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

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

(Exact ~~Name~~name of ~~Registrant~~registrant as ~~Specified~~specified in ~~Its Charter)~~its charter)

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

(Registrant’s ~~Telephone Number, Including Area Code: + 86-29-8765-1097~~telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the ~~Securities~~ Exchange Act ~~of 1934~~ during the ~~preceding~~past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ ~~Yes~~No ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ ~~Yes~~No ☐ 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.

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 ~~Section~~section 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 ☐ ~~Yes~~No ☒ No

~~The number of~~August 9, 2020, there were 2,652,563 shares ~~outstanding~~ of the registrant’s ~~Common Stock, as of August 12, 2019 was 16,106,498.~~common stock outstanding.

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

CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

SIX MONTHS ENDED
JUNE 30, THREE MONTHS ENDED
JUNE 30,
2019 2018 2019 2018

Revenue
Contingent rental income $ 702,973 $ 2,804,268 $ 80,924 $ 1,381,437

Interest income on sales-type leases 173,360 2,264,481 - 657,866

Total operating income 876,333 5,068,749 80,924 2,039,303

Operating expenses
Bad debt 2,824,903 835,871 2,716,507 735,992
General and administrative 2,017,336 2,856,535 682,912 1,450,183

Total operating expenses 4,842,239 3,692,406 3,399,419 2,186,175

Income (loss) from operations (3,965,906 ) 1,376,343 (3,318,495 ) (146,872 )

Non-operating income (expenses)
Loss on note conversion (893,958 ) - - -
Loss on disposal of systems (1,264,256 ) - - -
Interest income 82,610 77,220 41,498 40,016
Interest expense (3,793,920 ) (2,918,465 ) (1,861,815 ) (1,493,837 )
Other income (expenses), net 344,003 (1,281 ) (19,450 ) 460

Total non-operating expenses, net (5,525,521 ) (2,842,526 ) (1,839,767 ) (1,453,361 )

Loss before income tax (9,491,427 ) (1,466,183 ) (5,158,262 ) (1,600,233 )
Income tax expense (benefit) (2,286,044 ) 267,918 104,827 (71,627 )

Loss before noncontrolling interest (7,205,383 ) (1,734,101 ) (5,263,089 ) (1,528,606 )

Less: loss attributable to noncontrolling interest - (187,183 ) - (95,925 )

Net loss attributable to China Recycling Energy Corporation (7,205,383 ) (1,546,918 ) (5,263,089 ) (1,432,681 )

Other comprehensive items
Foreign currency translation loss attributable to China Recycling Energy Corporation (96,559 ) (1,980,469 ) (1,907,185 ) (8,385,747 )
Foreign currency translation gain attributable to noncontrolling interest - 12,626 - 34,548

Comprehensive loss attributable to China Recycling Energy Corporation $ (7,301,942 ) $ (3,527,387 ) $ (7,170,274 ) $ (9,818,428 )

Comprehensive loss attributable to noncontrolling interest $ - $ (174,557 ) $ - $ (61,377 )

Basic weighted average shares outstanding 13,914,784 8,310,198 15,743,533 8,310,198
Diluted weighted average shares outstanding 13,914,784 8,310,198 15,743,533 8,310,198

Basic loss per share $ (0.52 ) $ (0.19 ) $ (0.33 ) $ (0.17 )
Diluted loss per share $ (0.52 ) $ (0.19 ) $ (0.33 ) $ (0.17 )

	SIX MONTHS ENDED JUNE 30,						THREE MONTHS ENDED JUNE 30,
	2020			2019			2020			2019

Revenue
Contingent rental income	$	-		$	702,973		$	-		$	80,924

Interest income on sales-type leases		-			173,360			-			-

Total operating income		-			876,333			-			80,924

Operating expenses
Bad debts (reversal)		(1,649,622	)		2,824,903			(1,649,622	)		2,716,507
Loss on disposal of systems		-			1,264,256			-			-
General and administrative		390,864			2,017,336			236,686			682,912

Total operating (income) expenses		(1,258,758	)		6,106,495			(1,412,936	)		3,399,419

Income (loss) from operations		1,258,758			(5,230,162	)		1,412,936			(3,318,495	)

Non-operating income (expenses)
Loss on note redemption / conversion		(198,330	)		(893,958	)		(95,163	)		-
Interest income		72,617			82,610			45,611			41,498
Interest expense		(697,028	)		(3,793,920	)		(341,784	)		(1,861,815	)
Other income (expenses), net		(40,628	)		344,003			(27,660	)		(19,450	)

Total non-operating expenses, net		(863,369	)		(4,261,265	)		(418,996	)		(1,839,767	)

Income (loss) before income tax		395,389			(9,491,427	)		993,940			(5,158,262	)
Income tax (benefit) expense		-			(2,286,044	)		-			104,827

Net income (loss) attributable to China Recycling Energy Corporation		395,389			(7,205,383	)		993,940			(5,263,089	)

Other comprehensive items
Foreign currency translation gain (loss)		(1,282,589	)		(96,559	)		58,688			(1,907,185	)

Comprehensive income (loss) attributable to China Recycling Energy Corporation	$	(887,200	)	$	(7,301,942	)	$	1,052,628		$	(7,170,274	)

Basic and diluted weighted average shares outstanding		2,226,282			13,914,784			2,317,223			15,743,533

Basic and diluted loss per share	$	0.18		$	(0.52	)	$	0.43		$	(0.33	)

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

CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	SIX MONTHS ENDED JUNE 30,						SIX MONTHS ENDED JUNE 30,
	2019			2018			2020			2019

CASH FLOWS FROM OPERATING ACTIVITIES:
Loss including noncontrolling interest	$	(7,205,383	)	$	(1,734,101	)
Adjustments to reconcile loss including noncontrolling interest to net cash provided by (used in) operating activities:
Depreciation		-			2,117
Amortization of OID and debt issuing costs of convertible note		72,161			-
Bad debt expense		2,824,901			835,871
Net income (loss)							$	395,389		$	(7,205,383	)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Amortization of OID and debt issuing costs of notes								39,583			72,161
Stock compensation expense								10,999			-
Operating lease expenses								32,502			-
Bad debts expense (reversal)								(1,649,622	)		2,824,901
Loss on disposal of 40% ownership of Fund Management Co		47,267			-			-			47,267
Investment loss		-			4,815
Loss on transfer of Chengli Boxing system		634,963			-			-			634,963
Loss on transfer of Xuzhou Huayu system		403,922			-			-			403,922
Loss on transfer of Shenqiu Phase I & II systems		211,975			-			-			211,975
Loss on disposal of fixed assets		293			-			-			293
Loss on note conversion		893,958			-
Loss on notes redemption / conversion								198,330			893,958
Changes in deferred tax		(2,364,088	)		(653,123	)		-			(2,364,088	)
Changes in assets and liabilities:
Interest receivable on sales type leases		(173,360	)		(358,904	)		-			(173,360	)
Collection of principal on sales type leases		-			1,716,968			13,879,575			-
Accounts receivable		65,001			(1,386,881	)		35,552,191			65,001
Prepaid expenses		-			604,127			919			-
Other receivables		(1,074,031	)		(190,118	)		(3,589	)		(1,074,031	)
Notes receivable		-			62,686
Construction in progress		-			(1,696,509	)
Accounts payable		(2,888,301	)		407,382			-			(2,888,301	)
Taxes payable		(1,283,246	)		382,467			(2,121,622	)		(1,283,246	)
Payment of lease liability								(31,174	)		-
Interest payable on entrusted loan		3,720,566			4,008,587			635,375			3,720,566
Accrued liabilities and other payables		(371,026	)		(253,103	)		57,740			(371,026	)
Refundable deposit for systems leasing		(486,668	)		-			-			(486,668	)

Net cash provided by (used in) operating activities		(6,971,096	)		1,752,281			46,996,596			(6,971,096	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of property & equipment		5,162			-			-			5,162

Net cash provided by investing activities		5,162			-			-			5,162

CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of notes payable		2,000,000			-			-			2,000,000
Issuance of common stock		3,309,475			-			-			3,309,475

Net cash provided by financing activities		5,309,475			-			-			5,309,475

EFFECT OF EXCHANGE RATE CHANGE ON CASH AND EQUIVALENTS		(80,341	)		(444,208	)
EFFECT OF EXCHANGE RATE CHANGE ON CASH								(551,508	)		(80,341	)

NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS		(1,736,800	)		1,308,073
CASH AND EQUIVALENTS, BEGINNING OF PERIOD		53,223,142			49,830,243
NET INCREASE (DECREASE) IN CASH								46,445,088			(1,736,800	)
CASH, BEGINNING OF PERIOD								16,221,297			53,223,142

CASH AND EQUIVALENTS, END OF PERIOD	$	51,486,342		$	51,138,316
CASH, END OF PERIOD							$	62,666,385		$	51,486,342

Supplemental cash flow data:
Income tax paid	$	225,784		$	956,828		$	-		$	225,784
Interest paid	$	-		$	-		$	-		$	-

Supplemental disclosure of non-cash financing activities:
Transfer of Xuzhou Huayu Project and Shenqiu Phase I & II project to Mr. Bai	$	35,938,441		$	-
Supplemental disclosure of non-cash operating activities
Transfer of Tian’an project from construction in progress to accounts receivable							$	23,635,489		$	-

Supplemental disclosure of non-cash financing activities
Transfer of Xuzhou Huayu Project and Shenqiu Phase I & II projects to Mr. Bai							$	-		$	35,938,441
Conversion of convertible debt into common shares	$	1,070,000		$	-		$	-		$	1,070,000
Conversion of long-term notes into common shares							$	1,104,586		$	-

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

CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

SIX ~~AND THREE~~ MONTHS ENDED JUNE 30, ~~2019~~2020 AND ~~2018~~2019

(UNAUDITED)

Common Stock Paid in Statutory Other Comprehensive Accumulated Noncontrolling
Shares Amount Capital Reserves Loss Deficit Total Interest

Balance at December 31, 2018 10,295,820 $ 10,295 $ 114,484,018 $ 14,525,712 $ (4,620,930 ) $ (37,675,202 ) $ 86,723,893 $ (3,544,624 )

Issuance of common stock 1,600,000 1,600 1,619,200 - - - 1,620,800 -

Conversion of note payable into shares 1,851,946 1,852 2,013,124 - - - 2,014,976 -

Purchase of noncontrolling interest - - (3,948,242 ) - - - (3,948,242 ) 3,544,624

Net loss for the quarter - - - - - (1,942,294 ) (1,942,294 ) -

Transfer to statutory reserves - - - 213,360 - (213,360 ) - -

Foreign currency translation gain - - - - 1,810,626 - 1,810,626 -

Balance at March 31, 2019 13,747,766 13,747 114,168,100 14,739,072 (2,810,304 ) (39,830,856 ) 86,279,759 -

Issuance of common stock 2,358,732 2,359 1,686,316 - - - 1,688,675 -

Net loss for the quarter - - - - - (5,263,089 ) (5,263,089 ) -

Transfer to statutory  reserves - - - (250,321 ) - 250,321 - -

Foreign currency translation loss - - - - (1,907,185 ) - (1,907,185 ) -

Balance at June 30, 2019 16,106,498 $ 16,106 $ 115,854,416 $ 14,488,751 $ (4,717,489 ) $ (44,843,624 ) $ 80,798,160 $ -

Common Stock Paid in Statutory Other Comprehensive Retained Noncontrolling
Shares Amount Capital Reserves Income (loss) Earning Total Interest

Balance at December 31, 2017 8,310,198 $ 8,310 $ 111,796,813 $ 14,525,712 $ 860,553 $ 28,321,696 $ 155,513,084 $ (478,637 )

Net loss for the quarter - - - - - (114,237 ) (114,237 ) (91,258 )

Transfer to statutory  reserves - - - 75,990 - (75,990 ) - -

Foreign currency translation gain - - - - 6,405,278 - 6,405,278 (21,922 )

Balance at March 31, 2018 8,310,198 8,310 111,796,813 14,601,702 7,265,831 28,131,469 161,804,125 (591,817 )

Net loss for the quarter - - - - - (1,432,681 ) (1,432,681 ) (95,925 )

Transfer to statutory  reserves - - - (39,791 ) - 39,791 - -

Foreign currency translation loss - - - - (8,385,747 ) - (8,385,747 ) 34,548

Balance at June 30, 2018 8,310,198 $ 8,310 $ 111,796,813 $ 14,561,911 $ (1,119,916 ) $ 26,738,579 $ 151,985,697 $ (653,194 )

	Common Stock
	Shares		Amount		Paid in Capital			Statutory Reserves		Other Comprehensive Loss			Accumulated Deficit			Total

Balance at December 31, 2019		2,032,721	$	2,033	$	116,682,374		$	14,525,712	$	(6,132,614	)	$	(46,447,959	)	$	78,629,546

Net loss for the quarter		-		-		-			-		-			(598,551	)		(598,551	)

Issuance of common stock for stock compensation		3,333		3		10,996			-		-			-			10,999

Conversion of long-term notes into common shares		143,333		143		533,024			-		-			-			533,167

Foreign currency translation loss		-		-		-			-		(1,341,276	)		-			(1,341,276	)

Balance at March 31, 2020		2,179,387		2,179		117,226,394			14,525,712		(7,473,890	)		(47,046,510	)		77,233,885

Conversion of long-term notes into common shares		304,710		305		769,444			-		-			-			769,749

Round-up of franctional shares due to reverse split		9,100		9		(9	)		-		-			-			-

Net loss for the quarter		-		-		-			-		-			993,940			993,940

Transfer to statutory reserves		-		-		-			140,494		-			(140,494	)		-

Foreign currency translation loss		-		-		-			-		58,688			-			58,688

Balance at June 30, 2020		2,493,197	$	2,493	$	117,995,829		$	14,666,206	$	(7,415,203	)	$	(46,193,064	)	$	79,056,262

	Common Stock
	Shares		Amount		Paid in Capital			Statutory Reserves			Other Comprehensive Loss			Accumulated Deficit			Total			Noncontrolling Interest

Balance at December 31, 2018		1,029,582	$	1,030	$	114,493,283		$	14,525,712		$	(4,620,930	)	$	(37,675,202	)	$	86,723,893		$	(3,544,624	)

Net loss for the quarter		-		-		-			-			-			(1,942,294	)		(1,942,294	)		-

Purchase of noncontrolling interest		-		-		(3,948,242	)		-			-			-			(3,948,242	)		3,544,624

Issuance of common stock for equity financing		160,000		160		1,620,640			-			-			-			1,620,800			-

Conversion of convertible notes including accrued interest into common shares		185,195		185		2,014,791			-			-			-			2,014,976			-

Transfer to statutory reserves		-		-		-			213,360			-			(213,360	)		-			-

Foreign currency translation gain		-		-		-			-			1,810,626			-			1,810,626			-

Balance at March 31, 2019		1,374,777		1,375		114,180,472			14,739,072			(2,810,304	)		(39,830,856	)		86,279,759			-

Issuance of common stock		235,873		236		1,688,439			-			-			-			1,688,675			-

Net loss for the quarter		-		-		-			-			-			(5,263,089	)		(5,263,089	)		-

Transfer to statutory reserves		-		-		-			(250,321	)		-			250,321			-			-

Foreign currency translation loss		-		-		-			-			(1,907,185	)		-			(1,907,185	)		-

Balance at June 30, 2019		1,610,650	$	1,611	$	115,868,911		$	14,488,751		$	(4,717,489	)	$	(44,843,624	)	$	80,798,160		$	-

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

CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE ~~30, 2019~~20, 2020 (UNAUDITED) AND DECEMBER 31, ~~2018~~2019

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

China Recycling Energy Corporation (the “Company” or “CREG”) ~~was~~is 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 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 Energy Corporation.in Nevada state. 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 in the Peoples Republic of China (“PRC”).

The Company’s organizational chart as of June 30, ~~2019~~2020 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 a 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. 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 into 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 May 1, 2016, whereby Erdos TCH cancelled monthly minimum lease payments from Erdos, and ~~now charges~~started to charge Erdos based on actual electricity sold at RMB 0.30 / KWH. The selling price of each KWH is determined annually based on prevailing market conditions. The Company evaluated the modified terms for payments based on actual electricity sold as minimum lease payments as defined in ASC 840-10-25-4, since lease payments that depend on a factor directly related to the future use of the leased property are contingent rentals and, accordingly, are excluded from minimum lease payments in their entirety. The Company wrote off the net investment receivables of these leases at the lease modification date. ~~From~~Since May ~~2019 through October~~ 2019, Erdos TCH ~~will cease~~has ceased its operations due to renovations and furnace safety ~~upgrades.~~upgrades of Erdos, and the Company initially expected the resumption of operations in July 2020, but the resumption of operations will be delayed due to the global pandemic of Covid-19, the Company is not able to provide a resumption date as it will depend on the overall progress of the global epidemic control. During this period, Erdos will compensate Erdos TCH RMB 1 million ($145,460) per month, until operations resume.

In addition, Erdos TCH has 30% ownership in DaTangShiDai (BinZhou) Energy Savings Technology Co., Ltd. (“BinZhou Energy Savings”), 30% ownership in DaTangShiDai DaTong Recycling Energy Technology Co., Ltd. (“DaTong Recycling Energy”), and 40% ownership in DaTang ShiDai TianYu XuZhou Recycling Energy Technology Co, Ltd. (“TianYu XuZhou Recycling Energy”). These companies were incorporated in 2012 but there have not been any operations since then nor has any registered capital contribution been made.

Pucheng Biomass Power Generation Projects

On June 29, 2010, Xi’an TCH entered into a Biomass Power Generation (“BMPG”) Project Lease Agreement with Pucheng XinHengYuan Biomass Power Generation Co., Ltd. (“Pucheng”), a limited liability company incorporated 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 (“Pucheng Phase I”).

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~~87,666 shares (post-reverse stock split) of common stock of the Company at ~~$1.87~~$187.0 per ~~share.~~share (post-reverse stock price). 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 systems 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 the Pucheng Phase I project terminated upon the effective date of the Pucheng Lease. The ownership of the two 12 MW BMPG systems will transfer to Pucheng at no additional charge when the Pucheng Lease expires.

On September 29, 2019, Xi’an TCH entered into a Termination Agreement of the Lease Agreement of the Biomass Power Generation Project (the “Termination Agreement”) with Pucheng.

Pucheng failed to pay fees it owed to Xi’an TCH for leasing two biomass power generation systems from Xi’an TCH, due to its long suspension of production resulting from the significant reduction of raw material supplies for its biomass power generation operation in Pucheng County, which caused the biomass power generation project to no longer be suitable. Pursuant to the Termination Agreement, the parties agreed that: (i) Pucheng shall pay outstanding lease fees of RMB 97.6 million ($14 million) owed as of December 31, 2018 to Xi’an TCH before January 15, 2020; (ii) Xi’an TCH will waive the lease fees owed after January 1, 2019; (iii) Xi’an TCH will not return RMB 3.8 million ($542,857) in cash deposits paid by Pucheng; (iv) Xi’an TCH will transfer the Project to Pucheng at no additional cost after receiving RMB 97.6 million ($14 million) from Pucheng, and the original lease agreement between the parties will be formally terminated; and (v) if Pucheng fails to pay off RMB 97.6 million ($14 million) to Xi’an TCH before January 15, 2020, Xi’an TCH will still hold ownership of the Project and the original lease agreement shall still be valid. The Company recorded an additional $2.67 million bad debt expense for Pucheng during the year ended December 31, 2019. Xi’an TCH received RMB 97.6 million ($14 million) in full on January 14, 2020 and the ownership of the system was transferred.

Shenqiu Yuneng Biomass Power Generation Projects

On May 25, 2011, Xi’an TCH entered into a Letter of Intent with Shenqiu YuNeng 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 paid 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 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~~

As repayment for a loan made by Xi’an ~~TCH~~Zhonghong to ~~Shenqiu at no additional cost.~~

OnBeijing Hongyuan Recycling Energy Investment Center, LLP (the “HYREF”) on January 10, 2019 (see further discussion in Note 9); on January 4, 2019, Xi’an Zhonghong, Xi’an TCH, and Mr. Chonggong Bai (or “Mr. Bai”), a resident of China, entered into a Projects Transfer Agreement (the “Agreement”), pursuant to which Xi’an TCH transferred two BMGP in Shenqiu (“Shenqiu Phase I and II Projects”) to Mr. Bai for RMB 127,066,000 ($18.55 million). ~~Mr. Bai agreed that as~~As consideration for the transfer of the ~~Shenqui~~Shenqiu Phase I and II Projects to ~~him~~Mr. Bai (Note ~~12)~~9), ~~he would transfer~~Mr. Bai transferred all the equity shares of his wholly owned company, Xi’an Hanneng Enterprises Management Consulting Co. Ltd. (“Xi’an Hanneng”) to Beijing Hongyuan Recycling Energy Investment Center, LLP (the “HYREF”) as repayment for ~~an outstanding~~a loan made by Xi’an Zhonghong to ~~HYREF.~~HYREF on January 10, 2019. The transfer of the projects was completed on February 15, 2019. The Company recorded ~~$213,044~~$208,359 loss from the transfer during the ~~six months~~year ended ~~June 30,~~December 31, 2019.

Xi’an Hanneng was expected to own 47,150,000 shares of Xi’an Huaxin New Energy Co., Ltd for the repayment of Shenqiu system and Huayu system. However, Xi’an Hanneng was not able to obtain all the Huaxin shares due to halted trading of Huaxin stock by NEEQ for not filing its 2018 annual report. On December 20, 2019, Mr. Bai and all the related parties therefore agreed to have Mr. Bai instead paying in cash for the transfer price of Shenqiu (see Note 9 for detail).

The Fund Management Company

On June 25, 2013, Xi’an TCH and Hongyuan Huifu Venture Capital Co. Ltd. (“Hongyuan Huifu”) established Beijing Hongyuan Recycling Energy Investment Management Company 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 ~~had~~held 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~~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 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. 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) 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. In addition, Xi’an TCH and Hongyuan Huifu formed Beijing Hongyuan Recycling Energy Investment Management Company Ltd. to manage this Fund, which also subscribed in the amount of RMB 5 million ($830,000) from the Fund. The term of the HYREF Fund’s partnership is six years from the date of its establishment, expiring July 18, 2019. However, the HYREF Fund’s partnership will not terminate until the HYREF loan is fully repaid and the buy-back period is over pursuant to the Buy-back Agreement entered on December 29, 2018 (see Note ~~12)~~9). 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 ($77 million). The HYREF Fund was formed to invest in Xi’an Zhonghong New Energy Technology Co., Ltd., a then 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”).

On December 29, 2018, Xi’an TCH entered into a Share Transfer Agreement with Hongyuan Huifu, pursuant to which Xi’an TCH transferred its 40% ownership in the Fund Management Company to Hongyuan Huifu for RMB 3,453,867 ($0.53 million). The transfer was completed January 22, 2019. The Company recorded approximately ~~$47,500~~$46,500 loss from the sale of a 40% equity interest in Fund Management Company. The Company does not have any ownership in the Fund Management Company after this transaction.

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) and owns 90% of Zhonghong. 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 Xi’an 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, as mutually agreed upon by Zhonghong. In addition, Chengli will provide the land for the CDQ WHPG systems at no cost to Zhonghong. The term of the Agreements is 20 years. The watt hours generated by the Chengli Project will be charged at RMB 0.42 ($0.068) 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. Due to intensifying environmental protection, the local environmental authorities required the project owner constructing CDQ sewage treatment to complete supporting works, which were completed and passed acceptance inspection during the quarter ended September 30, 2018. However, the owner of Chengli Project changed from Chengli to Shandong Boxing Shengli Technology Company Ltd. (“Shengli”) in March 2014. This change resulted from transfer of the equity ownership of Chengli to Shengli (a private company). Chengli, as a state-owned enterprise that is 100% owned by the local Power Supply Bureau, is no longer allowed to carry out business activities, and Shengli, the new owner, is not entitled to the high on-grid prices, and thus demanded a renegotiation of the settlement terms for the project.

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 to 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 and CDQ WHPG systems 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 the materials, equipment, labor, transportation, electricity, water, waste disposal, machinery and safety costs.

On December 29, 2018, Xi’an Zhonghong, Xi’an TCH, ~~the~~ HYREF, Guohua Ku, and Mr. Chonggong Bai entered into a CDQ WHPG Station Fixed Assets Transfer Agreement, pursuant to which Xi’an Zhonghong ~~will transfer~~transferred Chengli CDQ WHPG 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 buy back the CDQ WHPG Station when conditions under the Buy Back Agreement are met (see Note ~~12)~~9). The transfer of the Station was completed January 22, 2019, the Company recorded ~~$638,166~~$624,133 loss from this transfer.

Since the original terms of Buy Back Agreement are still valid, and the Buy Back possibility could occur; therefore, the loan principal and interest and the corresponding asset of Chengli CDQ WHPG station cannot be derecognized due to the existence of Buy Back clauses (see Note 5 for detail).

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 Projects 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. Because of overcapacity and pollution of the iron and steel and related industries, the Chinese government has imposed production limitations for the energy-intensive enterprises with heavy pollution, including Xuzhou Tian’an. Xuzhou Tian’an has slowed the construction process for its dry quenching production line which caused the delay of our project. The term of the Tianyu Agreement is 20 years. The construction of the Xuzhou Tian’an Project is anticipated to be completed by the ~~end~~second quarter of ~~2019. Xuzhou Tian’an will provide the land for the CDQ and CDQ WHPG systems for free. Xuzhou Tian’an has also guaranteed that it will purchase all the power generated by the CDQ WHPG systems.~~2020. The Xuzhou Huayu Project ~~is currently~~has been on hold due to a conflict between Xuzhou Huayu Coking Co., Ltd. and local residents on certain pollution-related issues. The local government 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, in exchange for 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. Due to the stricter administration of environmental protection policies and recent increases in environmental protections for the coking industry in Xuzhou, all local coking, as well as steel iron enterprises, are facing similar situations of suspended production while they rectify technologies and procedures.

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 will 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 in which 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.

On January 4, 2019, Xi’an Zhonghong, Xi’an TCH, and Mr. Chonggong Bai entered into a Projects Transfer Agreement (the “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). Mr. Bai agreed that as consideration for the transfer of the Xuzhou Huayu Project to him (Note ~~12)~~9), he would transfer all the equity shares of his wholly owned company, Xi’an Hanneng, to HYREF as repayment for the loan made by Xi’an Zhonghong to HYREF. The transfer of the project was completed on February 15, 2019. The Company recorded ~~$405,959~~$397,033 loss from this transfer during the ~~six months~~year ended ~~June 30,~~December 31, 2019. ~~As of June 30,~~On January 10, 2019, Mr. Chonggong Bai ~~is in the process of transferring~~transferred all the equity shares of his wholly owned company, Xi’an Hanneng, to HYREF as repayment for the loan. Xi’an Hanneng ~~will~~was expected to own 47,150,000 shares of Xi’an Huaxin New Energy Co., Ltd for the ~~repayment.~~repayment of Huayu system and Shenqiu system. As of ~~June~~September 30, 2019, Xi’an Hanneng already ~~owns~~owned 29,948,000 shares of Huaxin, and is in the process of obtaining the remaining 17,202,000 shares; however, Huaxin stock is halted trading by NEEQ until its 2018 annual report is filed. As of the date of this report, the partners of HYREF and the Company orally agreedbut was not able to ~~extend the due date of the equity share transfer of Xi’an Hanneng for another few months when Xi’an Hanneng obtains~~obtain the remaining 17,202,000 shares due to halted trading of ~~Huaxin. Since~~Huaxin stock by NEEQ for not filing its 2018 annual report. On December 20, 2019, Mr. Bai and all the ~~debt settlement~~related parties agreed to have Mr. Bai instead pay in cash for the transfer price of Huayu (see Note 9 for detail).

On January 10, 2020, Zhonghong, Tianyu and Huaxin signed a transfer agreement to transfer all assets under construction and related rights and interests of Xuzhou Tian’an Project to Tianyu for RMB 170 million including VAT ($24.37 million) in three installment payments. The 1st installment payment of RMB 50 million ($7.17 million) to be paid within 20 working days after the contract is ~~not fully implemented,~~signed. The 2nd installment payment of RMB 50 million ($7.17 million) is to be paid within 20 working days after completion of the ~~loan was deemed unpaid at June 30, 2019.~~

project construction but no later than July 31, 2020. The final installment payment of RMB 70 million ($10.03 million) is to be paid before December 31, 2020. On March 11, 2020, the Company received the 1^st installment payment. The repayment date for 2^ndinstallment payment is delayed to fourth quarter of 2020.

Zhongtai Waste Heat Power Generation Energy Management Cooperative Agreement

On December 6, 2013, Xi’an TCH entered into a CDQ and 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.

Pursuant to the Zhongtai Agreement, Xi’an TCH ~~will~~was to 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~~is also to build a furnace to generate steam from the smoke pipeline’s waste heat and sell the steam to Zhongtai.

The construction period of the Project iswas expected to be 18 months from the date when conditions are ready for construction to begin. Zhongtai ~~will~~is to 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 for 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 with 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 obligations under the EPC Contract to Zhongtai. As consideration for the transfer of the Project, Zhongtai agreed to pay to Xi’an TCH 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 to be paid within 20 business days after the Transfer Agreement was signed; (b) RMB 30,000,000 ($4.32 million) was to be paid within 20 business days after the Project was completed, but no later than July 30, 2016; and (c) RMB 87,360,000 ($13.45 million) was to 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. The Company recorded a $2.82 million loss from this transaction in 2016. In 2016, Xi’an TCH had received the first payment of $7.70 million and the second payment of $4.32 million. However, the Company received a repayment commitment letter from Zhongtai on February 23, 2018, in which Zhongtai committed to pay the remaining payment of RMB 87,360,000 ($13.45 million) no later than the end of July 2018; in July 2018, Zhongtai and the Company reached a further oral agreement to extend the repayment term of RMB 87,360,000 ($13.45 million) by another two to three months. ~~In August 2018, the Company received $1,070,000 from Zhongtai; as~~As of June 30, ~~2019,~~2020, the Company had gross receivable from Zhongtai for ~~$11.64~~$4.24 million (with bad debt allowance of ~~$5.82~~$4.24 million). In January 2020, Zhongtai paid RMB 10 million ($1.41 million); in March 2020, Zhongtai paid RMB 20 million ($2.82 million); in June 2020, Zhongtai paid RMB 10 million ($1.41 million). Zhongtai ~~provided an acknowledgement letter~~is committed to ~~the Company stating they expect to repay~~pay in full the remaining balance of ~~$11.88~~RMB 30 million by($4.24 million) no later than the end of ~~October 2019, once it resumes normal production.~~2020.

Formation of Zhongxun

On March 24, 2014, Xi’an TCH incorporated a subsidiary, Zhongxun Energy Investment (Beijing) Co., Ltd. (“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 subsidiary, Shanghai Yinghua Financial Leasing Co., Ltd. (“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 ~~as of the date of this report.~~

~~Formation of ShengYa Energy~~

On July 1, 2016, Xi’an Zhonghong incorporated a subsidiary, Xi’an ShengYa Energy Co., Ltd. (“ShengYa Energy”) with registered capital of $29.42 million (RMB 200,000,000), ShengYa Energy has not yet commenced operations nor has any capital contribution been made as of the date of this report.

~~Summary of Sales-Type Leases at June 30, 2019~~Reverse Stock Split

AsOn April 13, 2020, the Company filed a certificate of change (“Certificate of Change”) with the Secretary of State of the State of Nevada, pursuant to which, on April 13, 2020, the Company effected a reverse stock split of its common stock, $0.001 per share at a rate of 1-for-10, accompanied by a corresponding decrease in the Company’s issued and outstanding shares of common stock (the “Reverse Stock Split”). The consolidated financial statements as of June 30, 2020 and December 31, 2019, and for the six and three months ended June 30, 2020 and 2019 were retroactively restated to reflect this reverse stock split.

Other Events

On September 9, 2019, the Company ~~had~~entered into a letter of intent to acquire a controlling interest in Xi’an Yineng Zhihui Technology Co., Ltd. (“YNZH”), a next generation energy storage solution provider in China. YNZH is a leading comprehensive high-tech intelligent energy service company integrated with energy efficiency improvement and storage management in China. The energy efficiency management is to fully use big data cloud computing technology, effectively adopt the ~~following sales-type leases: BMPG systems~~combination of the mature international and domestic clean energy technologies to ~~Pucheng Phase I~~make the customers’ energy management more efficient, more economical, more secure and ~~II (15 and 11-year~~more scientific. The terms ~~respectively).~~of this proposed transaction are currently being negotiated.

In December 2019, a novel strain of coronavirus (COVID-19) was reported in Wuhan, China. The World Health Organization has declared the outbreak to constitute a “Public Health Emergency of International Concern.” This pandemic, which continues to spread to additional countries, and is disrupting 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. However, as a result of PRC government’s effort on disease control, most cities in China were reopened, the outbreak in China is under the control. The Company disposed all of its systems and currently holds only five power generating systems through Erdos TCH, the Company initially expected to resume production of these five power generating systems in July 2020 from the renovation and furnace safety upgrade, but the resumption of operations will be delayed due to the global pandemic of Covid-19; Erdos exports ferrosilicon to 27 countries, the Company decided not to resume the production in the third quarter of 2020 as a result of decreased sales order and overstocked inventory, and the Company is not able to provide a resumption date as it will depend on the overall progress of the global epidemic control. There are some new Covid-19 cases discovered in a few provinces of China including Beijing and Liaoning province, no new case has been discovered in Xi’an province where the Company is located as of today.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements (“CFS”) were prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).

The interim consolidated financial information as of June 30, ~~2019~~2020 and for the six and ~~three month~~three-month periods ended ~~June 30,~~March, 2020 and 2019 ~~and 2018~~ was prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures, which are normally included in ~~consolidated financial statements~~CFS prepared in accordance with ~~accounting principles generally accepted in the United States of America (“US GAAP”)~~U.S. GAAP were not included. The interim consolidated financial information should be read in conjunction with the Financial Statements and the notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018,~~2019, previously filed with the ~~SEC.~~ SEC on May 14, 2020.

In the opinion of management, all adjustments (which include all significant normal and recurring adjustments) necessary to present a fair statement of the Company’s consolidated financial position as of June 30, ~~2019,~~2020, its consolidated results of operations and cash flows for the six and three months ended June 30, ~~2019~~2020 and ~~2018, and cash flows for the six months ended June 30,~~ 2019, ~~and 2018,~~ as applicable, were made. ~~The interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.~~

The financial statements included herein were prepared by the Company, pursuant to the rules and regulations of the 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 information and footnote disclosures normally present in annual financial statements prepared in accordance with US GAAP were omitted pursuant to such rules and regulations.

Basis of Consolidation

The ~~consolidated financial statements (“CFS”)~~CFS include the accounts of CREG and its subsidiaries, Shanghai Yinghua Financial Leasing Co., Ltd. (“Yinghua”) and Sifang Holdings; 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 June 30, ~~2019.~~2020. All significant inter-company accounts and transactions were eliminated in consolidation.

Uses and Sources of Liquidity

For the six and three months ended June 30, 2020, the Company had a net income of $0.40 million and 0.99 million. For the year ended December 31, 2019, the Company had net loss of $8.78 million. The Company has an accumulated deficit of $46.19 million as of June 30, 2020. 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. Management also intends to raise additional funds by way of a private or public offering, or by obtaining loans from banks or others. The Company’s cash flow forecast indicate it will have sufficient cash to funds its operations for the next 12 months from the date of issuance of these financial statements.

The historical operating results indicate substantial doubt exists related to the Company’s ability to continue as a going concern. However, the Company had $62.67 million cash on hand at June 30, 2020. The Company believes that the actions discussed above are probable of occurring and the occurrence, mitigate the substantial doubt raised by its historical operating results.

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 is dependent 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. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

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 their estimates, including those related to allowances for bad debt and inventory obsolescence, impairment loss on fixed assets and construction in progress, income taxes, and contingencies and litigation. Management bases their 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

On January 1, 2019, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 842 using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application. Results and disclosure requirements for reporting periods beginning after January 1, 2019 are presented under ASC Topic 842, while prior period amounts have not been adjusted and continue to be reported in accordance with our historical accounting under Topic 840. (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. During the six and three months ended June 30, 2020 and 2019, the Company did not sell any new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. 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. Prior to January 1, 2019, the investment in these projects was recorded as investment in sales-type leases in accordance with ASC Topic 840, “Leases,” and its various amendments and interpretations.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company adopted this ASU on CFS on January 1, 2019 and concluded the adoption of this new AUS did not have a material impact to the Company’s CFS.

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 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 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 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 sales tax.

B)Contingent Rental Income

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

Operating Leases

On January 1, 2019, the Company adopted Topic 842 using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application. Results and disclosure requirements for reporting periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts have not been adjusted and continue to be reported in accordance with its historical accounting under Topic 840. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.

The Company elected the package of practical expedients permitted under the transition guidance, which allowed it to carry forward its historical lease classification, its assessment on whether a contract was or contains a lease, and its initial direct costs for any leases that existed prior to January 1, 2019. The Company also elected to combine its lease and non-lease components and to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of income on a straight-line basis over the lease term.

The company leased an office in Xi’an, China as the Company’s headquarter; upon adoption, the Company recognized total Right of Use Asset (“ROU”) of $116,917, with corresponding liabilities of $116,917 on the consolidated balance sheets. The ROU assets include adjustments for prepayments and accrued lease payments. The adoption did not impact its beginning retained earnings, or its prior year consolidated statements of income and statements of cash flows. At June 30, 2020, the ROU was $21,655.

Under Topic 842, the Company determines if an arrangement is a lease at inception. ROU assets and liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of its leases do not provide an implicit rate, it uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise such options.

Operating leases are included in operating lease right-of-use assets and operating lease liabilities (current and non-current), on the consolidated balance sheets.

Cash ~~and Equivalents~~

Cash ~~and equivalents~~ include 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.

Accounts Receivable

The Company’s policy is to maintain an allowance for potential credit losses on accounts receivable. Management reviews the composition of accounts 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.

As of June 30, ~~2019,~~2020, the Company had gross accounts receivable of ~~$51,100,975;~~$36.06 million; of which, ~~$35.94~~$13.71 million was for transferring the ownership of Huayu and Shenqiu Phase I and II systems to Mr. ~~Bai~~Bai; $4.23 million was from the sales of CDQ and a CDQ WHPG system to Zhongtai, $16.95 million was from transferring the ownership of Tian’an project to Tianyu, and $1.16 million accounts receivable of Erdos TCH for electricity sold. As of December 31, 2019, the Company had gross accounts receivable of $48.06 million; of which, ~~is waiting~~$35.42 million was for ~~completion~~transferring the ownership of ~~transfer~~Huayu and Shenqiu Phase I and II systems to Mr. ~~Bai’s all the equity shares of his wholly owned company, Xi’an Hanneng, to HYREF; $11.64~~Bai; $10.03 million was from the sales of CDQ and a CDQ WHPG system to Zhongtai, and ~~$3.53~~$2.61 million accounts receivable of Erdos TCH for ~~the~~ electricity sold. As of ~~December 31, 2018, the Company had accounts receivable of $15,252,162 (from the sales of CDQ and a CDQ WHPG system to Zhongtai, and accounts receivable of Erdos TCH for electricity sold). As of~~ June 30, ~~2019,~~2020, the Company had bad debt allowance of ~~$5,818,435~~$4,237,587 for Zhongtai and ~~$352,566~~$31,611 for Erdos TCH due to not making the payments as scheduled. As of December 31, ~~2018,~~2019, the Company had bad debt allowance of ~~$3,496,911~~$5,733,781 for Zhongtai and $261,430 for Erdos TCH due to not making the payments as scheduled. In June 2020, Xuzhou Zhongtai collected RMB 10 million ($1.41 million) accounts receivable. In June 2020, Erdos TCH collected RMB 10 million ($1.41 million) accounts receivable; on July 2020, Erdos TCH collected additional RMB 6 million ($0.86 million) accounts receivable; as a result, the Company made a reversal of bad debts allowance of $1,649,622, of which $1,422,090 was for Zhongtai and $227,532 was for Erdos TCH during the three months ended June 30, 2020.

	2020			2019
Xuzhou Zhongtai project	$	4,237,587		$	10,034,116
Bai Chonggong (for Shenqiu and Huayu projects)		13,710,855			35,415,556
Xuzhou Tian’an project		16,950,350			-
Receivable of electricity sales of Erdos		1,163,624			2,614,299
Total accounts receivable		36,062,416			48,063,971
Bad debt allowance		(4,269,198	)		(5,995,210	)
Accounts receivable, net	$	31,793,218		$	42,068,761

Interest Receivable on Sales Type Leases

As of June 30, 2020, the interest receivable on sales type leases was $0. As of December 31, 2019, the interest receivable on sales type leases was ~~$5,322,686,~~$5,245,244, mainly from recognized but not yet collected interest income for the Pucheng systems. AsThe ownership of ~~December 31, 2018, the interest receivable on sales type leases~~Pucheng systems was ~~$9,336,140, mainly from recognized but not yet collected interest income for the~~transferred to Pucheng ~~and Shengqiu systems. As~~as a result of ~~April 1, 2018, the Company stopped accruing interest receivable on the Pucheng lease as the Pucheng lease was at least one year overdue~~full payment received by Xi’an TCH in ~~its payments.~~January 2020.

Investment in sales-type leases, net

As of June 30, 2020 and December 31, 2019, the Company had net investment in sales-type leases of $0 and $8,287,560, respectively. 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. As of June 30, 2020 and December 31, 2019, the Company had bad debt allowance for net investment receivable on sales-type leases of ~~$22,071,360~~$0 and $24,416,441 for the Pucheng ~~systems. As~~system, respectively. Xi’an TCH received RMB 97.6 million ($14 million) in full which included interest of ~~December 31, 2018,~~$5.3 million for Pucheng system on January 14, 2020 and the ~~Company had~~ownership of the system was transferred. The bad debt allowance ~~for net investment receivable~~ of ~~$29,276,658 ($7,274,872 for the Shenqiu systems and $22,071,360 for the~~ Pucheng ~~systems) due to lessees’ tight working capital and continuous delay~~was recorded in ~~making the payment.~~2019.

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 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:

Building			20 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 are less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying amount of the asset. The Company recorded no$0 asset impairment loss for the six and three months ended June 30, 2020 and 2019. The Company recorded asset impairment ~~loss~~ of ~~$28,429,789 for three projects~~construction in progress of Xuzhou Tian’an of $876,660 for the year ended December 31, ~~2018, as described below.~~

~~On January 4,~~ 2019, ~~Xi’an Zhonghong, Xi’an TCH,~~which is the difference between the book value and ~~Mr. Chonggong Bai entered into a Projects Transfer Agreement for Xi’an Zhonghong to transfer the Xuzhou Huayu Project to Mr. Bai for RMB 120,000,000 ($17.52 million), which transfer~~disposal price ~~was considered the fair value (“FV”)~~ of the ~~project. The Company compared the carrying value and FV of the Huayu project, and recorded asset impairment loss of $6,528,120 for the project for the year ended December 31, 2018.~~

On December 29, 2018, Xi’an Zhonghong, Xi’an TCH, the HYREF, Guohua Ku, and Mr. Chonggong Bai entered into a CDQ WHPG Station Fixed Assets Transfer Agreement for Xi’an Zhonghong to transfer Chengli CDQ WHPG station as the repayment of a loan for RMB 188,639,400 ($27.54 million) to HYREF. The transfer price was considered the FV of the system. The Company compared the carrying value and FV of the Chengli system, and recorded asset impairment loss of $8,124,968 for the system for the year ended December 31, 2018.

As of December 31, 2018, the progress of the Xuzhou Tian’an project is slow due to strict environmental protection policies. The Company estimated the FV of the Xuzhou Tian’an project to be around RMB 172,250,000.00 ($25.58 million). The Company compared the carrying value and FV of the Tian’an Project, and recorded asset impairment loss of $13,512,592 for the project for the year ended December 31, 2018.

~~Notes Payable – Banker’s Acceptances~~asset.

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

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.

The Company follows FASB ASC Topic 740, which prescribes 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 penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.

Under the provisions of 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 the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial 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 appeals 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 tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

CREG is subject to U.S. corporate income taxes on its taxable income at a rate of 21% for taxable years beginning after December 31, 2017 and U.S. corporate income tax on its taxable income of up to 35% for prior tax years. On December 22, 2017, the Tax Cut and Jobs Act (“Tax Act”) was signed into law. The Tax Act introduced a broad range of tax reform measures that significantly changed the federal income tax laws. The provisions of the Tax Act that may have significant impact on the Company, including the permanent reduction of the corporate income tax rate from 35% to 21% effective for tax years including or commencing January 1, 2018, one-time transition tax on post-1986 foreign unremitted earnings, provision for Global Intangible Low Tax Income (“GILTI”), deduction for Foreign Derived Intangible Income (“FDII”), repeal of the corporate alternative minimum tax, limitation of various business deductions, and modification of the maximum deduction of net operating loss with no carryback but indefinite carryforward provision. Many provisions in the Tax Act are generally effective in tax years beginning after December 31, 2017. Taxpayers may elect to pay the one-time transition tax over eight years, or in a single lump-sum payment.

To the extent that portions of its U.S. taxable income, such as Subpart F income or GILTI, are determined to be from sources outside of the U.S., subject to certain limitations, the Company may be able to claim foreign tax credits to offset its U.S. income tax liabilities. Any remaining liabilities are accrued in the Company’s consolidated statements of comprehensive income and estimated tax payments are made when required by U.S. law.

The Act also created new taxes on certain foreign-sourced earnings such as global intangible low-taxed income (“GILTI”) under IRC Section 951A, which is effective for the Company for tax years beginning after January 1, 2018. For the six and three months ended June 30, 2019, the Company calculated its best estimate of the impact of the GILTI in its income tax provision in accordance with its understanding of the Act and guidance available as of the date of this filing.

~~Noncontrolling Interests~~

~~The Company follows FASB ASC Topic 810,~~ ~~“Consolidation,”~~ which established new standards governing the accounting for and reporting of noncontrolling interests (“NCIs”) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCIs (previously referred to as minority interests) be treated as a separate component of equity, not 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 designated in the accompanying statements of income and comprehensive income (loss). Losses attributable to NCIs in a subsidiary may exceed an NCI’s interests in the subsidiary’s equity. The excess attributable to NCIs is attributed to those interests. NCIs shall continue to be attributed their share of losses even if that attribution results in a deficit NCI balance.

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 assets and liabilities reported on the statement of cash flows may not necessarily agree with changes in 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 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 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.

Effective on January 1, 2020, the Company adopted ASU 2018-13, Fair Value Measurement: Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements for Level 1, Level 2 and Level 3 instruments in the FV hierarchy.

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.”

As of June 30, ~~2019~~2020, and December 31, ~~2018,~~2019, the Company did not have any long-term debt obligations; and 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-based~~share-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 fair value 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.”~~ ~~The Company recognizes in its statement~~Subtopic 505-50, “Equity-Based Payments to Non-employees”. Share-based compensation associated with the issuance of ~~operations FV~~equity instruments to non-employees is measured at the ~~grant~~fair value of the equity instrument issued or committed to be issued, as this is more reliable than the fair value of the services received. The fair value is measured at the date that the commitment for ~~stock options~~performance by the counterparty has been reached or the counterparty’s performance is complete.

Effective on January 1, 2020, the Company adopted 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 ~~other equity-based compensation issued~~services from non-employees. An entity should apply the requirements of ASC 718 to ~~employees~~non-employee awards except for specific guidance on inputs to an option pricing model and ~~non-employees.~~ the attribution of cost. The amendments specify that ASC 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The adoption of ASU 2018-07 did not have an impact on the Company’s financial statements.

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~~

For the six and three months ended June 30, 2020 and 2019, the basic and diluted ~~EPS for~~loss per share were the same due to the Company’s net loss. For the six months ended June 30, 2020 and 2019, 31,311 shares and ~~2018:~~

Six months Ended
June 30,
2019 2018
Net loss $ (7,205,383 ) $ (1,546,918 )

Weighted average shares outstanding – basic 13,914,784 8,310,198
Effect of dilutive securities:
Warrants granted - -
Options granted - -

Weighted average shares outstanding – diluted 13,914,784 8,310,198
Loss per share – basic $ (0.52 ) $ (0.19 )
Loss per share – diluted * $ (0.52 ) $ (0.19 )

~~The following table presents a reconciliation of basic and diluted EPS~~213,304 shares (post-reverse stock split), respectively; for the three months ended June 30, 2020 and 2019, 31,311 shares and ~~2018:~~213,304 shares (post-reverse stock split), respectively, purchasable under warrants and options were excluded from the EPS calculation as these were not dilutive because the exercise price was more than the stock price.

Three months Ended
June 30,
2019 2018
Net loss $ (5,263,089 ) $ (1,432,681 )

Weighted average shares outstanding – basic 15,743,533 8,310,198
Effect of dilutive securities:
Warrants granted - -
Options granted - -

Weighted average shares outstanding – diluted 15,743,533 8,310,198
Loss per share – basic $ (0.33 ) $ (0.17 )
Loss per share – diluted * $ (0.33 ) $ (0.17 )

The basic and diluted loss per share are the same due to antidilutive options and warrants resulting from the Company’s net loss. For the six and three months ended June 30, 2019, 4,067,641 shares purchasable under warrants and options were excluded from EPS calculation, as their effects were anti-dilutive. For the six and three months ended June 30, 2018, 9,000 shares purchasable under options were excluded from EPS calculation, as their effects 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 States 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.

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.

~~Reclassification~~

~~Certain prior period balance sheet accounts were reclassified for the purpose of consistency with the current year’s presentation.~~

New Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), 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 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2019.~~2022. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact that the standard will have on its ~~CFS and related disclosures.~~ CFS.

In ~~January 2017,~~December 2019, the FASB issued ASU ~~2017-04,~~2019-12, Simplifying the ~~Test~~Accounting for ~~Goodwill Impairment. The guidance removes Step 2~~Income Taxes, which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the ~~goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a~~current guidance to promote consistent application among reporting ~~unit’s carrying value exceeds its FV, not to exceed the carrying amount of goodwill.~~entities. The guidance should be adopted on a prospective basis for the annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact of adopting this standard on its CFS.

In June 2018, the FASB issued 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. The amendments specify that ASC 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The new guidance is effective for ~~SEC filers for fiscal years, and interim reporting periods within those~~ fiscal years beginning after December 15, ~~2019 (i.e., January 1,~~ 2020, and interim periods within those fiscal years, with early adoption permitted. Upon adoption, the Company must apply certain aspects of this standard retrospectively for ~~calendar~~all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year ~~entities). Early adoption is permitted.~~of adoption. The Company is evaluating the ~~effects of the adoption of~~impact this ~~guidance and currently believes that it~~update will ~~impact the accounting of the share-based awards granted to non-employees.~~have on its financial statements.

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. ~~NOTES RECEIVABLES – BANK ACCEPTANCE~~

From time to time, the Company has some notes receivables, representing the commercial notes (also called bank acceptances) that were issued by customers to Erdos TCH and were honored by the applicable bank. Erdos TCH may hold a bank acceptance until the maturity for the full payment, have the bank acceptance cashed out from the bank at a discount at an earlier date, or transfer the bank acceptance to its vendors in lieu of payment. As of June 30, 2019 and December 31, 2018, the Company had outstanding notes receivable on-hand of $0.

4. INVESTMENT IN SALES-TYPE LEASES, NET

Under sales-type leases, as of December 31, 2019, Xi’an TCH leases ~~the following systems: (i)~~ BMPG systems to Pucheng ~~Phase~~(Phase I and II, ~~(15~~15 and 11 year terms, respectively); ~~(ii) BMPG systems to Shenqiu Phase I (11-year term); and (iii) BMPG systems to Shenqiu Phase II (9.5-year term).~~ The components of the net investment in sales-type leases as of June 30, ~~2019~~2020 and December 31, ~~2018~~2019 are as follows:

	2019			2018			2020		2019
Total future minimum lease payments receivable	$	57,311,592		$	88,661,266		$	-	$	56,477,739
Less: executory cost		(3,676,593	)		(5,687,704	)		-		(3,623,100	)
Less: unearned interest		(15,125,460	)		(19,398,707	)		-		(14,905,393	)
Less: realized interest income but not yet received		(5,322,686	)		(9,336,141	)		-		(5,245,244	)
Less: allowance for net investment receivable		(22,071,360	)		(29,276,658	)		-		(24,416,442	)
Investment in sales-type leases, net		11,115,493			24,962,056			-		8,287,560
Current portion		-			-			-		-
Noncurrent portion	$	11,115,493		$	24,962,056		$	-	$	8,287,560

~~On February 15, 2019,~~The ownership of Pucheng systems was transferred to Pucheng in January 2020 as a result of receiving full payment from Pucheng to Xi’an TCH transferred 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 loan made by Xi’an Zhonghong to HYREF. As of June 30, 2019, the future minimum rentals to be received on non-cancelable sales-type leases by year are as follows:TCH.

2020 $ 24,146,507
2021 6,633,017
2022 6,633,017
2023 6,633,017
2024 6,633,017
Thereafter 6,633,017
Total $ 57,311,592

~~5. PREPAID EXPENSES~~

~~Prepaid expenses mainly consisted of prepayment for office rental, decorations and taxes. The Company had $32,341 and $32,395 prepaid taxes as of June 30, 2019 and December 31, 2018, respectively.~~

6.4. OTHER RECEIVABLES

As of June 30, 2019, other receivables mainly consisted of (i) receivables from two individuals (one is current employee and the other one is former employee)of $930,000, which the payment was received from these two individuals in the beginning of July (ii) advance to third parties of $7,273, bearing no interest, payable upon demand, and (iii) tax and maintenance cost receivable of $1,016,314 for Xi’an TCH. As of December 31, 2018,2020, other receivables mainly consisted of (i) advances to third parties of ~~$7,285,~~$7,063, bearing no interest, payable upon demand, ii) advance to employees of $8,952, and (iii) other receivables of $28,638 including social insurance receivable of $5,736. As of December 31, 2019, other receivables mainly consisted of (i) advances to third parties of $7,167, bearing no interest, payable upon demand, (ii) tax and maintenance cost receivable of ~~$1,528,368~~$1,001,527 for Xi’an ~~TCH.~~

TCH, and iii) others of $22,449. Tax receivable is VAT receivable from customers and payable to City government on collection.

~~7. LONG TERM INVESTMENT~~

On June 25, 2013, Xi’an TCH with Hongyuan Huifu Venture Capital Co. Ltd (“Hongyuan Huifu”) jointly established Beijing Hongyuan Recycling Energy Investment Management Company Ltd. (the “Fund Management Company”) with registered capital of RMB 10 million ($1.6 million), to manage a fund that will be used for financing CDQ WHPG projects. Xi’an TCH made an initial capital contribution 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 Hongyuan Huifu and Xi’an TCH at 80% and 20%, respectively. The Company accounted for this investment using the equity method. The Company recorded $0 equity-based investment income (loss) during the six and three months ended June 30, 2019, respectively. The Company recorded $4,815 and $671 equity-based investment loss during six and three months ended June 30, 2018, respectively.

On July 18, 2013, the HYREF Fund was established as a limited liability partnership in Beijing. Pursuant to the Partnership Agreement, the HYREF Fund had a general partner, the Fund Management Company, which made an initial capital contribution 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) Hongyuan Huifu, 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 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. However, the HYREF Fund’s partnership will not terminate until the HYREF loan is fully repaid and the buy-back period is over pursuant to the Buy-back Agreement entered on December 29, 2018 (see Note 12). The total size of the HYREF Fund is RMB 460 million ($77 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 payable of the HYREF Fund.

On December 29, 2018, Xi’an TCH entered into a Share Transfer Agreement with Hongyuan Huifu, pursuant to which Xi’an TCH agreed to transfer its 40% ownership in the Fund Management Company to Hongyuan Huifu for RMB 3,453,867 ($0.53 million). The transfer was completed on January 22, 2019. The Company had approximately $47,200 loss from the sale of a 40% equity interest in Fund Management Company during the six months ended June 30, 2019.

8.5. PROPERTY AND EQUIPMENT AND CONSTRUCTION IN PROGRESS

Property and Equipment

As of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company had net property and equipment (after impairment ~~provision recorded in 2018)~~allowance) of ~~approximately $27.45~~$26.65 million and $27.04 million, respectively, which was for the Chengli project.

The Chengli project finished construction, and was transferred to the Company’s fixed assets at a cost of $35.24 million (without impairment ~~provision)~~loss) and ready to be put into operation as of December 31, ~~2018; the owner of the Chengli Project changed from Chengli to Shandong Boxing Shengli Technology Company Ltd. (“Shengli”) in March 2014.~~2018. On January 22, 2019, Xi’an Zhonghong completed the transfer of Chengli CDQ WHPG project as the partial repayment for the loan of RMB 188,639,400 ($27.54 million) to HYREF (see Note ~~12)~~9). However, because the loan was not deemed repaid due to the buyback right (See Note 129 for ~~explanation)~~detail), the Company kept the Chengli project in its books as fixed assets for accounting ~~purposes as of June 30, 2019.~~purposes.

Construction in Progress

Construction in progress was for constructing power generation ~~systems.~~systems for Xuzhou Tian’an project. The Company recorded additional RMB 6,047,602 ($876,660) asset impairment for Tian’an Project in 2019, which is the difference between the Project’s selling price and the carrying value as of December 31, 2019. As of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company’s construction in progress included:

	2019			2018			2020		2019
Xuzhou Huayu	$	-		$	23,778,899
Xuzhou Tian’an		38,316,766			38,380,969		$	-	$	37,759,277
Less: assets impairment allowance		(13,261,127	)		(19,577,691	)		-		(13,935,075	)
Total	$	25,055,639		$	42,582,177		$	-	$	23,824,202

AsOn January 10, 2020, Zhonghong, Tianyu and Huaxin signed a transfer agreement to transfer all assets under construction and related rights and interests of Xuzhou Tian’an Project to Tianyu for RMB 170 million including $0.6 million VAT (total of $24.37 million) in three installment payments. The Company recorded impairment loss of $13.9 million as of December 31, ~~2018,~~2019. The 1st installment payment of RMB 50 million ($7.17 million) to be paid within 20 working days after the contract is signed. The 2nd installment payment of RMB 50 million ($7.17 million) is to be paid within 20 working days after completion of the project construction but no later than July 31, 2020. The final installment payment of RMB 70 million ($10.03 million) is to be paid before December 31, 2020. On March 11, 2020, the Company ~~was committed~~received the 1^st installment payment. The repayment date for 2^ndinstallment payment is delayed to pay an additional $11.66 million for the Xuzhou Huayu project; however, on February 15, 2019, Zhonghong transferred the Xuzhou Huayu Project to Mr. Bai for RMB 120,000,000 ($17.52 million). Mr. Bai agreed that as consideration for the transferfourth quarter of ~~the Xuzhou Huayu Project to him (Note 12), he would transfer all the equity shares of his wholly owned company, Xi’an Hanneng, to HYREF as repayment for the loan made by Xi’an Zhonghong to HYREF.~~2020.

~~As of June 30, 2019, the Company was committed to pay an additional $4.04 million for the Xuzhou Tian’an project.~~

9.6. TAXES PAYABLE

Taxes payable consisted of the following as of June 30, ~~2019~~2020 and December 31, ~~2018:~~2019:

	2019		2018		2020		2019
Income tax – current	$	1,571,490	$	1,718,051	$	2,114,144	$	2,118,432
Value-added tax		1,733,519		1,666,695		299,350		1,708,298
Other taxes		264,763		251,813		70,187		260,912
Total – current		3,569,772		3,636,559		2,483,681		4,087,642
Income tax – noncurrent	$	6,390,525	$	6,390,625	$	5,782,625	$	5,782,625

Income tax payable ~~was approximately $7.96~~included $7.61 million ~~at June 30, 2019, including $1.57~~($1.83 million included in current above and ~~$6.39~~$5.78 million ~~noncurrent was~~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 is 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 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.

~~10.~~7. ACCRUED LIABILITIES AND OTHER PAYABLES

Accrued liabilities and other payables consisted of the following as of June 30, ~~2019~~2020 and December 31, ~~2018:~~2019:

	2019		2018		2020		2019
Employee training, labor union expenditure and social insurance payable	$	834,764	$	844,997	$	831,495	$	843,807
Consulting, auditing, and legal expenses		43,611		488,052		43,588		40,602
Accrued payroll and welfare		257,977		261,152		246,362		254,882
Other		35,461		23,796		43,811		45,460
Total	$	1,171,813	$	1,617,997	$	1,165,256	$	1,184,751

~~11.~~8. DEFERRED TAX, ~~LIABILITY,~~ NET

Deferred tax assets 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 June 30, ~~2019,~~2020 and December 31, ~~2018,~~2019, deferred tax liability consisted of the following:

2019 2018
Deferred tax asset — current (accrual of employee social insurance) $ 186,466 $ 186,779
Deferred tax liability — current (net investment in sales-type leases) (773,664 ) (1,639,057 )
Deferred tax liability — current, net of current deferred tax asset $ (587,198 ) $ (1,452,278 )

Deferred tax asset — noncurrent (depreciation of fixed assets) $ 3,285,436 $ 6,176,064
Deferred tax asset — noncurrent (asset impairment loss) 6,390,605 15,003,497
Deferred tax asset — noncurrent (capitalized interest on CIP) - 2,531,120
Deferred tax asset — noncurrent (interest income in sales-type leases) 865,863 658,307
Deferred tax asset — noncurrent (US NOL) 3,132,068 3,114,083
Deferred tax asset — noncurrent (PRC NOL) 9,002,050 1,617,861
Less: valuation allowance on deferred tax assets (16,782,230 ) (21,353,059 )
Deferred tax assets — noncurrent, net 5,893,792 7,747,873
Deferred tax liability — noncurrent (net investment in sales-type leases) (6,010,056 ) (9,335,941 )
Deferred tax liability — noncurrent, net of noncurrent deferred tax assets $ (116,264 ) $ (1,588,068 )

Total Deferred tax liability, noncurrent under ASU 2015-17 $ (703,462 ) $ (3,040,346 )

	2020			2019
Non-current deferred tax assets
Accrued expenses	$	186,292		$	189,050
Interest income in sales-type leases on cash basis		-			853,265
Depreciation of fixed assets		-			2,938,605
Assets impairment loss		1,059,397			7,537,556
US NOL		314,753			3,246,655
PRC NOL		16,499,134			10,424,558

Non-current deferred tax liabilities
Net investment in sales-type leases		-			(6,685,021	)

Net non-current deferred tax assets		18,059,576			18,504,668
Less: valuation allowance for deferred tax assets		(18,059,576	)		(18,504,668	)
Non-current deferred tax liabilities, net	$	-		$	-

~~12.~~9. 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 ($77 million) invested 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 will receive interest from Zhonghong for the HYREF Fund’s debt investment. The RMB 457 million ($74.5 million) original loan balance 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 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 the loan amount as a 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; the accounts receivable and fixed assets of Zhonghong’s three CDQ WHPG systems; and a 27 million RMB ($4.39 million) capital contribution made by Xi’an 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 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 required to repay principal of RMB 280 million ($42.22 million), of which the Company paid RMB 50 million ($7.54 million); on August 6, 2017, Zhonghong was initially supposed to repay principal of RMB 100 million ($16.27 million) and on July 30, 2018, Zhonghong was initially supposed to 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 verbally notified Zhonghong from the beginning that it was unlikely that they would enforce these requirements for the purpose of the efficient utilization of working capital. As of December 31, 2018, the entrusted loan payable had an outstanding balance of $59.29 million, of which, $10.92 million was from the investment of Xi’an TCH; accordingly, the Company netted the loan payable of $10.92 million with the long-term investment to the HYREF Fund made by Xi’an TCH. For the year ended December 31, 2018, the Company recorded interest expense of $5.19 million on this loan and $2.43 million penalty interest on past due loan, and capitalized $2.38 million interest to construction in progress. The Company had 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 year ended December 31, 2017, the Company negotiated with the lender again to further extend the remaining loan balance of RMB 230 million ($34.68 million), RMB 100 million ($16.27 million), and RMB 77 million ($12.52 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 ~~has~~had tentatively agreed to extend the remaining loan balance until August 2019 with an adjusted annual interest rate of 9%, subject to the final approval from its headquarters. The headquarters did not approve the extension proposal with an adjusted annual interest rate of 9%; however, on December 29, 2018, the Company worked out with the lender an alternative repayment proposal as described below. As of June 30, ~~2019,~~2020, the interest payable for this loan was ~~$21.11~~$8.71 million and the outstanding balance for this loan was ~~$48.29~~$20.46 million. As of December 31, 2019, the interest payable for this loan was $8.20 million and the outstanding balance for this loan was $20.77 million including current portion of $0.28 million and $0.29 million as of June 30, 2020 and December 31, 2019, respectively.

Repayment of HYREF loan

~~Transfer of Chengli project as partial repayment~~

1. Transfer of Chengli project as partial repayment

On December 29, 2018, Xi’an Zhonghong, Xi’an TCH, ~~the~~ 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 of RMB 188,639,400 ($27.54 million) to HYREF. Xi’an Zhonghong, Xi’an TCH, Guohua Ku and Chonggong Bai also agreed to buy back the Chengli CDQ WHPG Station when conditions under the Buy Back Agreement are met. Due to the Buy Back agreement, the loan was not deemed repaid, the Company kept the Chengli project in its books as fixed assets as of June 30, 2020 and December 31, 2019.

On January 22, 2019, Xi’an Zhonghong, completed the transfer of Chengli CDQ WHPG station to HYREF as the repayment of a loan for RMB 188,639,400 ($27.54 million) owed to HYREF. Xi’an TCH is a secondary limited partner of HYREF. The consideration of the CDQ WHPG station iswas determined by the parties based upon the appraisal report issued by Zhonglian Assets Appraisal Group (Shaanxi) Co., Ltd. as of August 15, 2018.

~~Buy Back Agreement~~

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, Xi’an TCH, Xi’an Zhonghong, Guohua Ku and Chonggong Bai (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 5 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 will be 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. HYREF may 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.

~~Xi’an TCH transferred 40% ownership in the Fund Management Company to Hongyuan Huifu for partial payment of financial advisory fee~~

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.

3. Xi’an TCH transferred 40% ownership in the Fund Management Company to Hongyuan Huifu for partial payment of financial advisory fee

On December 29, 2018, Xi’an TCH entered into a Share Transfer Agreement with Hongyuan Huifu Venture Capital Co. Ltd (“Hongyuan Huifu”), pursuant to which Xi’an TCH transferred its 40% ownership in Hongyuan Recycling Energy Investment Management Beijing Co., Ltd. (the “Fund Management Company”) to Hongyuan Huifu for consideration of RMB 3,453,867 ($504,000) (the “Fund Management Company Transfer Price”). On January 22, 2019, Xi’an TCH completed the 40% ownership transfer transaction. The Company had $46,461 loss from the sale of a 40% equity interest in Fund Management Company during the year ended December 31, 2019.

On December 29, 2018, Xi’an TCH, Hongyuan Huifu and Fund Management Company entered into a supplemental agreement to the Share Transfer Agreement. Xi’an TCH owes the Fund Management Company RMB 18,306,667 ($2,672,000) in financial advisory fees, and the parties agreed that the Fund Management Company Transfer Price could be used to ~~off-set~~offset the outstanding financial advisory fees. Upon the completion of this transaction, the Fund Management Company owed RMB 3,453,867 ($502,400) to Hongyuan Huifu, and Xi’an TCH owed RMB 14,852,800 ($2,168,000) to the Fund Management Company.

~~HYREF Fund transferred 10% ownership in Xi’an Zhonghong to Shanghai TCH~~

4. HYREF Fund transferred 10% ownership in Xi’an Zhonghong to Shanghai TCH (Long-Term Payable)

On December 29, 2018, Shanghai TCH entered into a Share Transfer Agreement with HYREF, pursuant to which HYREF agreed to transfer its 10% ownership in Xi’an Zhonghong to Shanghai TCH for RMB 3 million ($~~437,956).~~430,034), and was recorded as long term payable in the Company’s balance sheet. On January 22, 2019, Hongyuan Huifu completed the transfer of its 10% ownership in Xi’an Zhonghong to Shanghai ~~TCH.~~TCH, Xi’an Zhonghong then became a 100% subsidiary of the Company. The Company did not record any gain or loss for this purchase as the controlling interest did not change.

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

5. 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 ~~a resident of China,~~ 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 will transfer 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, ~~Enterprises Management Consulting Co. Ltd. (“Xi’an Hanneng”)~~ to ~~the~~ 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 ~~to Mr. Chonggong Bai for RMB 120,000,000 (US$17.52 million)~~ and Xi’an TCH completed the transfer of Shenqiu Phase I and II Projects to Mr. Bai, ~~for RMB 127,066,000 ($18.55 million).~~and on January 10, 2019, Mr. Bai ~~agreed to transfer~~transferred all the equity shares of his wholly owned company, Xi’an Hanneng, to HYREF as repayment byof Xi’an ~~Zhonghong for the RMB 247,066,000 ($36.07 million)~~Zhonghong’s loan to HYREF as consideration for the transfer of the Xuzhou Huayu Project and Shenqiu Phase I and II Projects.

~~As of June 30, 2019, Mr. Chonggong Bai is in the process of transferring all the equity shares of his wholly owned company, Xi’an Hanneng, to HYREF as repayment for the loan;~~ Xi’an Hanneng is a holding company and was supposed to own 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. ~~As of June 30, 2019,~~ Xi’an Hanneng already ~~owns~~owned 29,948,000 shares of ~~Huaxin, and is in the process of obtaining the remaining 17,202,000 shares;~~Huaxin; however, Huaxin stock is halted trading by NEEQ until its 2018 annual report is filed; as of the date of this report, the partners of HYREF and the Company orally agreed to extend the due date of the equity share transfer of Xi’an Hanneng ~~for another few months when Xi’an Hanneng obtains~~was not able to obtain the remaining 17,202,000 shares due to halted trading of ~~Huaxin. Since~~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, Mr. Bai, Xi’an TCH and Xi’an Zhonghong agreed to have Mr. Bai repay the ~~debt settlement agreement~~Company in cash for the transfer price of Xuzhou Huayu and Shenqiu in five installment payments. The 1^st payment of RMB 50 million ($7.17 million) is ~~not fully implemented,~~due on January 5, 2020, the ~~loan~~2^ndpayment of RMB 50 million ($7.17 million) was ~~deemed unpaid at~~due on February 5, 2020, the 3^rdpayment of RMB 50 million ($7.17 million) was due on April 5, 2020, the 4^th payment of RMB 50 million ($7.17 million) is due on June 30, ~~2019.~~2020, and the final payment of RMB 47,066,000 ($6.75 million) is due on September 30, 2020. As of this report date, the Company has already received RMB 200 million ($28.68 million).

The lender agreed to extend the repayment of RMB 77.00 million ($11.04 million) to July 8, 2023; of which, RMB 75.00 million ($10.81 million) was Xi’an TCH’s investment into the HYREF fund as a secondary limited partner, and the Company netted off the investment of RMB 75 million ($10.81 million) by Xi’an TCH with the entrusted loan payable of the HYREF Fund.

A reconciliation of repayment of HYREF loan (entrusted loan) by three Projects at June 30, ~~2019~~2020 was as ~~following:~~follows:

Transfer price for Chengli Project	$	27,439,656	Entrusted loan payable at June 30, 2019, net with Xi’an TCH investment in entrusted loan	$	48,293,016		$	26,645,865	Entrusted loan payable at June 30, 2020, net with Xi’an TCH investment in entrusted loan (current and noncurrent)	$	20,463,884
Transfer price for Xuzhou Huayu Project		17,455,306	Interest payable on entrusted loan at June 30, 2019		21,114,011			16,950,350	Interest payable on entrusted loan at June 30, 2020		8,711,500
Transfer price for Shenqiu Phase I and II Projects		18,483,134	Add back: Xi’an TCH investment in entrusted loan		10,909,567			17,948,442	Add back: Xi’an TCH investment in entrusted loan		10,593,969
			Less: interest accrued from September 20, 2018 to June 30, 2019 due to cut-off date for interest calculation for repayment was September 20, 2018		(5,738,009	)			Less: interest accrued from September 20, 2018 to June 30, 2020 (cut-off date for interest calculation for repayment was September 20, 2018)		(2,247,013	)
			Less: portion of loan repayment due date extended to year 2023		(11,200,489	)			Less: portion of loan with repayment due date extended to year 2023		(10,876,474	)
	$	63,378,096		$	63,378,096
									Add back: interest & penalty repaid by Xi’an TCH		8,466,709
									Add back: loan principle repaid by Xi’an TCH		26,432,082
							$	61,544,657		$	61,544,657

~~13.~~10. REFUNDABLE DEPOSITS FROM CUSTOMERS FOR SYSTEMS LEASING

As of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the balance of refundable deposits from customers for systems leasing was ~~$552,751~~$0 and $544,709 (for Pucheng ~~systems) and $1,034,503 (for Pucheng and Shengqiu~~ systems), respectively.

~~14.~~11. RELATED PARTY TRANSACTIONS

On December 29, 2018, the Company’s Chairman of the Board and CEO, Guohua Ku, entered into a Buy-Back Agreement with the following parties: Xi’an TCH, Xi’an Zhonghong, HYREF, Chonggong Bai and Xi’an Hanneng Enterprises Management Consulting Co. Ltd. (“Xi’an Hanneng”). Pursuant to the terms of the Buy Back Agreement, Mr. Ku, together with Xi’an TCH, Xi’an Zhonghong, and Chonggong Bai, as Buyers, jointly and severally agreed to buy back all outstanding capital equity of Xi’an Hanneng which was transferred to HYREF by Chonggong Bai, and a CDQ WHPG station in Boxing County which was transferred to HYREF by Xi’an Zhonghong. (See Note 9). Pursuant to the terms of the Buy-Back agreement, HYREF may 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.

As of June 30, ~~2019,~~2020, and December 31, ~~2018,~~2019, the Company had ~~$40,842~~$28,720 and ~~$41,168,~~$41,174, respectively, in advances from the Company’s management, which bear no interest, are unsecured, and are payable upon demand.

~~15.~~12. NOTE PAYABLES, NET

~~Convertible Note in July 2018~~

On July 11, 2018, the Company entered into a Securities Purchase Agreement with a Purchaser, pursuant to which the Company sold and issued to the Purchaser a Convertible Promissory Note of $1,070,000. The Purchaser purchased the Note with an original issue discount (“OID”) of $50,000, and the Company paid to the Purchaser $20,000 for fees and costs incurred by Purchaser in connection with the consummation of the Purchase Agreement.

The Note bears interest at 8%. All outstanding principal and accrued interest on the Note will become due and payable on July 11, 2020, subject to a potential one-year extension during which interest would not accrue. 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. Amounts outstanding under the Note may be converted at any time, at the Lender’s option, into shares of the Company’s common stock at a conversion price of $3.00 per share, subject to certain adjustments. During the term of the Note, the Company shall not, without the prior written consent of the Purchaser, enter into or effect certain fundamental business transactions. The Purchaser has the option to redeem the Note at any time after the six month anniversary of the date when the purchase price is delivered to the Company (“Purchase Price Date”) in the amounts of up to 50% of the amount outstanding during the nine month period after Purchase Price Date or any percentage of the amount outstanding under the Note at any time after the nine month anniversary of Purchase Price Date, with such redemption amounts paid in cash or shares of the Company’s common stock, or a combination thereof, at the Company’s election.

During the first quarter of 2019, the Company amortized OID of $38,151 and loan issuing cost of $15,260, and recorded $10,446 interest expense for this convertible note. From January 16, 2019 through March 6, 2019, the investors converted the convertible note with principal of $1,070,000 and accrued interest of $51,018 into 1,851,946 common shares at conversion price range from $0.86 to $1.42, the Company recorded $893,958 loss on note conversion.

Convertible Notes / Promissory Notes in January and February 2019

On January 31, 2019, the Company entered into a Securities Purchase Agreement with Iliad Research and Trading, L.P., a Utah limited partnership (the “Purchaser”), pursuant to which the Company sold and issued to the Purchaser a Convertible Promissory Note of $1,050,000. The Purchaser purchased the Note with an original issue discount of $50,000. The Note bears interest at ~~the rate of~~ 8% ~~per annum.~~. All outstanding principal and accrued interest on the Note will become due and payable on January 30, 2021, subject to a potential one-year extension period during which interest would not accrue. 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. Amounts outstanding under the Note may be converted at any time, at the Lender’s option, into shares of the Company’s common stock at a conversion price of $3.00 per share, subject to certain ~~adjustments.~~adjustments as discussed in the July 2018 Note above. The conversion feature did not require bifurcation and derivative accounting ~~and~~ as the conversion price was greater than the market ~~value~~price of the Company common shares, there was no beneficial conversion feature to recognize.

On February 27, 2019, the Company entered into a Securities Purchase Agreement with Iliad Research and Trading, L.P., a Utah limited partnership (the “Purchaser”), pursuant to which the Company sold and issued to the Purchaser a Convertible Promissory Note of $1,050,000. The Purchaser purchased the Note with an original issue discount of $50,000. The Note bears interest at 8% ~~per annum.~~. All outstanding principal and accrued interest on the Note will become due and payable on February 26, 2021, subject to a potential one-year extension period during which interest would not accrue. 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. Amounts outstanding under the Note may be converted at any time, at the Lender’s option, into shares of the Company’s common stock at a conversion price of $3.00 per share, subject to certain ~~adjustments.~~adjustments as discussed above in the July 2018 Note. The conversion feature did not require bifurcation and derivative accounting and as the conversion price was greater than the market value of the Company common shares, there was no beneficial conversion feature to recognize.

Pursuant to an Exchange Agreement dated April 14, 2019 (the “Exchange Agreement”), the Company and Iliad Research and Trading, L.P. agreed to exchange the above two notes (the “Original Notes”) with two new promissory notes (the “Exchange Notes”). Upon execution of the agreement, the notes holder surrendered the Convertible Notes to the Company and the Company issued to the holder the Exchange Notes. Upon surrender, the two Convertible Notes were cancelled and the remaining amount owed to Holder hereafter be evidenced solely by the Exchange ~~Notes.~~Notes ($1,173,480 and $ 1,165,379 for the January and February 2019 notes, respectively). All outstanding principal and accrued interest on the Exchange Notes will become due and payable on January 31, 2021 and February 27, 2021, respectively. The Exchange Notes bore interest at 8% ~~per annum~~ and did not grant conversion options to the Purchaser. The Company’s obligations under the Exchange Notes could be prepaid at any time, provided that in such circumstance the Company would have paid 125% of any amounts outstanding under the Exchange Notes. Beginning on the date that is six ~~(6)~~ months from the issue date of the respective Original Notes (the “Issue Dates”) and at any time thereafter until the Exchange Notes are paid in full, Purchaser shall have the right to redeem up to $750,000 of the outstanding balance during months six to eight following the respective Issue Date and any amount thereafter. The exchange of the Convertible Notes with Promissory Notes did not cause substantially different terms, and did not meet the conditions described in ASC ~~405-20-10-1;~~405-20-40-1, and therefore was accounted for as a modification and not an extinguishment; accordingly, the Company did not recognize any gain or loss for the exchange of the notes under ASC 470-50-40-8.

During the six months ended June 30, ~~2019,~~2020, the Company amortized OID of ~~$18,750~~$39,583 and recorded ~~$62,827~~$61,609 interest ~~expense for these two notes.~~expense. During the three months ended June 30, 2020, the Company amortized OID of $27,083 and recorded $26,482 interest expense.

As a result of default in the redemption request by the lender made on August 1, 2019, the Company and the lender entered into a forbearance agreement in which the lender agreed not to enforce its rights under the agreement and agreed not to make any Redemptions pursuant to the Section 4 of the Note before October 1, 2019. Under the term of the forbearance agreement, in the event Lender delivers after October 1, 2019 a Redemption Notice to Borrower and the Redemption Amount set forth therein is not paid in cash to Lender within three Trading Days, then the applicable Redemption Amount shall be increased by 25% (the “First Adjustment,” and such increase to the Redemption Amount, the “First Adjusted Redemption Amount”). In the event the First Adjusted Redemption Amount is not paid within three Trading Days after the date of First Adjustment, then the First Adjusted Redemption Amount shall be increased in accordance with the following formula: $0.50 divided by the lowest Closing Trade Price of the Common Stock during the 20 Trading Days prior to the date of the Second Adjustment and the resulting quotient multiplied by the First Adjusted Redemption Amount (the “Second Adjustment,” and such increase to the First Adjusted Redemption Amount, the “Second Adjusted Redemption Amount”), provided, however, that such formula shall only be applied if the resulting quotient is greater than one and such formula shall in no event be used to reduce the First Adjusted Redemption Amount.

~~16. SHARES ISSUED FOR EQUITY FINANCING~~

~~Registered Director Offering and Private Placement in October 2018~~

On October 29, 2018, China Recycling Energy Corporation entered into Securities Purchase Agreements with certain purchasers (the “Purchasers”), pursuant to which the Company offered to the Purchasers, in a registered direct offering, an aggregate of 1,985,082 shares of the Company’s common stock. The Shares were sold to the Purchasers at $1.375 per share, for gross proceeds to the Company of approximately $2.75 million, before deducting fees to the placement agent and other estimated offering expenses payable by the Company.

In a concurrent private placement, the Company also issued to the each of the Purchasers a warrant (“Investor Warrants”) to purchase one (1) share of the Company’s Common Stock for each Share purchased under the Purchase Agreement, pursuant to that certain Common Stock Purchase Warrant, by and between the Company and each Purchaser, for a purchase price of $0.125 per Warrant and gross proceeds to the Company of approximately $250,000, before deducting fees to the placement agent and other estimated offering expenses payable by the Company. The Warrants are exercisable on the date of issuance at an initial exercise price of $1.3725 per share and will expire on the five and a half year anniversary of the date of issuance.

H.C. Wainwright & Co., LLC was the Company’s exclusive placement agent in connection with the offerings under the Purchase Agreement and received a fee equal to 7.0% of the gross proceeds ($208,433) received by the Company from the offerings and warrants to purchase the Company’s Common Stock in an amount equal to 7% of the Company’s Shares sold to the Purchasers in the offerings, or 138,956 shares of Common Stock, on substantially the same terms as the Warrants, with an initial exercise price of $1.875 per share and expiration date of October 29, 2023 (the “Placement Agent Warrants”).

The warrants issued in this private placement are classified as equity instruments. The Company accounted for the warrants issued in the private placement based on the fair value method under ASC Topic 505, and the FV of the warrants was calculated using the Black-Scholes model under the following assumptions: estimated life of 5.5 years for Investor Warrants and 5 years for Placement Agent Warrants, volatility of 98%, risk-free interest rate of 2.91% and dividend yield of 0%. The FV of the warrants issued to investors at grant date was $2,499,238, and the FV of the warrants issued to the placement agent at grant date was $161,027.

~~Private Placement in February 2019~~

On February 13, 2019, China Recycling Energy Corporation entered into a Securities Purchase Agreement (the “Agreement”) with Great Essential Investment, Ltd. a company incorporated in the British Virgin Islands (the “Purchaser”), pursuant to which the Company sold to the Purchaser in a private placement 1,600,000 shares of the Company’s common stock, par value $0.001 per share, at $1.013 per share, for $1,620,800. The Company was required to file a registration statement for the registration of the Shares for their resale by the Purchaser within 100 days from the effective date of this Agreement. The Private Placement was completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities Act of 1933, as amended. The Company filed the registration statement on May 24, 2019, and was declared effective on June 4, 2019.

~~Registered Direct Offering and Private Placement in April 2019~~

~~On April 15,~~ 2019, the Company entered into a ~~Securities Purchase~~series of Exchange Agreements with Iliad Research and Trading, L.P. Pursuant to the Agreement, ~~(the “Purchase Agreement”) with certain purchasers (the “Purchasers”), pursuant to which~~ the Company ~~offered to~~and Lender partitioned five Promissory Notes in the ~~Purchasers, in~~original total principal amount of $797,000 from a registered direct offering, an aggregate of 2,359,272 shares of common stock. The Shares were sold to the Purchasers at a negotiated purchase price of $0.80 per share, for aggregate gross proceeds toPromissory Note issued by the Company on April 14, 2019. The Company and Lender exchanged the Partitioned Note for the delivery of ~~$1,887,417, before deducting a~~ total ~~of $200,000 in placement agent fees and other estimated offering expenses payable by the Company.~~

~~In a concurrent private placement, the Company also issued to the each of the Purchasers a warrant to purchase 0.75 of a share~~175,400 shares (post-reverse stock split) of the Company’s Common ~~Stock for each share purchased under the Purchase Agreement, or 1,769,454 warrants in the aggregate.~~Stock. The ~~Warrants are exercisable beginning~~Company recorded $131,740 gain on ~~the six month anniversary~~conversion of these portion of the ~~date of issuance at an initial exercise price of $0.9365 per share,~~note. However, on December 16, 2019, the Company and ~~expire on~~ the ~~five and one-half year anniversary~~lender amended the September 11, 2019 forbearance agreement to increase the adjustment ratio described above from $0.50 to $0.30 (pre-reverse stock split price). The outstanding balance of the ~~date of issuance.~~

H.C. Wainwright & Co., LLC acted as the Company’s exclusive placement agent in connection with the offerings under the Purchase Agreement and received an aggregate cash fee equal to 7.0% of the gross proceeds receivedNote shall be reduced by ~~the Company from the offerings (or $132,119), an aggregate of up to $75,000 for certain expenses, $10,000 for clearing expenses and warrants to purchase our Common Stock in~~ an amount equal to 7%the total outstanding balance of ~~our Shares sold~~the Partitioned Note. The investor made adjustments of $305,626 to increase the principle of the notes during the year ended December 31, 2019 under the term of the September 11^th forbearance agreement and the amendment to forbearance agreement dated on December 16, 2019.

During the first quarter of 2020, Company entered into three Exchange Agreements with Iliad Research and Trading, L.P. Pursuant to the ~~Purchasers~~Agreement, the Company and Lender partitioned three new Promissory Notes in the ~~offerings, or 165,149~~original total principal amount of $430,000 from a Promissory Note issued by the Company on April 14, 2019. The Company and Lender exchanged the Partitioned Note for the delivery of total 143,333 shares of Common Stock, on substantially the same terms as the Warrants, except that the Placement Agent Warrants have an initial exercise price of $1.00 per share, are exercisable commencing on the later of (i) six months(post-reverse stock split) of the ~~issuance date or (ii)~~Company’s Common Stock. The Company recorded $103,167 loss on conversion of these portion of the ~~date on which~~note.

During the second quarter of 2020, Company entered into four Exchange Agreements with Iliad Research and Trading, L.P. Pursuant to the Agreement, the Company ~~increases~~and Lender partitioned four new Promissory Notes in the ~~number~~original total principal amount of ~~its authorized shares, and expire~~$819,586 from a Promissory Note issued by the Company on April ~~15, 2024.~~

~~The warrants issued in this private placement were classified as equity instruments.~~14, 2019. The Company ~~accounted~~and Lender exchanged the Partitioned Note for the ~~warrants issued~~delivery of total 304,710 shares (post-reverse stock split) of the Company’s Common Stock. The Company recorded $49,837 gain on conversion of these portion of the note. In addition, the investor also made adjustments of $145,000 to increase the principle of the notes during the second quarter of 2020 under the term of the September 11^th forbearance agreement and the amendment to forbearance agreement dated on December 16, 2019. These transactions were recorded as credit to additional paid in capital of $769,749, which was the difference between Note conversion of $819,586 and gain on conversion of $49,837. The $49,837 gain on conversion was presented net of $145,000 adjustment discussed above and resulted in a net loss on note redemption/ conversion of $95,163 in the ~~private placement based~~statement of operations.

On May 15, 2020, the Company entered into a Forbearance Agreement with the Lender. The Lender had delivered a redemption notice to the Company on November 4, 2019 pursuant to the ~~fair value method under ASC Topic 505,~~terms of the Exchange Agreement dated April 14, 2019 and the FVCompany failed to pay the amount provided therein. Accordingly, the Lender has the right to accelerate the maturity date of the ~~warrants~~Note and cause the outstanding balance to be increased by 25%. The Lender agreed with the Company to withdraw the November 4, 2019 redemption notice as if it was ~~calculated using the Black-Scholes model~~never made and agreed that as of May 15, 2020 there is no default under the ~~following assumptions: estimated life of 5.5 years~~Note. The Company did not pay any consideration to the Lender for ~~Investor Warrants and 5 years for Placement Agent Warrants, volatility of 100%, risk-free interest rate of 2.41% and dividend yield of 0%.~~this forbearance. The FVoutstanding balance of the ~~warrants issued to investors at grant date was $855,246,~~Note as of May 15, 2020 is $1,271,720, and under the new Forbearance Agreement, if the Lender delivers a redemption notice and the ~~FV of~~amount set forth in such notice is not paid in cash to Lender within three trading days, the ~~warrants issued~~applicable redemption amount shall be increased to ~~the placement agent at grant date was $75,901.~~25%.

13. SHARES ISSUED FOR EQUITY FINANCING AND STOCK COMPENSATION

Following is a summary of the ~~warrant activity~~activities of warrants that were issued from equity financing (post-reverse stock split) for the six months ended June 30, ~~2019:~~2020:

Number of
Warrants Average
Exercise
Price Weighted
Average
Remaining
Contractual
Term in Years
Granted 2,124,038 $ 1.41 5.47
Exercised - - -
Forfeited - - -
Expired - - -
Outstanding at December 31, 2018 2,124,038 $ 1.41 5.29
Exercisable at December 31, 2018 2,124,038 $ 1.41 5.29
Granted 1.934,603 $ 0.95 5.25
Exercised - - -
Forfeited - - -
Expired - - -
Outstanding at June 30, 2019 4,058,641 $ 1.19 5.01
Exercisable at June 30, 2019 4,058,641 $ 1.19 5.01

On July 8, 2019, the Company filed a Certificate of Amendment with the State of Nevada to (i) increase the total number of authorized shares of common stock, par value $0.001 per share, from 20,000,000 shares to 100,000,000 shares and (ii) authorize the issuance of up to 60,000,000 shares of blank check preferred stock, par value $0.001 per share, which were approved at the Company’s annual stockholders meeting held on July 2, 2019.

	Number of Warrants		Average Exercise Price (post-reverse stock split price)		Weighted Average Remaining Contractual Term in Years
Outstanding at December 31, 2019		30,411	$	14.0		4.21
Exercisable at December 31, 2019		30,411	$	14.0		4.21
Granted		-		-		-
Exercised		-		-		-
Forfeited		-		-		-
Expired		-		-		-
Outstanding at June 30, 2020		30,411	$	14.0		3.71
Exercisable at June 30, 2020		30,411	$	14.0		3.71

~~17. NONCONTROLLING INTEREST AND LONG TERM PAYABLE~~Shares Issued for Stock Compensation

On ~~July 15, 2013, Xi’an TCH and HYREF Fund jointly established Xi’an Zhonghong New Energy Technology (“Zhonghong”) with registered capital~~March 16, 2020, the Company’s Board of ~~RMB 30 million ($4.88 million),~~Director agreed to ~~manage new projects. Xi’an TCH paid RMB 27 million ($4.37 million) as its contribution~~issue 3,333 shares of the ~~registered capital~~Company’s common stock (post-reverse stock split) to ~~Zhonghong. Xi’an TCH owns 90% of Zhonghong while HYREF Fund owns 10% of Zhonghong as a non-controlling interest of Zhonghong.~~

~~In addition,~~ the ~~HYREF Fund was 16.3% owned by Xi’an TCH~~Company’s law firm. The shares are earned in full and 1.1% owned by the Fund Management Company, and the Fund Management Company was 40% owned by Xi’an TCH as described in Note 7, which resulted in an additional indirect ownership of Xi’an TCH in Zhonghong of 1.7%; accordingly, the ultimate non-controlling interest (HYREF Fund) in Zhonghong became 8.3%.

On December 29, 2018, Shanghai TCH entered into a Share Transfer Agreement with HYREF, pursuant to which HYREF transferred its 10% ownership in Xi’an Zhonghong to Shanghai TCH for RMB 3 million ($0.44 million), and Shanghai TCH record the purchase price as long term payablenon-refundable as of ~~June 30, 2019. On January 22, 2019, HYREF completed the transfer~~March 9, 2020. The FV of ~~its 10% ownership in Xi’an Zhonghong to Shanghai TCH. The Company did not record any gain or loss for this purchase as the controlling interest did not change.~~these shares are $10,999 on March 9, 2020.

~~18.~~14. 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 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. All of the Company’s Chinese subsidiaries’ effective income tax rate for 2019 and 2018 was 25%. Yinghua, Shanghai TCH, Xi’an TCH, Huahong, Zhonghong and Erdos TCH file separate income tax returns.

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, ~~China Recycling Energy Corporation,~~CREG is taxed in the US and, as of June 30, ~~2019,~~2020, had net operating loss (“NOL”) carry forwards for income taxes of ~~$14.91~~$1.74 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. The 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 recently issued Coronavirus Aid, Relief and Economic Security Act (the CARES Act or the Act), provides four relief provisions for corporate taxpayers as follows:

1.	Five-year net operating loss (NOL) carryback provision: the Act allows for the carryback of losses arising in a taxable year beginning after December 31, 2017, and before January 1, 2021, to each of the five taxable years preceding the taxable year of the loss.

2.	Fiscal year NOL carryback fix from the Tax Cuts and Jobs Act (TCJA) of 2017: the Act corrects the language to provide fiscal year taxpayers who had NOLs arising in years that began prior to December 31, 2017 and ended after December 31, 2017 with the ability to carry back those NOLs.

3.	Deferral of 80% income limitation on post-2017 NOLs to 2021: the Act suspends this 80% limitation for taxable years beginning before January 1, 2021, and instead allows the full offset of taxable income. For tax years beginning after December 31, 2020, the Act reinstates the 80% limitation.

Immediate Alternative Minimum Tax (“AMT”) tax credit refunds: the Act accelerates availability of AMT credits. The full remaining refundable AMT credit amount will be available for a corporation’s first taxable year beginning in 2019. Alternatively, a corporation may elect to use 100% of its AMT credits for its first taxable year beginning in 2018.

As of June 30, ~~2019,~~2020, the Company’s PRC subsidiaries had ~~$36.01~~$66 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, Erdos TCH has not yet resumed operation and Zhonghong has not yet generated any ~~sales yet;~~sales; 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, ~~2019~~2020 and ~~2018,~~2019, respectively:

	2019			2018			2020			2019
U.S. statutory rates		(21.0	)%		(21.0	)%		21.0	%		(21.0	)%
Tax rate difference – current provision		(3.6	)%		(3.3	)%		10.1	%		(3.6	)%
Tax adjustment on PRC tax return		5.3	%		-	%		-	%		5.3	%
Reversal of temporary difference due to disposal of Shengqiu		(22.4	)%		-	%
Reversal of temporary difference due to disposal of Shenqiu								-	%		(22.4	)%
Permanent differences		2.0	%		10.3	%		12.6	%		2.0	%
Other		-	%		7.8	%
Valuation allowance on PRC NOL		15.4	%		21.0	%
Valuation allowance on US NOL		0.2	%		3.5	%
Change in valuation allowance on PRC NOL								(62.8	)%		15.4	%
Change in valuation allowance on US NOL								19.1	%		0.2	%
Tax (benefit) per financial statements		(24.1	)%		18.3	%		-	%		(24.1	)%

The provision for income ~~taxe~~tax expense for the six months ended June 30, ~~2019~~2020 and ~~2018~~2019 consisted of the following:

2019 2018
Income tax expense – current $ 78,044 $ 921,041
Income tax benefit – deferred (2,364,088 ) (653,123 )
Total income tax expense (benefit) $ (2,286,044 ) $ 267,918

	2020		2019
Income tax expense – current	$	-	$	78,044
Income tax benefit – deferred		-		(2,364,088	)
Total income tax benefit	$	-	$	(2,286,044	)

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively:

	2019			2018			2020			2019
U.S. statutory rates		(21.0	)%		(21.0	)%		21.0	%		(21.0	)%
Tax rate difference – current provision		(3.8	)%		(3.7	)%		5.4	%		(3.8	)%
Tax adjustment on PRC tax return		9.8	%		-	%		-	%		9.8	%
Reversal of temporary difference due to disposal of Shengqiu		3.2	%		-	%
Reversal of temporary difference due to disposal of Shenqiu								-	%		3.2	%
Permanent differences		-	%		9.5	%		2.6	%		-	%
Other		1.6	%		7.9	%		-	%		1.6	%
Valuation allowance on PRC NOL		11.9	%		1.1	%
Valuation allowance on US NOL		0.3	%		1.7	%
Tax (benefit) per financial statements		2.0	%		(4.5	)%
Change in valuation allowance on PRC NOL								(33.8	)%		11.9	%
Change in valuation allowance on US NOL								4.8	%		0.3	%
Tax expense per financial statements								-	%		2.0	%

The provision for income ~~taxes~~tax expense for the three months ended June 30, ~~2019~~2020 and ~~2018~~2019 consisted of the following:

2019 2018
Income tax expense (benefit) – current $ (61,700 ) $ 463,046
Income tax expense (benefit) – deferred 166,527 (534,673 )
Total income tax expense (benefit) $ 104,827 ) $ (71,627 )

	2020		2019
Income tax benefit – current	$	-	$	(61,700)
Income tax expense – deferred		-		166,527	)
Total income tax expense	$	-	$	104,827

~~19.~~15. 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 stock authorized for issuance during the term of the Plan is ~~12,462,605 (prior to the 10:1 Reverse Stock Split)~~124,626 (post-reverse stock split). The Plan was effective immediately upon ~~the~~its adoption by the 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 their 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 $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.

~~The Company recorded $0 compensation expense for stock options to employees during six and three months ended June 30, 2019 and 2018, respectively.~~

~~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) 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 (prior to the 10:1 Reverse Stock Split effective May 25, 2016) was $26,528 at the grant date.

The following table summarizes option activity with respect to employees and independent directors, and the number of options reflects the ~~10:1~~ Reverse Stock Split effective ~~May 25, 2016:~~April 13, 2020:

Number of
Shares Average
Exercise Price
per Share Weighted
Average
Remaining
Contractual
Term in Years

Outstanding at December 31, 2018 9,000 $ 5.4 5.41
Exercisable at December 31, 2018 9,000 $ 5.4 5.41
Granted - - -
Exercised - - -
Forfeited - - -
Outstanding at June 30, 2019 9,000 $ 5.4 4.91
Exercisable at June 30, 2019 9,000 $ 5.4 4.91

	Number of Shares		Average Exercise Price per Share (post-reverse stock split price)		Weighted Average Remaining Contractual Term in Years

Outstanding at December 31, 2019		900	$	54.3		4.41
Exercisable at December 31, 2019		900	$	54.3		4.41
Granted		-		-		-
Exercised		-		-		-
Forfeited		-		-		-
Outstanding at June 30, 2020		900	$	54.3		3.91
Exercisable at June 30, 2020		900	$	54.3		3.91

~~20.~~16. 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.

During the six and three months ended June 30, 2020, the Company transferred $140,494, which is 10% of Xi’an TCH’s net income to the statutory reverse. 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, ~~2019.~~2020 and December 31, 2019:

Name of Chinese Subsidiaries	Registered Capital		Maximum Statutory Reserve Amount		Statutory reserve at June 30, 2019	Registered Capital		Maximum Statutory Reserve Amount		Statutory reserve at June 30, 2020	Statutory reserve at December 31, 2019

Shanghai TCH	$	29,800,000	$	14,900,000	¥ 6,564,303 ($1,003,859)	$	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	¥ 69,109,194 ($10,570,023)	¥	202,000,000	¥	101,000,000	¥70,347,763 ($10,747,478)	¥69,359,820 ($10,606,984)

Erdos TCH	¥	120,000,000	¥	60,000,000	¥ 19,035,814 ($2,914,869)	¥	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	¥	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	$	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	¥	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 on 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.

~~21.~~17. 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.

The Company sells electricity to its customers and receives commercial notes (bank acceptance) from them in lieu of payments for accounts receivable. The Company discounts the commercial notes with the bank or endorses the commercial notes to vendors for payment of their own obligations or to get cash from third parties. Most of the commercial notes have a maturity of less than six ~~(6)~~ months.

~~22.~~18. 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.

On August 2, 2018, the Company entered into a lease for its office use in Beijing with a term from August 4, 2018 through August 3, 2020. The monthly rent is RMB 22,000 ($3,205) with quarterly payment in advance.

~~At June 30, 2019, the future annual rental payments for the years ending are as follows:~~

June 30, 2020 $ 106,133
June 30, 2021 31,569

For the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, the rental expense of the Company was $32,502 and $53,067 ~~and $33,600,~~(including Beijing office rent of $19,201), respectively.

For the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, the rental expense of the Company was $16,128 and $26,494 ~~and $16,800,~~(including Beijing office rent of $9,419), respectively.

The Company adopted ASC 842 on CFS on January 1, 2019. 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, 2020
Operating lease cost – amortization of ROU	$	31,848
Operating lease cost – interest expense on lease liability	$	654
Weighted Average Remaining Lease Term - Operating leases		0.42 years
Weighted Average Discount Rate - Operating leases		3	%

	Three Months Ended
	June 30, 2020
Operating lease cost – amortization of ROU	$	15,861
Operating lease cost – interest expense on lease liability	$	267

The following is a schedule, by years, of maturities of the office lease liabilities as of June 30, 2020:

	Operating Leases
2020	$	25,804
Total undiscounted cash flows		25,804
Less: imputed interest		(193	)
Present value of lease liabilities	$	25,611

~~Construction Commitment~~Employment Agreement

~~Refer to Note 1~~On May 8, 2020, the Company entered an employment agreement with the Company’s CFO for ~~additional details related to lease commitments with Xuzhou Tian’an, Note 8 for commitments on construction in progress.~~a term of 24 months. The monthly salary is RMB 16,000 ($2,300). The Company will grant the CFO no less than 5,000 shares of the Company’s common stock annually.

~~23.~~Investment Banking Engagement Agreement

On October 10, 2019, the Company entered an investment banking engagement agreement with an investment banker firm to engage them as the exclusive lead underwriter for a registered securities offering. The Company shall pay to the investment banker an equity retainer fee of 15,000 shares (post-reverse stock split) 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 proposed offering amount is $5 million, at closing of the offering, the Company will pay a 7% of the gross offering proceeds and warrants to purchase that number of shares of common stock or units of securities as shall equal 7% of the securities issued and sold by the Company at each closing of the offering. This agreement was renewed on July 22, 2020 for another six months, or the final closing of a transaction, whichever comes first.

19. 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 financial statements were issued and determined the Company ~~did not have any~~has the following material subsequent ~~events~~events:

On July 7, 2020, the Company entered into an Exchange Agreement with Iliad Research and Trading, L.P. Pursuant to ~~disclose~~the Agreement, the Company and the Lender agreed to partition a new Promissory Note in ~~its CFS.~~the original principal amount of $200,000 from a Convertible Promissory Note dated January 31, 2019 which was exchanged for a new Promissory Note on April 14, 2019. The Company and the Lender agreed to exchange the Partitioned Note for 85,837 shares of common stock of the Company, and then the amount of the outstanding balance of the Promissory Note will be reduced by an amount equal to the Partitioned Note. The shares of common stock were issued without any restrictions.

On August 3, 2020, the Company entered into an Exchange Agreement with Iliad Research and Trading, L.P. Pursuant to the Agreement, the Company and the Lender agreed to partition a new Promissory Note in the original principal amount of $200,000 from a Convertible Promissory Note dated January 31, 2019 which was exchanged for a new Promissory Note on April 14, 2019. The Company and the Lender agreed to exchange the Partitioned Note for 73,529 shares of common stock of the Company, and then the amount of the outstanding balance of the Promissory Note will be reduced by an amount equal to the Partitioned Note. The shares of common stock were issued without any restrictions.

~~Item~~ITEM 2. ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~MANAGEMENT’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~~the Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 (the ~~“2018~~“2019 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 2018~~the 2019 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 ~~this~~annual 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 OF BUSINESS BACKGROUND

China Recycling Energy Corporation (the “Company” or “CREG”) was incorporated on May 8, ~~1980 as Boulder Brewing Company under the laws of the State of Colorado.~~1980. On ~~September 6, 2001, the Company changed its state of incorporation to 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. 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.

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 smart energy cities with multi-energy supplies. By supporting and motivating all kinds of the electric power market to participate in resource development and utilization of demand response, we plan to provide services including peak shaving with compensation and frequency modulation. We intend to gradually form motor load performance for peak and low-hours, which will account for about 3% of the annual maximum power load on the demand side and to ensure the electricity supply and demand balance for situations of non-severe power shortages.

For the six months ended June 30, 2020 and 2019, the Company had a net income of $0.40 million and net loss $7.21 million, respectively. For the three months ended June 30, 2020 and 2019, the Company had a net income of $0.99 million and net loss $5.26 million, respectively. The Company has an accumulated deficit of $46.19 million as of June 30, 2020. The Company is in the process of transforming and expanding into an energy storage integrated solution provider as described above.

The historical operating results indicate substantial doubt exists related to the Company’s ability to continue as a going concern. However, the Company had $62.67 million cash on hand at June 30, 2020, this also satisfies the Company’s estimated liquidity needs 12 months from the issuance of the financial statements. The Company believes that the actions discussed above are probable of occurring and the occurrence, as well as the cash flow discussed, mitigate the substantial doubt raised by its historical operating results.

Management 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 is dependent 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.

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 Energy Tech Co., Ltd. (“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% and Shanghai TCH’s 10% 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.

The Company’s organizational chart as of June 30, ~~2019~~2020 is as follows:

CREG Legal Structure

Shanghai TCH and its Subsidiaries

Shanghai TCH was established as a foreign investment enterprise in Shanghai under the laws of the PRC on May 25, 2004 and has registered capital of $29.80 million. Xi’an TCH was incorporated in Xi’an, Shaanxi Province under the laws of the PRC on November 8, 2007. In February 2009, Huahong was incorporated in Xi’an, Shaanxi province. Erdos TCH was incorporated in April 2009 in Erdos, Inner Mongolia Autonomous Region. On July 19, 2013, Xi’an TCH formed Xi’an Zhonghong New Energy Technology Co., Ltd (“Zhonghong”). Xi’an TCH owns 90% and Shanghai TCH owns 10% of Zhonghong.

~~As of June 30, 2019, Shanghai TCH, through its subsidiaries, had sales or sales-type leases with Pucheng for two biomass power generation (“BMPG”) systems.~~

The Fund Management Company and the HYREF Fund

On June 25, 2013, Xi’an TCH and Hongyuan Huifu Venture Capital Co. Ltd (“Hongyuan Huifu”) established Beijing Hongyuan Recycling Energy Investment Management Company 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 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 Company made an initial capital contribution of RMB 5 million ($830,000) to the HYREF Fund. 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) 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. In addition, Xi’an TCH and Hongyuan Huifu formed Beijing Hongyuan Recycling Energy Investment Management Company Ltd. to manage this Fund and also subscribed in the amount of RMB 5 million ($830,000) from the Fund. The term of the HYREF Fund’s partnership is six years from the date of its establishment, expiring on July 18, 2019. However, the HYREF Fund’s partnership will not terminate until the HYREF loan is fully repaid and the buy-back period is over pursuant to ~~the Buy-back~~that certain Buy-Back Agreement entered on December 29, 2018 by and among HYREF, Xi’an Zhonghong, Xi’an TCH, Guohua Ku, Chonggong Bai and Xi’an Hanneng (the “Buy-Back Agreement”) (see Note ~~12)~~9). 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 ($77 million). The HYREF Fund was formed for the purpose of investing in Xi’an Zhonghong New Energy Technology Co., Ltd., a then 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”).

On December 29, 2018, Xi’an TCH entered into a Share Transfer Agreement with Hongyuan Huifu, pursuant to which Xi’an TCH ~~agreed to transfer~~transferred its 40% ownership in the Fund Management Company to Hongyuan Huifu for RMB 3,453,867 ($0.53 million). The transfer was completed January 22, 2019. The Company recorded approximately ~~$47,500~~$46,500 loss from the sale of a 40% equity interest in Fund Management Company. The Company has no ownership in the Fund Management Company after this transaction.

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 JV has 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). Erdos contributed 7% of the total investment for the project, and 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. 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. 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 limited over-capacity and production in the iron and steel industry, which resulted in a decrease of Erdos Metallurgy Co., Ltd’s production of ferrosilicon and its revenue and cash flows, and 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 April 28, 2016, Erdos TCH and Erdos entered into a supplemental agreement, effective May 1, 2016. Under the supplemental agreement, Erdos TCH cancelled monthly minimum lease payments from Erdos, and agreed to charge Erdos based on actual electricity sold at RMB 0.30 / KWH, which price will be adjusted annually based on prevailing market conditions. ~~From~~Since May ~~2019 through October~~ 2019, Erdos TCH has ceased its operations due to renovations and furnace safety ~~upgrades.~~upgrades of Erdos, and the Company originally expected the resumption of operations in July 2020. but the resumption of operations will be delayed due to the global pandemic of Covid-19, the Company is not able to provide a resumption date as it will depend on the overall progress of the global epidemic control. During this period, Erdos will compensate Erdos TCH RMB 1 million ($145,460) per month, until operations resume.

The Company evaluated the modified terms for payments based on actual electricity sold as minimum lease payments as defined in ASC 840-10-25-4, since lease payments that depend on a factor directly related to the future use of the leased property are contingent rentals and, accordingly, are excluded from minimum lease payments in their entirety. The Company wrote off the net investment receivables of these leases at the lease modification date.

In addition, Erdos TCH has 30% ownership in DaTangShiDai (BinZhou) Energy Savings Technology Co., Ltd. (“BinZhou Energy Savings”), 30% ownership in DaTangShiDai DaTong Recycling Energy Technology Co., Ltd. (“DaTong Recycling Energy”), and 40% ownership in DaTang ShiDai TianYu XuZhou Recycling Energy Technology Co, Ltd. (“TianYu XuZhou Recycling Energy”). These companies were incorporated in 2012 but had no operations since then nor any registered capital contribution was made.

Shenqiu Yuneng Biomass Power Generation Projects

On May 25, 2011, Xi’an TCH entered into a Letter of Intent (“LOI”) with Shenqiu YuNeng 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 Biomass Power Generation 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 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 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 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~~LOI 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.

On January 4, 2019, Xi’an Zhonghong, Xi’an TCH, and Mr. Chonggong Bai ~~a resident of China,~~ entered into a Projects Transfer Agreement (the “Agreement”), pursuant to which Xi’an TCH will transfer 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 Enterprises Management Consulting Co. Ltd. (“Xi’an Hanneng”) to Beijing Hongyuan Recycling Energy Investment Center, LLP (the “HYREF”) as repayment for the loan made by Xi’an Zhonghong to HYREF as consideration for the transfer of the Shenqiu Phase I and II Projects (See Note ~~12)~~9). The transfer of projects was completed February 15, 2019. The Company recorded ~~$213,044~~$208,359 loss from the transfer. Mr. Bai transferred all the equity shares of his wholly owned company, Xi’an Hanneng to the HYREF Fund as repayment for the loan on January 10, 2019. Xi’an Hanneng will own 47,150,000 shares of Xi’an Huaxin New Energy Co., Ltd for the repayment of Shenqiu system and Huayu system. However, Xi’an Hanneng was not able to obtain all the Huaxin 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 of RMB 14,661,506 ($2.10 million), and was paid in full by Xi’an TCH. 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 1^st payment of RMB 50 million ($7.17 million) is due on January 5, 2020, the 2^ndpayment of RMB 50 million ($7.17 million) was due on February 5, 2020, the 3^rd payment of RMB 50 million ($7.17 million) was due on April 5, 2020, the 4^th payment of RMB 50 million ($7.17 million) was due on June 30, 2020, and the final payment of RMB 47,066,000 ($6.75 million) was due on September 30, 2020. As of this report date, the Company already received RMB 200 million ($28.68 million).

Pucheng Biomass Power Generation Projects

On June 29, 2010, Xi’an TCH entered into a Biomass Power Generation (“BMPG”) Project Lease Agreement with Pucheng XinHengYuan Biomass Power Generation Co., Ltd. (“Pucheng”), a limited liability company incorporated in China. Under this lease agreement, Xi’an TCH leased a set of 12MW BMPG systems to Pucheng at a minimum of $279,400 (RMB 1,900,000) per month for 15 years (“Pucheng Phase I”).

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 company 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~~87,666 shares (post-reverse stock split) of common stock of the Company at ~~$1.87~~$187.0 (post-reverse stock price) 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.

On September 29, 2019, Xi’an TCH entered into a Termination Agreement of the Lease Agreement of Biomass Power Generation Project (the “Termination Agreement”) with Pucheng.

Pucheng failed to pay fees it owed to Xi’an TCH for leasing two biomass power generation systems from Xi’an TCH with total capacity of 24MW due to its long suspension of production resulting from the significant reduction of raw material supplies for its biomass power generation operation in Pucheng County, which caused the biomass power generation project to no longer be suitable. Pursuant to the Termination Agreement, the parties agreed: (i) Pucheng shall pay off outstanding lease fees of RMB 97.6 million ($14 million) owed as of December 31, 2018 to Xi’an TCH before January 15, 2020; (ii) Xi’an TCH will waive the lease fees owed after January 1, 2019; (iii) Xi’an TCH will not return RMB 3.8 million ($542,857) in cash deposits paid by Pucheng; (iv) Xi’an TCH will transfer the Project to Pucheng at no additional cost after receiving RMB 97.6 million from Pucheng, and the original lease agreement between the parties will be formally terminated; and (v) if Pucheng fails to pay off RMB 97.6 million to Xi’an TCH before January 15, 2020, Xi’an TCH will still hold ownership of the Project and the original lease agreement shall still be valid. Xi’an TCH received RMB 97.6 million ($14 million) in full in January 14, 2020 and the ownership of the system was transferred.

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) and owns 90% of Zhonghong. 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 agreed to transfer its 10% ownership in Xi’an Zhonghong to Shanghai TCH for RMB 3 million ($0.44 million). The transfer was completed January 22, 2019.

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”). The parties entered into a supplement agreement on July 26, 2013. Pursuant to these agreements, Zhonghong agreed to design, build and maintain a 25 MW CDQ system and a CDQ WHPG system to supply power to Chengli, and Chengli agreed to 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 these Agreements is 20 years. The watt hours generated by the Chengli 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 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, however, due to intensifying environmental protection, the local environmental authorities required the project owner constructing CDQ sewage treatment to complete supporting works, which were completed and passed through acceptance inspection during the quarter ended September 30, 2018. However, the owner of Chengli Project changed from Chengli to Shandong Boxing Shengli Technology Company Ltd. (“Shengli”). This change resulted from transfer of the equity ownership of Chengli to Shengli (a private company) in March 2014. Chengli, a 100% state-owned enterprise that is 100% owned by the local Power Supply Bureau, is no longer allowed to carry out business activities, and Shengli, the new owner, is not entitled to the high on-grid prices, and thus demanded a renegotiation of the settlement terms for the project. The Company negotiated with the new project owner on the lease term, settlement method and settlement price, but no agreement has been reached.

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 to 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.

On December 29, 2018, Xi’an Zhonghong, Xi’an TCH, the “HYREF”, Guohua Ku, and Mr. Chonggong Bai entered into a CDQ WHPG Station Fixed Assets Transfer Agreement, pursuant to which Xi’an Zhonghong ~~will transfer~~transferred Chengli CDQ WHPG 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 buy back the CDQ WHPG Station when conditions under the Buy Back Agreement are met (see Note ~~12)~~9). The transfer was completed January 22, 2019, and the Company recorded ~~$638,166~~$624,133 loss from this transfer.

Since the original terms of Buy Back Agreement are still valid, the Buy Back possibility is uncertain; therefore, the assets of Chengli CDQ WHPG station, and the corresponding loan principal and interest, cannot be terminated due to the existence of Buy Back clauses.

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. Because of the overcapacity and pollution of the iron and steel and related industries, the government has imposed production limitations for the energy-intensive enterprises with heavy pollution, including Xuzhou Tian’an. Xuzhou Tian’an has slowed the construction process for its dry quenching production line which caused the delay of our project. The construction of the Xuzhou Tian’an Project is anticipated to be completed by the ~~end~~second quarter of ~~2019.~~2020. Xuzhou Tian’an will provide the land for the CDQ and CDQ WHPG systems for free. Xuzhou Tian’an has also guaranteed 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 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 in exchange for 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 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. Due to the stricter administration of environmental protection policies and recent increase in environmental protections for the coking industry in Xuzhou, all local coking, as well as steel iron enterprises, are facing a similar situation of suspended production while rectifying technologies and procedures.

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.

On January 4, 2019, Xi’an Zhonghong, Xi’an TCH, and Mr. Chonggong Bai entered into a Projects Transfer Agreement (the “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). Mr. Bai agreed to transfer all the equity shares of his wholly owned company, Xi’an Hanneng, to the HYREF Fund as repayment for the loan made by Xi’an Zhonghong to HYREF as consideration for the transfer of the Xuzhou Huayu Project (see Note ~~12)~~9). The transfer of the projects was completed February 15, 2019. The Company recorded ~~$405,959~~$397,033 loss from this transfer. ~~As of June 30,~~On January 10, 2019, Mr. ~~Chonggong~~ Bai ~~is in the process of transferring~~transferred all the equity shares of his wholly owned company, Xi’an Hanneng, to HYREF as repayment for the loan. Xi’an Hanneng will own 47,150,000 shares of Xi’an Huaxin New Energy Co., Ltd for the ~~repayment.~~repayment of Huayu system and Shenqiu system. As of ~~June~~September 30, 2019, Xi’an Hanneng already ~~owns~~owned 29,948,000 shares of Huaxin, ~~and is in the process of obtaining~~but was not able to obtain the remaining 17,202,000 ~~shares; however,~~shares due to halted trading of Huaxin stock ~~is halted trading~~ by NEEQ ~~until~~for not filing its 2018 annual ~~report~~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, 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 1^st payment of RMB 50 million ($7.17 million) is ~~filed.~~due on January 5, 2020, the 2^ndpayment of RMB 50 million ($7.17 million) was due on February 5, 2020, the 3^rd payment of RMB 50 million ($7.17 million) was due on April 5, 2020, the 4^thpayment of RMB 50 million ($7.17 million) was due on June 30, 2020, and the final payment of RMB 47,066,000 ($6.75 million) is due on September 30, 2020. As of the date of this report, the ~~partners~~Company has already received RMB 200 million ($28.68 million).

On January 10, 2020, Zhonghong, Tianyu and Huaxin signed a transfer agreement to transfer all assets under construction and related rights and interests of ~~HYREF and~~Xuzhou Tian’an Project to Tianyu for RMB 170 million ($24.37 million) by three installment payments. The 1st installment payment of RMB 50 million ($7.17 million) to be paid within 20 working days after the contract is signed. The 2nd installment payment of RMB 50 million ($7.17 million) is to be paid within 20 working days after completion of the project construction but no later than July 31, 2020. The final installment payment of RMB 70 million ($10.03 million) is to be paid before December 31, 2020. On March 11, 2020, the Company ~~orally agreed~~received 1^st installment payment. The repayment date for 2^ndinstallment payment is delayed to ~~extend the due date~~fourth quarter of the equity share transfer of Xi’an Hanneng for another few months when Xi’an Hanneng obtains the remaining 17,202,000 shares of Huaxin. Since the debt settlement agreement is not fully implemented, the loan was deemed unpaid at June 30, 2019.2020.

Zhongtai WHPG Energy Management Cooperative Agreement

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 (the “Project”) 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 fee from the date when the WHPG station passes the required 72-hour test run. The term of payment is 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).

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 RMB 167,360,000 ($~~25.75~~25.77 million and the “Transfer Price”), on the following schedule: (i) RMB 50,000,000 ($~~7.69~~7.70 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 was to 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 Zhongtai under the Zhongtai Agreement once 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. The Company recorded a $2.82 million loss from this transaction in 2016. In 2016, Xi’an TCH had received the first payment of $7.70 million and the second payment of $4.32 million. However, the Company received a repayment commitment letter from Zhongtai on February 23, 2018, in which Zhongtai committed to pay the remaining payment of RMB 87,360,000 ($13.45 million) no later than the end of July 2018; in July 2018, Zhongtai and the Company reached a further oral agreement to extend the repayment term of RMB 87,360,000 ($13.45 million) by another two to three months. In August 2018, the Company received $1,070,000 from Zhongtai; as of June 30, ~~2019,~~2020, the Company had receivables from Zhongtai for ~~$11.64~~$4.23 million (with bad debt allowance of ~~$5.82~~$4.23 million). OnIn January ~~23, 2019,~~2020, Zhongtai ~~provided an acknowledgement letter~~paid RBM 10 million (1.41 million); in March 2020, Zhongtai paid RMB 20 million ($2.82 million); in June 2020, Zhongtai paid RMB 10 million ($1.41 million). Zhongtai is committed to ~~the Company stating it expects to repay~~pay in full the remaining balance of ~~$11.88~~RMB 30 million by($4.24 million) no later than the end of ~~October 2019, once it resumes the normal production.~~2020.

~~Related Party Transactions~~

AsOn September 9, 2019, we entered into a letter of ~~June 30, 2019,~~intent to acquire a controlling interest in Xi’an Yineng Zhihui Technology Co., Ltd. (“YNZH”), a next generation energy storage solution provider in China. YNZH is a leading comprehensive high-tech intelligent energy service company integrated with energy efficiency improvement and storage management in China. The energy efficiency management is to fully use big data cloud computing technology, effectively adopt the ~~Company had $40,842 in advances from~~combination of the ~~Company’s~~mature international and domestic clean energy technologies to make the customers’ energy management ~~which bear no interest,~~more efficient, more economical, more secure and more scientific. The terms of this proposed transaction are ~~unsecured, and are payable upon demand.~~ currently being negotiated.

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.

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 June 30, ~~2019.~~2020. 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

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 June 30, ~~2019,~~2020, the Company had gross accounts receivable of ~~$51,100,975;~~$36.06 million; of which, ~~$35.94~~$13.71 million was for transferring the ownership of Huayu and Shenqiu Phase I and II systems to Mr. ~~Bai but is waiting for completion of transfer Mr. Bai’s all the equity shares of his wholly owned company, Xi’an Hanneng, to HYREF; $11.64~~Bai; $4.23 million was from the sales of CDQ and a CDQ WHPG system to Zhongtai, $16.95 million was from transferring the ownership of Tian’an project to Tianyu, and ~~$3.53~~$1.16 million accounts receivable of Erdos TCH for the electricity sold. As of June 30, ~~2019,~~2020, the Company had bad debt allowance of ~~$5,818,435~~$4,237,587 for Zhongtai and ~~$352,566~~$31,611 for Erdos TCH due to not making the payments as scheduled. In July 2020, Erdos TCH collected RMB 6 million ($0.86 million) accounts receivable.

~~Interest Receivable on Sales Type Leases~~

~~As of June 30, 2019, the interest receivable on sales type~~Investment in sales-type leases, ~~was $5,322.686, mainly representing recognized but not yet collected interest income for the Pucheng systems.~~net

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. Based on an evaluation of the collectability of such receivables, as of June 30, ~~2019,~~2020, the Company had bad debt allowance for net investment receivable on sales-type leases of ~~$22,071,360 for the Pucheng systems.~~$0.

Revenue Recognition

Sales-type Leasing and Related Revenue Recognition

On January 1, 2019, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 842 using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application. Results and disclosure requirements for reporting periods beginning after January 1, 2019 are presented under ASC Topic 842, while prior period amounts have not been adjusted and continue to be reported in accordance with our historical accounting under Topic 840. (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. During the three months ended March 31, 2020 and 2019, the Company did not sell any new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. power generating projects.

The Company constructs and 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 the lease. Prior to January 1, 2019, the investment in these projects iswas recorded as investment in sales-type leases in accordance with ASC Topic 840, ~~“Lease~~s“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 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 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 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 sales tax.

Contingent Rental Income

The Company records the income from actual electricity usage in addition to minimum lease payment of each project as contingent rental income in the period earned. 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.

New Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company adopted this ASU on January 1, 2019 and concluded the adoption of this new AUS did not have a material impact to the Company’s CFS.

RESULTS OF OPERATIONS

Comparison of three months ~~Ended~~ended June 30, ~~2019~~2020 and ~~2018~~2019

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

	2019						2018						2020			% of Sales			2019			% of Sales
				% of Sales						% of Sales
Sales	$	80,924			100	%	$	1,381,437			100	%
Sales of systems		-			-	%		-			-	%
Contingent rental income		80,924			100	%		1,381,437			100	%
Sales - contingent rental income													$	-			-	%	$	80,924			100	%
Cost of sales		-			-	%		-			-	%		-			-	%		-			-	%
Cost of systems and contingent rental income		-			-	%		-			-	%
Gross profit		80,924			100	%		1,381,437			100	%		-			-	%		80,924			100	%
Interest income on sales-type leases		-			-	%		657,866			48	%		-			-	%		-			-	%
Total operating income		80,924			100	%		2,039,393			148	%		-			-	%		80,924			100	%
Total operating expenses		(3,399,419	)		(4,201	)%		(2,186,175	)		(158	)%
Total operating income (expenses)														1,412,936			-	%		(3,399,419	)		(4,201	)%
Income (loss) from operations		(3,318,495	)		(4,101	)%		(146,872	)		(11	)%		1,412,936			-	%		(3,318,495	)		(4,101	)%
Total non-operating expenses, net		(1,839,767	)		(2,273	)%		(1,453,361	)		(105	)%		(418,996	)		-	%		(1,839,767	)		(2,273	)%
Income (loss) before income tax		(5,158,262	)		(6,374	)%		(1,600,233	)		(116	)%		993,940			-	%		(5,158,262	)		(6,374	)%
Income tax expense		104,827			130	%		(71,627	)		(5	)%		-			-	%		104,827			130	%
Less: loss attributable to noncontrolling interest		-			-	%		(95,925	)		(7	)%
Net loss attributable to China Recycling Energy Corp	$	(5,263,089	)		(6,504	)%	$	(1,432,681	)		(104	)%	$	993,940			-	%	$	(5,263,089	)		(6,504	)%

SALES. Total sales for the three months ended June 30, 2020 and 2019 were $0 and ~~2018 were~~ $80,924, ~~and $1,381,437,~~ respectively. The sales were from the ~~electricity sold in~~contingent rental income of Erdos TCH. However, from May 2019 through October 2019, Erdos TCH has ceased its operations due to renovations and furnace safety upgrades. During this period, Erdos will compensate Erdos TCH RMB 1 million ($145,460) per month, until operations resume.

COST OF SALES. Cost of sales (“COS”) for the three months ended June 30, ~~2019~~2020 and ~~2018~~2019 were $0.

GROSS PROFIT. Gross income for the three months ended June 30, 2020 and 2019 were $0 and ~~2018 were~~ $80,924, ~~and $1,381,437,~~ a gross margin of 0 and 100% ~~each.~~.

INTEREST INCOME ON SALES-TYPE LEASES. Interest income on sales-type leases for the three months ended June 30, 2020 and 2019 was ~~$0,~~$0. The Company disposed all of its systems and currently holds only five power generating systems through Erdos TCH, Erdos TCH operations was ceased due to renovation and furnace safety upgrade, the Company originally expected to resume production of these five power generating systems in July 2020, but the resumption of operations will be delayed due to the global pandemic of Covid-19; Erdos exports ferrosilicon to 27 countries, the Company decided not to resume the production in the third quarter of 2020 as a ~~$0.66 million decrease from $0.66 million~~result of decreased sales order and overstocked inventory, and the Company is not able to provide a resumption date as it will depend on the overall progress of the global epidemic control.

OPERATING EXPENSES (INCOME). Operating expenses (income) consisted of general and administrative expenses, and bad debts expense (reversal) totaling $(1,412,936) operating income for the three months ended June 30, ~~2018. During the three months ended June 30, 2019, there was no interest income; in February 2019, the Shenqiu Phase I and II systems were transferred~~2020, compared to ~~Mr. Bai, and the Company only had Pucheng Phase I and II systems on hand.~~

The decreased interest income was due to the suspension of the Pucheng systems due to the lack of supply for biomass waste which has caused the price of raw material to increase significantly, and the Company’s ceasing to accrus interest income in April 2018. Pucheng has not resumed operations to date.

~~During the three months ended June 30, 2018, interest income was derived from the following four 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);~~

~~OPERATING EXPENSES~~~~. Operating~~$3,399,419 operating expenses ~~consisted of general and administrative expenses, bad debt expense totaling $3,399,419~~ for the three months ended June 30, 2019, ~~compared~~a decrease of $4,812,355 or 142%. The decrease was mainly due to ~~$2,186,175~~a reversal of bad debts expense of $1,649,622, of which $1,422,090 was for Zhongtai and $227,532 was for Erdos TCH, during the three months ended June 30, 2020; while we had bad debt expense of $2,716,507 for the three months ended June 30, 2018, an increase of $1,213,244 or 55%. The increase was mainly due to increased bad debt expense by $1,980,515 which was partly offset by decreased operating expense by $723,432 of Erdos TCH and decreased payroll expense by $48,452.2019.

NET NON-OPERATING EXPENSES. Net non-operating expenses consisted of ~~non-sales-type lease~~loss on note redemption, interest income, interest expenses and miscellaneous expenses. For the three months ended June 30, ~~2019,~~2020, net non-operating expense was ~~$1.84 million~~$418,996 compared to ~~$1.45~~$1.84 million for the three months ended June 30, ~~2018.~~2019. For the three months ended June 30, 2020, we had $45,611 interest income but the amount was offset by $341,784 interest expense on entrusted loan and note payable and $95,163 loss on note redemption. For the three months ended June 30, 2019, we had $41,498 interest income but the ~~amount was~~amounts were offset by a $1.86 million interest expense on entrusted ~~loan. For the three months ended June 30, 2018, we had $40,016 interest income but the amounts were offset by a $1.49 million interest expense on loans.~~loan and note payable.

INCOME TAX ~~(BENEFIT)~~EXPENSE.Income tax expense was ~~$104,827~~$0 for the three months ended June 30, ~~2019,~~2020, compared with ~~$71,627~~$104,827 income tax ~~benefit~~expense for the three months ended June 30, ~~2018.~~2019. The consolidated effective income tax rates for the three months ended June 30, 2020 and 2019 were 0 and ~~2018 were~~ 2.0% ~~and (4.5)%~~, respectively. The decrease in income tax expense for three months ended June 30, 2020 was due to decreased taxable income as the reversal of bad debts expense of $1.65 million was not a taxable income.

NET ~~LOSS.~~INCOME (LOSS). Net income for three months ended June 30, 2020 was $993,940 compared to net loss $5,263,089 for the three months ended June 30, 2019, ~~was $5,263,089 compared to $1,432,681 for the three months ended June 30, 2018, an increase~~a decrease of loss of ~~$3,830,408.~~$6,527,029. This ~~increase~~decrease in net loss was mainly due to the decrease operating ~~income and increase operating~~ expenses resulting from a reversal of bad debts expense as described above.

Comparison of six months ~~Ended~~ended June 30, ~~2019~~2020 and ~~2018~~2019

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

2019 2018
% of Sales % of Sales
Sales $ 702,973 100 % $ 2,804,268 100 %
Sales of systems - - % - - %
Contingent rental income 702,973 100 % 2,804,268 100 %
Cost of sales - - % - - %
Cost of systems and contingent rental income - - % - - %
Gross profit 702,973 100 % 2,804,268 100 %
Interest income on sales-type leases 173,360 25 % 2,264,481 81 %
Total operating income 876,333 125 % 5,068,749 181 %
Total operating expenses (4,842,239 ) (689 )% (3,692,406 ) (132 )%
Income (loss) from operations (3,965,906 ) (564 )% 1,376,343 49 %
Total non-operating expenses, net (5,525,521 ) (786 )% (2,842,526 ) (101 )%
Income (loss) before income tax (9,491,427 ) (1,350 )% (1,466,183 ) (52 )%
Income tax expense (benefit) (2,286,044 ) (325 )% 267,918 10 %
Less: loss attributable to noncontrolling interest - - % (187,183 ) (7 )%
Net loss attributable to China Recycling Energy Corp $ (7,205,383 ) (1,025 )% $ (1,546,918 ) (55 )%

	2020			% of Sales			2019			% of Sales
Sales - contingent rental income	$	-			-	%	$	702,973			100	%
Cost of sales		-			-	%		-			-	%
Gross profit		-			-	%		702,973			100	%
Interest income on sales-type leases		-			-	%		173,360			25	%
Total operating income		-			-	%		876,333			125	%
Total operating income (expenses)		1,258,758			-	%		(6,106,495	)		(869	)%
Income (Loss) from operations		1,258,758			-	%		(5,230,162	)		(744	)%
Total non-operating expenses, net		(863,369	)		-	%		(4,261,265	)		(606	)%
Income (Loss) before income tax		395,389			-	%		(9,491,427	)		(1,350	)%
Income tax benefit		-			-	%		(2,286,044	)		(325	)%
Net income (loss) attributable to China Recycling Energy Corp	$	395,389			-	%	$	(7,205,383	)		(1,025	)%

~~SALES~~.

SALES. Total sales for the six months ended June 30, 2020 and 2019 were $0 and ~~2018 were~~ $702,973, ~~and $2,804,268,~~ respectively. The sales were from the ~~electricity sold in~~contingent rental income of Erdos TCH. ~~However, from May 2019 through October 2019, Erdos TCH has ceased its operations due to renovations and furnace safety upgrades.~~

COST OF SALES. Cost of sales (“COS”) for the six months ended June 30, ~~2019~~2020 and ~~2018~~2019 were $0.

GROSS ~~PROFIT~~PROFIT. . Gross income for the six months ended June 30, 2020 and 2019 were $0 and ~~2018 were~~ $702,973, ~~and $2,804,268,~~ a gross margin of 0 and 100% ~~for each period.~~.

INTEREST INCOME ON SALES-TYPE LEASES. Interest income on sales-type leases for the six months ended June 30, 2020 and 2019 was $0 and $173,360, a ~~$2.09~~$0.17 million ~~decrease, from $2.26 million for the six months ended June 30, 2018.~~decrease. During the six months ended June 30, 2019, the interest income was derived from the Shenqiu Phase I and II systems ~~(15 and 11.9 years, respectively)~~ for the ~~month~~months of January ~~2019; in~~2019. In February 2019, the Shenqiu Phase I and II systems were transferred to Mr. ~~Bai.~~

~~During~~Bai, and the ~~six months ended June 30, 2018,~~Company only had Pucheng Phase I and II systems since then, which the Company has ceased to accrue interest income ~~was derived from~~since April 2018 because Pucheng power generation systems were suspended due to strict environmental protection policies and lack of supply of biomass waste raw materials. On September 29, 2019, Xi’an TCH entered into a Termination Agreement of the ~~following four 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);~~

Lease Agreement of the Biomass Power Generation Project with Pucheng. In January 2020, the Company received the full payment of outstanding leasing fee of Pucheng Phase I and II systems and transferred the ownership of two systems to the lessee Pucheng. The decreased interest income was due to the ~~suspension~~transfer of the Shenqiu Phase I and II systems to Mr. Bai in February 2019 and transfer of Pucheng Phase I and II systems ~~due~~ to ~~the lack of supply for biomass waste which has caused the price of raw material to increase significantly, and the Company’s ceasing to accrue interest income~~Pucheng in ~~April 2018. Pucheng has not resumed operations to date.~~January 2020.

OPERATING EXPENSES (INCOME). Operating expenses (income) consisted of general and administrative expenses, loss on disposal of systems and bad ~~debt~~debts expense (reversal) totaling ~~$4,842,239~~$(1,258,758) operating income for the six months ended June 30, 2020, compared to $6,106,495 operating expenses for the six months ended June 30, 2019, ~~compared to $3,692,406 for the six months ended June 30, 2018, an increase~~a decrease of ~~$1,149,833~~$7,365,253 or ~~31%~~121%. The ~~increase~~decrease was mainly due to ~~increased~~decreased bad ~~debt~~debts expense by ~~$1,989,032 which was partly offset~~$4,474,525, decreased loss on disposal of systems by $1,264,256 and decreased operating expense by ~~$726,942~~$1,471,525 of Erdos ~~and decreased payroll expense by $48,687.~~TCH due to cease of the operation.

NET NON-OPERATING EXPENSES. Net non-operating expenses consisted of ~~non-sales-type lease~~loan on note redemption, interest income, interest expenses and miscellaneous expenses. For the six months ended June 30, ~~2019,~~2020, net non-operating expense was ~~$5.53 million~~$863,369 compared to ~~net non-operating expense of $2.84~~$4.26 million for the six months ended June 30, ~~2018.~~2019. For the six months ended June 30, 2020, we had $72,617 interest income but the amount was offset by $697,028 interest expense on entrusted loan and note payable, and $198,330 loss on note redemption. For the six months ended June 30, 2019, we had $82,610 interest income, but the ~~amount was~~amounts were offset by a $3.79 million interest expense on entrusted ~~loans,~~loan and note payable, and $893,958 loss on note conversion of $893,958, and loss on disposal of systems of $1,264,256. For the six months ended June 30, 2018, we had $77,220 in interest income but the amounts were offset by a $2.92 million interest expense on loans.redemption.

INCOME TAX ~~(BENEFIT) EXPENSE.~~BENEFIT. Income tax benefit was ~~$2.29 million~~$0 for the six months ended June 30, ~~2019,~~2020, compared with ~~$0.27 million~~$2,286,044 income tax ~~expense~~benefit for the six months ended June 30, ~~2018.~~2019. The consolidated effective income tax rates for the six months ended June 30, 2020 and 2019 were 0 and ~~2018 were~~ (24.1)% ~~and 18.3%~~, respectively. ~~The increase in~~During the six months ended June 30, 2010, the income ~~tax benefit~~from reversal of bad debts expense of $1.65 million was not a taxable income.

NET INCOME (LOSS). Net income for six months ended June 30, ~~2019~~2020 was ~~due~~$395,389 compared to ~~increased taxable loss.~~

~~NET LOSS.~~ ~~Net~~net loss $7,205,383 for the six months ended June 30, 2019, ~~was $7,205,383 compared to $1,546,918 for the six months ended June 30, 2018, an increase~~a decrease of loss of ~~$5,658,465.~~$7,600,772. This ~~increase~~decrease in net loss was mainly due to ~~decreased operating income and increased~~the decrease operating expenses as described above.

Liquidity and Capital Resources

Comparison of six months ~~Ended~~ended June 30, ~~2019~~2020 and ~~2018~~2019

As of June 30, ~~2019,~~2020, the Company had cash and equivalents of ~~$51.49~~$62.67 million, other current assets of ~~$52.27~~$31.89 million, current liabilities of ~~$76.42~~$35.68 million, working capital of ~~$27.33~~$58.87 million, a current ratio of ~~1.36:~~2.65:1 and a liability-to-equity ratio of ~~1.07:~~0.53:1.

The following is a summary of cash provided by or used in each of the indicated types of activities during the six months ended June 30, ~~2019~~2020 and ~~2018:~~2019:

	2019			2018		2020		2019
Cash provided by (used in):
Operating Activities	$	(6,971,096	)	$	1,752,281	$	46,996,596	$	(6,971,096	)
Investing Activities		5,162			-		-		5,162
Financing Activities		5,309,475			-		-		5,309,475

Net cash ~~used in~~provided by operating activities was ~~$6.97~~$47 million during the six months ended June 30, ~~2019,~~2020, compared to ~~$1.75~~$6.97 million cash ~~provided by~~used in operating activities for the six months ended June 30, ~~2018.~~2019. The increase in net cash ~~outflow~~inflow for the six months ended June 30, ~~2019~~2020 was mainly due to ~~decreased~~increased cash inflow from collection of ~~principal on sales-type~~sales type leases of Pucheng systems by ~~$1.72~~$13.88 million, ~~decreased cash inflow on prepaid expenses by $0.60 million,~~and increased cash ~~outflow on other~~collection of accounts receivable by ~~$0.88~~$35.55 million ~~increased~~for selling / disposing Huayu, Shenqiu, Zhongtai and Tian’an systems and decreased cash outflow on accounts ~~payables by $3.29 million, increased cash outflow on tax~~ payable by ~~$1.67 million, and payment of refund of a $0.49 million deposit for Shenqiu Phase I & II due to transferring the systems to Mr. Chonggong Bai.~~ $2.89 million.

Net cash provided by investing activities was ~~$5,162~~$0 and ~~$0,~~$5,162, respectively, for the six months ended June 30, ~~2019~~2020 and ~~2018.~~2019. For the six months ended June 30, 2019, $5,162 was the proceeds from disposal of the fixed assets.

Net cash ~~provided by~~used in financing activities was ~~$5.31 million~~$0 compared to net cash provided by financing activities of $0$5.31 million during the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The cash inflow infor the six months ended June 30, 2019 came from the ~~proceeds of~~ issuance of notes of ~~$2.00~~$2.0 million and proceeds from issuance of common stock of $3.31 million.

We do not believe inflation has had or will have a significant negative impact on our results of operations in ~~2019.~~2020.

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. The 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 filing 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:

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.	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. A 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 a FIE and is therefore subject to the above-mandated regulations on distributable profits.

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. 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 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 of						As of
	June 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
Unrestricted retained earnings (accumulated deficit)	$	(44,843,624	)	$	(37,675,202	)	$	(46,193,064	)	$	(46,447,959	)
Restricted retained earnings (surplus reserve fund)		14,488,751			14,525,712			14,666,206			14,525,712
Total retained earnings (accumulated deficit)	$	(30,354,873	)	$	(23,149,490	)	$	(31,526,858	)	$	(31,922,247	)

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 Obligations

The Company’s contractual obligations as of June 30, ~~2019~~2020 are as follows:

							1 year or		More than		See Note
Contractual Obligation	1 year or less		More than 1 year		See Note (for details)		less		1 year		(for details)
Notes payable	$	-	$	2,100,000		15
Entrusted loan		48,293,016		-		12
Notes payable including accrued interest of $3,935							$	917,345	$	-		12
Entrusted loan including interest payable of $8,711,500							$	28,892,878	$	282,506		9
Total	$	48,293,016	$	2,100,000			$	29,810,223	$	282,506

The Company believes it has a stable cash inflow each month 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.~~loans since pursuant to that certain Station Fixed Assets Transfer Agreement, dated as of December 29, 2018, by and among Xi’an Zhonghong, Xi’an TCH, HYREF, Guohua Ku, and Mr. Chonggong Bai, Xi’an Zhonghong transferred Chengli CDQ WHPG station as the repayment for this Entrusted loan of RMB 188,639,400 ($27.54 million) to the lender, HYREF. The transfer was effectuated on January 22, 2019. Xi’an Zhonghong, Xi’an TCH, Guohua Ku and Chonggong Bai also agreed to buy back the Chengli CDQ WHPG Station when the conditions under the Buy-Back Agreement are met. However, since the possibility of the repurchases under the terms of the Buy-Back Agreement is uncertain, until the existing repurchase clauses in the Buy Back Agreement are terminated, the assets of Chengli CDQ WHPG station, and the corresponding loan principal and interest of the Entrusted Loan will continue to show on the Company’s books as outstanding contractual obligations (See Note 9 for details).

~~Commitments~~

~~Xuzhou Tian’an CDQ Power Generation Projects~~

~~On July 19, 2013, Zhonghong entered into a Cooperative 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 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. (the “Tianyu Project”). 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 reasons 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.

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 June 30, 2019, Zhonghong had $25.06 million (or $38.32 million if including capitalized interest) for the Tian’an project and is committed to pay an additional $4.04 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 and Chief Financial Officer, 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 Officer and Chief Financial Officer concluded that, as of June 30, ~~2019,~~2020, 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.

Changes in Internal Control Over Financial Reporting

With the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, 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 June 30, ~~2019,~~2020, 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 Officer and Chief Financial Officer, 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.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

From time to time we may be subject to litigation, claims and assessments that arise in the ordinary course of business. Management believes that any liability resulting from such additional matters will not have a material adverse effect on our financial position, results of operations or cash flows. The Company is not a party to any legal proceedings that it believes will have a material adverse effect upon the conduct of its business or its financial position.

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, ~~2018.~~2019. 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. 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.~~On July 7, 2020, the Company entered into an Exchange Agreement with Iliad Research and Trading, L.P. Pursuant to the Agreement, the Company and the Lender agreed to partition a new Promissory Note in the original principal amount of $200,000 from a Convertible Promissory Note dated January 31, 2019 which was exchanged for a new Promissory Note on April 14, 2019. The Company and the Lender agreed to exchange the Partitioned Note for 85,837 shares of common stock of the Company, and then the amount of the outstanding balance of the Promissory Note will be reduced by an amount equal to the Partitioned Note. The shares of common stock were issued without any restrictions.

~~Item~~ITEM 6. ~~Exhibits~~EXHIBITS

Exhibit ~~Number~~No.		Description
~~31.1~~		Certification of Chief Executive Officer pursuant to Rule 13a-14(a).*

31.1		Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of ~~Chief~~Principal Financial Officer pursuant to ~~Rule~~Exchange Act Rules 13a-14(a).* and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		~~Certification~~Certifications of ~~Chief~~Principal Executive Officer pursuant to 18 U.S.C. Section 1350.*1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		~~Certification~~Certifications of ~~Chief~~Principal Financial Officer pursuant to 18 U.S.C. Section 1350.*1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document*Document
101.SCH		XBRL Taxonomy Extension Schema Document*Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document*Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document*Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document*Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document*Document

~~Filed herewith~~

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)~~China Recycling Energy Corporation

Date: August ~~16, 2019~~14, 2020	By:	/s/ Guohua Ku
		Guohua Ku
		Chairman of the Board and Chief Executive Officer (Principal Executive Officer)

~~Date: August 16, 2019~~	~~/s/ Binfeng Gu~~
	~~Binfeng Gu~~ ~~Chief Financial Officer,~~ ~~Principal Financial Officer and Secretary~~

~~EXHIBIT INDEX~~

~~Exhibit~~ ~~Number~~		~~Description~~
~~31.1~~		Certification of Chief Executive Officer pursuant to Rule 13a-14(a).*

~~31.2~~Date: August 14, 2020	By:	Certification of Chief Financial Officer pursuant to Rule 13a-14(a).*/s/ Yongjiang Shi

~~32.1~~		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.*Yongjiang Shi

~~32.2~~		~~Certification of~~ Chief Financial Officer pursuant to 18 U.S.C. Section 1350.*

~~101.INS~~		XBRL Instance Document*
~~101.SCH~~		XBRL Taxonomy Extension Schema Document*
~~101.CAL~~		XBRL Taxonomy Extension Calculation Linkbase Document*
~~101.DEF~~		XBRL Taxonomy Extension Definition Linkbase Document*
~~101.LAB~~		XBRL Taxonomy Extension Label Linkbase Document*
~~101.PRE~~		XBRL Taxonomy Extension Presentation Linkbase Document* (Principal Financial and Accounting Officer)

~~Filed herewith~~

Nevada		90-0093373
(State or other jurisdiction of incorporation or organization)		(~~I.R.S.~~IRS Employer Identification No.)

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, $0.001 par value		CREG		NASDAQ Capital Market

	Large accelerated filer	☐	Accelerated filer	☐
	Non-accelerated filer ☒	☐	Smaller reporting company	☒
~~Emerging growth company ☐~~			Emerging Growth Company	☐

~~Title of each class~~		~~Trading Symbol(s)~~		~~Name of each exchange on~~ ~~which registered~~
~~Common Stock, par value $0.001 per share~~		~~CREG~~		~~Nasdaq Stock Market~~

	JUNE 30, 2019			DECEMBER 31, 2018
	(UNAUDITED)						JUNE 30, 2020 (UNAUDITED)			DECEMBER 31, 2019

ASSETS

CURRENT ASSETS
Cash and equivalents	$	51,486,342		$	53,223,142
Cash							$	62,666,385		$	16,221,297
Accounts receivable, net		44,929,973			11,755,251			31,793,218			42,068,760
Interest receivable on sales type leases		5,322,686			9,336,140			-			5,245,244
Prepaid expenses		32,341			32,395			51,078			52,760
Other receivables		1,981,586			1,559,116			44,653			1,031,143

Total current assets		103,752,928			75,906,044			94,555,334			64,619,204

NON-CURRENT ASSETS
Investment in sales-type leases, net		11,115,493			24,962,056			-			8,287,560
Long term investment		-			475,635
Long term deposit		15,944			15,971			-			15,712
Operating lease right-of-use assets, net								21,655			54,078
Property and equipment, net		27,443,676			27,495,049			26,649,769			27,044,385
Construction in progress		25,055,639			42,582,177			-			23,824,202

Total non-current assets		63,630,752			95,530,888			26,671,424			59,225,937

TOTAL ASSETS		167,383,680		$	171,436,932		$	121,226,758		$	123,845,141

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
Accounts payable	$	2,231,268		$	5,591,876		$	2,168,116		$	2,200,220
Taxes payable		3,569,772			3,636,559			2,483,681			4,087,642
Accrued interest on notes								3,935			-
Notes payable, net of unamortized OID								913,410			-
Accrued liabilities and other payables		1,171,813			1,617,997			1,165,256			1,184,751
Operating lease liability								25,611			56,755
Due to related parties		40,842			41,168			28,720			41,174
Interest payable on entrusted loan		21,114,011			17,473,492
Interest payable on entrusted loans								8,711,500			8,200,044
Entrusted loan payable		48,293,016			48,373,936			20,181,378			20,480,214

Total current liabilities		76,420,722			76,735,028			35,681,607			36,250,800

NONCURRENT LIABILITIES
Convertible note payable, net of unamortized OID and debt issuing costs		-			1,016,589
Accrued interest on notes		62,827			40,572			-			368,362
Income tax payable		6,390,625			6,390,625			5,782,625			5,782,625
Deferred tax liability, net		703,462			3,040,346
Notes payable, net of unamortized OID		2,018,750			-			-			1,552,376
Long term payable		436,383			-			423,759			430,034
Entrusted loan payable								282,506			286,689
Refundable deposit from customers for systems leasing		552,751			1,034,503			-			544,709

Total noncurrent liabilities		10,164,798			11,522,635			6,488,890			8,964,795

Total liabilities		86,585,520			88,257,663			42,170,497			45,215,595

CONTINGENCIES AND COMMITMENTS (Note 22)
CONTINGENCIES AND COMMITMENTS (NOTE 17 & 18)

STOCKHOLDERS’ EQUITY
Common stock, $0.001 par value; 100,000,000 shares authorized, 16,106,498 shares and 10,295,280 shares issued and outstanding as of June 30, 2019 and December 31, 2018 , respectively		16,106			10,295
Common stock, $0.001 par value; 10,000,000 shares authorized, 2,493,197 shares and 2,032,721 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively								2,493			2,033
Additional paid in capital		115,854,416			114,484,018			117,995,829			116,682,374
Statutory reserve		14,488,751			14,525,712			14,666,206			14,525,712
Accumulated other comprehensive loss		(4,717,489	)		(4,620,930	)		(7,415,203	)		(6,132,614	)
Accumulated deficit		(44,843,624	)		(37,675,202	)		(46,193,064	)		(46,447,959	)

Total Company stockholders’ equity		80,798,160			86,723,893			79,056,262			78,629,546

Noncontrolling interest		-			(3,544,624	)

Total equity		80,798,160			83,179,269

TOTAL LIABILITIES AND EQUITY	$	167,383,680		$	171,436,932		$	121,226,758		$	123,845,141

		~~Page No.~~PAGE

PART I - FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements	1

	Consolidated Balance Sheets as of June 30, ~~2019~~2020 (Unaudited) and December 31, ~~2018~~2019	1

	Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) – Three and Six Months Ended June 30, ~~2019~~2020 and June 30, ~~2018~~2019	2

	Consolidated Statements of Cash Flows (Unaudited) – Six Months Ended June 30, ~~2019~~2020 and June 30, ~~2018~~2019	3

	Consolidated Statements of Stockholders’ Equity – Six and Three Months Ended June 30, ~~2019~~2020 and ~~2018~~ June 30, 2019	4

	Notes to Consolidated Financial Statements (Unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4849

Item 4.	Controls and Procedures	4849

PART II - OTHER INFORMATION		50

Item 1.	Legal Proceedings	50

Item 1A.	Risk Factors	50

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50

Item 3.	Defaults Upon Senior Securities	50

Item 4.	Mine Safety Disclosures	50

Item 5.	Other Information	50

Item 6.	Exhibits	5051

SIGNATURES		52

	SIX MONTHS ENDED JUNE 30,						THREE MONTHS ENDED JUNE 30,
	2019			2018			2019			2018

Revenue
Contingent rental income	$	702,973		$	2,804,268		$	80,924		$	1,381,437

Interest income on sales-type leases		173,360			2,264,481			-			657,866

Total operating income		876,333			5,068,749			80,924			2,039,303

Operating expenses
Bad debt		2,824,903			835,871			2,716,507			735,992
General and administrative		2,017,336			2,856,535			682,912			1,450,183

Total operating expenses		4,842,239			3,692,406			3,399,419			2,186,175

Income (loss) from operations		(3,965,906	)		1,376,343			(3,318,495	)		(146,872	)

Non-operating income (expenses)
Loss on note conversion		(893,958	)		-			-			-
Loss on disposal of systems		(1,264,256	)		-			-			-
Interest income		82,610			77,220			41,498			40,016
Interest expense		(3,793,920	)		(2,918,465	)		(1,861,815	)		(1,493,837	)
Other income (expenses), net		344,003			(1,281	)		(19,450	)		460

Total non-operating expenses, net		(5,525,521	)		(2,842,526	)		(1,839,767	)		(1,453,361	)

Loss before income tax		(9,491,427	)		(1,466,183	)		(5,158,262	)		(1,600,233	)
Income tax expense (benefit)		(2,286,044	)		267,918			104,827			(71,627	)

Loss before noncontrolling interest		(7,205,383	)		(1,734,101	)		(5,263,089	)		(1,528,606	)

Less: loss attributable to noncontrolling interest		-			(187,183	)		-			(95,925	)

Net loss attributable to China Recycling Energy Corporation		(7,205,383	)		(1,546,918	)		(5,263,089	)		(1,432,681	)

Other comprehensive items
Foreign currency translation loss attributable to China Recycling Energy Corporation		(96,559	)		(1,980,469	)		(1,907,185	)		(8,385,747	)
Foreign currency translation gain attributable to noncontrolling interest		-			12,626			-			34,548

Comprehensive loss attributable to China Recycling Energy Corporation	$	(7,301,942	)	$	(3,527,387	)	$	(7,170,274	)	$	(9,818,428	)

Comprehensive loss attributable to noncontrolling interest	$	-		$	(174,557	)	$	-		$	(61,377	)

Basic weighted average shares outstanding		13,914,784			8,310,198			15,743,533			8,310,198
Diluted weighted average shares outstanding		13,914,784			8,310,198			15,743,533			8,310,198

Basic loss per share	$	(0.52	)	$	(0.19	)	$	(0.33	)	$	(0.17	)
Diluted loss per share	$	(0.52	)	$	(0.19	)	$	(0.33	)	$	(0.17	)

	Common Stock				Paid in			Statutory			Other Comprehensive			Accumulated						Noncontrolling
	Shares		Amount		Capital			Reserves			Loss			Deficit			Total			Interest

Balance at December 31, 2018		10,295,820	$	10,295	$	114,484,018		$	14,525,712		$	(4,620,930	)	$	(37,675,202	)	$	86,723,893		$	(3,544,624	)

Issuance of common stock		1,600,000		1,600		1,619,200			-			-			-			1,620,800			-

Conversion of note payable into shares		1,851,946		1,852		2,013,124			-			-			-			2,014,976			-

Purchase of noncontrolling interest		-		-		(3,948,242	)		-			-			-			(3,948,242	)		3,544,624

Net loss for the quarter		-		-		-			-			-			(1,942,294	)		(1,942,294	)		-

Transfer to statutory reserves		-		-		-			213,360			-			(213,360	)		-			-

Foreign currency translation gain		-		-		-			-			1,810,626			-			1,810,626			-

Balance at March 31, 2019		13,747,766		13,747		114,168,100			14,739,072			(2,810,304	)		(39,830,856	)		86,279,759			-

Issuance of common stock		2,358,732		2,359		1,686,316			-			-			-			1,688,675			-

Net loss for the quarter		-		-		-			-			-			(5,263,089	)		(5,263,089	)		-

Transfer to statutory reserves		-		-		-			(250,321	)		-			250,321			-			-

Foreign currency translation loss		-		-		-			-			(1,907,185	)		-			(1,907,185	)		-

Balance at June 30, 2019		16,106,498	$	16,106	$	115,854,416		$	14,488,751		$	(4,717,489	)	$	(44,843,624	)	$	80,798,160		$	-

	Common Stock				Paid in			Statutory			Other Comprehensive			Retained						Noncontrolling
	Shares		Amount		Capital			Reserves			Income (loss)			Earning			Total			Interest

Balance at December 31, 2017		8,310,198	$	8,310	$	111,796,813		$	14,525,712		$	860,553		$	28,321,696		$	155,513,084		$	(478,637	)

Net loss for the quarter		-		-		-			-			-			(114,237	)		(114,237	)		(91,258	)

Transfer to statutory reserves		-		-		-			75,990			-			(75,990	)		-			-

Foreign currency translation gain		-		-		-			-			6,405,278			-			6,405,278			(21,922	)

Balance at March 31, 2018		8,310,198		8,310		111,796,813			14,601,702			7,265,831			28,131,469			161,804,125			(591,817	)

Net loss for the quarter		-		-		-			-			-			(1,432,681	)		(1,432,681	)		(95,925	)

Transfer to statutory reserves		-		-		-			(39,791	)		-			39,791			-			-

Foreign currency translation loss		-		-		-			-			(8,385,747	)		-			(8,385,747	)		34,548

Balance at June 30, 2018		8,310,198	$	8,310	$	111,796,813		$	14,561,911		$	(1,119,916	)	$	26,738,579		$	151,985,697		$	(653,194	)

2020	$	24,146,507
2021		6,633,017
2022		6,633,017
2023		6,633,017
2024		6,633,017
Thereafter		6,633,017
Total	$	57,311,592

	2019			2018
Deferred tax asset — current (accrual of employee social insurance)	$	186,466		$	186,779
Deferred tax liability — current (net investment in sales-type leases)		(773,664	)		(1,639,057	)
Deferred tax liability — current, net of current deferred tax asset	$	(587,198	)	$	(1,452,278	)

Deferred tax asset — noncurrent (depreciation of fixed assets)	$	3,285,436		$	6,176,064
Deferred tax asset — noncurrent (asset impairment loss)		6,390,605			15,003,497
Deferred tax asset — noncurrent (capitalized interest on CIP)		-			2,531,120
Deferred tax asset — noncurrent (interest income in sales-type leases)		865,863			658,307
Deferred tax asset — noncurrent (US NOL)		3,132,068			3,114,083
Deferred tax asset — noncurrent (PRC NOL)		9,002,050			1,617,861
Less: valuation allowance on deferred tax assets		(16,782,230	)		(21,353,059	)
Deferred tax assets — noncurrent, net		5,893,792			7,747,873
Deferred tax liability — noncurrent (net investment in sales-type leases)		(6,010,056	)		(9,335,941	)
Deferred tax liability — noncurrent, net of noncurrent deferred tax assets	$	(116,264	)	$	(1,588,068	)

Total Deferred tax liability, noncurrent under ASU 2015-17	$	(703,462	)	$	(3,040,346	)

	Number of Warrants		Average Exercise Price		Weighted Average Remaining Contractual Term in Years
Granted		2,124,038	$	1.41		5.47
Exercised		-		-		-
Forfeited		-		-		-
Expired		-		-		-
Outstanding at December 31, 2018		2,124,038	$	1.41		5.29
Exercisable at December 31, 2018		2,124,038	$	1.41		5.29
Granted		1.934,603	$	0.95		5.25
Exercised		-		-		-
Forfeited		-		-		-
Expired		-		-		-
Outstanding at June 30, 2019		4,058,641	$	1.19		5.01
Exercisable at June 30, 2019		4,058,641	$	1.19		5.01

	2019			2018
Income tax expense (benefit) – current	$	(61,700	)	$	463,046
Income tax expense (benefit) – deferred		166,527			(534,673	)
Total income tax expense (benefit)	$	104,827	)	$	(71,627	)

	Number of Shares		Average Exercise Price per Share		Weighted Average Remaining Contractual Term in Years

Outstanding at December 31, 2018		9,000	$	5.4		5.41
Exercisable at December 31, 2018		9,000	$	5.4		5.41
Granted		-		-		-
Exercised		-		-		-
Forfeited		-		-		-
Outstanding at June 30, 2019		9,000	$	5.4		4.91
Exercisable at June 30, 2019		9,000	$	5.4		4.91