Zhaoheng Hydropower (ZHYLF) CORRESP Correspondence with SEC

兆恒水电股份有限公司
Zhaoheng Hydropower Limited
地址：深圳市深南东路5015号金丰城大厦A座19楼	ZHAOHENGHYDROPOWER.COM
Address: F/19, Unit A, Jinfengcheng Building	TEL: 86-755-82070966
5015 Shennan East Road,	FAX: 86-755-82071998
Shenzhen, China 518015

Date: September 16, 2009

To: Mr. Adam Phippen

United States Securities and Exchange Commission (the “Commission”)

Division of Corporation Finance

Tel (202) 551-3336

From: Mr. Guosheng Xu

Chief Executive Officer

Zhaoheng Hydropower Company

Tel (86) 755-8207-0966

Fax (86) 755-8207-1998

Re: Zhaoheng Hydropower Company

Item 4.02 Form 8-K

Filed June 12, 2009

File No. 0-52786

Dear Mr. Phippen:

We refer to the Commission’s comment letter concerning our Form 8-K furnished on June 12, 2009, which was dated August 5, 2009 and received on August 6, 2009.  Our responses to the Commission’s comments are set forth below:

1. Your Comment: We reviewed your response to the comment in our letter dated June 29, 2009. As previously requested, please confirm that you accrued interest income on the non-interest bearing note from Zhaoheng Industrial in an amount that offset the effect of the accounting error related to capitalized interest costs and treated the accrual as a deemed dividend charged to APIC.

Our Response: The Commission’s understanding is correct and we confirm that we accrued interest income on the non-interest bearing note from Zhaoheng Industrial in an amount that offset the effect of the accounting error related to capitalized interest costs and treated the accrual as a deemed dividend charged to APIC.

兆恒水电股份有限公司
Zhaoheng Hydropower Limited
地址：深圳市深南东路5015号金丰城大厦A座19楼	ZHAOHENGHYDROPOWER.COM
Address: F/19, Unit A, Jinfengcheng Building	TEL: 86-755-82070966
5015 Shennan East Road,	FAX: 86-755-82071998
Shenzhen, China 518015

Your Comment: In your response to the comment in our letter dated June 29, 2009 you stated that notes between a parent and its subsidiaries or between subsidiaries of a common parent are not within the scope of APB 21. You also state that prior to January 1, 2008 Zhaoheng Industrial was the parent company of Hunan Zhaoheng. As such, please explain to us in detail why you believe that the loan to Zhaoheng Industrial was within the scope of APB 21 prior to January 1, 2008. Further, to the extent the loan was within the scope of APB 21, explain why interest income should be retrospectively recognized upon the restructuring, specifically citing APB 21 or other applicable GAAP. In this regard, your response to the comment in our letter dated June 16, 2009 states that you did not exchange any other rights or privileges together with the cash exchange for the notes. In addition, the notes do not appear to have a stated due date. As such paragraph 7 and 11 of APB 21 do not appear to support the recognition of imputed interest.

Our Response: We respectfully submit that we have erroneously imputed interests on loans between Zhaoheng Industrial and Hunan Zhaoheng for periods prior to January 1, 2008.  To comply with APB 21, we propose to restate our financial statements for the years ended December 31, 2007 and 2008 to reverse the imputed interest on the loan between Zhaoheng Industrial and Hunan Zhaoheng prior to January 1, 2008. We have set out the impact of the correction of errors in our financial statements for the fiscal years ended December 31, 2007 and 2008 in Appendix 1 to this response letter for the Commission’s reference.

During the revision of our financial statements for fiscal year ended December 31, 2007 and 2008, we also realized that:

- the exchange rate applied for the adjustments for the translation from Renminbi into U.S. dollars need to be changed to be in compliance with FAS52, and the translation also had impact on other comprehensive income;

- certain selling, general and administrative expenses for fiscal year ended December 31, 2008 were not qualified for capitalization; and

- we did not take into consideration deferred income tax liabilities in the amount of $536,835 and, as such, the cost of revenues and the income taxes will need to be adjusted by $3,343.

We intend to disclose more details of this amendment in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Form 10-K/A to be filed with the Commission after we receive a confirmation that the Commission has no further comments.

We would like to seek the Commission’s comments on this proposed approach to correct our previous accounting error on capitalized interest costs. Should you have any question regarding our response, please do not hesitate to contact me at +86-755-8207-0966.

With best regards,

/s/ Guosheng Xu

Guosheng Xu

Chief Executive Officer

兆恒水电股份有限公司
Zhaoheng Hydropower Limited
地址：深圳市深南东路5015号金丰城大厦A座19楼	ZHAOHENGHYDROPOWER.COM
Address: F/19, Unit A, Jinfengcheng Building	TEL: 86-755-82070966
5015 Shennan East Road,	FAX: 86-755-82071998
Shenzhen, China 518015

Appendix 1

ZHAOHENG HYDROPOWER COMPANY AND SUBSIDIARIES

PROPOSED UNAUDITED CONSOLIDATED BALANCE SHEETS1

	December 31, 2007							Difference
	As filed on May 14, 2008		Amended on June 12, 2009		To be restated
ASSETS
Current Assets:
Cash	$	994,693	$	994,719	$	994,719			-
Notes receivable		202,349		202,349		202,349			-
Accounts receivable, net of allowance for doubtful accounts $307,090		1,915,471		1,915,471		1,915,471			-
Dividend receivable		71,460		71,460		71,460			-
Other receivables		145,075		145,075		145,075			-
Prepaid expenses and other current assets		85,971		85,971		85,971			-
Total current assets		3,415,019		3,415,045		3,415,045			-
Long-term investment		535,951		535,951		535,951			-
Property, plant and equipment, net of accumulated depreciation of $34,380,646		30,634,626		30,634,626		30,634,626			-
Due from related parties		17,529,838		17,529,838		17,529,838			-
Other assets		175,886		175,886		175,886			-
Construction in progress		32,455,855		28,490,705		28,348,056			(142,649	)
Property use rights, net		1,169,905		1,169,905		1,169,905			-
Goodwill		-		-		-			-
Total assets	$	85,917,080	$	81,951,956	$	81,809,307			(142,649	)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses	$	130,299	$	140,763	$	140,763			0
Other payables		1,739,867		1,739,867		1,739,867			-
Dividend payable		-		-		-			-
Salary payable		-		-		-			-
Taxes payable		157,525		157,525		157,525			-
Due to related party		-		-		-			-
Advances from customers		34,021		65,465		65,465			0
Loans payable-short term		-		-		-			-
Total current liabilities		2,061,712		2,103,620		2,103,620			0
Loans payable-long term		60,567,944		60,567,944		60,567,944			-
Minority interest		-		-		-			-
Stockholders' Equity:
Common stock		-		71,693		71,693			-
Additional paid-in capital		19,449,819		15,371,094		19,336,244			3,965,150
Statutory surplus reserve		666,952		666,952		666,952			-
Retained earnings		628,704		628,704		(3,247,312	)		(3,876,016	)
Accumulated other comprehensive income		2,541,949		2,541,949		2,310,166			(231,783	)
Total shareholders' equity		23,287,424		19,280,392		19,137,743			(142,649	)
Total liabilities and stockholders' equity	$	85,917,080	$	81,951,956	$	81,809,307			(142,649	)

1The proposed figures in this table are unaudited and are set out for the Commission’s reference only.

1

兆恒水电股份有限公司
Zhaoheng Hydropower Limited
地址：深圳市深南东路5015号金丰城大厦A座19楼	ZHAOHENGHYDROPOWER.COM
Address: F/19, Unit A, Jinfengcheng Building	TEL: 86-755-82070966
5015 Shennan East Road,	FAX: 86-755-82071998
Shenzhen, China 518015

ZHAOHENG HYDROPOWER COMPANY AND SUBSIDIARIES

PROPOSED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS2

	For the Year Ended
	December 31, 2007									Difference
	As filed on  May 14, 2008			Amended on June 12, 2009			To be restated
Revenues	$	9,283,035			9,283,035		$	9,283,035			-
Cost of revenues		1,852,698			1,852,698			1,852,698			-
Gross profit		7,430,337			7,430,337			7,430,337			-
Operating expenses:
Selling, general and administrative expenses		1,269,881			1,269,881			1,269,881			-
Operating income		6,160,456			6,160,456			6,160,456			-
Other income (expenses):
Interest income		35,541			35,541			35,541			-
Interest expense		(986,187	)		(986,187	)		(2,263,779	)		(1,277,592	)
Nonoperating income		282,242			282,242			282,242			-
Nonoperating expense		(3,165	)		(3,165	)		(3,165	)		-
Other income		13,267			13,267			13,267			-
Other expense		(75,040	)		(75,040	)		(75,040	)		-
Investment income		66,842			66,842			66,842			-
Total other income (expenses)		(666,500	)		(666,500	)		(1,944,092	)		(1,277,592	)
Income before income taxes		5,493,956			5,493,956			4,216,364			(1,277,592	)
Income taxes		412,959			412,959			412,959			-
Income before minority interest		5,080,997			5,080,997			3,803,405			(1,277,592	)
Minority interest		(745,142	)		(745,142	)		(745,142	)		-
Net income		4,335,855			4,335,855			3,058,263			(1,277,592	)
Unrealized foreign currency translation gain		1,459,337			1,459,337			1,227,554			(231,783	)
Comprehensive income											-
Net loss per common share – basic and diluted											-
Weighted average number of shares outstanding - basic and diluted											-

2The proposed figures in this table are unaudited and are set out for the Commission’s reference only.

2

兆恒水电股份有限公司
Zhaoheng Hydropower Limited
地址：深圳市深南东路5015号金丰城大厦A座19楼	ZHAOHENGHYDROPOWER.COM
Address: F/19, Unit A, Jinfengcheng Building	TEL: 86-755-82070966
5015 Shennan East Road,	FAX: 86-755-82071998
Shenzhen, China 518015

ZHAOHENG HYDROPOWER COMPANY AND SUBSIDIARIES

PROPOSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS3

	For the Year Ended
	December 31, 2007									Difference
	As filed on May 14, 2008			Amended on June 12, 2009			To be restated
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	4,335,855		$	4,335,855		$	3,058,263			1,277,592
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expenses		992,996			992,996			992,996			-
Minority interest		745,142			745,142			745,142			-
Income from sale of equity expenses		-			-			-			-
Changes in operating assets and liabilities:											-
Notes receivable		(102,400	)		(102,400	)		(102,400	)		-
Accounts receivable		2,847,276			2,847,276			2,847,276			-
Dividend receivable		(68,617	)		(68,617	)		(68,617	)		-
Other receivables		44,786			44,786			44,786			-
Prepaid expense		68,898			68,898			68,898			-
Other assets		728,738			728,738			728,738			-
Accounts payable and accrued expenses		(842,680	)		(842,680	)		(842,680	)		-
Other payables		2,190,020			2,190,020			2,190,020			-
Advances from customers		32,667			32,667			32,667			-
Taxes payable		113,487			113,487			113,487			-
Net cash provided by operating activities		11,086,168			11,086,168			9,808,576			1,277,592
CASH FLOWS FROM INVESTING ACTIVITIES
Due from related parties		(10,614,989	)		(10,614,989	)		(10,614,989	)		-
Due to related parties		-			-			-			-
Proceeds sales of long-term investment		-			-			-			-
Purchase of equity investment		-			-			-			-
Acquisition of minority assets		(6,095,140	)		(6,095,140	)		(6,095,140	)		-
Purchase of property, plant and equipment		(227,443	)		(227,443	)		(227,443	)		-
Investment in construction of hydropower station		(14,057,951	)		(14,057,951	)		(12,780,359	)		(1,277,592	)
Net cash used in investing activities		(30,995,523	)		(30,995,523	)		(29,717,931	)		(1,277,592	)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividend paid		(5,479,750	)		(5,479,750	)		(5,479,750	)		-
Repayment of current potion of long-term loans		(10,896,392	)		(10,896,392	)		(10,896,392	)		-
Proceeds from long-term loans		32,295,332			32,295,332			32,295,332			-
Due to related parties		-			-			-			-
Net cash provided by financing activities		15,919,190			15,919,190			15,919,190			-
EFFECT OF EXCHANGE RATE CHANGES ON CASH		165,092			165,092			165,092			-
NET INCREASE (DECREASE) IN CASH		-3,825,073			-3,825,073			-3,825,073			-
											-
CASH, BEGINNING OF PERIOD		4,819,766			4,819,766			4,819,766			-
											-
CASH, ENDING OF PERIOD	$	994,693		$	994,693		$	994,693			-
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for:
Interest paid	$	-					$	-
Income tax paid	$	-					$	-

3The proposed figures in this table are unaudited and are set out for the Commission’s reference only.

3

兆恒水电股份有限公司
Zhaoheng Hydropower Limited
地址：深圳市深南东路5015号金丰城大厦A座19楼	ZHAOHENGHYDROPOWER.COM
Address: F/19, Unit A, Jinfengcheng Building	TEL: 86-755-82070966
5015 Shennan East Road,	FAX: 86-755-82071998
Shenzhen, China 518015

ZHAOHENG HYDROPOWER COMPANY AND SUBSIDIARIES

PROPOSED UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY4

												Accumulated
	Common Stock			Additional			Statutory					Other
	Shares	Amount		Paid-in Capital			Surplus Reserve		Retained Earnings			Comprehensive Income		Total
Balance, January 1, 2007 (restated on June 12, 2009)		$	71,693	$	19,378,126		$	666,952	$	(2,107,463	)	$	1,082,612	$	19,091,920
Recapitalization of reverse acquisition			-		-			-		-			-		-
Interest forgiveness to related party			-		-			-		-			-		-
Other changes			-		(41,882	)		-		-			-		(41,882	)
Dividends			-		-			-		(2,617,760	)		-		(2,617,760	)
Deemed dividends for minority interest purchase			-		-			-		(1,580,352	)		-		(1,580,352	)
Comprehensive income:
Net income			-		-			-		3,058,263			-		3,058,263
Unrealized foreign currency translation			-		-			-		-			1,227,554		1,227,554
Subtotal															45,823
Balance, December 31, 2007 (to be restated)			71,693		19,336,244			666,952		(3,247,312	)		2,310,166		19,137,743

4The proposed figures in this table are unaudited and are set out for the Commission’s reference only.

4

兆恒水电股份有限公司
Zhaoheng Hydropower Limited
地址：深圳市深南东路5015号金丰城大厦A座19楼	ZHAOHENGHYDROPOWER.COM
Address: F/19, Unit A, Jinfengcheng Building	TEL: 86-755-82070966
5015 Shennan East Road,	FAX: 86-755-82071998
Shenzhen, China 518015

ZHAOHENG HYDROPOWER COMPANY AND SUBSIDIARIES

PROPOSED UNAUDITED CONSOLIDATED BALANCE SHEETS5

	December 31,2008				Difference
	As filed on April 15, 2009		To be restated
ASSETS
Current Assets:
Cash	$	5,804,797	$	5,804,797		-
Notes receivable		-		-		-
Accounts receivable, net of allowance for doubtful accounts $309,561		4,214,919		4,214,919		-
Dividend receivable		-		-		-
Other receivables		50,751		50,751		-
Prepaid expenses and other current assets		196,507		196,507		-
Total current assets		10,266,974		10,266,974		-
Long-term investment		571,912		571,912		-
Property, plant and equipment, net of accumulated depreciation of $41,291,733		75,152,685		75,689,520		536,835
Due from related parties		5,245,481		5,245,481		-
Other assets		325,678		325,678		-
Construction in progress		1,173,415		1,173,415		-
Property use rights, net		1,220,157		1,220,157		-
Goodwill		-		-		-
Total assets	$	93,956,302	$	94,493,137		536,835
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses	$	72,483	$	72,483		-
Other payables		2,427,345		2,427,345		-
Dividend payable		-		-		-
Salary payable		219,048		219,048		-
Taxes payable		841,318		841,318		-
Due to related party		259,503		259,503		-
Interest payable		143,598		143,598		-
Deferred income tax liabilities		-		536,835		536,835
Total current liabilities		3,963,295		4,500,130		536,835
Loans payable-long term		63,172,945		63,172,945		-
Minority interest		195,384		195,384		-
Stockholders' Equity:
Common stock		71,693		71,693		-
Additional paid-in capital		15,371,094		19,336,244		3,965,150
Statutory surplus reserve		666,952		666,952		-
Retained earnings		6,621,983		2,895,824		(3,726,159	)
Accumulated other comprehensive income		3,892,956		3,653,965		(238,991	)
Total shareholders' equity		26,624,678		26,624,678		-
Total liabilities and stockholders' equity	$	93,956,302	$	94,493,137		536,835

5The proposed figures in this table are unaudited and are set out for the Commission’s reference only.

5

兆恒水电股份有限公司
Zhaoheng Hydropower Limited
地址：深圳市深南东路5015号金丰城大厦A座19楼	ZHAOHENGHYDROPOWER.COM
Address: F/19, Unit A, Jinfengcheng Building	TEL: 86-755-82070966
5015 Shennan East Road,	FAX: 86-755-82071998
Shenzhen, China 518015

ZHAOHENG HYDROPOWER COMPANY AND SUBSIDIARIES

PROPOSED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS6

	For the Year Ended
	December 31,2008						Difference
	As filed on April 15, 2009			To be restated
Revenues	$	13,485,497		$	13,485,497			-
Cost of revenues		3,474,015			3,477,358			-3,343
Gross profit		10,011,482			10,008,139
Operating expenses:
Selling, general and administrative expenses		1,779,500			2,120,737			-341,237
Operating income		8,231,982			7,887,402
Other income (expenses):
Interest income		2,084,299			2,857,920			773,621
Interest expense		(4,093,301	)		(4,375,828	)		(282,527	)
Nonoperating income		3,998			3,998			-
Nonoperating expense		(93,907	)		(93,907	)		-
Other income		57,088			57,088			-
Other expense		-			-			-
Investment income		218,189			218,189			-
Total other income(expenses)		(1,823,634	)		(1,332,540	)
Income before income taxes		6,408,348			6,554,862
Income taxes		418,255			414,912			3,343
Income before minority interest		5,990,093			6,139,950
Minority interest		(3,186	)		(3,186	)		-
Net income		5,993,279			6,143,136			149,857
Unrealized foreign currency translation gain		1,351,007			1,343,799			(7,208	)
Comprehensive income	$	7,344,286		$	7,486,935			142,649
Net loss per common share - basic and diluted	$	-		$	-
Weighted average number of shares outstanding - basic and diluted		-			-

6The proposed figures in this table are unaudited and are set out for the Commission’s reference only.

6

兆恒水电股份有限公司
Zhaoheng Hydropower Limited
地址：深圳市深南东路5015号金丰城大厦A座19楼	ZHAOHENGHYDROPOWER.COM
Address: F/19, Unit A, Jinfengcheng Building	TEL: 86-755-82070966
5015 Shennan East Road,	FAX: 86-755-82071998
Shenzhen, China 518015

ZHAOHENG HYDROPOWER COMPANY AND SUBSIDIARIES

PROPOSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS7

	For the Year Ended
	December 31, 2008						Difference
	As filed on April 15, 2009			To be restated
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	5,993,279		$	6,143,136			(149,857	)
Adjustments to reconcile net income to net cash
provided by operating activities:		-			-			-
Depreciation and amortization expenses		2,032,203			2,035,546			(3,343	)
Minority interest		(3,186	)		(3,186	)		-
Loss on disposition of fix assets		62,580			62,580			-
Gain from sale of Hunan Jiuli subsidiary		(100,502	)		(100,502	)		-
Changes in operating assets and liabilities:
Notes receivable		-			-			-
Accounts receivable		(1,678,592	)		(1,678,592	)		-
Dividend receivable		71,460			71,460			-
Other receivables		86,839			86,839			-
Prepaid expense		(115,847	)		(115,847	)		-
Other assets		(123,042	)		(123,042	)		-
Long-term deferred expenses		(18,191	)		(18,191	)		-
Accounts payable and accrued expenses		(392,187	)		(392,187	)		-
Other payables		(2,968,726	)		(2,968,726	)		-
Salary payable		167,643			167,643			-
Taxes payable		669,846			669,846			-
Interest payable		143,598			143,598			-
Deferred income tax liabilities		-			(3,343	)		3,343
Net cash provided by operating activities		3,827,175			3,977,032			(149,857	)
CASH FLOWS FROM INVESTING ACTIVITIES
Due from related parties		(9,927,535	)		(9,927,535	)		-
Due to related parties		14,368,521			14,368,521			-
Acquisition of minority interests		-			-
Acquisition of Hubei subsidiary		(2,675,025	)		(2,675,025	)		-
Acquisition of Guizhou subsidiary		(2,693,961	)		(2,693,961	)		-
Cash of subsidiaries on date of acquisition		4,346,502			4,346,502			-
Proceeds from sale of Juili subsidiary		1,782,584			1,782,584			-
Purchase of intangible assets		(19,612	)		(19,612	)		-
Purchase of property, plant and equipment		(113,169	)		(113,169	)		-
Construction in progress		(6,749,179	)		(6,899,036	)		149,857
Net cash used in investing activities		(1,680,874	)		(1,830,731	)		149,857
CASH FLOWS FROM FINANCING ACTIVITIES
Dividend paid		-			-			-
Repayment of current potion of long-term loans		(1,436,317	)		(1,436,317	)		-
Proceeds from long-term loans		-			-			-
Due to related parties		-			-			-
Net cash provided by financing activities		(1,436,317	)		(1,436,317	)		-
EFFECT OF EXCHANGE RATE CHANGES ON CASH		4,100,094			4,100,094
NET INCREASE (DECREASE) IN CASH		4,810,078			4,810,078
CASH, BEGINNING OF PERIOD		994,719			994,719
CASH, ENDING OF PERIOD	$	5,804,797		$	5,804,797
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for:
Interest paid	$	-		$	-
Income tax paid	$	-		$	-

7The proposed figures in this table are unaudited and are set out for the Commission’s reference only.

7

兆恒水电股份有限公司
Zhaoheng Hydropower Limited
地址：深圳市深南东路5015号金丰城大厦A座19楼	ZHAOHENGHYDROPOWER.COM
Address: F/19, Unit A, Jinfengcheng Building	TEL: 86-755-82070966
5015 Shennan East Road,	FAX: 86-755-82071998
Shenzhen, China 518015

ZHAOHENG HYDROPOWER COMPANY AND SUBSIDIARIES

PROPOSED UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY8

											Accumulated
	Common Stock			Additional		Statutory					Other
	Shares	Amount		Paid-in Capital		Surplus Reserve		Retained Earnings			Comprehensive Income		Total
Balance, January 1, 2008 (to be restated)		$	71,693	$	19,336,244	$	666,952	$	(3,247,312	)	$	2,310,166	$	19,137,743
Recapitalization of reverse acquisition			-		-		-		-			-		-
Interest forgiveness to related party			-		-		-		-			-		-
Dividends			-		-		-		-			-		-
Deemed dividends for minority interest purchase			-		-		-		-			-		-
Comprehensive income:
Net income			-		-		-		6,143,136			-		6,143,136
Unrealized foreign currency translation			-		-		-		-			1,343,799		1,343,799
Subtotal														7,486,935
Balance, December 31, 2008 (to be restated)			71,693		19,336,244		666,952		2,895,824			3,653,965		26,624,678

8The proposed figures in this table are unaudited and are set out for the Commission’s reference only.

8