amounts in~~ the ~~current~~quarter ~~period.~~ended ~~Sixthly,~~September ~~rental expenses decreased by $171~~30,~~406~~ ~~as we purchased our new office building in Zhangjiang, Shanghai and no longer paid rental fees from March~~ 2011 ~~onward for our former production plant that closed in early 2011~~.

~~The~~Net ~~following~~Income Net ~~table~~income was ~~sets~~$900,619 ~~forth~~for the ~~principal~~three ~~changes~~months inended ~~selling~~September 30, 2012, as compared to a net income of $2,278,413 for ~~general~~the three months ended September 30, 2011, a decrease of $1,377,793, or 60%. The decreased net income primarily attribute to the lower revenue and ~~administrative~~gross ~~expenses:~~profit.

	Six months ended June 30,
	2011		2012		Change($)			Change (%)
Salary expenses		1,372,904		2,505,144		1,132,240			82	%
Administration fees		915,827		454,219		(461,608	)		(50	)%
Traveling and transportation fees		370,807		478,236		107,429			29	%
Depreciation and amortization expense		130,133		380,157		250,024			192	%
Rental expenses		213,535		42,129		(171,406	)		(80	)%
Stock based compensation		241,068		14,133		(226,935	)		(94	)%
Subtotal		3,244,274		3,874,018		629,744			19	%

Comparison of Nine Months Ended September 30, 2011 and September 30, 2012

~~Income~~The ~~from~~following ~~Operations.~~table Assets aforth ~~result~~the results of ~~the~~our ~~above, income from~~ operations ~~totaled $2,830,903~~ for the ~~six~~periods ~~months~~indicated ~~ended June 30, 2012,~~ as ~~compared to income of $504,941 for the same period in 2011, an increase of $2,325,962, or 461%. As~~ a percentage of revenues, income from operations represents 5.1% of total revenue for the six months ended June 30, 2012 and 2.0% for the six months ended June 30, 2011. The change is mainly attributable to the increase in revenue and gross profit.:

Other Income / (Expense), net. For the six months ended June 30, 2012, the Company incurred other expense of $154,212 as compared to other expense of $139,883 for the six months ended June 30, 2011, an increase of $14,329, as further described in the next three paragraphs.

	Nine months ended September 30,
	2011			% of Revenue			2012			% of Revenue

REVENUES

Third parties
EPC - third parties		23,265,280			42.3	%		59,901,966			78.3	%
EPC - related party		23,631,431			42.9	%		6,660,158			8.7	%
Total EPC revenues		46,896,711			85.2	%		66,562,124			87.0	%
Products - third parties		8,139,632			14.8	%		9,940,102			13.0	%
Total revenue		55,036,343			100.0	%		76,502,226			100.0	%

COST OF REVENUES
Cost of revenues – EPC		(39,309,553	)		(71.4	)%		(57,508,410	)		(75.2	)%
Cost of revenues - products		(6,257,642	)		(11.4	)%		(7,196,772	)		(9.4	)%
Total cost of revenues		(45,567,195	)		(82.8	)%		(64,705,182	)		(84.6	)%

GROSS PROFIT		9,469,148			17.2	%		11,797,044			15.4	%

Selling, general, and administrative expenses		(6,366,370	)		(11.6	)%		(7,336,024	)		(9.6	)%

INCOME FROM OPERATIONS		3,102,778			5.6	%		4,461,020			5.8	%

OTHER INCOME / (EXPENSE):
Change in fair value of derivative liability for warrant		1,164,122			2.1	%		14,618			0.0	%
Change in fair value of derivative liability for loan		396,482			0.7	%		21,274			0.0	%
Other non-operating (expenses) income, net		(73,586	)		(0.1	)%		259,476			0.3	%
Investment income								2,972			0.0	%
Interest expense, net		(1,345,664	)		(2.4	)%		(586,523	)		(0.8	)%
Total other income (expense), net		141,354			0.3	%		(288,183	)		(0.4	)%
											-
INCOME BEFORE INCOME TAXES		3,244,132			5.9	%		4,172,837			5.5	%

Filing Compare · China Energy Recovery, Inc.