UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

  WASHINGTON,Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended Septemberended: June 30, 20172022

ORor

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

For the transition period from ________________ to ________________

Commission File No. file number: 000-12536

China Recycling Energy CorporationSMART POWERR CORP.

(Exact Namename of Registrantregistrant as Specifiedspecified in Its Charter)its charter)

Nevada90-0093373

(State or other jurisdiction of


incorporation or organization)

(I.R.S.IRS Employer

Identification No.)

12/4/F, Tower AC

ChangRong Cheng Yun Gu Building Keji 3rd Road, Yanta District

Xi An International Building

No. 88 Nan Guan Zheng Jie

Xi’an City, ShaanxiShaan Xi Province,

China 710075

(Address of Principal Executive Offices, Zip Code)principal executive offices)

(011) 86-29-8765-1098 

(Registrant’s Telephone Number, Including Area Code: + 86-29-8765-1098telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: 

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.001 par valueCREGNasdaq Capital Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant: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 precedingpast 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  No 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  No 

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

Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth companyGrowth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Sectionsection 13(a) of the Exchange Act. ☐

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

Yes ☐ No ☒

The numberAs of October 11, 2022, there were 7,358,052 shares outstanding of the registrant’s Common Stock, as of November 10, 2017 was 8,310,198.common stock outstanding.

 

 

 

INDEX

SMART POWERR CORP.

FORM 10-Q

TABLE OF CONTENTS

 

Page No.PAGE
PART I - FINANCIAL INFORMATION
Item 1.Consolidated Financial Statements1
Consolidated Balance Sheets as of September 30, 2017 (Unaudited) and December 31, 20161
Consolidated Statements of Income and Comprehensive Income (Loss) (Unaudited) – Three and Nine Months Ended September 30, 2017 and September 30, 20162
Consolidated Statements of Cash Flows (Unaudited) – Three and Nine Months Ended September 30, 2017 and September 30, 20163
Notes to Consolidated Financial Statements (Unaudited)4
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations25
Item 3.Quantitative and Qualitative Disclosures About Market Risk4236
Item 4.Controls and Procedures4236
PART II - OTHER INFORMATION
Item 1.Legal Proceedings4337
Item 1A.Risk Factors4337
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds4337
Item 3.Defaults Upon Senior Securities4337
Item 4.Mine Safety Disclosures4337
Item 5.Other Information4337
Item 6.Exhibits4438
SIGNATURES43

i

 

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

Item 1.Financial StatementsSMART POWERR CORP

CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS

  JUNE 30,
2022
  DECEMBER 31,
2021
 
  (UNAUDITED)    
ASSETS      
       
CURRENT ASSETS      
Cash $144,246,208  $152,011,887 
VAT receivable  180,138   189,622 
Prepaid expenses  33,128   34,872 
Other receivables  877,824   880,612 
         
Total current assets  145,337,298   153,116,993 
         
NON-CURRENT ASSETS        
Long term deposit  16,332   17,192 
Operating lease right-of-use assets, net  95,586   132,549 
Fixed assets, net  5,442   5,728 
         
Total non-current assets  117,360   155,469 
         
TOTAL ASSETS $145,454,658  $153,272,462 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
         
CURRENT LIABILITIES        
Accounts payable $73,960  $77,854 
Taxes payable  3,046,694   3,075,233 
Accrued interest on notes  133,807   333,443 
Notes payable, net of unamortized OID of $93,750 and $225,605, respectively  5,406,212   6,741,444 
Accrued liabilities and other payables  647,174   632,808 
Operating lease liability  62,927   67,920 
Due to related parties  24,525   27,357 
Payable for purchase of 10% equity interest of Zhonghong  447,001   470,537 
Interest payable on entrusted loans  360,350   379,323 
Entrusted loan payable  11,473,016   12,077,105 
         
Total current liabilities  21,675,666   23,883,024 
         
NONCURRENT LIABILITIES        
Income tax payable  4,566,625   4,566,625 
Operating lease liability  32,659   64,628 
         
Total noncurrent liabilities  4,599,284   4,631,253 
         
Total liabilities  26,274,950   28,514,277 
         
CONTINGENCIES AND COMMITMENTS        
         
STOCKHOLDERS’ EQUITY        
Common stock, $0.001 par value; 100,000,000 shares authorized, 7,358,052 and 7,044,408 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively  7,358   7,044 
Additional paid in capital  163,549,358   161,531,565 
Statutory reserve  15,162,233   15,180,067 
Accumulated other comprehensive income  (3,609,126)  3,321,189 
Accumulated deficit  (55,930,115)  (55,281,680)
         
Total Company stockholders’ equity  119,179,708   124,758,185 
         
TOTAL LIABILITIES AND EQUITY $145,454,658  $153,272,462 

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


SMART POWERR CORP

CONSOLIDATED STATEMENTS OF SEPTEMBEROPERATIONS AND COMPREHENSIVE INCOME

(UNAUDITED)

  SIX MONTHS ENDED
JUNE 30,
  THREE MONTHS ENDED JUNE 30, 
  2022  2021  2022  2021 
Revenue            
Contingent rental income $-  $-  $-  $- 
                 
Interest income on sales-type leases  -   -   -   - 
                 
Total operating income  -   -   -   - 
                 
Operating expenses                
Bad debts reversal  -   (34,579)  -   (34,579)
General and administrative  383,506   418,731   187,726   145,639 
                 
Total operating  expenses  383,506   384,152   187,726   111,060 
                 
Loss from operations  (383,506)  (384,152)  (187,726)  (111,060)
                 
Non-operating income (expenses)                
Loss on note conversion  (121,121)  (2,719)  -   (2,719)
Interest income  223,915   193,157   109,585   109,461 
Interest expense  (230,318)  (1,046,615)  (109,742)  (964,529)
Gain on termination of buy-back agreement of Chengli project  -   3,155,959   -   3,155,959 
Other expenses, net  (131,682)  (70,236)  (31,077)  (69,619)
                 
Total non-operating income (expenses), net  (259,206)  2,229,546   (31,234)  2,228,553 
                 
Income (loss) before income tax  (642,712)  1,845,394   (218,960)  2,117,493 
Income tax expense (benefit)  23,557   (97,953)  5,850   (103,078)
                 
Net income (loss)  (666,269)  1,943,347   (224,810)  2,220,571 
                 
Other comprehensive items                
Foreign currency translation income (expense)  (6,930,315)  1,267,685   (7,530,496)  2,407,848 
                 
Comprehensive income (loss) $(7,596,584) $3,211,032  $(7,755,306) $4,628,419 
                 
Weighted average shares used for computing basic and diluted loss per share  7,301,194   4,442,928   7,277,194   5,694,895 
                 
Basic and diluted net income (loss) per share $(0.09) $0.44  $(0.03) $0.39 

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


SMART POWERR CORP

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

SIX MONTHS ENDED JUNE 30, 2017 (UNAUDITED)2022 AND DECEMBER 31, 20162021

(UNAUDITED)

  Common Stock   Paid in  Statutory  Other
Comprehensive
  Accumulated    
  Shares  Amount  Capital  Reserves  Income (Loss)  Deficit  Total 
Balance at December 31, 2021  7,044,408  $7,044  $161,531,565  $15,180,067  $3,321,189  $(55,281,680) $124,758,185 
                           - 
Net loss for the period  -   -   -   -   -   (441,459)  (441,459)
                             
Conversion of long-term notes into common shares  313,644   314   2,017,793   -   -   -   2,018,107 
                             
Transfer to statutory reserves  -   -   -   (22,277)  -   22,277   - 
                             
Foreign currency translation gain  -   -   -   -   600,181   -   600,181 
                             
Balance at March 31, 2022  7,358,052   7,358   163,549,358   15,157,790   3,921,370   (55,700,862)  126,935,014 
                             
Net loss for the period  -   -   -   -   -   (224,810)  (224,810)
                             
Transfer to statutory reserves  -   -   -   4,443   -   (4,443)  - 
                             
Foreign currency translation loss  -   -   -   -   (7,530,496)  -   (7,530,496)
                             
Balance at June 30, 2022  7,358,052  $7,358  $163,549,358  $15,162,233  $(3,609,126) $(55,930,115) $119,179,708 

  Common Stock  Paid in  Statutory  Other
Comprehensive
(L
oss) /
  Accumulated    
  Shares  Amount  Capital  Reserves  Income  Deficit  Total 
Balance at December 31, 2020  3,177,050  $3,177  $119,748,999  $15,155,042  $273,440  $(43,026,465) $92,154,193 
                             
Net loss for the period  -   -   -   -   -   (277,224)  (277,224)
                             
Shares to be issued  -   -   38,253,041   -   -   -   38,253,041 
                             
Transfer to Statutory Reserves  -   -   -   1,538   -   (1,538)  - 
                             
Foreign currency translation loss  -   -   -   -   (1,140,163)  -   (1,140,163)
                             
Balance at March 31, 2021  3,177,050   3,177   158,002,040   15,156,580   (866,723)  (43,305,227)  128,989,847 
                             
Net income for the period  -   -       -       2,220,571   2,220,571 
                             
Conversion of long-term notes into common shares  54,348   54   502,665   -   -   -   502,719 
                             
Issuance of common stock for equity financing  3,320,000   3,320   (3,320)  -   -   -   - 
                             
Return of shares issued to CEO for equity financing  (60,000)  (60)  (691,260)  -   -   -   (691,320)
                             
Transfer to Statutory Reserves  -   -   -   14,774   -   (14,774)  - 
                             
Foreign currency translation gain  -   -   -   -   2,407,848   -   2,407,848 
                             
Balance at June 30, 2021  6,491,398  $6,491  $157,810,125  $15,171,354  $1,541,125  $(41,099,430) $133,429,665 

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


 

  SEPTEMBER 30  DECEMBER 31 
  2017  2016 
ASSETS        
         
CURRENT ASSETS        
Cash and equivalents $48,307,948  $47,752,353 
Notes receivable  1,717,669   - 
Accounts receivable  13,162,772   12,593,340 
Current portion of investment in sales-type leases, net  13,404,978   9,385,453 
Interest receivable on sales type leases  8,049,073   4,621,491 
Prepaid expenses  223,025   682,781 
Other receivables  3,894,231   560,468 
Total current assets  88,759,696   75,595,886 
         
NON-CURRENT ASSETS        
Investment in sales-type leases, net  100,783,320   101,706,978 
Long term investment  789,500   641,897 
Long term deposit  -   61,564 
Property and equipment, net  12,006   12,558 
Construction in progress  92,864,300   86,493,182 
Total non-current assets  194,449,126   188,916,179 
         
TOTAL ASSETS $283,208,821  $264,512,065 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
         
CURRENT LIABILITIES        
Accounts payable $2,736,594  $1,506,924 
Taxes payable  1,503,831   1,202,677 
Accrued liabilities and other payables  1,567,381   1,596,580 
Due to related parties  41,775   44,059 
Loans payable - current  -   720,773 
Interest payable on entrusted loans  6,046,477   224,090 
Current portion of entrusted loan payable  50,023,354   47,570,996 
Total current liabilities  61,919,412   52,866,099 
         
NONCURRENT LIABILITIES        
Deferred tax liability, net  9,436,882   8,900,979 
Refundable deposit from customers for systems leasing  1,069,777   1,023,497 
Entrusted loan payable  -   288,309 
Total noncurrent liabilities  10,506,659   10,212,785 
Total liabilities  72,426,071   63,078,884 
         
CONTINGENCIES AND COMMITMENTS        
         
STOCKHOLDERS’ EQUITY        
Common stock, $0.001 par value; 100,000,000 shares authorized, 8,310,198 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively  8,310   8,310 
Additional paid in capital  111,796,813   111,789,166 
Statutory reserve  14,838,561   14,473,924 
Accumulated other comprehensive income  (1,621,265)  (10,544,426)
Retained earnings  86,177,041   85,838,638 
Total Company stockholders’ equity  211,199,460   201,565,612 
Noncontrolling interest  (416,709)  (132,431)
Total equity  210,782,751   201,433,181 
TOTAL LIABILITIES AND EQUITY $283,208,821  $264,512,065 

 

SMART POWERR CORP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

  SIX MONTHS ENDED
JUNE 30,
 
  2022  2021 
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income (loss) $(666,269) $1,943,347 
Adjustments to reconcile net income (loss) to net cash used in operating activities:        
Amortization of OID and debt issuing costs  131,855   68,750 
Operating lease expenses  33,812   33,873 
Bad debt reversal  -   (34,579)
Loss on note conversion  121,121   2,719 
Interest expense  -   818,914 
Gain on termination of buy-back agreement of Chengli Project  -   (3,155,959)
Changes in assets and liabilities:        
Accounts receivable  -   345,788 
Prepaid expenses  -   23,571 
Other receivables  1,689   2,380 
Taxes payable  (27,748)  (894,430)
Payment of lease liability  (33,812)  (33,873)
Accrued liabilities and other payables  271,753   198,034 
         
Net cash used in operating activities  (167,599)  (681,465)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Issuance of notes payable  -   5,000,000 
Issuance of common stock  -   37,561,721 
         
Net cash provided by financing activities  -   42,561,721 
         
EFFECT OF EXCHANGE RATE CHANGE ON CASH  (7,598,080)  1,309,890 
         
NET INCREASE (DECREASE) IN CASH  (7,765,679)  43,190,146 
CASH, BEGINNING OF PERIOD  152,011,887   107,804,013 
         
CASH, END OF PERIOD $144,246,208  $150,994,159 
         
Supplemental cash flow data:        
Income tax paid $51,356  $- 
Interest paid $-  $186,129 
         
Supplemental disclosure of non-cash operating activities        
Settlement of entrusted loan resulting from termination of buy-back option for Chengli project $-  $29,147,903 
Adoption of ASC 842-right-of-use asset $-  $190,817 
Adoption of ASC 842-operating lease liability $-  $190,817 
         
Supplemental disclosure of non-cash financing activities
Conversion of notes into common shares
 $1,896,986  $- 

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

1


 

 

CHINA RECYCLING ENERGYSMART POWERR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

  NINE MONTHS ENDED SEPTEMBER 30,  THREE MONTHS ENDED SEPTEMBER 30, 
  2017  2016  2017  2016 
Revenue            
Sales of systems $-  $-  $-  $- 
Contingent rental income  -   -   -   - 
Total revenue  -   -   -   - 
                 
Cost of sales                
Cost of systems and contingent rental income  -   -   -   - 
                 
Gross profit  -   -   -   - 
                 
Interest income on sales-type leases  6,062,347   10,945,411   1,731,336   2,286,948 
                 
Total operating income  6,062,347   10,945,411   1,731,336   2,286,948 
                 
Operating expenses                
General and administrative  581,308   1,153,894   242,007   299,110 
                 
Total operating expenses  581,308   1,153,894   242,007   299,110 
                 
Income from operations  5,481,039   9,791,517   1,489,329   1,987,838 
                 
Non-operating income (expenses)                
Interest income  106,764   98,790   35,887   35,288 
Interest expense  (3,986,233)  (5,040,022)  (1,263,491)  (1,658,033)
Loss on sale of construction in progress of Xuzhou Zhongtai  -   (2,822,679)  -   - 
Loss on systems repurchase from Yida  -   (417,952)  -   - 
Other income  9,389   279,200   1,591   202,782 
                 
Total non-operating expenses, net  (3,870,080)  (7,902,663)  (1,226,013)  (1,419,963)
                 
Income before income tax  1,610,959   1,888,854   263,316   567,875 
Income tax expense (benefit)  1,179,602   (861,811)  397,636   110,957 
                 
Income (loss) before noncontrolling interest  431,357   2,750,665   (134,320)  456,918 
                 
Less: loss attributable to noncontrolling interest  (271,683)  (227,126)  (93,428)  (79,921)
                 
Net income (loss) attributable to China Recycling Energy Corporation  703,040   2,977,791   (40,892)  536,839 
                 
Other comprehensive items                
Foreign currency translation gain (loss) attributable to China Recycling Energy Corporation  8,923,161   (5,899,631)  4,290,726   (1,400,319)
Foreign currency translation gain (loss) attributable to noncontrolling interest  (12,595)  (5,450)  (6,909)  (27,005)
                 
Comprehensive income (loss) attributable to China Recycling Energy Corporation $9,626,201  $(2,921,840) $4,249,834  $(863,480)
                 
Comprehensive loss attributable to noncontrolling interest $(284,278) $(232,576) $(100,337) $(106,926)
                 
Basic and diluted weighted average shares outstanding  8,310,198   8,310,198   8,310,198   8,310,198 
                 
Basic and diluted earnings per share $0.08  $0.36  $0.00  $0.06 

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

2

CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

  NINE MONTHS ENDED SEPTEMBER 30, 
  2017  2016 
       
CASH FLOWS FROM OPERATING ACTIVITIES:      
Income including noncontrolling interest $431,357  $2,750,665 
Adjustments to reconcile income including noncontrolling interest to net cash provided by (used in) operating activities:        
Changes in bad debt allowance  61,779   - 
Depreciation and amortization  1,093   3,667 
Stock option expense  7,647   - 
Investment income (loss)  (115,763)  300,957 
Changes in deferred tax  130,260   (2,073,235)
Loss on sales of construction in progress of Xuzhou Zhongtai  -   2,765,716 
Changes in assets and liabilities:        
Interest receivable on sales type leases  (3,142,199)  (2,785,713)
Collection of principal on sales type leases  1,819,850   19,264,234 
Prepaid expenses  478,981   (68,773)
Accounts receivable  -   (10,106,830)
Other receivables  (3,167,054)  (344,004)
Notes receivable  (1,676,890)  - 
Construction in progress  (2,401,757)  20,612,058 
Accounts payable  1,133,988   1,066,424 
Taxes payable  240,914   (175,134)
Interest payable on entrusted loan  5,674,264   (49,858)
Accrued liabilities and other payables  (364,368)  (727,410)
         
Net cash provided by (used in) operating activities  (887,898)  30,432,764 
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Changes of restricted cash  -   1,101,308 
         
Net cash provided by investing activities  -   1,101,308 
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Repayment of loans  (735,478)  (30,473,533)
Repayment of notes payable  -   (990,277)
         
Net cash used in financing activities  (735,478)  (31,463,810)
         
EFFECT OF EXCHANGE RATE CHANGE ON CASH AND EQUIVALENTS  2,178,971   (1,139,134)
         
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS  555,595   (1,068,872)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD  47,752,353   41,749,388 
         
CASH AND EQUIVALENTS, END OF PERIOD $48,307,948  $40,680,516 
         
Supplemental cash flow data:        
Income tax paid $1,433,497  $1,148,757 
Interest paid $14,363  $7,888,466 

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

3

CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBERJUNE 30, 20172022 (UNAUDITED) AND DECEMBER 31, 20162021

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

China Recycling EnergySmart Powerr Corporation (the “Company” or “CREG”“SPC”) was incorporated on May 8, 1980in Nevada, formerly known as Boulder Brewing Company under the laws of the State of Colorado. On September 6, 2001, the Company changed its state of incorporation to the Nevada. In 2004, the Company changed its name from Boulder Brewing Company to China Digital Wireless, Inc. and on March 8, 2007, again changed its name from China Digital Wireless, Inc. to its current name, China Recycling EnergyEntergy Corporation. The Company, through its subsidiaries, provides energy saving solutions and services, including selling and leasing energy saving systems and equipment to customers, and project investment investment management, economic information consulting, technical services, financial leasing, purchase of financial leasing assets, disposal and repair of financial leasing assets, consulting and ensuring of financial leasing transactions in the Peoples Republic of China (“PRC”).

The Company’s organizational chart as of June 30, 2022 is as follows:


 

Erdos TCH – Joint Venture

On April 14, 2009, the Company formed a joint venture (the “JV”) with Erdos Metallurgy Co., Ltd. (“Erdos”) to recycle waste heat from Erdos’ metal refining plants to generate power and steam to be sold back to Erdos. The name of the JV was Inner Mongolia Erdos TCH Energy Saving Development Co., Ltd. (“Erdos TCH”) with a term of 20 years. Total investment for the project was estimated at $79 million (RMB 500 million) with an initial investment of $17.55 million (RMB 120 million). Erdos contributed 7% of the total investment of the project, and Xi’an TCH Energy Technology Co., Ltd. (“Xi’an TCH”) contributed 93%. According to the parties’ agreement on profit distribution, Xi’an TCH and Erdos will receive 80% and 20%, respectively, of the profit from the JV until Xi’an TCH receives the complete return of its investment. Xi’an TCH and Erdos will then receive 60% and 40%, respectively, of the profit from the JV. On June 15, 2013, Xi’an TCH and Erdos entered into a share transfer agreement, pursuant to which Erdos sold its 7% ownership interest in the JV to Xi’an TCH for $1.29 million (RMB 8 million), plus certain accumulated profits as described below.profits. Xi’an TCH paid the $1.29 million in July 2013 and, as a result, became the sole stockholder of the JV. In addition, Xi’an TCH paid Erdos accumulated profits from inception up to June 30, 2013 in accordance with a supplementary agreement entered on August 6, 2013. In August 2013, Xi’an TCH paid 20% of the accumulated profit (calculated under PRC GAAP) of $226,000 to Erdos. Erdos TCH currently has two power generation systems in Phase I with a total of 18 MW power capacity, and three power generation systems in Phase II with a total of 27 MW power capacity. On April 28, 2016, Erdos TCH and Erdos entered into a supplemental agreement, effective on May 1, 2016, whereby Erdos TCH cancelled monthly minimum lease payments from Erdos, and chargesstarted to charge Erdos based on actual electricity sold at RMB 0.30 / KWH. The selling price of each KWH will beis determined annually based on prevailing market conditions.

Pucheng Biomass Power Generation Projects

On June 29, 2010, Xi’an In May 2019, Erdos TCH entered intoceased its operations due to renovations and furnace safety upgrades of Erdos, and the Company initially expected the resumption of operations in July 2020, but the resumption of operations was further delayed due to government’s mandate for Erdos to significantly lower its energy consumption per unit of GDP by implementing a Biomass Power Generation (“BMPG”) Project Lease Agreement with PuchengXinHeng Yuan Biomass Power Generationcomprehensive technical upgrade of its ferrosilicon production line to meet the City’s energy-saving targets.  Erdos is currently researching the technical rectification scheme. Once the scheme is determined, Erdos TCH will carry out technical transformation for its waste heat power station project. During this period, Erdos will compensate Erdos TCH RMB 1 million ($145,460) per month, until operations resume. The Company has not recognized any income due to the uncertainty of collection. In addition, Erdos TCH has 30% ownership in DaTangShiDai (BinZhou) Energy Savings Technology Co., Ltd. (“Pucheng”BinZhou Energy Savings”), a limited liability company incorporated30% ownership in China. Under this lease agreement, Xi’an TCH leased a set of 12 MW BMPG systems to Pucheng at a minimum of $279,400 (RMB 1,900,000) per month for 15 years.

On September 11, 2013, Xi’an TCH entered into a BMPG Asset Transfer Agreement (the “Pucheng Transfer Agreement”) with Pucheng. The Pucheng Transfer Agreement provided for the sale by Pucheng to Xi’an TCH of a set of 12 MW BMPG systems with completion of system transformation for RMB 100 million ($16.48 million) in the form of 8,766,547 shares of common stock of the Company at $1.87 per share. These shares were issued to Pucheng on October 29, 2013. Also on September 11, 2013, Xi’an TCH entered into a BMPG Project Lease Agreement with Pucheng (the “Pucheng Lease”). Under the Pucheng Lease, Xi’an TCH leases this same set of 12 MW BMPG system to Pucheng, and combined this lease with the lease for the 12 MW BMPG station of Pucheng Phase I project, under a single lease to Pucheng for RMB 3.8 million ($0.63 million) per month (the “Pucheng Phase II Project”). The term for the combined lease is from September 2013 to June 2025. The lease agreement for the 12 MW station from Pucheng Phase I project terminated upon the effective date of the Pucheng Lease. The ownership of two 12 MW BMPG systems will transfer to Pucheng at no additional charge when the Pucheng Lease expires.

4

Shenqiu Yuneng Biomass Power Generation Projects

On May 25, 2011, Xi’an TCH entered into a Letter of Intent with ShenqiuYuNeng Thermal Power Co., Ltd. (“Shenqiu”) to reconstruct and transform a Thermal Power Generation System owned by Shenqiu into a 75T/H BMPG System for $3.57 million (RMB 22.5 million). The project commenced in June 2011 and was completed in the third quarter of 2011. On September 28, 2011, Xi’an TCH entered into a BMPG Asset Transfer Agreement with Shenqiu (the “Shenqiu Transfer Agreement”). Pursuant to the Shenqiu Transfer Agreement, Shenqiu sold Xi’an TCH a set of 12 MW BMPG systems (after Xi’an TCH converted the system for BMPG purposes). As consideration for the BMPG systems, Xi’an TCH agreed to pay Shenqiu $10,937,500 (RMB 70 million) in cash in three installments within six months upon the transfer of ownership of the systems. By the end of 2012, all the consideration was paid. On September 28, 2011, Xi’an TCH and Shenqiu also entered into a BMPG Project Lease Agreement (the “2011 Shenqiu Lease”). Under the 2011 Shenqiu Lease, Xi’an TCH agreed to lease a set of 12 MW BMPG systems to Shenqiu at a monthly rental rate of $286,000 (RMB 1,800,000) for 11 years. Upon expiration of the 2011 Shenqiu Lease, ownership of this system will transfer from Xi’an TCH to Shenqiu at no additional cost. In connection with the 2011 Shenqiu Lease, Shenqiu paid one month’s rent as a security deposit to Xi’an TCH, in addition to providing personal guarantees.

On October 8, 2012, Xi’an TCH entered into a Letter of Intent for technical reformation of Shenqiu Project Phase II with Shenqiu for technical reformation to enlarge the capacity of the Shenqiu Project Phase I (the “Shenqiu Phase II Project”). The technical reformation involved the construction of another 12 MW BMPG system. After the reformation, the generation capacity of the power plant increased to 24 MW. The project commenced on October 25, 2012 and was completed during the first quarter of 2013. The total cost of the project was $11.1 million (RMB 68 million). On March 30, 2013, Xi’an TCH and Shenqiu entered into a BMPG Project Lease Agreement (the “2013 Shenqiu Lease”). Under the 2013 Shenqiu Lease, Xi’an TCH agreed to lease the second set of 12 MW BMPG systems to Shenqiu for $239,000 (RMB 1.5 million) per month for 9.5 years. When the 2013 Shenqiu Lease expires, ownership of this system will transfer from Xi’an TCH to Shenqiu at no additional cost.

Yida Coke Oven Gas Power Generation Projects

On June 28, 2014, Xi’an TCH entered into an Asset Transfer Agreement (the “Transfer Agreement”) with Qitaihe City Boli Yida Coal Selection Co., Ltd. (“Yida”), a limited liability company incorporated in China. The Transfer Agreement provided for the sale to Xi’an TCH of a 15 MW coke oven gas power generation station, which had been converted from a 15 MW coal gangue power generation station from Yida. As consideration for the Transfer Asset, Xi’an TCH was to pay to Yida RMB 115 million ($18.69 million) in the form of the common stock shares of the Company at the average closing price per share of the Stock for the 10 trading days prior to the closing date of the transaction ($2.27 per share). The exchange rate between the US Dollar and Chinese RMB in connection with the stock issuance is the rate equal to the middle rate published by the People’s Bank of China on the closing date of the assets transfer. Accordingly, the Company issued 8,233,779 shares (the “Shares”) for the Yida 15 MW coke oven gas power generation station, the fair value of 8,233,779 shares was $14.49 million based on the stock price at the agreement date ($1.76 per share), and was the cost of the power generation station.

On June 28, 2014, Xi’an TCH also entered into a Coke Oven Gas Power Generation Project Lease Agreement (the “Lease Agreement”) with Yida. Under the Lease Agreement, Xi’an TCH leased the Transfer Asset to Yida for RMB 3 million ($0.49 million) per month, and the term of the lease is from June 28, 2014 to June 27, 2029. Yida provided an RMB 3 million ($0.49 million) security deposit (without interest) for the lease. Xi’an TCH will transfer the Transfer Asset back to Yida at no cost at the end of the lease term. 

On June 22, 2016, Xi’an TCH entered into a Coal Oven Gas Power Generation Project Repurchase Agreement (the “Repurchase Agreement”) with Yida. Under the Repurchase Agreement, Xi’an TCH agreed to transfer to Yida all the project assets for RMB 112,000,000 ($16.89 million) (the “Transfer Price”) with Yida’s retention of ownership of the Shares. Yida agreed to make the following payments: (i) the outstanding monthly leasing fees for April and May 2016 in total of RMB 6,000,000 ($0.90 million) to Xi’an TCH within 5 business days from the execution of the Repurchase Agreement; (ii) a payment of RMB 50,000,000 ($7.54 million) of the Transfer Price to Xi’an TCH within 5 business days from the execution of the Repurchase Agreement; and (iii) a payment of the remaining RMB 62,000,000 ($9.35 million) of the Transfer Price to Xi’an TCH within 15 business days from the execution of the Repurchase Agreement. Under the Repurchase Agreement, ownership of the project assets will transfer from Xi’an TCH to Yida within 3 business days after Xi’an TCH receives the full Transfer Price and the outstanding monthly leasing fees. In July 2016, the Company received the full payment of the Transfer Price and title to the system was transferred at that time. The Company recorded a $0.42 million loss from this transaction in 2016.

5

The Fund Management Company

On June 25, 2013, Xi’an TCH and HongyuanHuifu Venture Capital Co. Ltd. (“HongyuanHuifu”) jointly established HongyuanDaTangShiDai DaTong Recycling Energy Investment Management Beijing Co., Ltd. (the “Fund Management Company”) with registered capital of RMB 10 million ($1.45 million). Xi’an TCH made an initial capital contribution of RMB 4 million ($650,000) and has a 40% ownership interest in the Fund Management Company. With respect to the Fund Management Company, voting rights and dividend rights are allocated 80% and 20% between HongyuanHuifu and Xi’an TCH, respectively.

The Fund Management Company is the general partner of Beijing Hongyuan Recycling Energy Investment Center, LLP (the “HYREF Fund”), a limited liability partnership established on July 18, 2013 in Beijing. The Fund Management Company made an initial capital contribution of RMB 5 million ($830,000) to the HYREF Fund. An initial total of RMB 460 million ($77 million) was fully subscribed by all partners for the HYREF Fund. The HYREF Fund has three limited partners: (1) China Orient Asset Management Co., Ltd., which made an initial capital contribution of RMB 280 million ($46.67 million) to the HYREF Fund and is a preferred limited partner; (2) HongyuanHuifu, which made an initial capital contribution of RMB 100 million ($16.67 million) to the HYREF Fund and is an ordinary limited partner; and (3) the Company’s wholly-owned subsidiary, Xi’an TCH, which made an initial capital contribution of RMB 75 million ($12.5 million) to the HYREF Fund and is a secondary limited partner. The term of the HYREF Fund’s partnership is six years from the date of its establishment, expiring July 18, 2019. The term is four years from the date of contribution for the preferred limited partner, and four years from the date of contribution for the ordinary limited partner. The total size of the HYREF Fund is RMB 460 million ($76.66 million). The HYREF Fund was formed for the purpose of investing in Xi’an Zhonghong New Energy Technology Co., Ltd. (“DaTong Recycling Energy”), a 90% owned subsidiary of Xi’an TCH, for the construction of two coke dry quenching (“CDQ”) WHPG stations with Jiangsu Tianyuand 40% ownership in DaTang ShiDai TianYu XuZhou Recycling Energy and Chemical Group Co.,Technology Co, Ltd. (“Tianyu”) and one CDQ WHPG station with Boxing County Chengli Gas Supply Co., Ltd. (“Chengli”TianYu XuZhou Recycling Energy”). These companies were incorporated in 2012 but had no operations since then nor has any registered capital contribution been made.

Chengli Waste Heat Power Generation Projects

On July 19, 2013, Xi’an TCH formed a new company, “Xi’an Zhonghong New Energy Technology Co., Ltd.” (“Zhonghong”), with registered capital of RMB 30 million ($4.85 million). Xi’an TCH paid RMB 27 million ($4.37 million) andwhich it owns 90% of Zhonghong. Zhonghong, is engaged to providewith HYREF owning the other 10%. Zhonghong provides energy saving solution and services, including constructing, selling and leasing energy saving systems and equipment to customers. On December 29, 2018, Shanghai TCH entered into a Share Transfer Agreement with HYREF, pursuant to which HYREF transferred its 10% ownership in Zhonghong to Shanghai TCH for RMB 3 million ($0.44 million). The transfer was completed on January 22, 2019. The Company owns 100% of Xi’an Zhonghong after the transaction.

On July 24, 2013, Zhonghong entered into a Cooperative Agreement of CDQ and CDQ WHPG Project (Coke Dry Quenching Waste Heat Power Generation Project) with Boxing County Chengli Gas Supply Co., Ltd. (“Chengli”). The parties entered into a supplement agreement on July 26, 2013. Pursuant to these agreements, Zhonghong will design, build and maintain a 25 MW CDQ system and a CDQ WHPG system to supply power to Chengli, and Chengli will pay energy saving fees (the “Chengli Project”). Chengli will contract the operation of the system to a third-party contractor that is mutually agreed to by Zhonghong. In addition, Chengli will provide the land for the CDQ system and CDQ WHPG system at no cost to Zhonghong. The term of the Agreements is for 20 years. The first 800 million watt hours generated by the Chengli Project will be charged at RMB 0.42 ($0.068) per kilowatt hour (excluding tax); thereafter, the energy saving fee will be RMB 0.20 ($0.036) per kilowatt hour (excluding tax). The operating time shall be based upon an average 8,000 hours annually. If the operating time is less than 8,000 hours per year due to a reason attributable to Chengli, then time charged shall be 8,000 hours a year, and if it is less than 8,000 hours due to a reason attributable to Zhonghong, then it shall be charged at actual operating hours. The construction of the Chengli Project was completed in the second quarter of 2015 and the project successfully completed commissioning tests in the first quarter of 2017. The Chengli Project is now operational, but will not begin operations until the Company receives the required power generating license, which the Company anticipates receiving in the fourth quarter of 2017. When operations begin, Chengli shall ensure its coking production line works properly and that working hours for the CDQ system are at least 8,000 hours per year, and Zhonghong shall ensure that working hours for the CDQ WHPG system are at least 7,200 hours per year.

6

On July 22, 2013, Zhonghong entered into an Engineering, Procurement and Construction (“EPC”) General Contractor Agreement for the Boxing County Chengli Gas Supply Co., Ltd. CDQ Power Generation Project (the “Chengli Project”) with Xi’an Huaxin New Energy Co., Ltd. (“Huaxin”). Zhonghong, as the owner of the Chengli Project, contracted EPC services for a CDQ system and a 25 MW CDQ WHPG system for Chengli from Huaxin. Huaxin shall provide construction, equipment procurement, transportation, installation and adjustment, test run, construction engineering management and other necessary services to complete the Huaxin Project and ensure the CDQ system and CDQ WHPG system for Chengli meet the inspection and acceptance requirements and work normally. The Chengli Project is a turn-key project where Huaxin is responsible for monitoring the quality, safety, duration and cost of the Chengli Project. The total contract price is RMB 200 million ($33.34 million), which includes all the materials, equipment, labor, transportation, electricity, water, waste disposal, machinery and safety costs.

Tianyu Waste Heat Power Generation Project

On July 19, 2013, Zhonghong entered into a Cooperative Agreement (the “Tianyu Agreement”) for Energy Management of CDQ and CDQ WHPG Project with Jiangsu Tianyu Energy and Chemical Group Co., Ltd. (“Tianyu”). Pursuant to the Tianyu Agreement, Zhonghong will design, build, operate and maintain two sets of 25 MW CDQ systems and CDQ WHPG systems for two subsidiaries of Tianyu – Xuzhou Tian’an Chemical Co., Ltd. (“Xuzhou Tian’an”) and Xuzhou Huayu Coking Co., Ltd. (“Xuzhou Huayu”) – to be located at Xuzhou Tian’an and Xuzhou Huayu’s respective locations (the “Tianyu Project”). Upon completion of the Tianyu Project, Zhonghong will charge Tianyu an energy saving fee of RMB 0.534 ($0.087) per kilowatt hour (excluding tax). The operating time will be based upon an average 8,000 hours annually for each of Xuzhou Tian’an and Xuzhou Huayu. If the operating time is less than 8,000 hours per year due to a reason attributable to Tianyu, then time charged will be 8,000 hours a year. The term of the Tianyu Agreement is 20 years. The construction of the Xuzhou Tian’an Project is anticipated to be completed by the second quarter of 2018. Xuzhou Tian’an will provide the land for the CDQ and CDQ WHPG systems for free. Xuzhou Tian’an also guarantees that it will purchase all the power generated by the CDQ WHPG systems. The Xuzhou Huayu Project is currently on hold due to a conflict between Xuzhou Huayu Coking Co., Ltd. and local residents on certain pollution-related issues. The local government has acted in its capacity to coordinate the resolution of this issue. The local residents were requested to move from the hygienic buffer zone of the project location with compensatory payments from the government. Xuzhou Huayu was required to stop production and implement technical innovations to mitigate pollution discharge including sewage treatment, dust collection, noise control, and recycling of coal gas. Currently, some local residents have moved. Xuzhou Huayu has completed the implementation of the technical innovations of sewage treatment, dust collection, and noise control, and the Company is waiting for local governmental agencies to approve these technical innovations so that we can resume construction. We expect to complete the recycling of coal gas in the second quarter of 2018. Once Huayu obtains the government’s acceptance and approval of the technical innovations, the project will resume.

On July 22, 2013, Zhonghong entered into an EPC General Contractor Agreement for the Tianyu Project with Xi’an Huaxin New Energy Co., Ltd. (“Huaxin”). Zhonghong, as the owner of the Tianyu Project, contracted EPC services for two CDQ systems and two 25 MW CDQ WHPG systems for Tianyu to Huaxin. Huaxin shall provide construction, equipment procurement, transportation, installation and adjustment, test run, construction engineering management and other necessary services to complete the Tianyu Project and ensure the CDQ and CDQ WHPG systems for Tianyu meet the inspection and acceptance requirements and work normally. The Tianyu Project is a turn-key project where Huaxin is responsible for monitoring the quality, safety, duration and cost of the project. The total contract price is RMB 400 million ($66.68 million), which includes all the materials, equipment, labor, transportation, electricity, water, waste disposal, machinery and safety costs.

Zhongtai Waste Heat Power Generation Energy Management Cooperative Agreement

On December 6, 2013,29, 2018, Xi’an Zhonghong, Xi’an TCH, HYREF, Guohua Ku, and Mr. Chonggong Bai entered into a CDQ WHPG Station Fixed Assets Transfer Agreement, pursuant to which Xi’an Zhonghong transferred Chengli CDQ WHPG station (‘the Station”) as the repayment for the loan of RMB 188,639,400 ($27.54 million) to HYREF. Xi’an Zhonghong, Xi’an TCH, Guohua Ku and Chonggong Bai also agreed to a Buy Back Agreement for the Station when certain conditions are met (see Note 8). The transfer of the Station was completed on January 22, 2019, where the Company recorded a $624,133 loss from this transfer. However, because the loan was not deemed repaid due to the buyback provision (See Note 8 for detail), the Company kept the loan and the Chengli project in its consolidated financial statements (“CFS”) until April 9, 2021. The Buy Back Agreement was terminated on April 9, 2021, HYREF did not execute the buy-back option and did not ask for any additional payment from the buyers other than keeping the CDQ WHPG Energy Management Cooperative Agreement (the “Zhongtai Agreement”) with Xuzhou Zhongtai Energy Technology Co., Ltd. (“Zhongtai”), a limited liability company incorporated in Jiangsu Province, China.station.

7

 

Pursuant to the Zhongtai Agreement, Xi’an TCH will design, build and maintain a 150 ton per hour CDQ system and a 25 MW CDQ WHPG system and sell the power to Zhongtai, and Xi’an TCH will also build a furnace to generate steam from the waste heat of the smoke pipeline and sell the steam to Zhongtai. 

The construction period of the Project is expected to be 18 months from the date when conditions are ready for construction to begin. Zhongtai will start to pay an energy saving service fee from the date when the WHPG station passes the required 72-hour test run. The payment term is 20 years. For the first 10 years, Zhongtai shall pay an energy saving fee at RMB 0.534 ($0.089) per kilowatt hour (KWH) (including value added tax) for the power generated from the system. For the second 10 years, Zhongtai shall pay an energy saving fee at RMB 0.402 ($0.067) per KWH (including value added tax). During the term of the contract the energy saving fee shall be adjusted at the same percentage as the change of local grid electricity price. Zhongtai shall also pay an energy saving fee for the steam supplied by Xi’an TCH at RMB 100 ($16.67) per ton (including value added tax). Zhongtai and its parent company will provide guarantees to ensure Zhongtai will fulfill its obligations under the Agreement. Upon the completion of the term, Xi’an TCH will transfer the systems to Zhongtai at RMB 1 ($0.16). Zhongtai shall provide waste heat to the systems for no less than 8,000 hours per year and waste gas volume no less than 150,000 Normal Meter Cubed (Nm3) per hour with a temperature no less than 950°C. If these requirements are not met, the term of the Agreement will be extended accordingly. If Zhongtai wants to terminate the Zhongtai Agreement early, it shall provide Xi’an TCH a 60 day notice and pay the termination fee and compensation for the damages to Xi’an TCH according to the following formula: (1) if it is less than five years into the term when Zhongtai requests termination, Zhongtai shall pay: Xi’an TCH’s total investment amount plus Xi’an TCH’s annual investment return times five years minus the years in which the system has already operated; or 2) if it is more than five years into the term when Zhongtai requests the termination, Zhongtai shall pay: Xi’an TCH’s total investment amount minus total amortization cost (the amortization period is 10 years).

In March 2016, Xi’an TCH entered into a Transfer Agreement of CDQ and a CDQ WHPG system with Zhongtai and Xi’an Huaxin (the “Transfer Agreement”). Under the Transfer Agreement, Xi’an TCH agreed to transfer to Zhongtai all of the assets associated with the CDQ Waste Heat Power Generation Project (the “Project”), which is under construction pursuant to the Zhongtai Agreement. Additionally, Xi’an TCH agreed to transfer to Zhongtai the Engineering, Procurement and Construction (“EPC”) Contract for the CDQ Waste Heat Power Generation Project which Xi’an TCH had entered into with Xi’an Huaxin in connection with the Project. Xi’an Huaxin will continue to construct and complete the Project and Xi’an TCH agreed to transfer all its rights and obligation under the EPC Contract to Zhongtai. As consideration for the transfer of the Project, Zhongtai agreed to pay to Xi’an TCH an aggregate transfer price of RMB 167,360,000 ($25.77 million) including payments of: (i) RMB 152,360,000 ($23.46 million) for the construction of the Project; and (ii) RMB 15,000,000 ($2.31 million) as payment for partial loan interest accrued during the construction period. Those amounts have been, or will be, paid by Zhongtai to Xi’an TCH according to the following schedule: (a) RMB 50,000,000 ($7.70 million) was paid within 20 business days after the Transfer Agreement was signed; (b) RMB 30,000,000 ($4.32 million) was paid within 20 business days after the Project is completed, but no later than July 30, 2016; and (c) RMB 87,360,000 ($13.45 million) will be paid no later than July 30, 2017. Xuzhou Taifa Special Steel Technology Co., Ltd. (“Xuzhou Taifa”) guaranteed the payments from Zhongtai to Xi’an TCH. The ownership of the Project was conditionally transferred to Zhongtai following the initial payment of RMB 50,000,000 ($7.70 million) by Zhongtai to Xi’an TCH and the full ownership of the Project will be officially transferred to Zhongtai after it completes all payments pursuant to the Transfer Agreement. As of September 30, 2017, Xi’an TCH had received the first payment of $7.70 million and the second payment of $4.32 million. The Company recorded a $2.82 million loss from this transaction in 2016. As of the date of this report, the Company has not yet received the remaining payment of RMB 87,360,000 ($13.45 million). The Company expects to collect part of the remaining balance during the fourth quarter of 2017.

Rongfeng CDQ Power Generation Energy Management Cooperative Agreement

On December 12, 2013, Xi’an TCH entered into a CDQ Power Generation Energy Management Cooperative Agreement with Tangshan Rongfeng Iron & Steel Co., Ltd. (the “Rongfeng Agreement”), a limited liability company incorporated in Hebei Province, China.

Pursuant to the Rongfeng Agreement, Xi’an TCH will design, build and maintain a CDQ and a CDQ WHPG system and sell the power to Rongfeng. The construction period of the Project is expected to be 18 months after the Agreement takes effect and from the date when conditions are ready for construction to begin. 

8

Rongfeng will pay an energy saving fee from the date when the WHPG station passes the required 72-hour test run. The payment term is 20 years. For the first 10 years, Rongfeng shall pay an energy saving fee at RMB 0.582 ($0.095) per KWH (including tax) for the power generated from the system. For the second 10 years, Rongfeng shall pay an energy saving fee at RMB 0.432 ($0.071) per KWH (including tax). During the term of the contract the energy saving fee shall be adjusted at the same percentage as the change of local grid electricity price. Rongfeng and its parent company will provide guarantees to ensure Rongfeng will fulfill its obligations under the Rongfeng Agreement. Upon the completion of the term, Xi’an TCH will transfer the systems to Rongfeng at RMB 1. Rongfeng shall provide waste heat to the systems for no less than 8,000 hours per year with a temperature no less than 950°C. If these requirements are not met, the term of the Agreement will be extended accordingly. If Rongfeng wants to terminate the Agreement early, it shall provide Xi’an TCH a 60 day notice and pay the termination fee and compensation for the damages to Xi’an TCH according to the following formula: 1) if it is less than five years (including five years) into the term when Rongfeng requests termination, Rongfeng shall pay: Xi’an TCH’s total investment amount plus Xi’an TCH’s average annual investment return times (five years minus the years of which the system has already operated); 2) if it is more than five years into the term when Rongfeng requests the termination, Rongfeng shall pay: Xi’an TCH’s total investment amount minus total amortization cost (the amortization period is 10 years). On November 16, 2015, Xi’an TCH entered into a Transfer Agreement of CDQ and a CDQ WHPG system with Rongfeng and Xi’an Huaxin New Energy Co., Ltd., a limited liability company incorporated in China (“Xi’an Huaxin”). The Transfer Agreement provided for the sale to Rongfeng of the CDQ Waste Heat Power Generation Project (the “Project”) from Xi’an TCH. Additionally, Xi’an TCH would transfer to Rongfeng the Engineering, Procurement and Construction (“EPC”) Contract for the CDQ Waste Heat Power Generation Project which Xi’an TCH had entered into with Xi’an Huaxin in connection with the Project. As consideration for the transfer of the Project, Rongfeng is to pay to Xi’an TCH an aggregate purchase price of RMB 165,200, 000 ($25.45 million), whereby (a) RMB 65,200,000 ($10.05 million) was to be paid by Rongfeng to Xi’an TCH within 20 business days after signing the Transfer Agreement, (b) RMB 50,000,000 ($7.70 million) was paid by Rongfeng to Xi’an TCH within 20 business days after the Project is completed, but no later than March 31, 2016 and (c) RMB 50,000,000 ($7.70 million) was to be paid by Rongfeng to Xi’an TCH no later than September 30, 2016. Mr. Cheng Li, the largest stockholder of Rongfeng, has personally guaranteed the payments. The ownership of the Project was conditionally transferred to Rongfeng within 3 business days following the initial payment of RMB 65,200,000 ($10.05 million) by Rongfeng to Xi’an TCH and the full ownership of the Project will be officially transferred to Rongfeng after it completes the entire payment pursuant to the Transfer Agreement. The Company recorded a $3.78 million loss from this transaction in 2015. As of December 31, 2016, the Company had received full payment of $25.45 million.

Formation of Zhongxun

On March 24, 2014, Xi’an TCH incorporated a new subsidiary, Zhongxun Energy Investment (Beijing) Co., LtdLtd. (“Zhongxun”) with registered capital of $5,695,502 (RMB 35,000,000), which must be contributed before October 1, 2028. Zhongxun is 100% owned by Xi’an TCH and will be mainly engaged in project investment, investment management, economic information consulting, and technical services. Zhongxun has not yet commenced operations nor has any capital contribution been made as of the date of this report.

Formation of Yinghua

On February 11, 2015, the Company incorporated a new subsidiary, Shanghai Yinghua Financial Leasing Co., LtdLtd. (“Yinghua”) with registered capital of $30,000,000, to be paid within 10 years from the date the business license is issued. Yinghua is 100% owned by the Company and will be mainly engaged in financial leasing, purchase of financial leasing assets, disposal and repair of financial leasing assets, consulting and ensuring of financial leasing transactions, and related factoring business. Yinghua has not yet commenced operations nor has any capital contribution been made as of the date of this report.

Other Events

Summary

In December 2019, a novel strain of Sales-Type Lease at September 30, 2017

Status at September 30, 2017

As of September 30, 2017, Xi’an TCH leases the following systems: (i) BMPG systems to Pucheng Phase I and II (15 and 11 year terms, respectively); (ii) BMPG systems to Shenqiu Phase I (11-year term); and (iii) Shenqiu Phase II (9.5-year term). In addition, as of September 30, 2017, Erdos TCH leased power and steam generating systems for recycling waste heat from metal refining to Erdos (five systems) for a term of 20 years.

9

Asset Repurchase Agreement

During the nine months ended September 30, 2017coronavirus (COVID-19) was reported, and the year ended December 31, 2016,World Health Organization declared the Company entered into the following Asset Repurchase Agreements:

In March 2016, Xi’an TCH entered intooutbreak to constitute a Transfer Agreement“Public Health Emergency of CDQInternational Concern.” This contagious disease outbreak, which continues to spread to additional countries, and disrupts supply chains and affecting production and sales across a CDQ WHPG system with Zhongtairange of industries as a result of quarantines, facility closures, and Xi’an Huaxin (the “Transfer Agreement”). Under the Transfer Agreement, Xi’an TCH agreed to transfer to Zhongtai all of the assets associated with the CDQ Waste Heat Power Generation Project (the “Project”), which is under construction pursuant to the Zhongtai Agreement. Additionally, Xi’an TCH agreed to transfer to Zhongtai the Engineering, Procurementtravel and Construction (“EPC”) Contract for the CDQ Waste Heat Power Generation Project which Xi’an TCH had entered into with Xi’an Huaxinlogistics restrictions in connection with the Project. Xi’an Huaxin will continue to construct and completeoutbreak. The COVID-19 outbreak impacted the Project and Xi’an TCH agreed to transfer all its rights and obligationCompany’s operations for the first quarter of 2020. However, as a result of PRC government’s effort on disease control, most cities in China were reopened in April 2020, the outbreak in China is under the “EPC” Contractcontrol. From April 2020 to Zhongtai. As consideration for the transferend of 2021, there were some new COVID-19 cases discovered in a few provinces of China, however, the Project, Zhongtai agreednumber of new cases are not significant due to payPRC government’s strict control. From January 2022 to date, COVID-19 case fluctuated and increased again in many cities of China including Xi’an TCH an aggregate transfer priceProvince where the Company is located; as a result of RMB 167,360,000 ($25.77 million) including payments of: (i) RMB 152,360,000 ($23.46 million) for the construction of the Project; and (ii) RMB 15,000,000 ($2.31 million) as payment for partial loan interest accrued during the construction period. Those amountssuch increases, there have been or will be, paidperiodic short-term lockdowns and restrictions on travel in Xi’an Province and other areas of China, the Company’s operations have been adversely impacted by Zhongtaithe travel and work restrictions imposed on a temporary basis in China to Xi’an TCH according tolimit the following schedule: (a) RMB 50,000,000 ($7.70 million) was paid within 20 business days after the Transfer Agreement was signed; (b) RMB 30,000,000 ($4.32 million) was paid within 20 business days after the Project is completed, but no later thanspread of COVID-19.

On July 30, 2016; and (c) RMB 87,360,000 ($13.45 million) will be paid no later than July 30, 2017. Xuzhou Taifa Special Steel Technology Co., Ltd. (“Xuzhou Taifa”) has guaranteed the payments from Zhongtai to Xi’an TCH. The ownership of the Project was conditionally transferred to Zhongtai following the initial payment of RMB 50,000,000 ($7.70 million) by Zhongtai to Xi’an TCH and the full ownership of the Project will be officially transferred to Zhongtai after it completes all payments pursuant to the Transfer Agreement. As of September 30, 2017, Xi’an TCH had received the first payment of $7.70 million and the second payment of $4.32 million. The Company recorded a $2.82 million loss from this transaction in 2016. As of this report date, the Company has not yet received the remaining payment of RMB 87,360,000 ($13.45 million) due to the tight cash flow of Zhongtai, the Company expects to collect part of the remaining balance during the fourth quarter of 2017.

On June 22, 2016, Xi’an TCH entered into a Coal Oven Gas Power Generation Project Repurchase Agreement (the “Repurchase Agreement”) with Yida. Under the Repurchase Agreement, Xi’an TCH agreed to transfer to Yida all the project assets for RMB 112,000,000 ($16.89 million) (the “Transfer Price”) with Yida’s retention of ownership of the Shares. Yida agreed to make the following payments: (i) the outstanding monthly leasing fees for April and May 2016 in total of RMB 6,000,000 ($0.90 million) to Xi’an TCH within 5 business days from the execution of the Repurchase Agreement; (ii) a payment of RMB 50,000,000 ($7.54 million) of the Transfer Price to Xi’an TCH within 5 business days from the execution of the Repurchase Agreement; and (iii) a payment of the remaining RMB 62,000,000 ($9.35 million) of the Transfer Price to Xi’an TCH within 15 business days from the execution of the Repurchase Agreement. Under the Repurchase Agreement, ownership of the project assets will be transferred from Xi’an TCH to Yida within 3 business days after Xi’an TCH receives the full Transfer Price and the outstanding monthly leasing fees. In July 2016, the Company had received the full payment of the Transfer Price and title to the system was transferred at that time. The Company recorded a $0.42 million loss from this transaction in 2016. 

Reverse Stock Split

On May 24, 2016,27, 2021, the Company filed a Certificatecertificate of Changechange to the Company’s Articles of Incorporation with the Secretary of State of the State of Nevada with an effective date of May 25, 2016 (the “Effective Date”), at which timeto increase the Company effected a 1-for-10 reverse stock splittotal number of the Company’s authorized shares of common stock from 10,000,000  to 100,000,000, par value $0.001 (the “Common Stock”), accompanied byper share.

On March 3, 2022, the Company filed with the Secretary of State of the State of Nevada a corresponding decrease inCertificate of Amendment to the Company’s issuedAmended and outstanding sharesRestated Certificate of Common Stock (the “Reverse Stock Split”).

The Company rounded upIncorporation to the next full share of the Company’s Common Stock any fractional shares resultingchange our corporate name from the Reverse Stock Split. The Reverse Stock Split was retroactively stated for the periods covered by the financial statements included herein.

China Recycling Energy Corporation to Smart Powerr Corp, effective March 3, 2022.

10

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited financial statements included herein were prepared by the Company, pursuant to the rulesinformation as of and regulations of the Securities and Exchange Commission (“SEC”). The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) that are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain informationsix and footnote disclosures normally present in annual financial statementsthree months ended June 30, 2022 was prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.(“US GAAP”) were omitted pursuantfor interim financial information and with the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, such rulesfinancial information includes all adjustments (consisting only of normal recurring adjustments, unless otherwise indicated) considered necessary for a fair presentation of our financial position at such date and regulations. Thesethe operating results and cash flows for such periods. Operating results for the six and three months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the entire year or for any other subsequent interim period. The interim consolidated financial statementsinformation should be read in conjunction with the audited financial statementsFinancial Statements and footnotes included in the Company’s 2016 audited financial statementsnotes thereto, included in the Company’s Annual Report on Form 10-K. The results10-K for the nine and three monthsfiscal year ended September 30, 2017 are not necessarily indicative of the results expected for the full year ending December 31, 2017. 2021, previously filed with the SEC on September 13, 2022.  

Basis of Consolidation

The consolidated financial statementsConsolidated Financial Statements (“CFS”) include the accounts of CREGSPC and its subsidiaries, Shanghai Yinghua Financial Leasing Co., Ltd. (“Yinghua”) and Sifang Holdings, itsHoldings; Sifang Holdings’ wholly owned subsidiaries, Huahong New Energy Technology Co., Ltd. (“Huahong”) and Shanghai TCH Energy Tech Co., Ltd. (“Shanghai TCH”); Shanghai TCH’s wholly-owned subsidiary, Xi’an TCH Energy Tech Co., Ltd. (“Xi’an TCH”); and Xi’an TCH’s subsidiaries, 1) Erdos TCH Energy Saving Development Co., Ltd (“Erdos TCH”), 100% owned by Xi’an TCH, (See note 1),2) Zhonghong, 90% owned by Xi’an TCH and 10% owned by Shanghai TCH, and 3) Zhongxun, 100% owned by Xi’an TCH. Substantially all the Company’s revenues are derived from the operations of Shanghai TCH and its subsidiaries, which represent substantially all the Company’s consolidated assets and liabilities as of SeptemberJune 30, 20172022. However, there was no revenue for the Company for the six and December 31, 2016, respectively.three months ended June 30, 2022 and 2021. All significant inter-company accounts and transactions were eliminated in consolidation.


 

Uses and Sources of Liquidity

For the six months ended June 30, 2022 and 2021, the Company had a net loss of $0.67 million and net income of $1.94 million. For the three months ended June 30, 2022 and 2021, the Company had a net loss of $0.22 million and net income of $2.22 million. The Company had an accumulated deficit of $55.93 million as of June 30, 2022. The Company disposed all of its systems and currently holds five power generating systems through Erdos TCH, the five power generating systems are currently not producing any electricity. The Company is in the process of transforming and expanding into an energy storage integrated solution provider. The Company plans to pursue disciplined and targeted expansion strategies for market areas the Company currently does not serve. The Company actively seeks and explores opportunities to apply energy storage technologies to new industries or segments with high growth potential, including industrial and commercial complexes, large scale photovoltaic (PV) and wind power stations, remote islands without electricity, and smart energy cities with multi-energy supplies.  The Company’s cash flow forecast indicates it will have sufficient cash to fund its operations for the next 12 months from the date of issuance of these CFS.

Use of Estimates

In preparing these CFS in accordance with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets as well as revenues and expenses during the period reported. Actual results may differ from these estimates. On an on-going basis, management evaluates its estimates, including those allowances for bad debt and inventory obsolescence, impairment loss on fixed assets and construction in progress, income taxes, and contingencies and litigation. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other resources.

Revenue Recognition

A)Sales-type Leasing and Related Revenue Recognition

The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 842. The Company’s sales type lease contracts for revenue recognition fall under ASC 842. During the six and three months ended June 30, 2022 and 2021, the Company did not sell any new power generating projects.

The Company constructs and leases waste energy recycling power generating projects to its customers. The Company typically transfers legal ownership of the waste energy recycling power generating projects to its customers at the end of the lease. The investment in these projects is recorded as investment in sales-type leases in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 840, “Leases,” and its various amendments and interpretations.

The Company finances construction of waste energy recycling power generating projects. The sales and cost of sales are recognized at the inception of the lease.lease, which is when control is transferred to the lessee. The Company accounts for the transfer of control as a sales type lease in accordance with ASC 842-10-25-2. The underlying asset is derecognized, and revenue is recorded when collection of payments is probable. This is in accordance with the revenue recognition principle in ASC 606 - Revenue from contracts with customers. The investment in sales-type leases consists of the sum of the minimum lease payments receivable less unearned interest income and estimated executory cost. Minimum lease payments are part of the lease agreement between the Company (as the lessor) and the customer (as the lessee). The discount rate implicit in the lease is used to calculate the present value of minimum lease payments. The minimum lease payments consist of the gross lease payments net of executory costs and contingent rentals, if any. Unearned interest income is amortized to income over the lease term to produce a constant periodic rate of return on net investment in the lease. While revenue is recognized at the inception of the lease, the cash flow from the sales-type lease occurs over the course of the lease, which results in interest income and reduction of receivables. Revenue is recognized net of salesvalue-added tax.


 

B)Contingent Rental Income

The Company records income from actual electricity usage in addition to minimum lease paymentsgenerated of each project as contingent rental income in the period contingent rentalthe income is earned.earned, which is when the electricity is generated. Contingent rent is not part of minimum lease payments.

Operating Leases

11

The Company determines if an arrangement is a lease or contains a lease at inception. Operating lease liabilities are recognized based on the present value of the remaining lease payments, discounted using the discount rate for the lease at the commencement date. As the rate implicit in the lease is not readily determinable for an operating lease, the Company generally uses an incremental borrowing rate based on information available at the commencement date to determine the present value of future lease payments. Operating lease right-of-use (“ROU assets”) assets represent the Company’s right to control the use of an identified asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets are generally recognized based on the amount of the initial measurement of the lease liability. Lease expense is recognized on a straight-line basis over the lease term.

Cash

ROU assets are reviewed for impairment when indicators of impairment are present. ROU assets from operating and Equivalentsfinance leases are subject to the impairment guidance in ASC 360, Property, Plant, and Equipment, as ROU assets are long-lived nonfinancial assets.

ROU assets are tested for impairment individually or as part of an asset group if the cash flows related to the ROU asset are not independent from the cash flows of other assets and liabilities. An asset group is the unit of accounting for long-lived assets to be held and used, which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. The Company recognized no impairment of ROU assets as of June 30, 2022.

Cash

Operating leases are included in operating lease ROU and equivalentsoperating lease liabilities (current and non-current), on the consolidated balance sheets.

Cash

Cash includes cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.date.

Accounts Receivable

As of September 30, 2017, the Company had accounts receivable of $13,162,772 (from the sales of CDQ and a CDQ WHPG systemThe Company’s policy is to Zhongtai). As of December 31, 2016, the Company had accounts receivable of $12,593,340 (from the sales of CDQ and a CDQ WHPG system to Zhongtai).

Interest Receivable on Sales Type Leases

As of September 30, 2017, the interest receivable on sales type leases was $8,049,073, mainly from recognized but not yet collected interest income for the Pucheng and Shenqiu systems. As of December 31, 2016, the interest receivable on sales type leases was $4,621,491.

The Company maintains reservesmaintain an allowance for potential credit losses on receivables.accounts receivable. Management reviews the composition of receivablesaccounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. During the nine months ended September

As of June 30, 2017,2022 and December 31, 2021, the Company had bad debt allowance for net investmentgross accounts receivable of $61,800.$0. 

Concentration of Credit Risk

Cash includes cash on hand and demand deposits in accounts maintained within China. Balances at financial institutions and state-owned banks within the PRC are covered by insurance up to RMB 500,000 ($74,500) per bank. Any balance over RMB 500,000 ($74,500) per bank in PRC will not be covered. At June 30, 2022, cash held in the PRC bank of $144,215,501 was not covered by such insurance. The Company has not experienced any losses in such accounts.

Certain other financial instruments, which subject the Company to concentration of credit risk, consist of accounts and other receivables. The Company does not require collateral or other security to support these receivables. The Company conducts periodic reviews of its customers’ financial condition and customer payment practices to minimize collection risk on accounts receivable.


 

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

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation. Expenditures for maintenance and repairs are expensed as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method over the estimated lives as follows:

Building20 years
Vehicles 2 - 5 years
Office and Other Equipment 2 - 5 years
Software 2 - 3 years

Impairment of Long-lived Assets

In accordance with FASB ASC Topic 360, “Property, Plant, and Equipment,” the Company reviews its long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable. If the total expected undiscounted future net cash flows isare less than the carrying amount of the asset, a loss is recognized for the difference between the fair value (“FV”) and carrying amount of the asset. The total undiscounted future net cash flow (total future payment receivable) is less than net investment in sales-type leases for Erdos Phase II, the 2nd system at December 31, 2016; accordingly, the Company recorded an assetdid not record any impairment loss of $242,305 for the year ended December 31, 2016. There was no impairment loss for the ninesix and three months ended SeptemberJune 30, 2017.2022 and 2021. 

Notes Payable – Banker’s Acceptances

The Company endorses banker’s acceptances that are issued from a bank to vendors as payment for its obligations. Most of the banker’s acceptances have maturity dates of less than six months following their issuance.

Cost of Sales

Cost of sales consists primarily of the direct material of the power generating system and expenses incurred directly for project construction for sales-type leasing and sales tax and additions for contingent rental income.

Income Taxes

12

Income taxes are accounted for using an asset and liability method. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. 

Noncontrolling Interests

The Company follows FASB ASC Topic 810, “Consolidation,”740, which established new standards governing theprescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and reportingpenalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.

Under FASB ASC Topic 740, when tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of noncontrolling interests (“NCIs”)the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in partially owned consolidated subsidiaries and the lossfinancial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of controlappeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of subsidiaries. Certain provisionstax benefit that is more than 50% likely of this standard indicate, among other things,being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that NCIs (previously referred toexceeds the amount measured as minority interests) be treated as a separate component of equity, notdescribed above is reflected as a liability (as was previously the case), that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions rather than as step acquisitions or dilution gains or losses, and that losses of a partially-owned consolidated subsidiary be allocated to NCIs even when such allocation might result in a deficit balance. 

The net income (loss) attributed to NCIs was separately designatedfor unrecognized tax benefits in the accompanying statements of incomebalance sheets along with any associated interest and comprehensive income (loss). Losses attributablepenalties that would be payable to NCIsthe taxing authorities upon examination. Interest associated with unrecognized tax benefits is classified as interest expense and penalties are classified in a subsidiary may exceed an NCI’s interestsselling, general and administrative expenses in the subsidiary’s equity. The excess attributablestatement of income. At June 30, 2022 and December 31, 2021, the Company did not take any uncertain positions that would necessitate recording a tax related liability. 


Statement of Cash Flows

In accordance with FASB ASC Topic 230, “Statement of Cash Flows,” cash flows from the Company’s operations are calculated based upon the local currencies. As a result, amounts related to NCIs is attributed to those interests. NCIs shall continue to be attributed their shareassets and liabilities reported on the statement of losses even if that attribution resultscash flows may not necessarily agree with changes in a deficit NCI balance.the corresponding balances on the balance sheet.

Fair Value of Financial Instruments

For certain of the Company’s financial instruments, including cash and equivalents, restricted cash, accounts receivable, other receivables, accounts payable, accrued liabilities and short-term debts, the carrying amounts approximate their fair values (“FV”) due to their short maturities. Receivables on sales-type leases are based on interest rates implicit in the lease.

FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value (“FV”)FV of financial instruments held by the Company. FASB ASC Topic 825, “Financial Instruments,” defines FV, and establishes a three-level valuation hierarchy for disclosures of FV measurement that enhances disclosure requirements for FV measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their FV because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:

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 asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 inputs to the valuation methodology are unobservable and significant to FV measurement.

The Company analyzes all financial instruments with features of both liabilities and equity under FASB ASC 480, “Distinguishing Liabilities from Equity,” and ASC 815, “Derivatives and Hedging.”

The following are the considerations with respect to disclosures of FV of long-term debt obligations:

As of SeptemberJune 30, 2017,2022 and December 31, 2021, the Company did not have any long-term debt obligations. As of December 31, 2016, the Company’s long-term debt obligations consisted of the Zhonghong entrusted loan of $47.86 million (Note 12).

FV measurementsdebt; and approximations for certain financial instruments are based on what a reporting entity would likely have to pay to transfer the financial obligation to an entity with a comparable credit rating. The Company’s bank loans and trust loans payable are privately held (i.e., nonpublic) debt; therefore, pricing inputs are not observable. For this reason, the Company classified bank loans and trust loans payable as a Level 3 FV measurement in the valuation hierarchy.

13

For the Company’s long-term bank loans, and Zhonghong entrusted loans noted above, the Company believes the carrying amounts approximate their FV. Based on the Company’s understanding of the credit markets, the Company’s business is in a sector (energy-saving green) that is supported by the PRC government and the lending bank, the Company believes it could have obtained similar loans on similar terms and interest rates. In addition, in connection with the FV measurement, the Company considered nonperformance risk (including credit risk) relating to the debt obligations, including the following: (i) the Company is considered a low credit risk customer to the lending bank and its creditors; (ii) the Company has a good history of making timely payments and have never defaulted on any loans; and (iii) the Company has a stable and continuous cash inflow from collections from its sales-type lease of energy saving projects.

As of September 30, 2017 and December 31, 2016, the Company did not identify any assets or liabilities that are required to be presented on the balance sheet at FV.

Stock-Based Compensation

The Company accounts for its stock-basedshare-based compensation awards to employees in accordance with FASB ASC Topic 718, “Compensation—“Compensation – Stock Compensation,” Compensation”, which requires that share-based payment transactions with employees be measured based on the grant-date FV of the equity instrument issued and recognized as compensation expense over the requisite service period.

The Company accounts for share-based compensation awards to non-employees in accordance with FASB ASC Topic 718 and FASB ASC Topic 505, “Equity.” Subtopic 505-50, “Equity-Based Payments to Non-employees”. Share-based compensation associated with the issuance of equity instruments to non-employees is measured at the FV of the equity instrument issued or committed to be issued, as this is more reliable than the FV of the services received. The FV is measured at the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete.

The Company recognizesfollows ASU 2018-07, “Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,” which expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. An entity should apply the requirements of ASC 718 to non-employee awards except for specific guidance on inputs to an option pricing model and the attribution of cost. ASC 718 applies to all share-based payment transactions in its statement ofwhich a grantor acquires goods or services to be used or consumed in a grantor’s own operations FV at the grant date for stock options and other equity-based compensation issued to employees and non-employees.by issuing share-based payment awards.


 

Basic and Diluted Earnings per Share

The Company presents net income (loss) per share (“EPS”) in accordance with FASB ASC Topic 260, “Earning Per Share.” Accordingly, basic income (loss) per share is computed by dividing income (loss) available to common stockholders by the weighted average number of shares outstanding, without consideration for common stock equivalents. Diluted EPS is computed by dividing the net income by the weighted-average number of common shares outstanding as well as common share equivalents outstanding for the period determined using the treasury-stock method for stock options and warrants and the if-converted method for convertible notes. The Company made an accounting policy election to use the if-converted method for convertible securities that are eligible to receive common stock dividends, if declared. Diluted EPS reflect the potential dilution that could occur based on the exercise of stock options or warrants or conversion of convertible securities using the if-converted method.

The following table presents a reconciliation of basic and diluted EPS forFor the ninesix and three months ended SeptemberJune 30, 20172022 and 2016:2021, the basic and diluted income (loss) per share were the same due to the anti-dilutive features of the warrants and options. For the six and three months ended June 30, 2022, of 30,911 shares purchasable under warrants and options were excluded from the EPS calculation as these were not dilutive due to the exercise price was more than the stock market price. For the six and three months ended June 30, 2021, of 30,911 shares purchasable under warrants and options were excluded from the EPS calculation as these were not dilutive due to the exercise price was more than the stock market price.

  Nine Months Ended 
September 30,
  Three Months Ended
September 30,
 
  2017  2016  2017  2016 
Net income (loss) $703,040  $2,977,791  $(40,892) $536,839 
                 
Weighted average shares outstanding – basic  8,310,198   8,310,198   8,310,198   8,310,198 
Effect of dilutive securities:                
Options granted  -   -   -   - 
                 
Weighted average shares outstanding – diluted  8,310,198   8,310,198   8,310,198   8,310,198 
Earnings per share – basic $0.08  $0.36  $0.00  $0.06 
Earnings per share – diluted $0.08  $0.36  $0.00  $0.06 

The outstanding stock options were anti-dilutive.

Foreign Currency Translation and Comprehensive Income (Loss)

The Company’s functional currency is the Renminbi (“RMB”). For financial reporting purposes, RMB were translated into United StatesU.S. Dollars (“USD” or “$”) as the reporting currency. Assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity as “Accumulated other comprehensive income.” Gains and losses resulting from foreign currency transactions are included in income. There was no significant fluctuation in the exchange rate for the conversion of RMB to USD after the balance sheet date. 

14

The Company follows FASB ASC Topic 220, “Comprehensive Income.” Comprehensive income is comprised of net income and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders.

Segment Reporting

FASB ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. FASB ASC Topic 280 has no effect on the Company’s CFS as substantially all of the Company’s operations are conducted in one industry segment. All of the Company’s assets are located in the PRC.


 

New Accounting Pronouncements

In FebruaryJune 2016, the FASB issued Accounting Standards Update (“ASU”)ASU No. 2016-02, Leases2016-13, Financial Instruments-Credit Losses (Topic 842). The326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance in ASU 2016-02 supersedes the lease recognition requirements in ASC Topic 840, Leases (FAS 13). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect this standard2022. Early application will have on its CFS.

In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 clarifies the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. This ASU is effectivebe permitted for public businessall entities for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted. The Company is currently assessing the potential impact of ASU 2016-15 on its CFS.

In October 2016, the FASB issued ASU No. 2016-16—Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This ASU improves the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. For public business entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted. The Company does not anticipate that the adoption of this ASU will have a significant impact on its CFS.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The standard is effective for fiscal years, beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The standard should be applied using a retrospective transition method to each period presented.2018. The Company does not anticipateis currently evaluating the impact that the adoption of this ASUstandard will have a significant impact on its CFS.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The standard should be applied prospectively on or after the effective date. The Company will evaluate the impact of adopting this standard prospectively upon any transactions of acquisitions or disposals of assets or businesses.

15

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance should be adopted on a prospective basisbasis. As a smaller reporting company, the standard will be effective for the Company for interim and annual or any interim goodwill impairment testsreporting periods beginning after December 15, 2019. Early2022, with early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.permitted. The Company is currently evaluating the impact of adopting this standard on its CFS.

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future CFS.

3. OTHER RECEIVABLES

Reclassification 

In November 2015, the FASB issued ASU No. 2015-17 on the balance sheet classification of deferred taxes, which would require that deferred tax assets and liabilities be classified as non-current in the balance sheet. Current GAAP requires the presentation of deferred tax assets and liabilities as either current or non-current in the balance sheet. This ASU is effective for annual reporting periods beginning after December 15, 2016, including interim reporting periods within those annual reporting periods. Earlier adoption is permitted. The guidance may be applied either prospectively or retrospectively. The Company adopted this ASU as of December 31, 2016 on a retrospective basis and reclassified current deferred tax liability (net) to the noncurrent deferred tax liability (net) in the consolidated balance sheet as of December 31, 2016. The reclassification had no effect on reported revenues, operating income, or cash flows for the periods presented.

3. RESTRICTED CASH

Restricted cash is held by the banks as collateral to issue bank acceptances and bank loans. The Company endorses bank acceptances to vendors as payment of its obligations. Most of the bank acceptances have maturities of less than six months. As of SeptemberJune 30, 2017 and December 31, 2016, the Company had restricted cash of $0.

4. INVESTMENT IN SALES-TYPE LEASES, NET

Under sales-type leases, Xi’an TCH leases the following systems: (i) BMPG systems to Pucheng Phase I and II (15 and 11 year terms, respectively); (ii) BMPG systems to Shenqiu Phase I (11-year term); and (iii) Shenqiu Phase II (9.5-year term). In addition, as of September 30, 2017, Erdos TCH leased power and steam generating systems from waste heat from metal refining to Erdos (five systems) for a term of twenty years. The components of the net investment in sales-type leases as of September 30, 2017 and December 31, 2016 are as follows:

  2017  2016 
Total future minimum lease payments receivable $220,451,367  $217,470,913 
Less: executory cost  (66,942,562)  (66,444,519)
Less: unearned interest income  (31,208,152)  (35,312,473)
Less: realized interest income but not yet received  (8,049,073)  (4,621,490)
Less: allowance for net investment receivable  (63,282)    
Investment in sales-type leases, net  114,188,298   111,092,431 
Current portion  13,404,978   9,385,453 
Noncurrent portion $100,783,320  $101,706,978 

As of September 30, 2017, the future minimum rentals to be received on non-cancelable sales-type leases by years are as follows:

2018 $35,953,996 
2019  19,791,446 
2020  20,656,848 
2021  20,831,989 
2022  22,937,544 
Thereafter  100,279,544 
Total $220,451,367 

16

5. PREPAID EXPENSES

Prepaid expenses mainly consisted of prepayment for office rental and decorations, taxes, and consulting fees for the Company’s HYREF fund completed in July 2013. Before the HYREF Fund released the money to Zhonghong, Xi’an TCH paid 2% of the funds raised for Zhonghong, i.e. RMB 9.2 million ($1.5 million) to the Fund Management Company as a consulting fee and it shall pay such 2% on the amount of funds actually contributed as an annual management fee on every 365-day anniversary thereafter until Zhonghong fully repays the loan, and the HYREF Fund no longer has an ownership interest in Zhonghong. The Company had $0.19 million and $0.65 million prepaid consulting expense as of September 30, 2017 and December 31, 2016, respectively. The Company had $33,500 and $32,050 prepaid tax as of September 30, 2017 and December 31, 2016.

6. OTHER RECEIVABLES

As of September 30, 2017,2022, other receivables mainly consisted of (i) advances to third parties of $0.95 million,$7,450, bearing no interest, payable upon demand; (ii) maintenance cost and tax receivable of $1.43 million; and (iii) advancesdemand, ii) advance to employees of $1.52 million,$4,759, iii) advance to suppliers of $2,680 and (iv) others of $862,936 including social insurance receivable of $5,436 and prepayment of $857,500 (see below).

On August 2, 2021, the Company entered a Research and Development Cooperation Agreement with a software development company to design, establish, upgrade and maintenance of Smart Energy Management Cloud Platform for energy storage and remote-site monitoring; upon completion, the Company will provide such platform to its customers at a fee. Total contracted research and development cost is $1,000,000, as of June 30, 2022, the Company prepaid $200,000, and was committed to pay remaining $800,000 after trial operation.

On August 23, 2021, the Company entered a Market Research and Project Development Service Agreement with a consulting company in Xi’an for a service period of 12 months. The consulting company will perform market research for new energy industry including photovoltaic and energy storage, develop potential new customers and due diligence check, assisting the Company for business cooperation negotiation and relevant agreements preparation. Total contract amount is $1,150,000, and the Company prepaid $650,000 at commencement of the service; the Company will pay $200,000 upon issuance of the research report, and pay the remaining of $300,000 upon completion all the services. As of June 30, 2022, due to the impact of the epidemic, it is difficult to conduct field research and collect effective information, the market research work is making slow progress and can only be proceed after PRC overall epidemic improves.

As of December 31, 2021, other receivables mainly consisted of (i) advances to third parties of $7,842, bearing no interest, payable upon demand. Asdemand, ii) advance to employees of $7,618, iii) advance to suppliers of $2,821 and (iv) others of $862,331 including social insurance receivable of $4,831 and prepayment of $857,500.    

4. ASSET SUBJECT TO BUYBACK

The Chengli project finished construction, and was transferred to the Company’s fixed assets at a cost of $35.24 million (without impairment loss) and ready to be put into operation as of December 31, 2016, other receivables mainly consisted2018. On January 22, 2019, Xi’an Zhonghong completed the transfer of an advanceChengli CDQ WHPG project as the partial repayment for the loan and accrued interest of RMB 188,639,400 ($27.54 million) to a third party of $0.53 million, bearing no interest, payable upon demand; and advances to employees of $0.02 million, bearing no interest, payable upon demand.  HYREF (see Note 8).

7. LONG TERM INVESTMENT

On June 25, 2013,April 9, 2021, Xi’an TCH, with HongyuanHuifu Venture Capital Co. Ltd (“HongyuanHuifu”) jointly established Hongyuan Recycling Energy Investment Management Beijing Co., Ltd (the “Fund Management Company”) with registered capitalXi’an Zhonghong, Guohua Ku, Chonggong Bai and HYREF entered a Termination of RMB 10 million ($1.6 million), to manage a fund thatFulfillment Agreement (termination agreement). Under the termination agreement, the original buyback agreement entered on December 19, 2019 was terminated upon signing of the termination agreement. HYREF will be usednot execute the buy-back option and will not ask for financingany additional payment from the buyers other than keeping the CDQ WHPG projects. Xi’an TCH made an initial capital contributionstation. As a result of RMB 4 million ($0.65 million) and has a 40% ownership interest in the Fund Management Company. Voting rights and dividend rights are allocated between HongyuanHuifu and Xi’an TCH at 80% and 20%, respectively. The Company accounted for this investment usingtermination of the equity method. Thebuy-back agreement, the Company recorded $115,763 and $28,432 equity based investment income duringa gain of approximately $3.1 million from transferring the nine and three months ended September 30, 2017. The Company recorded $154,570 and $48,595 equity based investment income during the nine and three months ended September 30, 2016.

On July 18, 2013, theCDP WHPG station to HYREF Fund was established as a limited liability partnership in Beijing. Pursuant to the Partnership Agreement, the HYREF Fund has a general partner, the Fund Management Company, which made an initial capital contributionpartial repayment of RMB 5 million ($0.83 million) to the HYREF Fund. The HYREF Fund has three limited partners: (1) China Orient Asset Management Co., Ltd., which made an initial capital contribution of RMB 280 million ($46.67 million) and is a preferred limited partner, (2) HongyuanHuifu, which made an initial capital contribution of RMB 100 million ($16.67 million) and is an ordinary limited partner and (3) the Company’s wholly-owned subsidiary, Xian TCH, which made an initial capital contribution of RMB 75 million ($10.81 million) and is a secondary limited partner. The term of the HYREF Fund’s partnership is six years from the date of its establishment, July 18, 2013. The current term for (x) the preferred limited partner is four years from the date of its contribution and (y) the ordinary limited partner is four years from the date of its contribution. Unless otherwise approved by the general partner (the Fund Management Company), upon the expiration of their respective terms, each partner shall exit from the partnership automatically. The total size of the HYREF Fund is RMB 460 million ($75.0 million), and the purpose of the HYREF Fund is to invest in Zhonghong for constructing 3 new CDQ WHPG projects. Xi’an TCH owns 16.3% of the HYREF Fund. The Company accounted for this investment using the cost method. The Company netted off the investment of RMB 75 million ($10.81 million) by Xi’an TCH with the entrusted loan, payablewhich is the difference between the carrying value of the HYREF Fund.assets and loan and interest payable on the loan.

17

 

8. CONSTRUCTION IN PROGRESS

Construction in progress was for constructing power generation systems. As of September 30, 2017 and December 31, 2016, the Company’s construction in progress included:

  2017  2016 
Xuzhou Huayu $24,589,694  $23,525,925 
Xuzhou Tian’an  36,400,424   32,471,977 
Boxing County Chengli  31,874,182   30,495,280 
Total $92,864,300  $86,493,182 

As of September 30, 2017, the Company was committed to pay an additional (1) $12.05 million for the Xuzhou Huayu project, (2) $4.18 million for the Xuzhou Tian’an project, and (3) $4.65 million for Boxing County Chengli project. The Boxing County Chengli project has finished construction, but is waiting for government approval before beginning operations.

9. TAXES PAYABLE

Taxes payable consisted of the following as of September 30, 2017 and December 31, 2016:

  2017  2016 
Income $414,871  $773,397 
VAT  943,912   366,230 
Other  145,048   63,050 
Total $1,503,831  $1,202,677 

10.5. ACCRUED LIABILITIES AND OTHER PAYABLES

Accrued liabilities and other payables consisted of the following as of SeptemberJune 30, 20172022 and December 31, 2016:2021:

  2022  2021 
Education and union fund and social insurance payable $272,669  $272,352 
Consulting and legal expenses  71,090   31,924 
Accrued payroll and welfare  259,844   287,026 
Other  43,571   41,506 
Total $647,174  $632,808 

6. TAXES PAYABLE

Taxes payable consisted of the following as of June 30, 2022 and December 31, 2021:

  2022  2021 
Income tax $7,613,203  $7,641,787 
Other taxes  116   71 
Total  7,613,319   7,641,858 
Current  3,046,694   3,075,233 
Noncurrent $4,566,625  $4,566,625 

 

  2017  2016 
Employee training, labor union expenditure and social insurance payable $794,387  $760,021 
Consulting, auditing, and legal expenses  480,891   468,393 
Accrued payroll and welfare  278,260   322,605 
Accrued interest  -   1,569 
Other  13,843   43,992 
Total $1,567,381  $1,596,580 

As of June 30, 2022, income tax payable included $7.61 million ($3.04 million included in current above and $4.57 million noncurrent) from recording the estimated one-time transition tax on post-1986 foreign unremitted earnings under the Tax Cut and Jobs Act signed on December 22, 2017. An election was available for the U.S. shareholders of a foreign company to pay the tax liability in installments over a period of eight years with 8% of net tax liability in each of the first five years, 15% in the sixth year, 20% in the seventh year, and 25% in the eighth year. The Company made such an election. 

11.

7. DEFERRED TAX, LIABILITY, NET

Deferred tax assetassets resulted from asset impairment loss which was temporarily non-tax deductible for tax purposes but expensed in accordance with US GAAP; interest income in sales-type leases which was recognized as income for tax purposes but not for book purpose as it did not meet revenue recognition in accordance with US GAAP; accrued employee social insurance that can be deducted for tax purposes in the future, and the difference between tax and accounting basis of cost of fixed assets which was capitalized for tax purposes and expensed as part of cost of systems in accordance with US GAAP. Deferred tax liability arose from the difference between tax and accounting basis of net investment in sales-type leases.

As of SeptemberJune 30, 20172022 and December 31 2016,2021, deferred tax liabilityassets consisted of the following:

  2017  2016 
Deferred tax asset — current (accrual of employee social insurance) $175,576  $167,980 
Deferred tax liability — current (net investment in sales-type leases)  (1,827,573)  (1,586,058)
Deferred tax liability, net of current deferred tax asset $(1,651,997) $(1,418,078)
         
Deferred tax asset — noncurrent (depreciation of fixed assets) $17,410,945  $17,943,843 
Deferred tax liability — noncurrent (net investment in sales-type leases)  (25,195,830)  (25,426,744)
Deferred tax liability, net of noncurrent deferred tax asset $(7,784,885) $(7,482,901)
         
Total Deferred tax liability, noncurrent per ASU 2015-17 $(9,436,882) $8,900,979 
  2022  2021 
Accrued expenses $58,234  $61,301 
Write-off Erdos TCH net investment in sales-type leases *  5,984,254   6,299,343 
Impairment loss of Xi’an TCH’s investment into the HYREF fund  2,793,754   2,940,854 
US NOL  516,485   463,508 
PRC NOL  9,679,870   10,189,545 
Total deferred tax assets  19,032,597   19,954,551 
Less: valuation allowance for deferred tax assets  (19,032,597)  (19,954,551)
Deferred tax assets, net $-  $- 

*This represents the tax basis of Erdos TCH investment in sales type leases, which was written off under US GAAP upon modification of lease terms, which made the lease payments contingent upon generation of electricity.

18

 

8. LOAN PAYABLE

12. LOANS PAYABLE

Entrusted Loan Payable (HYREF Loan)

The HYREF Fund (Beijing Hongyuan Recycling Energy Investment Center, LLP)was established in July 2013 with a total fund size of RMB 460 million ($75.077 million) investsinvested in Xi’an Zhonghong for Zhonghong’s three new CDQ WHPG projects. The HYREF Fund invested RMB 3 million ($0.5 million) as an equity investment and RMB 457 million ($74.5 million) as a debt investment in Xi’an Zhonghong; in return for such investments, the HYREF Fund willwas to receive interest from Zhonghong for the HYREF Fund’s debt investment. The RMB 457 million ($74.5 million) was released to Zhonghong through an entrusted bank, which is also the supervising bank for the use of the loan. The loan was deposited in a bank account at the Supervising Bank (the Industrial Bank Xi’an Branch) and is jointly supervised by Zhonghong and the Fund Management Company. Project spending shall be verified by the Fund Management Company to confirm that it is in accordance with the project schedule before the funds are released. All the operating accounts of Zhonghong have been opened with the branches of the Supervising Bank and the Supervising Bank has the right to monitor all bank accounts opened by Zhonghong. The entrusted bank will charge 0.1% of loan amount as service fee and will not take any lending risk. The loan was collateralized by the accounts receivable and the fixed assets of Shenqiu Phase I and II power generation systems,systems; the accounts receivable and fixed assets of Zhonghong’s three CDQ WHPG systems,systems; and a 27 million RMB ($4.39 million) capital contribution made by Xi’an TCH.TCH in Zhonghong. Repayment of the loan (principal and interest) was also jointly and severally guaranteed by Xi’an TCH and the Chairman and CEO of the Company. In the fourth quarter of 2015, three power stations of Erdos TCH were pledged to Industrial Bank as an additional guarantee for the loan lent to Zhonghong’s three CDQ WHPG systems. In 2016, two additional power stations of Erdos TCH and Pucheng Phase I and II systems were pledged to Industrial Bank as an additional guarantee along with Xi’an TCH’s equity in Zhonghong.

The loan agreement provides that Zhonghong shall also maintain a certain capital level in its account with the Supervising Bank to make sure it has sufficient funds to make interest payments when they are due:

During the first three years from the first release of the loan, the balance in its account shall be no less than RMB 7.14 million ($1.19 million) on the 20th day of the second month of each quarter and no less than RMB 14.28 million ($2.38 million) on the 14th day of the last month of each quarter;

During the fourth year from the first release of the loan, the balance in its account shall be no less than RMB 1.92 million ($0.32 million) on the 20th day of the second month of each quarter and no less than RMB 3.85 million ($0.64 million) on the 14th day of the last month of each quarter; and
During the fifth year from the first release of the loan, the balance in its account shall be no less than RMB 96,300 ($16,050) on the 20th day of the second month of each quarter and no less than RMB 192,500 ($32,080) on the 14th day of the last month of each quarter.

The term of this loan iswas for 60 months from July 31, 2013 to July 30, 2018. On August 6, 2016, Zhonghong was to repay principal2018, with interest of RMB 280 million ($42.22 million); on August 6, 2017, Zhonghong shall repay principal of RMB 100 million ($16.27 million) and on July 30, 2018, Zhonghong shall repay the remainder of RMB 77 million ($12.52 million). The interest rate is 12.5%. During the term, Zhonghong shall maintain a minimal funding level and capital level in its designated account with the Supervising Bank to make sure it has sufficient funds to make principal payments when they are due. Notwithstanding the requirements, the HYREF Fund and Supervising Bank have verbally notified Zhonghong from the beginning that unlikely they will enforce these requirements for the purpose of the efficient utilization of working capital. As of September 30, 2017, the entrusted loan payable had an outstanding balance of $61.32 million, of which, $11.30 million was from the investment of Xi’an TCH; accordingly, the Company netted the loan payable of $11.30 million with the long-term investment to the HYREF Fund made by Xi’an TCH. For the nine and three months ended September 30, 2017, the Company recorded interest expense of $3.27 million and $1.13 million on this loan, respectively; and capitalized $2.40 million and $0.83 million interest to construction in progress, respectively. For the nine and three months ended September 30, 2016, the Company recorded interest expense of $3.67 million and $1.31 million on this loan, respectively; and capitalized $2.67 million and $0.61 million interest to construction in progress, respectively. The Company had fully paid RMB 50 million ($7.54 million) of the RMB 280 million ($42.22 million), and on August 5, 2016, the Company entered into a supplemental agreement with the lender to extend the due date of the remaining RMB 230 million ($34.68 million) of the original RMB 280 million ($45.54 million) to August 6, 2017. During the nine monthsyear ended September 30,December 31, 2017, the Company negotiated with the lender again forto further extendingextend the remaining loan balance of RMB 230 million ($34.68 million), RMB 100 million ($16.27 million), and RMB 77 million ($12.5212.08 million) (which included investment from Xi’an TCH of RMB 75 million and was netted off with the entrusted loan payable of the HYREF Fund in the balance sheet). The lender hashad tentatively agreed to extend the remaining loan balance for another two years until August 2019 with an adjusted annual interest rate of 9%, subject to the final approval from its headquarters. The relatedheadquarters did not approve the extension documents are currently going through the lender’s internal approval procedure.

19

Due to the slow progressproposal with an adjusted interest of the construction of the three CDQ WHPG projects,9%; however, on December 29, 2018, the Company applied for a lower interest rate fromworked out with the lender in January 2017, and the lender tentatively agreed to lower the interest rate to 9% in September 2017 subject to the approval from its headquarters. The Company planned to repay the interest of the first three quarters of 2017 before the end of November 2017.an alternative repayment proposal as described below As of September 30, 2017,December 31, 2021, the interest payable for this loan was $6.05 million.$379,323 and the outstanding principal balance was $12,077,105. As of June 30, 2022, the interest payable for this loan was $360,350 and the outstanding principal balance was $11,473,016.

Repayment of HYREF loan

Bank Loan – Bank

1. Transfer of Xi’anChengli project as partial repayment

On June 26, 2015,December 29, 2018, Xi’an Zhonghong, Xi’an TCH, HYREF, Guohua Ku, and Chonggong Bai entered into a CDQ WHPG Station Fixed Assets Transfer Agreement, pursuant to which Xi’an Zhonghong transferred Chengli CDQ WHPG station as the repayment for the loan agreement with Bank of Xi’an, whereby Bank of Xi’an loaned $6.29 million (RMB 40RMB 188,639,400 ($27.54 million) to HYREF, the transfer of which was completed on January 22, 2019.

Xi’an TCH for one year due June 25, 2016.is a secondary limited partner of HYREF. The monthly interest onfair value of the CDQ WHPG station applied in the transfer was determined by the parties based upon the appraisal report issued by Zhonglian Assets Appraisal Group (Shaanxi) Co., Ltd. as of August 15, 2018. However, per the discussion below, Xi’an Zhonghong, Xi’an TCH, Guohua Ku and Chonggong Bai (the “Buyers”) entered into a Buy Back Agreement, also agreed to buy back the Station when conditions under the Buy Back Agreement are met. Due to the Buy Back agreement, the loan was 0.595%not deemed repaid, and therefore the Company recognized Chengli project as assets subject to buyback and kept the loan payable remained recognized under ASC 405-20-40-1 as of December 31, 2020. The Buy Back agreement was terminated in April 2021 (see 2 below for detail).


2. Buy Back Agreement

On December 29, 2018, Xi’an TCH, Xi’an Zhonghong, HYREF, Guohua Ku, Chonggong Bai and Xi’an Hanneng Enterprises Management Consulting Co. Ltd. (“Xi’an Hanneng”) entered into a Buy Back Agreement.  

Pursuant to the Buy Back Agreement, the Buyers jointly and severally agreed to buy back all outstanding capital equity of Xi’an Hanneng which was transferred to HYREF by Chonggong Bai (see 3 below), and a CDQ WHPG station in Boxing County which was transferred to HYREF by Xi’an Zhonghong. The buy-back price for the Xi’an Hanneng’s equity was based on the higher of (i) the market price of the equity shares at the time of buy-back; or (ii) the original transfer price of the equity shares plus bank interest. The buy-back price for the Station was based on the higher of (i) the FV of the Station on the date transferred; or (ii) the loan balance at the date of the transfer plus interest accrued through that date. HYREF could request that the Buyers buy back the equity shares of Xi’an Hanneng and/or the CDQ WHPG station if one of the following conditions is met: (i) HYREF holds the equity shares of Xi’an Hanneng until December 31, 2021; (ii) Xi’an Huaxin New Energy Co., Ltd., is delisted from The National Equities Exchange And Quotations Co., Ltd., a Chinese over-the-counter trading system (the “NEEQ”); (iii) Xi’an Huaxin New Energy, or any of the Buyers or its affiliates has a credit problem, including not being able to issue an auditor report or standard auditor report or any control person or executive of the Buyers is involved in crimes and is under prosecution or has other material credit problems, to HYREF’s reasonable belief; (iv) if Xi’an Zhonghong fails to timely make repayment on principal or interest of the loan agreement, its supplemental agreement or extension agreement; (v) the Buyers or any party to the Debt Repayment Agreement materially breaches the Debt Repayment Agreement or its related transaction documents, including but not limited to the Share Transfer Agreement, the Pledged Assets Transfer Agreement, the Entrusted Loan Agreement and their guarantee agreements and supplemental agreements. Due to halted trading of Huaxin stock by NEEQ for not filing its 2018 annual report, on December 19, 2019, Xi’an TCH, Xi’an Zhonghong, Guohua Ku and Chonggong Bai jointly and severally agreed to buy back all outstanding capital equity of Xi’an Hanneng which was transferred to HYREF by Chonggong Bai earlier. The total buy back price was RMB 261,727,506 ($37.52 million) including accrued interest of RMB 14,661,506 ($2.10 million), and was paid in full by Xi’an TCH on December 20, 2019.

On April 9, 2021, Xi’an TCH, Xi’an Zhonghong, Guohua Ku, Chonggong Bai and HYREF entered a Termination of Fulfillment Agreement (termination agreement). Under the termstermination agreement, the original buyback agreement entered on December 19, 2019 was terminated upon signing of the termination agreement. HYREF will not execute the buy-back option and will not ask for any additional payment from the buyers other than keeping the CDQ WHPG station. The Company recorded a gain of approximately $3.1 million from transferring the CDP WHPG station to HYREF as partial repayment of the entrusted loan resulting from the termination of the buy-back agreement.

3. Transfer of Xuzhou Huayu Project and Shenqiu Phase I & II project to Mr. Bai for partial repayment of HYREF loan

On January 4, 2019, Xi’an Zhonghong, Xi’an TCH, and Mr. Chonggong Bai entered into a Projects Transfer Agreement, pursuant to which Xi’an Zhonghong transferred a CDQ WHPG station (under construction) located in Xuzhou City for Xuzhou Huayu Coking Co., Ltd. (“Xuzhou Huayu Project”) to Mr. Bai for RMB 120,000,000 ($17.52 million) and Xi’an TCH transferred two Biomass Power Generation Projects in Shenqiu (“Shenqiu Phase I and II Projects”) to Mr. Bai for RMB 127,066,000 ($18.55 million). Mr. Bai agreed to transfer all the equity shares of his wholly owned company, Xi’an Hanneng, to HYREF as repayment for the RMB 247,066,000 ($36.07 million) loan made by Xi’an Zhonghong to HYREF as consideration for the transfer of the Xuzhou Huayu Project and Shenqiu Phase I and II Projects. 

On February 15, 2019, Xi’an Zhonghong completed the transfer of the Xuzhou Huayu Project and Xi’an TCH completed the transfer of Shenqiu Phase I and II Projects to Mr. Bai, and on January 10, 2019, Mr. Bai transferred all the equity shares of his wholly owned company, Xi’an Hanneng, to HYREF as repayment of Xi’an Zhonghong’s loan to HYREF as consideration for the transfer of the Xuzhou Huayu Project and Shenqiu Phase I and II Projects. 

Xi’an Hanneng is a holding company and was requiredsupposed to make monthlyown 47,150,000 shares of Xi’an Huaxin New Energy Co., Ltd. (“Huaxin”), so that HYREF will indirectly receive and own such shares of Xi’an Huaxin as the repayment for the loan of Zhonghong. Xi’an Hanneng already owned 29,948,000 shares of Huaxin; however, Xi’an Hanneng was not able to obtain the remaining 17,202,000 shares due to halted trading of Huaxin stock by NEEQ for not filing its 2018 annual report.


On December 19, 2019, Xi’an TCH, Xi’an Zhonghong, Guohua Ku and Chonggong Bai jointly and severally agreed to buy back all outstanding capital equity of Xi’an Hanneng which was transferred to HYREF by Chonggong Bai earlier. The total buy back price was RMB 261,727,506 ($37.52 million) including accrued interest paymentsof RMB 14,661,506 ($2.10 million), and was paid in full by Xi’an TCH on December 20, 2019. On December 20, 2019, Mr. Bai, Xi’an TCH and Xi’an Zhonghong agreed to have Mr. Bai repay the Company in cash for the transfer price of Xuzhou Huayu and Shenqiu in five installment payments. The 1st payment of RMB 50 million ($7.17 million) is due on January 5, 2020, the 2nd payment of RMB 50 million ($7.17 million) was due on February 5, 2020, the 3rd payment of RMB 50 million ($7.17 million) was due on April 5, 2020, the 4th payment of RMB 50 million ($7.17 million) is due on June 30, 2020, and the principal was to be repaid at maturity. The loan was guaranteed by a third party guarantee company and the Chairman and CEOfinal payment of the Company. The Company paid a third party $149,341 (RMB 950,000) as a re-guarantee service fee.RMB 47,066,000 ($6.75 million) is due on September 30, 2020. As of December 31, 2016, this loan was paid in full.2020, the Company received the full payment of RMB 247 million ($36.28 million) from Mr. Bai.

Bank Loan – Bank of Chongqing

On April 11, 2014,9, 2021, Xi’an TCH, Xi’an Zhonghong, Guohua Ku, Chonggong Bai and HYREF entered into a loan agreement with BankTermination of Chongqing - Xi’an Branch, whereby Bank of Chongqing loaned $8.13 million (RMB 50 million) to Xi’an TCH for three years with maturity on April 10, 2017. The interest of the loan is 9.225%Fulfillment Agreement (termination agreement). Under the termstermination agreement, the original buyback agreement entered on December 19, 2019 was terminated upon signing of the loan, Xi’an TCH wastermination agreement. HYREF will not execute the buy-back option and will not ask for any additional payment from the buyers other than keeping the CDQ WHPG station. The Company recorded a gain of approximately $3.1 million from transferring the CDP WHPG station to make monthly interest payments and to make a principal payment of $0.81 million (RMB 5 million) on the 24th month after receiving the loan andHYREF as partial repayment of the remaining $7.32 million (RMB 45 million) onentrusted loan resulting from the loan maturity date. The loan was guaranteed by a third party guarantee company and the Chairman and CEOtermination of the Company.buy-back agreement.

4. The Company paid a third party $155,280 (RMB 950,000) as a re-guarantee service fee. In addition, Xi’an TCH pledged its collection right for Tangshan Rongfeng and Xuzhou Zhongtai projectslender agreed to Bank of Chongqing after the two projects were completed and put into operation, to ensureextend the repayment of loan. This loan wasRMB 77.00 million ($12.13 million) to July 8, 2023. However, per court’s judgement on June 28, 2021, the Company should repay principal $12.13 million and accrued interest of $0.38 million within 10 days from the judgment date. The Company has not paid it yet as of this report date, but will pay it in full on April 10, 2017.by the end of 2022.

Xi’an TCH had investment RMB 75.00 million ($11.63 million) into the HYREF fund as a secondary limited partner, and the Company recorded an impairment loss of $11.63 million for such investment during the year ended December 31, 2021 due to uncertainty of the collection of the investment. This was impaired as Hongyaun does not have the ability to pay back.

9. RELATED PARTY TRANSACTIONS

Summary

As of SeptemberJune 30, 2017, the future minimum repayment of all the loans including the entrusted loan to be made by years is as follows:

2018 $50,023,354 
Total $50,023,354 

13. REFUNDABLE DEPOSIT FROM CUSTOMERS FOR SYSTEMS LEASING

The refundable deposit was mainly for Pucheng, Shenqiu and Yida systems. As of September 30, 20172022 and December 31, 2016, the balance of refundable deposit from customers for systems leasing was $1,069,777 for Pucheng and Shengqiu systems, and $1,023,497 for Pucheng, Shenqiu and Yida systems, respectively.

20

14. RELATED PARTY TRANSACTIONS

As of September 30, 2017,2021, the Company had $41,775$24,525 and $27,357, respectively, in advances from the Company’s management, which bearbears no interest, areis unsecured, and are payable upon demand. 

On February 23, 2021, the Company entered into certain securities purchase agreements with several non-U.S. investors (the “Purchasers”), pursuant to which the Company agreed to sell to the Purchasers, up to 3,320,000 shares of common stock of the Company, at $11.522 per share. One of the purchasers is the Company’s CEO (who is also the Company’s Chairman), who purchased 1,000,000 common shares of the Company. In April 2021, the Company’s CEO amended the number of shares that he would purchase from 1,000,000 to 940,000. In April 2021 the Company returned to the Company’s CEO the $691,320 in extra proceeds that had been received earlier.

10. NOTE PAYABLE, NET

Promissory Notes in December 2020

On December 4, 2020, the Company entered into a Note Purchase Agreement with an institutional investor, pursuant to which the Company issued the Purchaser a Promissory Note of $3,150,000. The Purchaser purchased the Note with an original issue discount (“OID”) of $150,000, which was recognized as debt discount is amortized using the interest method over the life of the note. The Note bears interest at 8% and has a term of 24 months. All outstanding principal and accrued interest on the Note is due and payable December 3, 2022. The Company’s obligations under the Note may be prepaid at any time, provided that in such circumstance the Company would pay 125% of any amounts outstanding under the Note and being prepaid. Beginning on the date that is six months from the issue date of the Note, Purchaser shall have the right to redeem any amount of this Note up to $500,000 per calendar month by providing written notice to the Company. Upon receipt of the redemption notice from the lender, the Company shall pay the applicable redemption amount in cash to lender within three trading days of receipt of such redemption notice; if the Company fails to pay, then the outstanding balance will automatically be increased by 25%. During the ninesix months ended June 30, 2022, the Company amortized OID of $69,355 and recorded $835 interest expense on this Note. During the three months ended SeptemberJune 30, 2017,2022, the Company recognized RMB 20.02 million ($2.94 million)amortized OID of $0 and RMB 6.55 million ($0.98 million), respectively,recorded $0 interest income for the sales-type lease of Pucheng BMPG systems from Pucheng Xin Heng Yuan Biomass Power Generation Corporation, whose major stockholder became a stockholder of the Company through the issuance of the Company’s common stock toexpense on this stockholder in consideration for the transfer of the old system to the Company for BMPG system transformation. The Company recognized RMB 21.79 million ($3.27 million) interest income for the sales-type lease of Pucheng BMPG systems during the nine months ended September 30, 2016.Note.


 

During the year ended December 31, 2016, prior2021, the Company entered into several Exchange Agreements with the lender, pursuant to the repurchase date of June 22, 2016,Agreements, the Company recognized RMB 13.83 million ($2.09 million)and Lender partitioned new Promissory Notes of $3,850,000 from the original Promissory Note, including adjustment of $818,914 to increase the principal of the notes during the second quarter of 2021 as a result of the Company’s failure to pay the redemption amount in cash to lender within three trading days from receipt of the redemption notice, the Company recorded $818,914 principal adjustment as interest incomeexpense. The Company and Lender exchanged these Partitioned Notes for the sales-type leasedelivery of Yida WGPG system from Qitaihe City Boli Yida Coal Selection Co., Ltd., whose major stockholder became a stockholder of the Company through the issuance576,108 shares of the Company’s common stock to this stockholderstock. The Company recorded $151,275 loss on conversion of these notes in consideration2021. On January 10, 2022, the Company and Lender exchanged a Partitioned Notes of $346,986 for the transferdelivery of 58,258 shares of the WGPG systemCompany’s common stock. The Company recorded $26,193 loss on conversion of this note in 2022. This Promissory Notes was paid in full on January 10, 2022.

Promissory Notes in April 2021

On April 2, 2021, the Company entered into a Note Purchase Agreement with an institutional investor, pursuant to which the Company issued to the Company in 2014.

15. NONCONTROLLING INTEREST

On July 15, 2013, Xi’an TCH and HYREF Fund jointly established Xi’an Zhonghong New Energy Technology (“Zhonghong”)Purchaser a Promissory Note of $5,250,000. The Purchaser purchased the Note with registered capitalan OID of RMB 30 million ($4.88 million), to manage new projects. Xi’an TCH paid RMB 27 million ($4.37 million)$250,000, which was recognized as its contributiona debt discount is amortized using the interest method over the life of the registered capitalnote. The Note bears interest at 8% and has a term of 24 months. All outstanding principal and accrued interest on the Note is due and payable on April 1, 2023. The Company’s obligations under the Note may be prepaid at any time, provided that in such circumstance the Company would pay 125% of any amounts outstanding under the Note and being prepaid. Beginning on the date that is six months from the issue date of the Note, Purchaser shall have the right to Zhonghong. Xi’an TCH owns 90%redeem any amount of Zhonghong while HYREF Fund owns 10%this Note up to $825,000 per calendar month by providing written notice to the Company. Upon receipt of Zhonghongthe redemption notice from the lender, the Company shall pay the applicable redemption amount in cash to lender within three trading days of receipt of such redemption notice; if the Company fails to pay, then the outstanding balance will automatically be increased by 25%. On October 28, 2021, the lender made an adjustment of $1,370,897 to increase the outstanding principal of the notes as non-controllinga result of the Company’s failure to pay the redemption amount in cash to lender on time, the Company recorded $1,370,897 principal adjustment as interest expense in 2021. During the six months ended June 30, 2022, the Company amortized OID of Zhonghong.

In addition,$62,500 and recorded $229,428 interest expense on this Note; and the HYREF Fund was 16.3% owned by Xi’an TCH and 1.1% owned by the Fund Management Company and Lender exchanged these Partitioned Notes of $1,550,000 for the Fund Management Company was 40% owned by Xi’an TCH as described in Note 7, which resulted in an additional indirect ownershipdelivery of Xi’an TCH in Zhonghong255,386 shares of 1.7%; accordingly, the ultimate non-controlling interest (HYREF Fund) in Zhonghong became 8.3%. During the nine months ended September 30, 2017 and 2016, the Company had losses of $271,683 and $227,126 that were attributable to the noncontrolling interest, respectively.Company’s common stock. During the three months ended SeptemberJune 30, 2017 and 2016,2022, the Company had lossesamortized OID of $93,428$31,250 and $79,921recorded $109,697 interest on this Note. The Company recorded $94,928 loss on conversion of these notes in 2022. As of June 30, 2022, the outstanding principal balance of this note was $5,406,212 (net of unamortized OID of $93,750) with accrued interest of $133,807. The Note was classified as a current liability in accordance with ASC 470-10-45 Other Presentation Matters – General Due on Demand Loan Arrangements.

11. SHARES ISSUED FOR EQUITY FINANCING AND STOCK COMPENSATION

Shares Issued for Equity Financing in 2021

On February 23, 2021, the Company entered into certain securities purchase agreements with several non-U.S. investors (the “Purchasers”), pursuant to which the Company agreed to sell to the Purchasers, up to 3,320,000 shares of common stock of the Company, at $11.522 per share, which was the five-day average closing price immediately prior to signing the Purchase Agreements. One of the purchasers is the Company’s CEO (also is the Company’s Chairman), he purchased 1,000,000 common shares of the Company. On March 11, 2021, the Company received approximately $38.25 million proceeds from the issuance of 3,320,000 shares under the securities purchase agreements, there anywhere no fees paid in connection with this financing. In April 2021, the Company’s CEO amended the number of shares that he would purchase from 1,000,000 shares to 940,000 shares; accordingly, total number of shares sold in this offering became 3,260,000 shares. The Company returned $691,320 extra proceeds that were attributable to noncontrolling interest, respectively.

16. INCOME TAX

The Company’s Chinese subsidiaries are governed by the Income Tax Law of the PRC concerning privately-run enterprises, which are generally subject to tax at 25% on income reported in the statutory financial statements after appropriate tax adjustments. Under the Chinese tax law, the tax treatment of finance and sales-type leases is similar to US GAAP. However, the local tax bureau continues to treat CREG sales-type leases as operating leases. Accordingly, the Company recorded deferred income taxes. 

The Company’s subsidiaries generate all of their income from their PRC operations. Yinghua and Shanghai TCH’s effective income tax rate for 2017 and 2016 was 25%. During 2013, Xi’an TCH was re-approved for high tech enterprise status and enjoyed 15% preferential income tax rate for three years effective January 1, 2013 through December 31, 2015, and is subject to 25% income tax rate in 2017 and 2016 duereceived earlier to the renewal of preferential income tax rate was not approved by the tax authority. Huahong, Zhonghong and Erdos TCH’s effective income tax rateCompany’s CEO in April 2021. The stock certificates for 2017 and 2016 was 25%. Yinghua, Shanghai TCH, Xi’an TCH, Huahong, Zhonghong and Erdos TCH file separate income tax returns.these shares were issued in April 2021.

There is no income tax for companies domiciled in the Cayman Islands. Accordingly, the Company’s CFS do not present any income tax provisions related to Cayman Islands tax jurisdiction, where Sifang Holding is domiciled.

21

 

Warrants

The US parent company, China Recycling Energy Corporation,

Following is taxed ina summary of the US and, asactivities of September 30, 2017, had net operating loss (“NOL”) carry forwards for income taxes of $14.10 million, which may be available to reduce future years’ taxable income as NOLs can be carried forward up to 20 yearswarrants that were issued from the year the loss is incurred. Our management believes the realization of benefits from these losses may be uncertain due to the US parent company’s continuing operating losses. Accordingly, a 100% deferred tax asset valuation allowance was provided. 

The following table reconciles the US statutory rates to the Company’s effective tax rateequity financing for the nine and threesix months ended SeptemberJune 30, 2017 and 2016, respectively:2022:

  Nine Months  Three Months 
  2017  2016  2017  2016 
U.S. statutory rates  34.0%  34.0%  34.0%  34.0%
Tax rate difference – current provision  (9.3)%  (11.1)%  (10.7)%  (12.2)%
Permanent difference  0.1%  -   0.0%  - 
Other  (3.6)%  4.6%  14.1%  14.9%
Prior periods income tax adjustment per income tax return filed  -   (1.0%)  -   (3.2)%
Valuation allowance on PRC NOL  50.9%  (80.0)%  107.1%  (19.9)%
Valuation allowance on US NOL  1.1%  7.9%  5.3%  5.9%
Tax (benefit) per financial statements  73.2%  (45.6)%  151.0%  19.5%
  Number of
Warrants
  Average
Exercise
Price
  Weighted
Average
Remaining
Contractual
Term in
Years
 
Outstanding at January 1, 2022  30,411  $14.0   2.21 
Exercisable at January 1, 2022  30,411  $14.0   2.21 
Granted  -   -   - 
Exchanged  -   -   - 
Forfeited  -   -   - 
Expired  -   -   - 
Outstanding at June 30, 2022  30,411  $14.0   1.71 
Exercisable at June 30, 2022  30,411  $14.0   1.71 

The provision for income taxes expense for the nine and three months ended September 30, 2017 and 2016 consisted of the following:

  Nine Months  Three Months 
  2017  2016  2017  2016 
Income tax expense – current $1,049,342  $1,211,424  $384,691  $305,516 
Income tax expense (benefit) – deferred  130,260   (2,073,235)  12,945   (194,559)
Total income tax expense (benefit) $1,179,602  $(861,811) $397,636  $110,957 

17.12. STOCK-BASED COMPENSATION PLAN

Options to Employees and Directors

On June 19, 2015, the stockholders of the Company approved the China Recycling Energy Corporation Omnibus Equity Plan (the “Plan”) at its annual meeting. The total shares of common stockCommon Stock authorized for issuance during the term of the Plan is 12,462,605 (prior to the 10:1 Reverse Stock Split)124,626 . The Plan was effective immediately upon theits adoption by ourthe Board of Directors on April 24, 2015, subject to stockholder approval, and will terminate on the earliest to occur of (i) the 10th anniversary of the Plan’s effective date, or (ii) the date on which all shares available for issuance under the Plan shall have been issued as fully-vested shares. The stockholders approved the Plan at itstheir annual meeting on June 19, 2015.

On April 27, 2017, the Board approved the grant to the Company’s CFO of an option to purchase 5,000 shares of the Company’s common stock at an exercise price of $1.61 per share, with a term of 10 years. The option vested immediately upon the grant.

The FV of the stock option granted is estimated on the date of the grant using the Black-Scholes option pricing model (“BSOPM”). The BSOPM has assumptions for risk free interest rates, dividends, stock volatility and expected life of an option grant. The risk-free interest rate is based upon market yields for United States Treasury debt securities at a maturity near the term remaining on the option. Dividend rates are based on the Company’s dividend history. The stock volatility factor is based on the historical volatility of the Company’s stock price. The expected life of an option grant is based on management’s estimate as no options have been exercised in the Plan to date. The FV of the option granted to employees is recognized as compensation expense over the vesting period of the stock option award. The FV of the options was calculated using the following assumptions, estimated life of ten years, volatility of 124%, risk free interest rate of 2.30%, and dividend yield of 0%. The FV of the 5,000 stock options was $7,647 at the grant date.

22

Options to Independent Directors

On March 31, 2015, the Board appointed Mr. Cangsang Huang as a member of the Company’s Board of Directors to fill a vacancy. In connection with the appointment, the Board authorized the Company to provide Mr. Huang with (i) compensation of $2,000 per month and (ii) the grant of an option to purchase 40,000 shares of the Company’s Common Stock, par value $0.001, at an exercise price of $1.02 per share (prior to the 10:1 Reverse Stock Split effective May 25, 2016), which was equal to the closing price per share of the Company’s Common Stock on March 31, 2015. Such options were only valid and exercisable upon stockholder approval. The options to Mr. Huang were not voted upon at the Company’s annual stockholder’s meeting on June 19, 2015 and were cancelled automatically. However, the Company’s Plan adopted by the Board on April 24, 2015 for providing equity awards to employees, directors and consultants was approved at the annual stockholder’s meeting; accordingly, the Compensation Committee of the Board of Directors approved a grant of 40,000 options (prior to the 10:1 Reverse Stock Split) to Mr. Huang at an exercise price of $1.02 per share under the Plan, which vested immediately on the date of grant, which was on October 10, 2015. The options may be exercised within five years of the date of the grant. The FV of the options was calculated using the following assumptions, estimated life of five years, volatility of 82%, risk free interest rate of 1.37%, and dividend yield of 0%. The FV of the 40,000 stock options was $26,528 at the grant date.

 The Company recorded $7,647, and $0 compensation expense for stock options to employees during the nine and three months ended September 30, 2017, and $0 for the nine and three months ended September 30, 2016.

The following table summarizes option activity with respect to employees and independent directors for the numbersix months ended June 30, 2022:

  Number of
Shares
  Average
Exercise Price
per Share
  Weighted
Average
Remaining
Contractual
Term in
Years
 
Outstanding at January 1, 2022  500  $16.1   5.32 
Exercisable at January 1, 2022  500  $16.1   5.32 
Granted  -   -   - 
Exercised  -   -   - 
Forfeited  -   -   - 
Outstanding at June 30, 2022  500  $16.1   4.82 
Exercisable at June 30, 2022  500  $16.1   4.82 

13. INCOME TAX

The Company’s Chinese subsidiaries are governed by the Income Tax Law of options reflects the 10:1 Reverse Stock SplitPRC concerning privately-run enterprises, which are generally subject to tax at 25% on income reported in the statutory financial statements after appropriate tax adjustments. Under Chinese tax law, the tax treatment of finance and sales-type leases is similar to US GAAP. However, the local tax bureau continues to treat the Company’s sales-type leases as operating leases. Accordingly, the Company recorded deferred income taxes. 

The Company’s subsidiaries generate all of their income from their PRC operations. All of the Company’s Chinese subsidiaries’ effective May 25, 2016:income tax rate for 2022 and 2021 was 25%. Yinghua, Shanghai TCH, Xi’an TCH, Huahong, Zhonghong and Erdos TCH file separate income tax returns.


 

  

Number of

Shares

  Average Exercise Price per Share  

Weighted

Average

Remaining

Contractual

Term in Years

 
          
Outstanding at January 1, 2016  4,000  $10.2   4.77 
Exercisable at January 1, 2016  4,000   10.2   4.77 
Granted  -   -   - 
Exercised  -   -   - 
Forfeited  -   -   - 
Outstanding at December 31, 2016  4,000   10.2   3.77 
Exercisable at December 31, 2016  4,000   10.2   3.77 
Granted  5,000   -   - 
Exercised  -   -   - 
Forfeited  -   -   - 
Outstanding at September 30, 2017  9,000   5.4   6.66 
Exercisable at September 30, 2017  9,000  $5.4   6.66 

There is no income tax for companies domiciled in the Cayman Islands. Accordingly, the Company’s CFS do not present any income tax provisions related to Cayman Islands tax jurisdiction, where Sifang Holding is domiciled.

The US parent company, SPC is taxed in the US and, as of June 30, 2022, had net operating loss (“NOL”) carry forwards for income taxes of $2.46 million; for federal income tax purposes, the NOL arising in tax years beginning after 2017 may only reduce 80% of a taxpayer’s taxable income, and may be carried forward indefinitely. However, the coronavirus Aid, Relief and Economic Security Act (“the CARES Act”) issued in March 2020, provides tax relief to both corporate and noncorporate taxpayers by adding a five-year carryback period and temporarily repealing the 80% limitation for NOLs arising in 2018, 2019 and 2020. Management believes the realization of benefits from these losses uncertain due to the US parent company’s continuing operating losses. Accordingly, a 100% deferred tax asset valuation allowance was provided.

As of June 30, 2022, the Company’s PRC subsidiaries had $38.72 million NOL that can be carried forward to offset future taxable income for five years from the year the loss is incurred. The NOL was mostly from Erdos TCH and Zhonghong. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration of all the information available, management believes that significant uncertainty exists with respect to future realization of the deferred tax assets due to the recurring losses from operations of these entities, accordingly, the Company recorded a 100% deferred tax valuation allowance for PRC NOL.

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the six months ended June 30, 2022 and 2021, respectively:

  2022  2021 
U.S. statutory rates expense (benefit)  (21.0)%  21.0%
Tax rate difference – current provision  0.6%  7.0%
Permanent differences  8.3%  (5.3)%
Change in valuation allowance  15.8%  (28.0)%
Tax expense (benefit) per financial statements  3.7%  (5.3)%

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the three months ended June 30, 2022 and 2021, respectively:

  2022  2021 
U.S. statutory rates expense (benefit)  (21.0)%  21.0%
Tax rate difference – current provision  0.8%  6.1%
Permanent differences  3.0%  (4.9)%
Change in valuation allowance  19.9%  (27.1)%
Tax expense (benefit) per financial statements  2.7%  (4.9)%

The provision for income tax expense (benefit) for the six months ended June 30, 2022 and 2021 consisted of the following:

  2022  2021 
Income tax expense (benefit)  – current $23,557  $(97,953)
Income tax expense – deferred  -   - 
Total income tax expense (benefit) $23,557  $(97,953)

The provision for income tax expense (benefit) for the three months ended June 30, 2022 and 2021 consisted of the following:

  2022  2021 
Income tax expense (benefit)  – current $5,850  $(103,078)
Income tax expense – deferred  -   - 
Total income tax expense (benefit) $5,850  $(103,078)


 

18. CONTINGENCIES

14. STATUTORY RESERVES

Pursuant to the corporate law of the PRC effective January 1, 2006, the Company is only required to maintain one statutory reserve by appropriating from its after-tax profit before declaration or payment of dividends. The statutory reserve represents restricted retained earnings.

Surplus Reserve Fund

The Company’s Chinese subsidiaries are required to transfer 10% of their net income, as determined under PRC accounting rules and regulations, to a statutory surplus reserve fund until such reserve balance reaches 50% of the Company’s registered capital. 

The surplus reserve fund is non-distributable other than during liquidation and can 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 25% of the registered capital. 

The maximum statutory reserve amount has not been reached for any subsidiary. The table below discloses the statutory reserve amount in the currency type registered for each Chinese subsidiary as of June 30, 2022 and December 31, 2021:

Name of Chinese Subsidiaries Registered Capital  Maximum
Statutory
Reserve
Amount
  Statutory
reserve at
June 30,
2022
 Statutory
reserve at
December 31,
2021
Shanghai TCH $29,800,000  $14,900,000 ¥6,564,303 ($1,003,859)¥6,564,303 ($1,003,859)
             
Xi’an TCH ¥202,000,000  ¥101,000,000 ¥73,746,526 ($11,243,505)¥73,862,151 ($11,261,339)
             
Erdos TCH ¥120,000,000  ¥60,000,000 ¥19,035,814 ($2,914,869)¥19,035,814 ($2,914,869)
             
Xi’an Zhonghong ¥30,000,000  ¥15,000,000  Did not accrue yet due to accumulated deficit Did not accrue yet due to accumulated deficit
             
Shaanxi Huahong $2,500,300  $1,250,150  Did not accrue yet due to accumulated deficit Did not accrue yet due to accumulated deficit
             
Zhongxun ¥35,000,000  ¥17,500,000  Did not accrue yet due to accumulated deficit Did not accrue yet due to accumulated deficit

Common Welfare Fund

The common welfare fund is a voluntary fund to which the Company can transfer 5% to 10% of its net income. This fund can only be utilized for capital items for the collective benefit of the Company’s employees, such as construction of dormitories, cafeteria facilities, and other staff welfare facilities. This fund is non-distributable other than upon liquidation. The Company does not participate in this fund.


 

15. CONTINGENCIES

China maintains a “closed” capital account, meaning companies, banks, and individuals cannot move money in or out of the country except in accordance with strict rules. The People’s Bank of China (PBOC) and State Administration of Foreign Exchange (SAFE) regulate the flow of foreign exchange in and out of the country. For inward or outward foreign currency transactions, the Company needs to make a timely declaration to the bank with sufficient supporting documents to declare the nature of the business transaction. The Company’s sales, purchases and expense transactions are denominated in RMB and all of the Company’s assets and liabilities are also denominated in RMB. The RMB is not freely convertible into foreign currencies under the current law. Remittances in currencies other than RMB may require certain supporting documentation in order to make the remittance.

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

Litigation

In November 2019, Beijing Hongyuan Recycling Energy Investment Center, or Hongyuan, filed a lawsuit with the Beijing Intermediate People’s Court against Xi’an TCH to compel Xi’an TCH to repurchase certain stock pursuant to a stock repurchase option agreement. On April 9, 2021, the court rendered a judgment in favor of Hongyuan. Xi ‘an TCH filed a motion for retrial to High People’s Court of Beijing on April 13, 2022, because Xi’an TCH paid RMB 267 million ($39.8 million) to Hongyuan as an out-of-court settlement. On April 11, 2022, Xi ‘an Zhonghong New Energy Technology Co. Ltd., filed an application for retrial and provided relevant evidence to the Beijing High People’s Court on the Civil Judgment No. 264., awaiting trial. On August 10, 2022, Beijing No. 1 Intermediate People’s Court of Beijing issued a Certificate of Active Performance, proving that Xi ‘an Zhonghong New Energy Technology Co., Ltd. had fulfilled its buyback obligations. On April 9, 2021, Xi’an TCH, Xi’an Zhonghong, Guohua Ku, Chonggong Bai and HYREF entered a Termination of Fulfillment Agreement (termination agreement). Under the termination agreement, the original buyback agreement entered on December 19, 2019 was terminated upon signing of the termination agreement. HYREF will not execute the buy-back option and will not ask for any additional payment from the buyers other than keeping the CDQ WHPG station.

In February 2016, Xuzhou Intermediate People’s Court of Jiangsu Province, or the Xuzhou Court, accepted an execution proceeding request from Zhongrong International Trust Co. Ltd., or Zhongrong, against Mr. Guohua Ku, Xi’an TCH, Xuzhou Taifate Steel Co., Ltd., or Xuzhou Taifate, to satisfy the obligation arising out of a loan agreement and guarantee agreement among the parties. On March 21, 2018 and March 20, 2019, the Xuzhou Court ordered a deduction from the bank accounts of Mr. Ku and Xi’an TCH of RMB 371,470 (US$55,349) and RMB 254,824(US$37,969), respectively. On August 21, 2020, the Xuzhou Court reopened the case in response to Zhongrong’s request against Xuzhou Taifa for the resolution of an additional loan of RMB 145,356,100 (US $21,658,089), which was paid in full in settlement. The Xuzhou Court concluded the case on December 21, 2020.

23

 

16. COMMITMENTS

Lease Commitment

On November 20, 2017, Xi’an TCH entered into a lease for its office with a term from December 1, 2017 through November 30, 2020. The monthly rent is RMB 36,536 ($5,600) with quarterly payment in advance. This lease expired in November 2020. The Company entered a new lease contract for the same location from January 1, 2021 through December 31, 2023 with monthly rent of RMB 36,536 ($5,600), to be paid every half year in advance.

The components of lease costs, lease term and discount rate with respect of the office lease with an initial term of more than 12 months are as follows:

  Six Months
Ended
 
  June 30,
2022
 
Operating lease cost – amortization of ROU $31,399 
Operating lease cost – interest expense on lease liability $2,413 
Weighted Average Remaining Lease Term - Operating leases  1.50 years 
Weighted Average Discount Rate - Operating leases  5%

  Six Months
Ended
 
  June 30,
2021
 
Operating lease cost– amortization of ROU $29,970 
Operating lease cost – interest expense on lease liability $3,903 
Weighted Average Remaining Lease Term - Operating leases  - 
Weighted Average Discount Rate - Operating leases  2.50%

  Three Months
Ended
June 30,
2022
 
Operating lease cost – amortization of ROU $15,359 
Operating lease cost – interest expense on lease liability $1,193 

 

  

Three Months
Ended
June 30,
2021

 
Operating lease cost – amortization of ROU $14,981 
Operating lease cost – interest expense on lease liability $1,989 

The following is a schedule, by years, of maturities of the office lease liabilities as of June 30, 2022:

For the year ended June 30, 2023, $65,327 
For the year ended June 30, 2024,  32,664 
Total undiscounted cash flows  97,991 
Less: imputed interest  (2,405)
Present value of lease liabilities $95,586 

Employment Agreement

On May 8, 2020, the Company entered an employment agreement with Yongjiang Shi, the Company’s sales, purchases and expense transactions are denominated inCFO for a term of 24 months. The monthly salary is RMB and all16,000 ($2,200). The Company will grant the CFO no less than 5,000 shares of the Company’s assetscommon stock annually; however, as of this repot date, the Board of Directors and liabilities are also denominated in RMB. The RMB isCompensation Committee have not freely convertible into foreign currencies underapproved the current law. In China, foreign exchange transactions are required by lawnumber of shares to be transacted only by authorized financial institutions. Remittances in currencies other thangiven to the CFO, nor any stock reward agreement has been signed.

On May 6, 2022, the Company entered another employment agreement with Mr. Shi for a term of 24 months with monthly salary of RMB may require certain supporting documentation in order to make the remittance.

18,000 ($2,500). The Company sells electricitywill grant the CFO no less than 5,000 shares of the Company’s common stock annually; however, as of this repot date, the Board of Directors and Compensation Committee have not approved the number of shares to its customers and receives commercial notes (bank acceptance) from them in lieube given to the CFO, nor any stock reward agreement has been signed. 


Investment Banking Engagement Agreement

On October 10, 2019, the Company entered an investment banking agreement with an investment banking firm to engage it as the exclusive lead underwriter for a registered securities offering of payments for accounts receivable.up to $20 million. The Company discountsshall pay the commercial notesinvestment banker an equity retainer fee of 15,000 shares of the restricted Common Stock of the Company (10,000 shares was issued within 10 business days of signing the agreement, and remaining 5,000 shares will be paid upon completion of the offering). The agreement expired in March 2021.

On May 2, 2021, the Company entered an agreement with an investment banker (which will serve as the exclusive placement agent or exclusive lead underwriter of the Company) with the bankintension to raise approximately $10,000,000 from either a public offering or endorsesa private placement. Under the commercial notes to vendors for payment of their own obligations or to get cash from third parties. Mostagreement, upon the closing of the commercial notes havefinancing, the Company will pay Univest Securities, LLC (the “Underwriter” or “Univest”) a maturitydiscount equal to 8% of lessthe gross proceeds raised in the offering, a non-accountable expense allowance equal to one percent (1%) of the gross proceeds of the offering, as well as underwriter warrants to purchase that number of shares of common stock and accompanying Warrants equal to 5% of the shares of common stock and Warrants sold in the offering, including upon exercise by the Underwriter of its over-allotment option (“Underwriter Warrants”). The Underwriter Warrants shall be exercisable at any time, and from time to time, in whole or in part, during the period commencing 180 days from the date of commencement of sales of the offering, which period shall not extend further than five years from the date of commencement of sales of the offering in compliance with FINRA Rule 5110(g)(8)(A). After an initial period of six (6) months. Asmonths from the agreement entering date, this engagement may be terminated at any time by either party upon 10 days written notice to the other party, effective upon receipt of September 30, 2017,written notice to that effect by the other party. The Company filed S-1 with the SEC on July 28, 2021.

17. SUBSEQUENT EVENTS

The Company follows the guidance in FASB ASC 855-10 for the disclosure of subsequent events. The Company evaluated subsequent events through the date the unaudited financial statements were issued and determined the Company had outstanding notes receivable of $1,717,669, and endorsed notes receivableno major subsequent event need to vendors of $2.58 million; at December 31, 2016, the Company had outstanding and endorsed notes receivable of $0. be disclosed.

 

19. COMMITMENTS

Lease Commitment

On March 4, 2014, Xi’an TCH’s office lease expired and Xi’an TCH renewed this lease for two years; the monthly rental payment is $20,140. The lease for the office in Xi’an was renewed for another two years starting on March 5, 2016 with a monthly rental payment of $21,804 but payable quarterly in advance. However, the Company decided not to lease Xi’an TCH’s office after October 15, 2017. The landlord provided 45 days to the Company for moving without charging rent after October 15, 2017. There was no penalty for not complying with the lease agreement since the Company used to prepay three-month rent in advance. The Company is currently looking for the new location for the office use. For the nine months ended September 30, 2017 and 2016, the rental expense of Xi’an TCH was $188,910 and $183,843, respectively. For the three months ended September 30, 2017 and 2016, the rental expense of Xi’an TCH was $70,497 and $57,459, respectively.

Construction Commitment

Refer to Note 1 for additional details related to lease commitments with Chengli, Tianyu (and its subsidiaries Xuzhou Tian’an and Xuzhou Huayu), and Zhongtai and Note 8 for commitments on construction in progress.

24

 

ItemITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Note Regarding Forward-Looking Statements

This quarterly report on Form 10-Q and other reports filed by the Company from time to time with the SEC (collectively the “Filings”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the filings, the words “may”, “will”, “should”, “would”, “anticipate”, “believe”, “estimate”, “expect”, “future”, “intend”, “plan”, or the negative of these terms and similar expressions as they relate to Company or Company’s management identify forward-looking statements. Such statements reflect the current view of Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors (including the statements in the section “results of operations” below), and any businesses that Company may acquire. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those listed under the heading “Risk Factors” and those listed in our Annual Report on Form 10-K for the year ended December 31, 2016 (the “2016 Form 10-K”). The following discussion should be read in conjunction with our Financial Statements and related Notes thereto included elsewhere in this report and in our 2016 Form 10-K.

 

Although the Company believes the expectations reflected in the forward-looking statements are based on reasonable assumptions, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of thisannual report, which attempts to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations, and prospects.

 

Our financial statements are prepared in US Dollars and in accordance with accounting principles generally accepted in the United States. See “Foreign Currency Translation and Comprehensive Income (Loss)” below for information concerning the exchange rates at which Renminbi (“RMB”) were translated into US Dollars (“USD”) at various pertinent dates and for pertinent periods.

OVERVIEW

 

OVERVIEW OF BUSINESS BACKGROUND

China Recycling Energy Corporation (the “Company” or “CREG”)The Company was incorporated on May 8, 1980 as Boulder Brewing Company under the laws of the State of Colorado. On September 6, 2001, the Company changed its state of incorporation to the State of Nevada. In 2004, the Company changed its name from Boulder Brewing Company to China Digital Wireless, Inc. and on March 8, 2007, the Company again changed its name from China Digital Wireless, Inc. to its current name, China Recycling Energy Corporation. On March 3, 2022, the Company changed its name to Smart Powerr Corp. The Company, through its subsidiaries, sells and leases energy saving systems and equipment to its customers in the People’s Republic of China (“PRC”). Typically, the Company transfers ownership of the waste energy recycling power generating projects to its customers at the end of each sales-type lease and provides financing to its customers for the cost of the projects as described below. 

Our Subsidiaries

Our business is primarily conducted through our wholly-owned subsidiaries, Sifang Holdings Co., Ltd. (“Sifang”) and Shanghai Yinghua Financial Leasing Co., Ltd (“Yinghua”); Sifang’s wholly-owned subsidiaries, Huahong New Energy Technology Co., Ltd. (“Huahong”) and Shanghai TCH; Shanghai TCH’s wholly-owned subsidiary, Xi’an TCH Energy Technology Company, Ltd (“Xi’an TCH”), Xi’an TCH’s wholly-owned subsidiaries, Erdos TCH Energy Saving Development Co., Ltd (“Erdos TCH”) and Zhongxun Energy Investment (Beijing) Co., Ltd (“Zhongxun”); and Xi’an TCH’s 90% owned subsidiary, Xi’an Zhonghong New Energy Technology Co., Ltd. (“Zhonghong”). Zhonghong provides energy saving solutions and services, including constructing, selling and leasing energy saving systems and equipment to customers, project investment, investment management, economic information consulting, technical services, financial leasing, purchase of financial leasing assets, disposal and repair of financial leasing assets, consulting and ensuring of financial leasing transactions.transactions in the Peoples Republic of China (“PRC”). 

 

The Company is in the process of transforming and expanding into an energy storage integrated solution provider. We plan to pursue disciplined and targeted expansion strategies for market areas we currently do not serve. We actively seek and explore opportunities to apply energy storage technologies to new industries or segments with high growth potential, including industrial and commercial complexes, large scale photovoltaic (“PV”) and wind power stations, remote islands without electricity, and cities with multi-energy supplies.

25

 

 

In December 2019, a novel strain of coronavirus (COVID-19) was reported, and the World Health Organization declared the outbreak to constitute a “Public Health Emergency of International Concern.” This contagious disease outbreak, which continues to spread to additional countries, and disrupts supply chains and affecting production and sales across a range of industries as a result of quarantines, facility closures, and travel and logistics restrictions in connection with the outbreak. The COVID-19 outbreak impacted the Company’s operations for the first quarter of 2020. However, as a result of PRC government’s effort on disease control, most cities in China were reopened in April 2020, the outbreak in China is under the control. Since April 2020 to the end of 2021, there were some new COVID-19 cases discovered in a few provinces of China, however, the number of new cases are not significant due to PRC government’s strict control. Since January 2022 to date, COVID-19 case fluctuated and increased again in many cities of China including Xi’an Province where the Company is located. As a result of such increases, there have been periodic short-term lockdowns and restrictions on travel in Xi’an Province and other areas of China, the Company’s operations have been adversely impacted by the travel and work restrictions imposed on a temporary basis in China to limit the spread of COVID-19.

For the six months ended June 30, 2022 and 2021, the Company had net loss of $666,269 and net income of $1,943,347, respectively. For the three months ended June 30, 2022 and 2021, the Company had net loss of $224,810 and net income of $2,220,571, respectively. The Company has an accumulated deficit of $55.93 million as of June 30, 2022. The Company is in the process of transforming and expanding into an energy storage integrated solution provider as described above. 

The Company had $144.25 million cash on hand on June 30, 2022 and this satisfies the Company’s current organizational chart isestimated liquidity needs 12 months from the issuance of the financial statements. The Company believes the business transforming and expansion discussed above are probable of occurring and the occurrence, as follows:well as the cash flow discussed, mitigate the substantial doubt raised by its historical operating results. 

 

CREG LegalManagement also intends to raise additional funds by way of a private or public offering, or by obtaining loans from banks or others. While the Company believes in the viability of its strategy to generate sufficient revenue and in its ability to raise additional funds on reasonable terms and conditions, there can be no assurances to that effect. The ability of the Company to continue as a going concern depends upon the Company’s ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering, or debt financing including bank loans.

Structure

Our Subsidiaries and Projects

 

    

Our business is primarily conducted through our wholly-owned subsidiaries, Yinghua and Sifang, Sifang’s wholly-owned subsidiaries, Huahong and Shanghai TCH, Shanghai TCH’s wholly-owned subsidiaries, Xi’an TCH, Xi’an TCH’s wholly-owned subsidiary Erdos TCH and its Subsidiaries

Xi’an TCH’s 90% owned and Shanghai TCH’s 10% owned subsidiary Xi’an Zhonghong New Energy Technology Co., Ltd., and Zhongxun. Shanghai TCH was established as a foreign investment enterprise in Shanghai under the laws of the PRC on May 25, 2004, and currently has a registered capital of $29.80 million. Xi’an TCH was incorporated in Xi’an, Shaanxi Province under the laws of the PRC onin November 8, 2007. In February 2009, Huahong was incorporated in Xi’an, Shaanxi province. Erdos TCH was incorporated in April 20092009. Huahong was incorporated in Erdos, Inner Mongolia Autonomous Region. On July 19, 2013, Xi’an TCH formedFebruary 2009. Xi’an Zhonghong New Energy Technology Co., Ltd (“Zhonghong”).Ltd. was incorporated in July 2013. Xi’an TCH owns 90% and Shanghai TCH owns 10% of Zhonghong. Zhonghong which provides energy saving solutions and services, including constructing, selling and leasing energy saving systems and equipment to customers.

 

AsZhongxun was incorporated in March 2014 and is a wholly owned subsidiary of September 30, 2017, Shanghai TCH, through its subsidiaries, had sales or sales-type leases withXi’an TCH.  Zhongxun will be mainly engaged in project investment, investment management, economic information consulting, and technical services. Zhongxun has not yet commenced operations nor has any capital contribution been made as of the following parties: (i) Erdos (for five recycling waste heat power generating systems); (ii) Pucheng (for two biomass power generation (“BMPG”) systems); and (iii) Shenqiu (for two BMPG systems).date of this report. 

 

 26 

 

 

The Fund Management CompanyYinghua was incorporated on February 11, 2015 by the U.S. parent company. Yinghua will be mainly engaged in financial leasing, purchase of financial leasing assets, disposal and the HYREF Fund

On June 25, 2013, Xi’an TCHrepair of financial leasing assets, consulting and Hongyuan Huifu Venture Capital Co. Ltd (“Hongyuan Huifu”) jointly established Hongyuan Recycling Energy Investment Management Beijing Co., Ltd (the “Fund Management Company”) with registered capitalensuring of RMB 10 million ($1.45 million). Xi’an TCH made an initialfinancial leasing transactions, and related factoring business. Yinghua has not yet commenced operations nor has any capital contribution of RMB 4 million ($650,000) and has a 40% ownership interest in the Fund Management Company. With respect to the Fund Management Company, voting rights and dividend rights are allocated 80% and 20% between Hongyuan Huifu and Xi’an TCH, respectively.

The Fund Management Company is the general partner of Beijing Hongyuan Recycling Energy Investment Center, LLP (the “HYREF Fund”), a limited liability partnership established July 18, 2013 in Beijing. The Fund Management Companybeen made an initial capital contributionas of RMB 5 million ($830,000) to the HYREF Fund. An initial amount of RMB 460 million ($75 million) was fully subscribed by all partners for the HYREF Fund. The HYREF Fund has three limited partners: (1) China Orient Asset Management Co., Ltd., which made an initial capital contribution of RMB 280 million ($46.67 million) to the HYREF Fund and is a preferred limited partner; (2) Hongyuan Huifu, which made an initial capital contribution of RMB 100 million ($16.67 million) to the HYREF Fund and is an ordinary limited partner; and (3) the Company’s wholly-owned subsidiary, Xi’an TCH, which made an initial capital contribution of RMB 75 million ($12.5 million) to the HYREF Fund and is a secondary limited partner. The term of the HYREF Fund’s partnership is six years from the date of its establishment, expiring on July 18, 2019. The term is four years from the date of contribution for the preferred limited partner, and four years from the date of contribution for the ordinary limited partner. The size of the HYREF Fund is RMB 460 million ($75 million). The HYREF Fund was formed for the purpose of investing in Xi’an Zhonghong New Energy Technology Co., Ltd., a 90% owned subsidiary of Xi’an TCH, for the construction of two coke dry quenching (“CDQ”) waste heat power generation (“WHPG”) stations with Jiangsu Tianyu Energy and Chemical Group Co., Ltd. (“Tianyu”) and one CDQ WHPG station with Boxing County Chengli Gas Supply Co., Ltd. (“Chengli”).this report. 

 

The Company’s organizational chart as of June 30, 2022 is as follows:

 

Erdos TCH – Joint Venture

 

On April 14, 2009, the Company formed Erdos TCH as a joint venture (the “JV” or “Erdos TCH”) with Erdos Metallurgy Co., Ltd. (“Erdos”) to recycle waste heat from Erdos’ metal refining plants to generate power and steam to be sold back to Erdos. The name of the JV haswas Inner Mongolia Erdos TCH Energy Saving Development Co., Ltd. (“Erdos TCH”) with a term of 20 years with a total investment for the project estimated at $79 million (RMB 500 million) and an initial investment of $17.55 million (RMB 120 million).years. Erdos contributed 7% of the total investment forof the project, and Xi’an TCH Energy Technology Co., Ltd. (“Xi’an TCH”) contributed 93%. According to Xi’an TCH and Erdos’ agreement on profit distribution, Xi’an TCH and Erdos will receive 80% and 20%, respectively, of the profit from the JV until Xi’an TCH receives the complete return of its investment. Xi’an TCH and Erdos will then receive 60% and 40%, respectively, of the profit from the JV. On June 15, 2013, Xi’an TCH and Erdos entered into a share transfer agreement, pursuant to which Erdos transferred and sold its 7% ownership interest in the JV to Xi’an TCH for $1.29 million (RMB 8 million), plus certain accumulated profits as described below.profits. Xi’an TCH paid the $1.29 million in July 2013 and, as a result, became the sole stockholder of Erdos TCH. In addition, Xi’an TCH is required to pay Erdos accumulated profits from inception up to June 30, 2013 in accordance with the supplementary agreement entered on August 6, 2013. In August 2013, Xi’an TCH paid 20% of the accumulated profit (calculated under PRC GAAP) of $226,000 to Erdos.JV. Erdos TCH currently has two power generation systems in Phase I with a total of 18 MW power capacity, and three power generation systems in Phase II with a total of 27 MW power capacity.

With the current economic conditions in China, the government has limited and reduced over capacity and production in the iron and steel industry, which has resulted in a sharp decrease of Erdos Metallurgy Co., Ltd’s production of ferrosilicon, its revenue and cash flows, and has made it difficult for Erdos to make the monthly minimum lease payment.

After considering the challenging economic conditions facing Erdos, and to maintain the long-term cooperative relationship between the parties, which we believe will continue to produce long-term benefits, on On April 28, 2016, Erdos TCH and Erdos entered into a supplemental agreement, effective May 1, 2016. Under the supplemental agreement,2016, whereby Erdos TCH cancelled monthly minimum lease payments from Erdos, and agreedstarted to charge Erdos based on actual electricity sold at RMB 0.30 / KWH. The selling price of each KWH which such price will be adjustedis determined annually based on prevailing market conditions. In May 2019, Erdos TCH ceased its operations due to renovations and furnace safety upgrades of Erdos, and the Company initially expected the resumption of operations in July 2020, but the resumption of operations was further delayed due to government’s mandate for Erdos to significantly lower its energy consumption per unit of GDP by implementing a comprehensive technical upgrade of its ferrosilicon production line to meet the City’s energy-saving targets.  Erdos is currently researching the technical rectification scheme. Once the scheme is determined, Erdos TCH will carry out supporting technical transformation for its waste heat power station project. During this period, Erdos will compensate Erdos TCH RMB 1 million ($145,460) per month, until operations resume. The Company has not recognized any income due to the uncertainty of collection. 

 

 27 

 

 

Shenqiu Yuneng Biomass Power Generation Projects

On May 25, 2011, Xi’anIn addition, Erdos TCH entered into a Letter of Intent with Shenqiu YuNeng Thermal Powerhas 30% ownership in DaTangShiDai (BinZhou) Energy Savings Technology Co., Ltd. (“Shenqiu”BinZhou Energy Savings”) to reconstruct, 30% ownership in DaTangShiDai DaTong Recycling Energy Technology Co., Ltd. (“DaTong Recycling Energy”), and transform a Thermal Power Generation System owned by Shenqiu into a 75T/H BMPG System for $3.57 million (RMB 22.5 million). The project commenced40% ownership in June 2011 and was completed in the third quarter of 2011. On September 28, 2011, Xi’an TCH entered into a Biomass Power Generation Asset Transfer Agreement with Shenqiu (the “Shenqiu Transfer Agreement”DaTang ShiDai TianYu XuZhou Recycling Energy Technology Co, Ltd. (“TianYu XuZhou Recycling Energy”). Pursuant to the Shenqiu Transfer Agreement, Shenqiu sold Xi’an TCH a set of 12 MW BMPG systems (after Xi’an TCH converted the system for BMPG purposes). As consideration for the BMPG systems, Xi’an TCH paid Shenqiu $10.94 million (RMB 70 million) in cash in three installments within six months upon the transfer of ownership of the systems. By the end of 2012, all of the consideration was paid. On September 28, 2011, Xi’an TCH and Shenqiu also entered into a Biomass Power Generation Project Lease Agreement (the “2011 Shenqiu Lease”). Under the 2011 Shenqiu Lease, Xi’an TCH agreed to lease a set of 12 MW BMPG systems to Shenqiu at a monthly rental rate of $286,000 (RMB 1.8 million) for 11 years. Upon expiration of the 2011 Shenqiu Lease, ownership of this system will transfer from Xi’an TCH to Shenqiu at no additional cost. In connection with the 2011 Shenqiu Lease, Shenqiu paid one month’s rent as a security deposit to Xi’an TCH, in addition to providing personal guarantees.

On October 8, 2012, Xi’an TCH entered into a Letter of Intent for technical reformation of Shenqiu Project Phase II with Shenqiu for technical reformation to enlarge the capacity of the Shenqiu Project Phase I (the “Shenqiu Phase II Project”). The technical reformation involved the construction of another 12 MW BMPG system. After the reformation, the generation capacity of the power plant increased to 24 MW. The project commenced on October 25, 2012 and was completed during the first quarter of 2013. The total cost of the project was $11.1 million (RMB 68 million). On March 30, 2013, Xi’an TCH and Shenqiu entered into a BMPG Project Lease Agreement (the “2013 Shenqiu Lease”). Under the 2013 Shenqiu Lease, Xi’an TCH agreed to lease the second set of 12 MW BMPG systems to Shenqiu for $239,000 (RMB 1.5 million) per month for 9.5 years. When the 2013 Shenqiu Lease expires, ownership of this system will transfer from Xi’an TCH to Shenqiu at no additional cost. 

Pucheng Biomass Power Generation Projects

On September 11, 2013, Xi’an TCH entered into a BMPG Asset Transfer Agreement (the “Pucheng Transfer Agreement”) with Pucheng Xin Heng Yuan Biomass Power Generation Corporation (“Pucheng”), a limited liability companyThese companies were incorporated in China. The Pucheng Transfer Agreement provided for the sale by Pucheng to Xi’an TCH of a set of 12 MW BMPG systems with the completion of system transformation for a purchase price of RMB 100 million ($16.48 million) in the form of 8,766,547 shares of common stock of the Company at $1.87 per share. Also on September 11, 2013, Xi’an TCH also entered into a BMPG Project Lease Agreement with Pucheng (the “Pucheng Lease”). Under the Pucheng Lease, Xi’an TCH leases this same set of 12 MW BMPG system to Pucheng, and combines this lease with the lease for the 12 MW BMPG station of Pucheng Phase I project, under a single lease to Pucheng for RMB 3.8 million ($0.63 million) per month (the “Pucheng Phase II Project”). The term for the consolidated lease is from September 2013 to June 2025. The lease agreement for the 12 MW station from Pucheng Phase I project terminated upon the effective date of the Pucheng Lease. The ownership of two 12 MW BMPG systems will transfer to Pucheng at no additional charge when the Pucheng Lease expires.2012 but have not been any operations since then nor has any registered capital contribution been made. 

Chengli Waste Heat Power Generation Projects

 

On July 19, 2013, Xi’an TCH formed a new company, “Xi’an Zhonghong New Energy Technology Co., Ltd.” (“Zhonghong”), of which it owns 90% of Zhonghong, with HYREF owning the other 10%. Zhonghong is engaged to provide energy saving solution and services, including constructing, selling and leasing energy saving systems and equipment to customers. On December 29, 2018, Shanghai TCH entered into a Share Transfer Agreement with HYREF, pursuant to which HYREF transferred its 10% ownership in Zhonghong to Shanghai TCH for RMB 3 million ($0.44 million). The transfer was completed on January 22, 2019. The Company owns 100% of Xi’an Zhonghong after the transaction. 

On July 24, 2013, Zhonghong entered into a Cooperative Agreement of CDQ and CDQ WHPG Project (Coke Dry Quenching Waste Heat Power Generation Project) with Boxing County Chengli Gas Supply Co., Ltd. (“Chengli”). The parties entered into a supplement agreement on July 26, 2013. Pursuant to these agreements, Zhonghong agreed towill design, build and maintain a 25 MW CDQ system and a CDQ WHPG system to supply power to Chengli, and Chengli agreed towill pay energy saving fees (the “Chengli Project”). Chengli will contract the operation of the system to a third party contractor that is mutually agreed to by Zhonghong. In addition, Chengli will provide the land for the CDQ system and CDQ WHPG system at no cost to Zhonghong. The term of the Agreements is for 20 years. The first 800 million watt hours generated by the Chengli Project will be charged at RMB 0.42 ($0.068) per KWH (excluding tax); thereafter, the energy saving fee will be RMB 0.20 ($0.036) per KWH (excluding tax). The operating time shall be based upon an average 8,000 hours annually. If the operating time is less than 8,000 hours per year due to a reason attributable to Chengli, then time charged shall be 8,000 hours a year, and if it is less than 8,000 hours due to a reason attributable to Zhonghong, then it shall be charged at actual operating hours. The construction of the Chengli Project was completed in the second quarter of 2015 and the project successfully completed commissioning tests in the first quarter of 2017. The Chengli Project is now operational, but will not begin operations until the Company receives the required power generating license, which the Company anticipates receiving in the fourth quarter of 2017. When operations begin, Chengli shall ensure its coking production line works properly and that working hours for the CDQ system are at least 8,000 hours per year, and Zhonghong shall ensure that working hours for the CDQ WHPG system are at least 7,200 hours per year. 

28

 

On July 22, 2013, Zhonghong entered into an Engineering, Procurement and Construction (“EPC”) General Contractor Agreement for the Boxing County Chengli Gas Supply Co., Ltd. CDQ Power Generation Project (the “Chengli Project”) with Xi’an Huaxin New Energy Co., Ltd. (“Huaxin”). Zhonghong, as the owner of the Chengli Project, contracted EPC services for a CDQ system and a 25 MW CDQ WHPG system for Chengli from Huaxin. Huaxin shall provide construction, equipment procurement, transportation, installation and adjustment, test run, construction engineering management and other necessary services to complete the Chengli Project and ensure the CDQ system and CDQ WHPG system for Chengli meet the inspection and acceptance requirements and work normally. The Chengli Project is a turn-key project in which Huaxin is responsible for monitoring the quality, safety, duration and cost of the Chengli Project. The total contract price is RMB 200 million ($33.34 million), which includes all materials, equipment, labor, transportation, electricity, water, waste disposal, machinery and safety costs.

Tianyu Waste Heat Power Generation Project

On July 19, 2013, Zhonghong entered into a Cooperative Agreement (the “Tianyu Agreement”) for Energy Management of CDQ and CDQ WHPG with Jiangsu Tianyu Energy and Chemical Group Co., Ltd (“Tianyu”). Pursuant to the Tianyu Agreement, Zhonghong will design, build, operate and maintain two sets of 25 MW CDQ and CDQ WHPG systems for two subsidiaries of Tianyu – Xuzhou Tian’an Chemical Co., Ltd (“Xuzhou Tian’an”) and Xuzhou Huayu Coking Co., Ltd. (“Xuzhou Huayu”) – to be located at Xuzhou Tian’an and Xuzhou Huayu’s respective locations (the “Tianyu Project”). Upon completion of the Tianyu Project, Zhonghong will charge Tianyu an energy saving fee of RMB 0.534 ($0.087) per KWH (excluding tax). The operating time will be based upon an average 8,000 hours annually for each of Xuzhou Tian’an and Xuzhou Huayu. If the operating time is less than 8,000 hours per year due to a reason attributable to Tianyu, then time charged will be 8,000 hours a year. The construction of the Xuzhou Tian’an Project is anticipated to be completed by the second quarter of 2018. Xuzhou Tian’an will provide the land for the CDQ and CDQ WHPG systems for free. Xuzhou Tian’an also guarantees that it will purchase all of the power generated by the CDQ WHPG systems. The Xuzhou Huayu Project is currently on hold due to a conflict between Xuzhou Huayu Coking Co., Ltd. and local residents on certain pollution-related issues. The local government has acted in its capacity to coordinate the resolution of this issue. The local residents were requested to move from the hygienic buffer zone of the project location with compensatory payments from the government. Xuzhou Huayu was required to stop production and implement technical innovations to mitigate pollution discharge including sewage treatment, dust collection, noise control, and recycling of coal gas. Currently, some local residents have moved. Xuzhou Huayu has completed the implementation of the technical innovations of sewage treatment, dust collection, and noise control, and the Company is waiting for local governmental agencies to approve these technical innovations so that we can resume construction. We expect to complete the construction of Xuzhou Huayu in the second quarter of 2018. Once Huayu obtains the government’s acceptance and approval of the technical innovations, the project will resume. 

On July 22, 2013, Xi’an Zhonghong New Energy Technology Co., Ltd. entered into an EPC General Contractor Agreement for the Xuzhou Tianyu Group CDQ Power Generation Project (the “Project”) with Xi’an Huaxin New Energy Co., Ltd. (“Huaxin”). Zhonghong as the owner of the Project contracted EPC for the two sets of CDQ and 25 MW CDQ WHPG systems for Tianyu to Huaxin—one for Xuzhou Tian’an and one for Xuzhou Huayu. Huaxin shall provide construction, equipment procurement, transportation, installation and adjustment, test run, construction engineering management and other necessary works to complete the Project and ensure the CDQ and CDQ WHPG systems for Tianyu meet the inspection and acceptance requirements and work normally. The Project is a turn-key project and Huaxin is responsible for the quality, safety, duration and cost of the Project. The total contract price is RMB 400 million ($66.67 million) of which RMB 200 million ($33.34 million) is for the Xuzhou Tian’an system and RMB 200 million is for the Xuzhou Huayu system. The price is a cover-all price, which includes but not limited to all the materials, equipment, labor, transportation, electricity, water, waste disposal, machinery and safety matters.  

29

Yida Coke Oven Gas Power Generation Project

On June 28, 2014, Xi’an TCH entered into an Asset Transfer Agreement (the “Transfer Agreement”) with Qitaihe City Boli Yida Coal Selection Co., Ltd. (“Yida”), a limited liability company incorporated in China. The Transfer Agreement provided for the sale to Xi’an TCH of a 15 MW coke oven WGPG station, which was converted from a 15 MW coal gangue power generation station from Yida. As consideration for the Transfer Asset, Xi’an TCH paid to Yida RMB 115 million ($18.69 million) in the form of the common stock shares of the Company at the average closing price per share of the Stock for the 10 trading days prior to the closing date of the transaction (the “Shares”). The exchange rate between US Dollar and Chinese RMB in connection with the stock issuance was the rate equal to the middle rate published by the People’s Bank of China on the closing date of the assets transfer.

On June 28, 2014, Xi’an TCH also entered into a Coke Oven Gas Power Generation Project Lease Agreement (the “Lease Agreement”) with Yida. Under the Lease Agreement, Xi’an TCH leased the Transfer Asset to Yida for RMB 3 million ($0.49 million) per month, and the term of the lease is from June 28, 2014 to June 27, 2029. Yida will also provide an RMB 3 million ($0.49 million) security deposit (without interest) for the lease. Xi’an TCH will transfer the Transfer Asset back to Yida at no cost at the end of the lease term.

On June 22, 2016, Xi’an TCH entered into a Coal Oven Gas Power Generation Project Repurchase Agreement (the “Repurchase Agreement”) with Yida. Under the Repurchase Agreement, Xi’an TCH agreed to transfer to Yida all the project assets for RMB 112,000,000 ($16.89 million) (the “Transfer Price”) with Yida’s retention of ownership of the Shares. Yida agreed to make the following payments: (i) the outstanding monthly leasing fees for April and May 2016 of RMB 6,000,000 ($0.90 million) to Xi’an TCH within 5 business days from the execution of the Repurchase Agreement; (ii) a payment of RMB 50,000,000 ($7.54 million) of the Transfer Price to Xi’an TCH within 5 business days from the execution of the Repurchase Agreement; and (iii) a payment of the remaining RMB 62,000,000 ($9.35 million) of the Transfer Price to Xi’an TCH within 15 business days from the execution of the Repurchase Agreement. Under the Repurchase Agreement, ownership of the project assets was transferred from Xi’an TCH to Yida within 3 business days after Xi’an TCH received the full Transfer Price and the outstanding monthly leasing fees. In July 2016, the Company received the full payment of the Transfer Price and title to the system was transferred at that time. The Company recorded a $0.42 million loss from this transaction in 2016.

Zhongtai WHPG Energy Management Cooperative Agreement

On December 6, 2013,29, 2018, Xi’an Zhonghong, Xi’an TCH, HYREF, Guohua Ku, and Mr. Chonggong Bai entered into a CDQ and WHPG Energy Management CooperativeStation Fixed Assets Transfer Agreement, (the “Zhongtai Agreement”pursuant to which Xi’an Zhonghong transferred Chengli CDQ WHPG station (‘the Station”) with Xuzhou Zhongtai Energy Technology Co., Ltd. (“Zhongtai”), a limited liability company incorporated in Jiangsu Province, China.

Pursuantas the repayment for the loan of RMB 188,639,400 ($27.54 million) to the Zhongtai Agreement,HYREF. Xi’an Zhonghong, Xi’an TCH, will design, buildGuohua Ku and maintainChonggong Bai also agreed to a 150 ton per hour CDQ system and a 25 MW CDQ WHPG system (the “Project”) and sellBuy Back Agreement for the power to Zhongtai, and Xi’an TCH will also build a furnace to generate steam from the waste heat of the smoke pipeline and sell the steam to Zhongtai.

The construction period of the Project is expected to be 18 months from the dateStation when certain conditions are ready for construction to begin. Zhongtai will start to pay an energy saving fee from the date when the WHPG station passes the required 72-hour test run.met (see Note 8). The term of payment is for 20 years. For the first 10 years of the term, Zhongtai shall pay an energy saving fee at RMB 0.534 ($0.089) per KWH (including value added tax) for the power generated from the system. For the second 10 years of the term, Zhongtai shall pay an energy saving fee at RMB 0.402 ($0.067) per KWH (including value added tax). During the term of the contract the energy saving fee shall be adjusted at the same percentage as the change of local grid electricity price. Zhongtai shall also pay an energy saving service fee for the steam supplied by Xi’an TCH at RMB 100 ($16.67) per ton (including value added tax). Zhongtai and its parent company will provide guarantees to ensure Zhongtai will fulfill its obligations under the Agreement. Upon the completion of the term, Xi’an TCH will transfer the systems to Zhongtai at RMB 1 ($0.16). Zhongtai shall provide waste heat to the systems for no less than 8,000 hours per year and waste gas volume no less than 150,000 Nm3 per hour with a temperature no less than 950°C. If these requirements are not met, the term of the Zhongtai Agreement will be extended accordingly. If Zhongtai wants to terminate the Zhongtai Agreement early, it shall provide Xi’an TCH a 60 day notice and pay the termination fee and compensation for the damages to Xi’an TCH according to the following formula: (i) if it is less than five years into the term when Zhongtai requests termination, Zhongtai shall pay: Xi’an TCH’s total investment amount plus Xi’an TCH’s annual investment return times five years minus the years in which the system has already operated; or (ii) if it is more than five years into the term when Zhongtai requests the termination, Zhongtai shall pay Xi’an TCH’s total investment amount minus total amortization cost (the amortization period is 10 years).  

30

On March 14, 2016, Xi’an TCH entered into a Xuzhou Zhongtai CDQ and Waste Heat Power Generation System Transfer Agreement (the “Transfer Agreement”) with Zhongtai and Xi’an Huaxin New Energy Co., Ltd., a limited liability company incorporated in China (the “Contractor”).

The Transfer Agreement provides for the sale to Zhongtai of all the assets of the Project under construction from Xi’an TCH. Additionally, Xi’an TCH will transfer to Zhongtai the Engineering, Procurement and Construction (“EPC”) Contract for the Project, which Xi’an TCH had entered into with the Contractor in connection with the Project. As consideration for the transfer of the Project, Zhongtai is to pay to Xi’an TCH an aggregate purchase price of RMB 167,360,000 ($25.75 million andStation was completed on January 22, 2019, the “Transfer Price”), on the following schedule: (i) RMB 50,000,000 ($7.69 million) of the Transfer Price was paid within 20 business days from the execution of the Transfer Agreement; (ii) RMB 30,000,000 ($4.32 million) of the Transfer Price was paid within 20 business days upon the completion of the construction of the Project but not later than July 30, 2016; and (iii) RMB 87,360,000 ($13.45 million) of the Transfer Price will be paid before July 30, 2017. The temporary ownership of the Project was transferred from Xi’an TCH to Zhongtai after the Xi’an TCH received the first payment of RMB 50,000,000, and the full ownership of the Project is to be officially transferred to Zhongtai upon full payment of the Transfer Price. The Zhongtai Agreement is to be terminated and Xi’an TCH will agree not to pursue any breach of contract liability against the Zhongtai under the Zhongtai Agreement when Zhongtai fully pays the Transfer Price according to the terms of the Transfer Agreement. If the Transfer Price is not fully paid on time pursuant to the Transfer Agreement, the Transfer Agreement automatically terminates and Xi’an TCH retains ownership of the Project, and both parties would continue to possess their respective rights and obligations according to the Zhongtai Agreement and assume the liabilities for breach of the Zhongtai Agreement. Xuzhou Taifa Special Steel Technology Co., Ltd. (“Xuzhou Taifa”) has guaranteed the payments by Zhongtai. As of September 30, 2017, Xi’an TCH had received the first payment of $7.70 million and the second payment of $4.32 million. The Company recorded a $2.82 million loss from this transaction in 2016. As of this report date,$624,133 loss. However, because the Company hasloan was not yet received the remaining payment of RMB 87,360,000 ($13.45 million)deemed repaid due to the tight cash flow of Zhongtai,buyback provision (See Note 8 for detail), the Company expects to collect part ofkept the remaining balance duringloan and the fourth quarter of 2017.

Rongfeng CDQ Power Generation Energy Management CooperativeChengli project recognized in its consolidated financial statements (“CFS”) until April 9, 2021. The Buy Back Agreement

On December 12, 2013, Xi’an TCH entered into a CDQ Power Generation Energy Management Cooperative Agreement with Tangshan Rongfeng Iron & Steel Co., Ltd. (the “Rongfeng Agreement”), a limited liability company incorporated in Hebei Province, China.

Pursuant to was terminated on April 9, 2021, HYREF did not execute the Rongfeng Agreement, Xi’an TCH will design, buildbuy-back option and maintain a CDQ system and adid not ask for any additional payment from the buyers other than keeping the CDQ WHPG system and sell the power to Rongfeng. The construction period of the Project is expected to be eighteen (18) months after the Agreement takes effect and from the date when conditions are ready for construction to begin.

Rongfeng will pay an energy saving fee from the date when the WHPG station passes the required 72-hour test run. The term of payment is for 20 years. For the first 10 years of the term, Rongfeng shall pay an energy saving fee at RMB 0.582 ($0.095) per KWH (including tax) for the power generated from the system. For the second 10 years of the term, Rongfeng shall pay an energy saving fee at RMB 0.432 ($0.071) per KWH (including tax). During the term of the contract the energy saving fee shall be adjusted at the same percentage as the change of local grid electricity price. Rongfeng and its parent company will provide guarantees to ensure Rongfeng will fulfill its obligations under the Rongfeng Agreement. Upon the completion of the term, Xi’an TCH will transfer the systems to Rongfeng at RMB 1. Rongfeng shall provide waste heat to the systems for no less than 8,000 hours per year with a temperature no less than 950°C. If these requirements are not met, the term of the Agreement will be extended accordingly. If Rongfeng wants to terminate the Agreement early, it shall provide Xi’an TCH a 60 day notice and pay the termination fee and compensation for the damages to Xi’an TCH according to the following formula: 1) if it is less than or equal to five years into the term when Rongfeng requests termination, Rongfeng shall pay: Xi’an TCH’s total investment amount plus Xi’an TCH’s average annual investment return times five years minus the years of which the system has already operated); 2) if it is more than five years into the term when Rongfeng requests the termination, Rongfeng shall pay: Xi’an TCH’s total investment amount minus total amortization cost (the amortization period is 10 years). 

station.

31

 

On November 16, 2015, Xi’an TCH entered into a Transfer Agreement of CDQ and a CDQ WHPG system with Rongfeng and Xi’an Huaxin New Energy Co., Ltd., a limited liability company incorporated in China (“Xi’an Huaxin”). The Transfer Agreement provided for the sale to Rongfeng of the CDQ Waste Heat Power Generation Project (the “Project”) from Xi’an TCH. Additionally, Xi’an TCH would transfer to Rongfeng the Engineering, Procurement and Construction (“EPC”) Contract for the CDQ Waste Heat Power Generation Project which Xi’an TCH had entered into with Xi’an Huaxin in connection with the Project. As consideration for the transfer of the Project, Rongfeng is to pay to Xi’an TCH an aggregate purchase price of RMB 165,200,000 ($25.45 million) on the following schedule: (i) RMB 65,200,000 ($10.05 million) was paid by Rongfeng to Xi’an TCH within 20 business days after signing the Transfer Agreement, (ii) RMB 50,000,000 ($7.70 million) was paid by Rongfeng to Xi’an TCH within 20 business days after the Project is completed, but no later than March 31, 2016, and (iii) RMB 50,000,000 ($7.70 million) will be paid by Rongfeng to Xi’an TCH no later than September 30, 2016. Mr. Cheng Li, the largest stockholder of Rongfeng, has personally guaranteed the payments. The ownership of the Project was conditionally transferred to Rongfeng within 3 business days following the initial payment of RMB 65,200,000 ($10.05 million) by Rongfeng to Xi’an TCH, and the full ownership of the Project will be transferred to Rongfeng after it completes the entire payment pursuant to the terms of the Transfer Agreement. The Company recorded a $3.78 million loss from this transaction in 2015. As of December 31, 2016, the Company had received payment in full of $25.45 million.CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

Related Party Transactions

As of September 30, 2017, the Company had $41,775 in advances from the Company’s management, which bear no interest, are unsecured, and are payable upon demand. 

On August 27, 2014, the Company entered into a Share Purchase Agreement (the “Agreement”) with Mr. Guohua Ku, a major stockholder and the Company’s Chairman and Chief Executive Officer. Pursuant to the Agreement, the Company issued to Mr. Ku 1,382,908 shares of the Company’s common stock (the “Shares”) on September 5, 2014 (adjusted for the 1:10 reverse stock split). The purchase price per share for the Shares was the average closing price quoted on the NASDAQ Global Market for the common stock of the Company for 15 trading days prior to the effective date of the Agreement, which was $1.37. The Company received payments in two installments of $12 million and $6.91 million on September 5, 2014 and September 12, 2014, respectively, in equivalent of RMB 74.05 million and RMB 42.85 million, respectively, using the middle exchange rate between USD and RMB published by the People’s Bank of China on the effective date of the agreement pursuant to its terms. These shares were recorded using the fair value of $1.49 per share. The Company filed a registration statement registering the Shares for resale on Form S-3 (Reg. No. 333-214834), which was declared effective by the Securities and Exchange Commission on December 20, 2016.

During the nine and three months ended September 30, 2017, the Company recognized RMB 20.02 million ($2.94 million) and RMB 6.55 million ($0.98million), respectively, interest income for sales-type lease of Pucheng BMPG systems from Pucheng Xin Heng Yuan Biomass Power Generation Corporation, whose major stockholder became a stockholder of CREG through the issuance of the Company’s common stock to this stockholder in consideration for the transfer of the old system to CREG for BMPG system transformation.

Also during 2016, prior to the repurchase date of June 22, 2016, the Company recognized RMB 13.83 million ($2.09 million) interest income for sales-type lease of Yida WGPG system from Qitaihe City Boli Yida Coal Selection Co., Ltd., whose major stockholder became a stockholder of CREG through the issuance of the Company’s common stock to this stockholder in consideration for the transfer of the WGPG system to the Company.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements (“CFS”), which were prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported net sales and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

 3228 

 

 

While our significant accounting policies are more fully described in Note 2 to our CFS, we believe the following accounting policies are the most critical to assist you in fully understanding and evaluating this management discussion and analysis.

 

Basis of Presentation

 

These accompanying CFS were prepared in accordance with US GAAP and pursuant to the rules and regulations of the SEC for financial statements.

 

Basis of Consolidation

 

The CFS include the accounts of CREG and, its subsidiary, Sifang Holdings and Yinghua; Sifang Holdings’ wholly-owned subsidiaries, Huahong and Shanghai TCH; Shanghai TCH’s wholly-owned subsidiary Xi’an TCH; and Xi’an TCH’s subsidiaries, Erdos TCH, Zhonghong, and Zhongxun. Substantially all of the Company’s revenues are derived from the operations of Shanghai TCH and its subsidiaries, which represent substantially all of the Company’s consolidated assets and liabilities as of SeptemberJune 30, 2017 and December 31, 2016, respectively.2022. All significant inter-company accounts and transactions were eliminated in consolidation.

 

Use of Estimates

 

In preparing the CFS, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets as well as revenues and expenses during the year reported. Actual results may differ from these estimates.

 

Concentration of Credit Risk

 

Cash includes cash on hand and demand deposits in accounts maintained within China. Balances at financial institutions within China are not covered by insurance. The Company has not experienced any losses in such accounts.

 

Certain other financial instruments, which subject the Company to concentration of credit risk, consist of accounts and other receivables. The Company does not require collateral or other security to support these receivables. The Company conducts periodic reviews of its customers’ financial condition and customer payment practices to minimize collection risk on accounts receivable.

 

The operations of the Company are located in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC.

Accounts Receivable

As of September 30, 2017, the Company had accounts receivable of $13,162,772 (from the sales of CDQ and a CDQ WHPG system to Zhongtai). As of December 31, 2016, the Company had accounts receivable of $12,593,340 (from sale of CDQ and a CDQ WHPG system to Zhongtai).

Interest Receivable on Sales Type Leases

As of September 30, 2017, the interest receivable on sales type leases was $8,049,073, mainly representing recognized but not yet collected interest income for the Pucheng and Shenqiu systems. As of December 31, 2016, the interest receivable on sales type leases was $4,621,491.

The Company maintains reserves for potential credit losses on receivables. Management reviews the composition of receivables and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Pucheng and Shenqiu each resumed production in April, 2017 and repayment began in May, 2017. The Shenqiu and Pucheng users have a good record of payment and have promised to repay the due amount gradually after production resumes. Based on an evaluation of the collectability, for the nine months ended September 30, 2017, the Company had bad debt allowance for net investment receivable of $61,800.

33

 

Revenue Recognition

 

Sales-type Leasing and Related Revenue Recognition

 

The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 842. Results and disclosure requirements for reporting periods beginning after January 1, 2019 are presented under ASC Topic 842 (See Operating lease below as relates to the Company as a lessee). The Company’s sales type lease contracts for revenue recognition fall under ASC 842.

The Company constructs and then leases waste energy recycling power generating projects to its customers. The Company typically transfers ownership of the waste energy recycling power generating projects to its customers at the end of eachthe lease. Investment in these projects is recorded as investment in sales-type leases in accordance with “Accounting for Leases”, codified in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 840 and its various amendments and interpretations.

29

The Company manufactures and constructsfinances construction of waste energy recycling power generating projects and finances its customers for the costs of the projects. The sales and cost of sales are recognized at the time of sale or inception of the lease.lease, which is when the control is transferred to the lessee. The Company accounts for the transfer of control as a sales type lease in accordance with ASC 842-10-25-2. The underlying asset is derecognized, and revenue is recorded when collection of payments is probable. This is in accordance with the revenue recognition principle in ASC 606 -Revenue from contracts with customers. The investment in sales-type leases consists of the sum of the total minimum lease payments receivable less unearned interest income and estimated executory cost. Minimum lease payments are part of the lease agreement between the Company (as the lessor) and the customer (as the lessee). The discount rate implicit in the lease is used to calculate the present value of minimum lease payments. The minimum lease payments consist of the gross lease payments net of executory costs and contingent rentals, if any. Unearned interest income is amortized to income over the lease term so as to produce a constant periodic rate of return on the net investment in the lease. While a portion of revenue is recognized at the inception of the lease, the cash flow from the sales-type lease occurs over the course of the lease.lease, which results in interest income and reduction of receivables. Revenue is recognized net of the Value Added Tax.value-added tax.

 

Contingent Rental Income

 

The Company records the income from actual electricity usage in addition to minimum lease paymentgenerated of each project as contingent rental income in the period earned.the income is earned, which is when the electricity is generated. Contingent rent is not part of minimum lease payments.

 

Foreign Currency Translation and Comprehensive Income (Loss)

 

The Company’s functional currency is RMB. For financial reporting purposes, RMB figures were translated into USD as the reporting currency. Assets and liabilities are translated at the exchange rate in effect on the balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity as “Accumulated other comprehensive income.” Gains and losses from foreign currency transactions are included in income. There has been no significant fluctuation in exchange rate for the conversion of RMB to USD after the balance sheet date.

 

The Company uses “Reporting Comprehensive Income” (codified in FASB ASC Topic 220). Comprehensive income is comprised of net income and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders.

 

RESULTS OF OPERATIONS

 

Comparison of Three Months Ended SeptemberResults of Operations for the six months ended June 30, 20172022 and 20162021

 

The following table sets forth the results of our operations for the periods indicated as a percentage of net sales, certainsales. Certain columns may not add due to rounding.

  2017  2016 
     % of Sales     % of Sales 
Sales $-   -% $-   -%
Sales of systems  -   -%  -   -%
Contingent rental income  -   -%  -   -%
Cost of sales  -   -%  -   -%
Cost of systems and contingent rental income  -   -%  -   -%
Gross profit  -   -%  -   -%
Interest income on sales-type leases  1,731,336   -%  2,286,948   -%
Total operating income  1,731,336   -%  2,286,948   -%
Total operating expenses  (242,007)  -%  (299,110)  -%
Income from operations  1,489,329   -%  1,987,838   -%
Total non-operating expenses, net  (1,226,013)  -%  (1,419,963)  -%
Income before income tax  263,316   -%  567,875   -%
Income tax expense  397,636   -%  110,957   -%
Less: net loss attributable to noncontrolling interest  (93,428)  -%  (79,921)  -%
Net income attributable to China Recycling Energy Corp $(40,892)  -% $536,839   -%

34

 

  2022  % of Sales  2021  % of Sales 
Sales $-        -% $-           -%
Cost of sales  -   -%  -   -%
Gross profit  -   -%  -   -%
Interest income on sales-type leases  -   -%  -   -%
Total operating expenses  383,506   -%  384,152   -%
Loss from operations  (383,506)  -%  (384,152)  -%
Total non-operating income (expenses), net  (259,206)  -%  2,229,546   -%
Income (loss) before income tax  (642,712)  -%  1,845,394   -%
Income tax expense (benefit)  23,557   -%  (97,953)  -%
Net income (loss) $(666,269)  -% $1,943,347   -%

SALES. SALESTotal sales for the threesix months ended SeptemberJune 30, 20172022 and 20162021 were $0. For the three months ended September 30, 2017 and 2016, the Company had no sales of systems or contingent rental income. For the sales-type leases, sales and COS are recorded at the time of the lease; in addition to sales revenue, our other major source of revenue is interest income from the sales-type leases.

 

COST OF SALES. Cost of sales (“COS”) for the threesix months ended SeptemberJune 30, 20172022 and 20162021 were $0. We did not have any contingent rental income, or finish any new construction or sale any new system, in the three months ended September 30, 2017.

 

30

GROSS PROFIT. Gross profitincome for the six months ended June 30, 2022 and 2021 were $0 with gross margin for the three months ended September 30, 2017 and 2016 were $0 andof 0%, respectively.

INTEREST INCOME ON SALES-TYPE LEASES. Interest income on sales-type leases for the three months ended September 30, 2017 was $1.73 million, a $0.56 million decrease from $2.29 million for the three months ended September 30, 2016. During the three months ended September 30, 2017, interest income was derived from the following nine (9) sales-type leases:

i.Two BMPG systems to Pucheng Phase I and II (15 and 11.9 years, respectively);
ii.One BMPG system to Shenqiu Phase I (11 years);
iii.One BMPG system to Shenqiu Phase II (9.5 years);
iv.Five power and steam generating systems to Erdos (20 years); 

On April 28, 2016, Erdos TCH and Erdos entered into a supplemental agreement, effective on May 1, 2016, whereby Erdos TCH cancelled monthly minimum lease payments from Erdos, and charges Erdos based on actual electricity sold at RMB 0.30 / KWH. The selling price of each KWH will be determined annually based on prevailing market conditions. During the nine months ended September 30, 2017, Erdos TCH incurred significant decreased electricity usage, and accordingly, the interest income from five power and steam generating systems of Erdos TCH decreased significantly.

In comparison, during the three months ended September 30, 2016, interest income was derived from the following 9 sales-type leases:

i.Two BMPG systems to Pucheng Phase I and II (15 and 11.9 years, respectively);
ii.One BMPG system to Shenqiu Phase I (11 years);
iii.One BMPG system to Shenqiu Phase II (9.5 years);
iv.Five power and steam generating systems to Erdos (20 years);

35

 

OPERATING EXPENSES.EXPENSESOperating expenses consisted of general and administrative expenses totaling $242,007$383,506 for the six months ended June 30, 2022, compared to $384,152 for the six months ended June 30, 2021, a slight decrease of $646 or 0.2%. The decrease in operating expenses was mainly due to decreased Edgar fee by $441.

NET NON-OPERATING INCOME (EXPENSES). Net non-operating income (expenses) consisted of loss on note conversion, interest income, interest expenses, Impairment loss on long term equity investment of Xi’an TCH’s investment into the HYREF fund, and miscellaneous expenses. For the six months ended June 30, 2022, net non-operating expense was $259,206 compared to non-operating income of $2,229,546 for the six months ended June 30, 2021. For the six months ended June 30, 2022, we had $223,915 interest income but the amount was offset by $230,262 interest expense on note payable, loss on note conversion of $121,121, and other expenses of $131,682. For the six months ended June 30, 2021, we had $193,157 interest income and gain on termination of buy-back agreement of Chengli project of $3,155,959 (see Note 8), but the amount was offset by $227,701 interest expense on note payable, interest expense on failure of note redemption on time of $818,914, loss on note conversion of $2,719 and other expenses of $70,236. 

INCOME TAX EXPENSE (BENEFIT). Income tax expense was $23,557 for the six months ended June 30, 2022, compared with income tax benefit of $97,953 for the six months ended June 30, 2021. The consolidated effective income tax (benefit) rates for the six months ended June 30, 2022 and 2021 were 3.7% and (5.3)%, respectively.

NET INCOME (LOSS).  Net loss for the six months ended June 30, 2022 was $666,269 compared to net income of $1,943,347 for the six months ended June 30, 2021, an increase of net loss of $2,609,616. This increase in net loss was mainly due to increased loss on note conversion by $118,402, increased income tax expense by $121,510 and no gain from project termination (while in 2021, we had gain on termination of buy-back agreement of Chengli project of $3,155,959), which was partly offset by decreased interest expense by $816,297. 

Comparison of Results of Operations for the three months ended SeptemberJune 30, 2017, compared to $299,110 general2022 and administrative expenses for the comparable period of 2016, a decrease of $57,103 or 19%. The decrease was mainly due to decreased payroll expenses of $43,700, entertainment expenses of $11,100, travel expenses of $14,600, and endowment insurance of $8,700, despite the increased bad debt expense of $61,800. These decreases in operating expenses were a result of the Company’s cost-saving efforts during a slower business period. 2021

NET NON-OPERATING EXPENSES. Net non-operating expenses consisted of non-sales-type lease interest income, interest expenses, loss on sale of construction in progress and miscellaneous expenses. For the three months ended September 30, 2017, net non-operating expense was $1.23 million compared to net non-operating expense of $1.42 million for the three months ended September 30, 2016. For the three months ended September 30, 2017, we had $35,887 interest income and $1,591 other income, but the amounts were offset by a $1.26 million interest expense on loans. For the three months ended September 30, 2016, we had a $35,288 interest income and a $202,782 other income, but the amounts were offset by a $1.66 million interest expense.

 

INCOME TAX EXPENSE. Income tax expense was $0.40 million for the three months ended September 30, 2017, compared with $0.11 million income tax expense for the comparable period of 2016. The consolidated effective income tax rate for the three months ended September 30, 2017 and 2016 were 122% and 20%, respectively. The increase in income tax expense in the three months ended September 30, 2017 was mainly due to the valuation allowance for deferred tax asset for the significant losses associated with Xi’an Zhonghong. Income tax rate for all the Chinese subsidiaries was 25% for each of 2017 and 2016. 

NET INCOME (LOSS).Net loss for the three months ended September 30, 2017 was $40,892 compared to net income of $0.54 million for the three months ended September 30, 2016, a decrease of $0.57 million. This decrease in net income was mainly due to the decreased interest income on sales-type leases and increased income tax expense in the three months ended September 30, 2017.

Comparison of Nine Months Ended September 30, 2017 and 2016

The following table sets forth the results of our operations for the periods indicated as a percentage of net sales, certainsales. Certain columns may not add due to rounding.

 

  2017  2016 
     % of Sales     % of Sales 
Sales $-   -% $-   -%
Sales of systems  -   -%  -   -%
Contingent rental income  -   -%  -   -%
Cost of sales  -   -%  -   -%
Cost of systems and contingent rental income  -   -%  -   -%
Gross profit  -   -%  -   -%
Interest income on sales-type leases  6,062,347   -%  10,945,411   -%
Total operating income  6,062,347   -%  10,945,411   -%
Total operating expenses  (581,308)  -%  (1,153,894)  -%
Income from operations  5,481,039   -%  9,791,517   -%
Total non-operating expenses, net  (3,870,080)  -%  (7,902,663)  -%
Income before income tax  1,610,959   -%  1,888,854   -%
Income tax expense (benefit)  1,179,602   -%  (861,811)  -%
Less: net loss attributable to noncontrolling interest  (271,683)  -%  (227,126)  -%
Net income attributable to China Recycling Energy Corp $703,040   -% $2,977,791   -%
  2022  % of Sales  2021  % of Sales 
Sales $-        -% $  -        -%
Cost of sales  -   -%  -   -%
Gross profit  -   -%  -   -%
Interest income on sales-type leases  -   -%  -   -%
Total operating expenses  187,726   -%  111,060   -%
Loss from operations  (187,726)  -%  (111,060)  -%
Total non-operating income (expenses), net  (31,234)  -%  2,228,553   -%
Income (loss) before income tax  (218,960)  -%  2,117,493   -%
Income tax expense(benefit)  5,850   -%  (103,078)  -%
Net income (loss) $(224,810)  -% $2,220,571   -%

 

SALES. SALESTotal sales for the ninethree months ended SeptemberJune 30, 20172022 and 20162021 were $0. For the nine months ended September 30, 2017 and 2016, the Company had no sales of systems or contingent rental income. For the sales-type leases, sales and COS are recorded at the time of the lease; in addition to sales revenue, our other major source of revenue is interest income from the sales-type leases.

36

 

COST OF SALES. COSCost of sales (“COS”) for the ninethree months ended SeptemberJune 30, 20172022 and 20162021 were $0. We did not have any contingent rental income, or finish any new construction or sale any new system, in the nine months ended September 30, 2017.

 

GROSS PROFIT. Gross profitincome for the three months ended June 30, 2022 and 2021 were $0 with gross margin for the nine months ended September 30, 2017 and 2016 were $0 andof 0%, respectively..

 

INTEREST INCOME ON SALES-TYPE LEASES. Interest income on sales-type leases for the nine months ended September 30, 2017 was $6.06 million, a $4.88 million decrease from $10.95 million for the nine months ended September 30, 2016. During the nine months ended September 30, 2017, interest income was derived from the following nine sales-type leases:

 i.Two BMPG systems to Pucheng Phase I and II (15 and 11.9 years, respectively);
31 
ii.One BMPG system to Shenqiu Phase I (11 years);
iii.One BMPG system to Shenqiu Phase II (9.5 years);
iv.Five power and steam generating systems to Erdos (20 years); 

 

On April 28, 2016, Erdos TCH and Erdos entered into a supplemental agreement, effective on May 1, 2016, whereby Erdos TCH cancelled monthly minimum lease payments from Erdos, and charges Erdos based on actual electricity sold at RMB 0.30 / KWH. The selling price of each KWH will be determined annually based on prevailing market conditions.

 

In comparison, during the nine months ended September 30, 2016, interest income was derived from the following 10 sales-type leases:

i.Two BMPG systems to Pucheng Phase I and II (15 and 11.9 years, respectively);
ii.One BMPG system to Shenqiu Phase I (11 years);
iii.One BMPG system to Shenqiu Phase II (9.5 years);
iv.Five power and steam generating systems to Erdos (20 years);
v.One WGPG system to Yida (15 years but sold in 2nd quarter of 2016).

OPERATING EXPENSES.EXPENSES. Operating expenses consisted of general and administrative expenses totaling $581,308$187,726 for the ninethree months ended SeptemberJune 30, 2017,2022, compared to $1.15 million general and administrative expenses$111,060 for the comparable periodthree months ended June 30, 2021, an increase of 2016, a decrease of $572,586$76,666 or 50%69%. The decreaseincrease in operating expenses was mainly due to decreased payroll expenses of $129,800, entertainment expenses of $37,800, travel expenses of $38,800, and office expenses of $26,500 incurredincreased legal fee by Xi’an TCH and Erdos TCH,$26,000, increased other G&A expense by $16,000 and decreased professional fee such as accounting, auditing, legal expense and director fee of approximately $392,000 from CREG US parent company, despite the increased bad debt expense of $61,800. These decreases in operating expenses were a result of our disposal of certain power generating systems, which led to decreased employee headcount and associated expenses, as well as our continuous cost-saving efforts during a slower business period. reversal by $34,579.

NET NON-OPERATING EXPENSES. INCOME (EXPENSES). Net non-operating expensesincome (expenses) consisted of non-sales-type leaseloss on note conversion, interest income, interest expenses, Impairment loss on salelong term equity investment of construction in progressXi’an TCH’s investment into the HYREF fund, and miscellaneous expenses. For the ninethree months ended SeptemberJune 30, 2017,2022, net non-operating expense was $3.87 million$31,234 compared to net non-operating expenseincome of $7.90 million$2,228,553 for the ninethree months ended SeptemberJune 30, 2016.2021. For the ninethree months ended SeptemberJune 30, 2017,2022, we had $106,764$109,585 interest income but the amount was offset by $109,697 interest expense on note payable, and other expenses of $31,077. For the three months ended June 30, 2021, we had $109,461 interest income and $9,389 other income,gain on termination of buy-back agreement of Chengli project $3,155,959 (see Note 8), but the amounts wereamount was offset by a $3.99 million$145,615 interest expense on loans. For the nine months ended September 30, 2016, we had a $0.10 million interest income and a $0.28 million other income, but the amounts were offset by a $5.04 millionnote payable, interest expense a $2.82 million loss from the saleon failure of the Xuzhou Zhongtai construction in progress, and a $0.42 million loss fromnote redemption on time of $818,914, loss on the system repurchase from Yida.

note conversion of 2,719, and other expenses of $69,619. 

37

 

INCOME TAX EXPENSE. EXPENSE (BENEFIT)Income tax expense was $1.18 million$5,850 for the ninethree months ended SeptemberJune 30, 2017, an increase of $2.04 million from $0.86 million2022, compared with income tax benefit of $103,078 for the comparable period of 2016.three months ended June 30, 2021. The consolidated effective income tax (benefit) raterates for the ninethree months ended SeptemberJune 30, 20172022 and 20162021 were 71%2.7% and (46)(4.9)%, respectively. The increase in income tax expense was mainly due to the valuation allowance for deferred tax asset

NET INCOME (LOSS).  Net loss for the significant losses associated with Xi’an Zhonghong in the ninethree months ended SeptemberJune 30, 2017, and the higher income tax benefit from loss from disposal of fixed assets of the Xuzhou Zhongtai and Yida systems in the comparable period of 2016 per PRC tax return purpose.

NET INCOME.Net income for the nine months ended September 30, 20172022 was $0.70 million$224,810 compared to net income of $2.98 million$2,220,571 for the ninethree months ended SeptemberJune 30, 2016, a decrease2021, an increase of $2.27 million.net loss of $2,445,381. This decreaseincrease in net incomeloss was mainly due to the decreased interest incomeno gain on sales-type leasestermination of project (while in 2021, we had gain on buy-back agreement of Chengli project of $3,155,959) and increased income tax expense in the nine months ended September 30, 2017.by $108,928, which was partly offset by decreased interest expense by $854,787 as described above. 

 

Liquidity and Capital ResourcesLIQUIDITY AND CAPITAL RESOURCES

 

Comparison of the nine months ended SeptemberSix Months Ended June 30, 20172022 and 20162021

 

As of SeptemberJune 30, 2017,2022, the Company had cash and equivalents of $48.31$144.25 million, other current assets of $40.45$1.09 million, current liabilities of $61.92$21.68 million, working capital of $26.84$123.66 million, a current ratio of 1.43:6.71:1 and a debt-to-equityliability-to-equity ratio of 0.27:0.22:1.

 

The following is a summary of cash provided by or used in each of the indicated types of activities during the ninesix months ended SeptemberJune 30, 20172022 and 2016:2021:

 

  2017  2016 
Cash provided by (used in):      
Operating Activities $(887,898) $30,432,764 
Investing Activities  -   1,101,308 
Financing Activities  (735,478)  (31,463,810)
  2022  2021 
Cash provided by (used in):      
Operating Activities $(167,599) $(681,465)
Investing Activities  -   - 
Financing Activities $-  $42,561,721 

 

Net cash used in operating activities was $0.89 million$167,599 during the ninesix months ended SeptemberJune 30, 2017,2022, compared to $30.43 million provided by operating activities in$681,465 for the comparable period of 2016.six months ended June 30, 2021. The decrease in net cash inflow inoutflow for the ninesix months ended SeptemberJune 30, 20172022 was mainly due to a decrease in cash inflow from construction in progress by $23.01 million as a result of the disposal of the Xuzhou Zhongtai construction in progress in the comparable period of 2016, an increaseddecreased cash outflow for other receivableon taxes payable by $2.82 million, and a$866,682, which was partly offset by decreased cash inflow from collection of principal on sales type leases by $17.44 million. However, the decrease in cash inflow was partially offset by a decreased cash outflow on accounts receivable by $10.11 million$345,788.

On August 2, 2021, the Company entered a Research and an increasedDevelopment Cooperation Agreement with a software development company to design, establish, upgrade and maintenance of Smart Energy Management Cloud Platform for energy storage and remote-site monitoring; upon completion, the Company will provide such platform to its customers at a fee. Total contracted research and development cost is $1,000,000, the Company prepaid $200,000 in 2021.

32

On August 23, 2021, the Company entered a Market Research and Project Development Service Agreement with a consulting company in Xi’an for a service period of 12 months. The consulting company will perform the market research for new energy industry including photovoltaic and energy storage, develop potential new customers and due diligence check, assisting the Company for business cooperation negotiation and relevant agreements preparation. Total contract amount is $1,150,000, and the Company prepaid $650,000 at commencement of the service; the Company will pay $200,000 upon issuance of the research report, and pay the remaining of $300,000 upon completion all the services.

Net cash inflow from delaying interest payable on an entrusted loan by $5.72 million.used in investing activities was $0 and $0, respectively, for the six months ended June 30, 2022 and 2021.

 

Net cash provided by investingfinancing activities was $0 for the ninesix months ended SeptemberJune 30, 2017,2022 compared to net cash provided by investing activities of $1.10 million in the comparable period of 2016. We had $1.10 million cash inflow from change in restricted cash in the nine months ended September 30, 2016.

Net cash used in financing activities was $0.74 million for the nine months ended September 30, 2017 compared to net cash used in financing activities of $31.46 million$42,561,721 for the ninesix months ended SeptemberJune 30, 2016.2021. The cash outflow ininflow for the ninesix months ended SeptemberJune 30, 2017 came2021 was the proceeds from a private placement of $37,561,721 and issuance of notes payable of $5,000,000. 

On February 23, 2021, the Company entered into certain securities purchase agreements with several non-U.S. investors (the “Purchasers”), pursuant to which the Company agreed to sell to the Purchasers, an aggregate of up to 3,320,000 shares of common stock of the Company, at $11.522 per share, which was the five-day average closing price immediately prior to signing the Purchase Agreements. One of the purchasers was the Company’s CEO (also is the Company’s Chairman), he purchased 1,000,000 common shares of the Company. On March 11, 2021, the Company received approximately $38.25 million proceeds from the $0.74 million repaymentissuance of bank loans.3,320,000 shares under the securities purchase agreements, there was no any fees paid in connection with this financing. In comparison, duringApril 2021, the nine months ended September 30, 2016, we had $30.47 millionCompany’s CEO amended the number of shares that he would purchase from 1,000,000 shares to 940,000 shares; accordingly, total number of shares sold in repayments of bank loans and $0.99 million repayment of notes payable.this offering became 3,260,000 shares. The Company returned $691,320 extra proceeds that were received earlier to the Company’s CEO in April 2021.

 

We believe we have sufficient cash to continue our current business through 2017 based on recurring receipts from existing sales-type leases. As of September 30, 2017, we had five recycling WHPG systems from the Erdos projects and four BMPG systems (two for Pucheng and two for Shenqiu), all of which generate cash flow. In addition, we have access to bank loans in case of an immediate need for working capital. We believe we have sufficient cash resources to cover our anticipated capital expenditures in 2017. The 9 systems that are currently in operation have minimum monthly lease payments of RMB 7.72 million ($1.14 million).

We do not believe inflation has had or will have a significant negative impact on our results of operations in 2017.

2022.

38

 

Transfers of Cash to and from Our Subsidiaries

 

The PRC has currency and capital transfer regulations that require us to comply with certain requirements for the movement of capital. The Company is able to transfer cash (US Dollars) to its PRC subsidiaries through: (i) an investment (by increasing the Company’s registered capital in a PRC subsidiary), or (ii) a stockholder loan. Except as described below, theThe Company’s subsidiaries in the PRC have not transferred any earnings or cash to the Company to date. The Company’s business is primarily conducted through its subsidiaries. The Company is a holding company and its material assets consist solely of the ownership interests held in its PRC subsidiaries. The Company relies on dividends paid by its subsidiaries for its working capital and cash needs, including the funds necessary: (i) to pay dividends or cash distributions to its stockholders, (ii) to service any debt obligations and (iii) to pay operating expenses. As a result of PRC laws and regulations (noted below) that require annual appropriations of 10% of after-tax income to be set aside in a general reserve fund prior to payment of dividends, the Company’s PRC subsidiaries are restricted in that respect, as well as in others respects noted below, in their ability to transfer a portion of their net assets to the Company as a dividend.

 

With respect to transferring cash from the Company to its subsidiaries, increasing the Company’s registered capital in a PRC subsidiary requires the pre-approvalfiling of the local commerce department, while a stockholder loan requires a filing with the state administration of foreign exchange or its local bureau.

 

With respect to the payment of dividends, we note the following:

 

1.1.PRC regulations currently permit the payment of dividends only out of accumulated profits, as determined in accordance with accounting standards and PRC regulations (an in-depth description of the PRC regulations is set forth below);

 
2.Our PRC subsidiaries are required to set aside, at a minimum, 10% of their net income after taxes, based on PRC accounting standards, each year as statutory surplus reserves until the cumulative amount of such reserves reaches 50% of their registered capital;

 
3.Such reserves may not be distributed as cash dividends;

 

 4.33

4.Our PRC subsidiaries may also allocate a portion of their after-tax profits to fund their staff welfare and bonus funds; except in the event of a liquidation, these funds may also not be distributed to stockholders; the Company does not participate in a Common Welfare Fund;

 
5.The incurrence of debt, specifically the instruments governing such debt, may restrict a subsidiary’s ability to pay stockholder dividends or make other cash distributions; and

 
6.The Company is subject to covenants and consent requirements.

 

If, for the reasons noted above, our subsidiaries are unable to pay stockholder dividends and/or make other cash payments to the Company when needed, the Company’s ability to conduct operations, make investments, engage in acquisitions, or undertake other activities requiring working capital may be materially and adversely affected. However, our operations and business, including investment and/or acquisitions by our subsidiaries within China, will not be affected as long as the capital is not transferred in or out of the PRC.

 

PRC Regulations

 

In accordance with PRC regulations on Enterprises with Foreign Investment and their articles of association, a foreign-invested enterprise (“FIE”) established in the PRC is required to provide statutory reserves, which are appropriated from net profit, as reported in the FIE’s PRC statutory accounts. AnA FIE is required to allocate at least 10% of its annual after-tax profit to the surplus reserve until such reserve has reached 50% of its respective registered capital (based on the FIE’s PRC statutory accounts). The aforementioned reserves may only be used for specific purposes and may not be distributed as cash dividends. Until such contribution of capital is satisfied, the FIE is not allowed to repatriate profits to its stockholders, unless approved by the State Administration of Foreign Exchange. After satisfaction of this requirement, the remaining funds may be appropriated at the discretion of the FIE’s board of directors. Our subsidiary, Shanghai TCH, qualifies as ana FIE and is therefore subject to the above-mandated regulations on distributable profits.  

39

 

Additionally, in accordance with PRC corporate law, a domestic enterprise is required to maintain a surplus reserve of at least 10% of its annual after-tax profit until such reserve has reached 50% of its respective registered capital based on the enterprise’s PRC statutory accounts. A domestic enterprise is also required to provide discretionary surplus reserve, at the discretion of the board of directors, from the profits determined in accordance with the enterprise’s PRC statutory accounts. The aforementioned reserves can only be used for specific purposes and may not be distributed as cash dividends. Xi’an TCH, Huahong, Zhonghong and Erdos TCH were established as domestic enterprises; therefore, each is subject to the above-mentioned restrictions on distributable profits.

 

As a result of PRC laws and regulations that require annual appropriations of 10% of after-tax income to be set aside, prior to payment of dividends, in a general reserve fund, the Company’s PRC subsidiaries are restricted in their ability to transfer a portion of their net assets to the Company as a dividend or otherwise.

 

Chart of the Company’s Statutory Reserve

 

Pursuant to PRC corporate law, effective January 1, 2006, the Company is required to maintain a statutory Pursuant to PRC corporate law, effective January 1, 2006, the Company is required to maintain a statutory reserve by appropriating from its after-tax profit before declaration or payment of dividends. The statutory reserve represents restricted retained earnings. Our restricted and unrestricted retained earnings under US GAAP are set forth below:

 

  As At 
  September 30,
2017
  December 31,
2016
 
Unrestricted retained earnings $86,177,041  $85,838,638 
Restricted retained earnings (surplus reserve fund)  14,838,561   14,473,924 
Retained earnings (including surplus reserve fund) $101,015,602  $100,312,562 
  As of 
  June 30,
2022
  December 31,
2021
 
Unrestricted accumulated deficit $(55,930,115) $(55,281,680)
Restricted retained earnings (surplus reserve fund)  15,162,233   15,180,067 
Total accumulated deficit $(40,767,882) $(40,101,613)

 

Off-Balance Sheet Arrangements

34

 

OFF-BALANCE SHEET ARRANGEMENTS

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

 

Contractual ObligationsCONTRACTUAL OBLIGATIONS

 

The Company’s contractual obligations as of SeptemberJune 30, 20172022 are as follows:

Contractual Obligation 

1 year or

less

  

More than

1 year

  

See Note

(for details)

 
Entrusted loan  50,023,354          -   12 
Total $50,023,354  $-     

40

 

  1 year or  More than  See Note 
Contractual Obligation less  1 year  (for details) 
Notes payable including accrued interest of $133,807, net of unamortized OID of $93,750 $5,540,019  $   -   10 
Entrusted loan including interest payable of $360,350 $11,833,366  $-   8 
Total $17,373,385  $-     

The Company believes that it has a stablesufficient cash inflow each monthin bank of $144.25 million as of June 30, 2022, and a sufficient channel to commercial institutions to obtain any loans that may be necessary to meet its working capital needs. Historically, we have been able to obtain loans or otherwise achieve our financing objectives due to the Chinese government’s support for energy-saving businesses with stable cash inflows, good credit ratings and history. The Company does not believe it will have difficulties related to the repayment of its outstanding short-term loans.

 

Commitments

Boxing Chengli Power Generation Projects

On July 24, 2013, Zhonghong entered into a Cooperative Agreement of CDQ and CDQ WHPG Project with Boxing County Chengli Gas Supply Co., Ltd. (“Chengli”), including a supplement agreement entered by the parties on July 26, 2013.

Pursuant to the agreements, Zhonghong will design, build and maintain a CDQ system and a 25 MW CDQ WHPG system to supply power to Chengli, and Chengli will pay energy saving fees. Chengli will contract the operation of the system to a third party contractor that is mutually agreed to by Zhonghong. In addition, Chengli will provide the land for the CDQ and CDQ WHPG system at no cost to Zhonghong. The term of the Agreements is 20 years. The energy saving fees generated by the Project will be charged at RMB 0.42 ($0.068) per KWH (excluding tax). The operating time shall be based upon an average 8,000 hours annually. If the operating time is less than 8,000 hours due to a reason attributable to Chengli’s, then time charged shall be 8,000 hours a year, and if it is less than 8,000 hours due to a reason attributable to Zhonghong, then it shall be charged at actual operating hours. The construction of the Project was completed in the second quarter of 2015, and the commissioning tests were successfully completed in the first quarter of 2017. The Chengli Project is now operational, but will not begin operations until the Company receives the required power generating license, which the Company anticipates receiving in the fourth quarter of 2017. From the date of the operation, Chengli shall ensure its coking production line works properly and that working hours for the CDQ system are no less than 8,000 hours/year, while Zhonghong shall ensure that working hours for the CDQ WHPG system are no less than 7,200 hours/year.

On July 22, 2013, Xi’an Zhonghong New Energy Technology Co., Ltd. entered into an EPC General Contractor Agreement for the Boxing County Chengli Gas Supply Co., Ltd. CDQ Power Generation Project (the “Project”) with Xi’an Huaxin New Energy Co., Ltd. (“Huaxin”). Zhonghong as the owner of the Project contracted EPC for a CDQ and a 25 MW CDQ WHPG system for Chengli from Huaxin. Huaxin shall provide construction, equipment procurement, transportation, installation and adjustment, test run, construction engineering management and other necessary works to complete the Project and ensure the CDQ and CDQ WHPG system for Chengli meet the inspection and acceptance requirements and work normally. The project is a turn-key project and Huaxin is responsible for the quality, safety, duration and cost of the Project. The total contract price is RMB 200 million ($28.83 million). The price is a cover-all price which includes but is not limited to all the materials, equipment, labor, transportation, electricity, water, waste disposal, machinery and safety matters. As of September 30, 2017, Zhonghong has paid $25.48 million (or $31.87 million if including capitalized interest) for the Chengli project and is committed to pay an additional $4.65 million. The Chengli project had finished construction, but was waiting for government approval before beginning operations.

Xuzhou Tian’an and Xuzhou Huayu CDQ Power Generation Projects

On July 19, 2013, Zhonghong entered into a Cooperative Agreement for Energy Management of CDQ and CDQ WHPG Project (the “Tianyu Project”) with Jiangsu Tianyu Energy and Chemical Group Co., Ltd. (“Tianyu”).

Pursuant to the Tianyu Agreement, Zhonghong will design, build, operate and maintain two sets of 25 MW CDQ and CDQ WHPG systems for two subsidiaries of Tianyu: one is for and will be located at Xuzhou Tian’an Chemical Co., Ltd and one set is for and will be located at Xuzhou Huayu Coking Co., Ltd. Upon the completion of the Tianyu Project, Zhonghong will charge Tianyu an energy saving service fee of RMB 0.534 ($0.088) per KWH (excluding tax). The operating time shall be based upon an average 8,000 hours annually for each of Tian’an and Huayu. If the operating time for each of Tian’an and Huayu is less than 8,000 hours a year due to the reason attributable to Tianyu, then time charged shall be 8,000 hours a year for each of Tian’an and Huayu. Xuzhou Tian’an and Huayu will provide the land for the CDQ and CDQ WHPG systems for free. Xuzhou Tian’an and Huayu also guarantee that they will purchase all of the power generated by the CDQ WHPG systems. 

 4135 

 

 

On July 22, 2013, Xi’an Zhonghong New Energy Technology Co., Ltd. entered into an EPC General Contractor Agreement for the Xuzhou Tianyu Group CDQ Power Generation Project (the “Project”) with Xi’an Huaxin New Energy Co., Ltd. (“Huaxin”). Zhonghong as the owner of the Project contracted EPC for the two sets of CDQ and 25 MW CDQ WHPG systems for Tianyu to Huaxin—one for Xuzhou Tian’an and one for Xuzhou Huayu. Huaxin shall provide construction, equipment procurement, transportation, installation and adjustment, test run, construction engineering management and other necessary works to complete the Project and ensure the CDQ and CDQ WHPG systems for Tianyu meet the inspection and acceptance requirements and work normally. The project is a turn-key project and Huaxin is responsible for the quality, safety, duration and cost of the Project. The total contract price is RMB 400 million ($66.67 million) of which RMB 200 million ($28.83 million) is for the Xuzhou Tian’an system and RMB 200 million is for the Xuzhou Huayu system. The price is a cover-all price which includes but is not limited to all the materials, equipment, labor, transportation, electricity, water, waste disposal, machinery and safety matters. As of September 30, 2017, Zhonghong had paid $18.08 million (or $24.59 million if including capitalized interest) for the Huayu project and $25.95 million (or $36.40 million if including capitalized interest) for the Tian’an project and is committed to pay an additional $12.05 million for the Huayu project and $4.18 million for the Tian’an project.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Exchange Rate Risk

Our operations are conducted mainly in the PRC. As such, our earnings are subject to movements in foreign currency exchange rates when transactions are denominated in RMB, which is our functional currency. Accordingly, our operating results are affected by changes in the exchange rate between the U.S. dollar and those currencies.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures which are designed to provide reasonable assurance that information required to be disclosed in the Company’s periodic SEC reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Company’s management, with the participation of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rules 13a - 15(e) and 15d - 15(e) of the Securities Exchange Act of 1934 (“Exchange Act”) at the end of the period covered by the report.

Based upon that evaluation, our Chief Executive OfficerCEO and Chief Financial OfficerCFO concluded that, as of SeptemberJune 30, 2017,2022, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that (i) the information required to be disclosed by us in this Report was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.not effective.

Changes in Internal Control Over Financial Reporting

With the participation of the Company’s management, including its Chief Executive OfficerCEO and Chief Financial Officer,CFO, the Company also conducted an evaluation of the Company’s internal control over financial reporting to determine whether any changes occurred during the Company’s fiscal quarter ended as of SeptemberJune 30, 2017,2022, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Based on such evaluation, management concluded that, as of the end of the period covered by this report, there have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including the Chief Executive OfficerCEO and Chief Financial Officer,CFO, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

 4236 

 

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may be subject to litigation,legal proceedings and claims and assessments that arise in the ordinary course of business. Management believesWe are not currently a party to any material legal proceedings, and to our knowledge none is threatened. There can be no assurance that any liability resulting from such additional mattersfuture legal proceedings arising in the ordinary course of business or otherwise will not have a material adverse effect on our financial position, results of operations or cash flows.

In November 2019, Beijing Hongyuan Recycling Energy Investment Center, or Hongyuan, filed a lawsuit with the Beijing Intermediate People’s Court against Xi’an TCH to compel Xi’an TCH to repurchase certain stocks pursuant to a stock repurchase option agreement. On April 9, 2021, the court rendered a judgment in favor of Hongyuan. Xi ‘an TCH filed a motion for retrial to High People’s Court of Beijing on April 13, 2022, on the basis that Xi’an TCH has already paid RMB 267 million to Hongyuan as an out-of-court settlement. On August 10, 2022, Beijing No.1 Intermediate People’s Court of Beijing issued a Certificate of Active Performance, proving that Xi’an Zhonghong New Energy Technology Co., Ltd. Had fulfilled its buyback obligations.

On April 9, 2021, Xi’an TCH, Xi’an Zhonghong, Guohua Ku, Chonggong Bai and HYREF entered a Termination of Fulfillment Agreement (termination agreement). Under the termination agreement, the original buyback agreement entered on December 19, 2019 was terminated upon signing of the termination agreement. HYREF will not execute the buy-back option and will not ask for any additional payment from the buyers other than keeping the CDQ WHPG station.

In February 2016, Xuzhou Intermediate People’s Court of Jiangsu Province, or the Xuzhou Court, accepted an execution proceeding request from Zhongrong International Trust Co. Ltd., or Zhongrong, against Mr. Guohua Ku, Xi’an TCH, Xuzhou Taifate Steel Co., Ltd., or Xuzhou Taifate, to satisfy the obligation arising out of a loan agreement and guarantee agreement among the parties. On March 21, 2018 and March 20, 2019, the Xuzhou Court ordered a deduction from the bank accounts of Mr. Ku and Xi’an TCH of RMB 371,470 and RMB 254,824, respectively. On August 21, 2020, the Xuzhou Court reopened the case in response to Zhongrong’s request against Xuzhou Taifa for the resolution of an additional loan in the amount of RMB 145,356,100, which was paid in full in settlement. The Company is not a party to any legal proceedings that it believes will have a material adverse effect uponXuzhou Court concluded and closed the conduct of its business or its financial position.case on December 21, 2020. 

Item 1A. Risk Factors

There have been no material changes in our risk factors from those disclosed in Part I, Item 1A, of our Annual Report on Form 10-K as of and for the year ended December 31, 2016.2021. An investment in our common stock involves various risks. When considering an investment in our company, you should consider carefully all of the risk factors described in our most recent Form 10-K.10-K and the registration statement as referenced above. If any of those risks, incorporated by reference in this Form 10-Q, occur, the market price of our shares of common stock could decline and investors could lose all or part of their investment. These risks and uncertainties are not the only ones facing us and there may be additional matters that we are unaware of or that we currently consider immaterial. All of these could adversely affect our business, financial condition, results of operations and cash flows and, thus, the value of an investment in our company.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information

None.

43

Nome


 

ItemITEM 6. ExhibitsEXHIBITS

Exhibit No.
Number
Description
31.13.1Articles of Incorporation (filed as Exhibit 3.05 to the Company’s Form 10-KSB for the fiscal year ended December 31, 2001).
3.2Fifth Amended and Restated Bylaws (filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K dated March 9, 2022).
3.3Certificate of Change (filed as Exhibit 3.6 to the Company’s Current Report on Form 8-K dated May 24, 2016).
3.4Certificate of Amendment (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated March 9, 2022).
4.1Common Stock Specimen (filed as Exhibit 4.1 to the Company’s Registration Statement on Form SB-2 dated November 12, 2004; 1934 Act File No. 333-120431).
10.1Supplementary Agreement by and between Inner Mongolia Erdos TCH Energy Saving Development Co., Ltd. and Inner Mongolia Erdos Metallurgy Co., Ltd., dated December 1, 2009 (filed as Exhibit 10.27 to the Company’s Form 10-K for the year ended December 31, 2009).
10.2Joint Operation Agreement by and between Xi’an TCH Energy Technology Co., Ltd., a wholly owned subsidiary of the Company, and Inner Mongolia Erdos Metallurgy Co., Ltd., dated January 20, 2009 (filed as Exhibit 10.1 to the Company’s Form 10-Q for the quarterly period ended June 30, 2009).
10.3Form of Independent Director Agreement. (filed as Exhibit 10.28 on the Company’s Registration Statement on Form 10, filed on February 5, 2010).
10.4English Translation of Employment Agreement between the Company and Guohua Ku, dated December 10, 2020 (filed as Exhibit 10.4 to the Company’s Current Report on Form 10-K dated December 31, 2021).
10.5CertificationEnglish Translation of Chief Executive Officer pursuantEmployment Agreement between the Company and Yongjiang Shi, dated December 16, 2021 (filed as Exhibit 10.5 to Rule 13a-14(a)the Company’s Current Report on Form 10-K dated September 16, 2021).*
31.210.6Biomass Power Generation Asset Transfer Agreement (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 16, 2013).
10.7Biomass Power Generation Project Lease Agreement (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated September 16, 2013).
10.8Partnership Agreement of Beijing Hongyuan Recycling Energy Investment Center, LLP, dated July 18, 2013 (filed as Exhibit 10.1 to the Company’s Form 10-Q for the quarterly period ended September 30, 2013).
10.9EPC Contract for Boxing CDQ Waste Heat Power Generation Project, dated July 22, 2013, by and between Xi’an Zhonghong New Energy Technology Co., Ltd and Xi’an Huaxin New Energy Co., Ltd (filed as Exhibit 10.3 to the Company’s Form 10-Q for the quarterly period ended September 30, 2013).
10.10EPC Contract for CDQ Power Generation Project of Xuzhou Tianyu Group, dated July 22, 2013, by and between Xi’an Zhonghong New Energy Technology Co., Ltd and Xi’an H201uaxin New Energy Co., Ltd. (filed as Exhibit 10.4 to the Company’s Form 10-Q for the quarterly period ended September 30, 2013).


10.11Cooperation Agreement, dated July 22, 2013, by and between Xi’an Zhonghong New Energy Technology Co., Ltd. and Jiangsu Tianyu Energy and Chemical Group Co., Ltd (filed as Exhibit 10.5 to the Company’s Form 10-Q for the quarterly period ended September 30, 2013).
10.12Waste Heat Power Generation Energy Management Cooperative Agreement with Zhongtai (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 6, 2013).
10.13CDQ Power Generation Energy Management Cooperative Agreement with Rongfeng (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 17, 2013).
10.14China Recycling Energy Corporation Omnibus Equity Plan (Incorporated by reference from Appendix A to the Company’s Definitive Schedule 14A filed on April 30, 2015).
10.15Transfer Agreement of CDQ & Waste Heat Power Generation, dated November 16, 2015, by and between Xi’an TCH Energy Technology Co., Ltd and Tangshan Rongfeng Iron & Steel Co., Ltd. and Xi’an Huaxin New Energy Co., Ltd. (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated November 20, 2015).
10.16Xuzhou Zhongtai CDQ and Waste Heat Power Generation System Transfer Agreement, dated March 14, 2016, by Xi’an TCH Energy Technology Co., Ltd, Xuzhou Zhongtai Energy Technology Co., Ltd. and Xi’an Huaxin New Energy Co., Ltd. (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated March 18, 2016).
10.17Repurchase Agreement for Coking Coal Gas Power Generation Project, dated June 22, 2016, by and between Xi’an TCH Energy Technology Co., Ltd., and Qitaihe City Boli Yida Coal Selection Co., Ltd. (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q dated August 15, 2016).
10.18Securities Purchase Agreement by and between China Recycling Energy Corporation and Iliad Research and Trading, L.P., dated July 11, 2018 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated July 17, 2018).
10.19Convertible Promissory Note, issued by China Recycling Energy Corporation to Iliad Research and Trading, L.P., dated July 11, 2018 (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated July 17, 2018).
10.20Equity Purchase Agreement by and between Shanghai TCH Energy Technology Co., Ltd. and Jinhua Wang, dated September 30, 2018 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 30, 2018).
10.21Agreement of Supplementary and Amendment by and between Shanghai TCH Energy Technology Co., Ltd. and Jinhua Wang, dated November 21, 2018 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated November 26, 2018).
10.22CDQ WHPG Station Fixed Assets Transfer Agreement, dated December 29, 2018, by and among Xi’an Zhonghong, Xi’an TCH, the HYREF, Guohua Ku and Chonggong Bai (filed as Exhibit 10.21 to the Company’s Annual Report on Form 10-K dated for the year ended December 31, 2018 filed on March 16, 2019).
10.23Buy-Back Agreement, dated December 29, 2018, by and among HYREF, Xi’an Zhonghong, Xi’an TCH, Guohua Ku, Chonggong Bai and Xi’an Hanneng (filed as Exhibit 10.22 to the Company’s Annual Report on Form 10-K dated for the year ended December 31, 2018 filed on March 16, 2019).


10.24Equity Transfer Agreement, dated December 29, 2018, by and between Xi’an TCH and Hongyuan Huifu. (filed as Exhibit 10.23 to the Company’s Annual Report on Form 10-K dated for the year ended December 31, 2018 filed on March 16, 2019)†

10.25Equity Transfer Agreement, dated December 29, 2018, by and between Shanghai TCH and HYREF. (filed as Exhibit 10.24 to the Company’s Annual Report on Form 10-K dated for the year ended December 31, 2018 filed on March 16, 2019)†
10.26Supplementary Agreement of Equity Transfer Agreement, dated December 29, 2018, by and among Xi’an TCH, Hongyuan Huifu, and the Fund Management Company. (filed as Exhibit 10.25 to the Company’s Annual Report on Form 10-K dated for the year ended December 31, 2018 filed on March 16, 2019)†
10.27Projects Transfer Agreement by and among Xi’an Zhonghong, Xi’an TCH, and Mr. Chonggong Bai, dated January 4, 2019 (filed as Exhibit 10.26 to the Company’s Annual Report on Form 10-K dated for the year ended December 31, 2018 filed on March 16, 2019).†
10.28Securities Purchase Agreement by and between China Recycling Energy Corporation and Great Essential Investment, Ltd, dated February 13, 2019 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated February 19, 2019).
10.29Termination of Equity Purchase Agreement and Supplementary Amendment Agreement by and between Shanghai TCH and Mr. Jihua Wang, dated March 29, 2019 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated March 29, 2019).
10.30Forebearance Agreement by and between China Recycling Energy Corporation and Iliad Research and Trading, L.P. dated September 11, 2019 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 11, 2019).
10.31Exchange Agreement by and between China Recycling Energy Corporation and Iliad Research and Trading, L.P. dated September 19, 2019 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 19, 2019).
10.32Termination Agreement of Lease Agreement of Biomass Power Generation Project by and between Xi’an TCH Energy Technology Co., Ltd. and Pucheng Xin Heng Yuan Biomass Power Generation Co., Ltd. dated September 29, 2019 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 29, 2019).
10.33Exchange Agreement by and between China Recycling Energy Corporation and Iliad Research and Trading, L.P. dated October 16, 2019 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 16, 2019).
10.34Exchange Agreement by and between China Recycling Energy Corporation and Iliad Research and Trading, L.P. dated October 16, 2019 (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated October 16, 2019).
10.35Amendment to Forebearance Agreement by and between China Recycling Energy Corporation and Iliad Research and Trading, L.P. dated December 16, 2019 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 16, 2019).
10.36Exchange Agreement by and between China Recycling Energy Corporation and Iliad Research and Trading, L.P. dated January 3, 2020 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 3, 2020).
10.37Exchange Agreement by and between China Recycling Energy Corporation and Iliad Research and Trading, L.P. dated January 13, 2020 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 13, 2020).
10.38Exchange Agreement by and between China Recycling Energy Corporation and Iliad Research and Trading, L.P. dated May 4, 2020 (filed as Exhibit 10.30 to the Company’s Current Report on Form 8-K, dated May 4, 2020).


10.39Employment Agreement by and between China Recycling Energy Corporation and Yongjiang (Jackie) Shi, dated May 8, 2020 (as Exhibit 10.38 to the Company’s Annual Report on Form 10-K dated for the year ended December 31, 2020 filed on April 15, 2021)
10.40Exchange Agreement dated as of May 15, 2020 by and between China Recycling Energy Corporation and Lliad Research and Trading, L.P. (filed as Exhibit 10.39 to the Company’s Current Report on Form 8-K, dated May 21, 2020).
10.41Forbearance Agreement dated as of May 15, 2020 by and between China Recycling Energy Corporation and Lliad Research and Trading, L.P. (filed as Exhibit 10.40 to the Company’s Current Report on Form 8-K, dated May 21, 2020).
10.42Exchange Agreement dated as of May 29, 2020 by and between China Recycling Energy Corporation and Lliad Research and Trading, L.P. (filed as Exhibit 10.41 to the Company’s Current Report on Form 8-K, dated June 4, 2020).
10.43Equity Acquisition Agreement dated as of December 22, 2020 by and between China Recycling Energy Corporation and Shanghai TCH Energy Technology Co., Ltd., Zheng Feng, Yinhua Zhang, Weidong Xu and Xi’an Taiying Energy Saving Technology Co., Ltd. (filed as Exhibit 10.43 to the Company’s Current Report on Form 8-K, dated December 29, 2020).
10.44Promissory Note dated as of December 4, 2020 by and between China Recycling Energy Corporation and Streeterville Capital, LLC. (filed as Exhibit 10.43 to the Company’s Form S-1/A dated October 6, 2021)
10.45Exchange Agreements dated as of August 24, 2021 by and between China Recycling Energy Corporation and Streeterville Capital, LLC. (filed as Exhibit 10.44 to the Company’s Form S-1/A dated October 6, 2021)
10.46Exchange Agreements dated as of August 31, 2021 by and between China Recycling Energy Corporation and Streeterville Capital, LLC. (filed as Exhibit 10.45 to the Company’s Form S-1/A dated October 6, 2021)
10.47Exchange Agreements dated as of September 1, 2021 by and between China Recycling Energy Corporation and Streeterville Capital, LLC. (filed as Exhibit 10.1 to the Company’s quarterly report on Form 10-Q dated November 12, 2021)
10.48Exchange Agreements dated as of October 8, 2021 by and between China Recycling Energy Corporation and Streeterville Capital, LLC. (filed as Exhibit 10.2 to the Company’s quarterly report on Form 10-Q dated November 12, 2021)
10.49Exchange Agreements dated as of October 21, 2021 by and between China Recycling Energy Corporation and Streeterville Capital, LLC. (filed as Exhibit 10.3 to the Company’s quarterly report on Form 10-Q dated November 12, 2021)


10.50Exchange Agreements dated as of October 25, 2021 by and between China Recycling Energy Corporation and Streeterville Capital, LLC. (filed as Exhibit 10.4 to the Company’s quarterly report on Form 10-Q dated November 12, 2021)
10.51Exchange Agreements dated as of November 9, 2021 by and between China Recycling Energy Corporation and Streeterville Capital, LLC. (filed as Exhibit 10.5 to the Company’s quarterly report on Form 10-Q dated November 12, 2021)
10.52Exchange Agreements dated as of November 30, 2021 by and between China Recycling Energy Corporation and Streeterville Capital, LLC. (filed as Exhibit to the Company’s Amendment to Registration Statement on Form S1/A dated December 3, 2021)
14.1CertificationCode of Chief Financial Officer pursuantEthics (filed as Exhibit 14.1 to Rule 13a-14(a)the Company’s Current Report on Form 8-K dated December 2, 2009).*
32.121.1Subsidiaries (filed as Exhibit 21.1 to the Company’s Annual Report on Form 10-K dated May 14, 2020).
31.1*Rule 13a-14(a)/15d-14(a) certification of the Chief Executive Officer.
31.2*Rule 13a-14(a)/15d-14(a) certification of the Chief Financial Officer.
32.1*Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.*
32.232.2*Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.*
101.INS101.INS*Inline XBRL Instance Document.*Document
101.SCH101.CAL*XBRL Taxonomy Extension Schema Document.*
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.*Document
101.LAB101.SCH*Inline XBRL Taxonomy Extension Label LinkbaseSchema Document.*
101.PRE101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document.*Document
101.DEF104*Cover Page Interactive Data File (formatted as Inline XBRL Taxonomy Definitions Linkbase Document.*and contained in Exhibit 101).

*       Filed herewith

44

 

SIGNATURES

SIGNATURES

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

CHINA RECYCLING ENERGY CORPORATION (Registrant)SMART POWERR CORP.
Date: November 14, 2017October 11, 2022By:/s/ Guohua Ku
Guohua Ku

Guohua Ku

Chairman of the Board and

Chief Executive Officer (Principal
(Principal
Executive Officer)

Date: November 14, 2017October 11, 2022By:/s/ Binfeng GuYongjiang Shi

Binfeng Gu

Yongjiang Shi
Chief Financial Officer
(
Principal Financial Officer and Secretary

Accounting Officer)

45

 

EXHIBIT INDEX

 

Exhibit
Number
Description
31.1Certification of Chief Executive Officer pursuant to Rule 13a-14(a).*
31.2Certification of Chief Financial Officer pursuant to Rule 13a-14(a).*
32.1Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.*
32.2Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.*
101.INSXBRL Instance Document.*
101.SCHXBRL Taxonomy Extension Schema Document.*
101.CALXBRL Taxonomy Extension Calculation Linkbase Document.*
101.LABXBRL Taxonomy Extension Label Linkbase Document.*
101.PREXBRL Taxonomy Extension Presentation Linkbase Document.*
101.DEFXBRL Taxonomy Definitions Linkbase Document.*

43

*      Filed herewith

 46

 

0000721693 creg:TransferAgreementMember creg:HYREFMember 2019-01-04 iso4217:USD xbrli:shares