10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

  WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2014

OR

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

For the transition period from                      to                     

Commission File No. 000-12536

China Recycling Energy Corporation

(Exact Name of Registrant as Specified in Its Charter)

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

12/F, Tower A

Chang An International Building

No. 88 Nan Guan Zheng Jie

Xi’an City, Shaanxi Province , China

(Address of Principal Executive Offices, Zip Code)

Registrant’s Telephone Number, Including Area Code: + 86-29-8765-1097

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes   x     No   ¨

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

Yes   x     No   ¨

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

Large accelerated filer   ¨     Accelerated filer   ¨      Non-accelerated filer   ¨      Smaller reporting company x

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

Yes   ¨     No   x

The number of shares outstanding of the registrant’s Common Stock, as of August [7], 2014 was [60,946,182].

INDEX

		Page No.
PART I - FINANCIAL INFORMATION		3
Item 1.	Financial Statements	3
	Consolidated Balance Sheets as of June 30, 2014 (Unaudited) and December 31, 2013	3
	Consolidated Statements of Income and Comprehensive Income (Loss) (Unaudited) – Three Months Ended June 30, 2014 and June 30, 2014	4
	Consolidated Statements of Cash Flows (Unaudited) – Three Months Ended June 30, 2014 and June 30, 2013	5
	Notes to Consolidated Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	39
PART II - OTHER INFORMATION		39
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	41
Item 6.	Exhibits	41

2

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF June 30, 2014 AND DECEMBER 31, 2013

	2014		2013
	(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash & equivalents	$	6,615,642	$	7,701,530
Restricted cash		7,720,062		2,296,249
Accounts receivable		61,083		71,573
Current portion of investment in sales type leases, net		7,772,144		9,063,386
Interest receivable on sales type leases		977,156		765,010
Prepaid expenses		310,527		1,045,802
Other receivables		1,788,957		1,813,220
Notes receivable		-		656,071
Prepaid loan fees - current		82,899		83,649
Total current assets		25,328,470		23,496,490
NON-CURRENT ASSETS
Prepaid loan fees - noncurrent		82,879		125,474
Investment in sales type leases, net		188,621,336		175,441,561
Long term investment		726,167		738,513
Long term deposit		381,574		385,073
Property and equipment, net		28,274		44,243
Construction in progress		140,311,888		83,719,596
Total non-current assets		330,152,118		260,454,459
TOTAL ASSETS	$	355,480,588	$	283,950,949
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable	$	1,423,526	$	2,642,662
Notes payable - bank acceptances		15,115,070		5,740,622
Taxes payable		1,678,481		1,560,829
Accrued liabilities and other payables		1,663,985		1,517,191
Due to related parties		11,854,300		2,420,391
Deferred tax liability		1,296,735		1,442,317
Loans payable - current		17,268,561		14,925,618
Interest payable on entrusted loans		257,900		287,887
Current portion of long term payable		1,485,175		1,441,051
Total current liabilities		52,043,733		31,978,568
NONCURRENT LIABILITIES
Deferred tax liability, net		13,371,788		11,884,068
Refundable deposit from customers for systems leasing		1,153,946		1,164,526
Shares to be issued		14,491,450		-
Long term payable		1,606,577		2,385,422
Loans payable		47,514,953		18,862,045
Entrusted loan payable		62,085,555		62,654,792
Total noncurrent liabilities		140,224,269		96,950,852
Total liabilities		192,268,002		128,929,421
CONTINGENCIES AND COMMITMENTS		-		-
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value; 200,000,000 shares authorized, 60,946,182 and 60,910,058 shares issued and outstanding as of June 30, 2014 and December 31, 2013, respectively		60,946		60,910
Additional paid in capital		78,130,017		78,130,053
Statutory reserve		10,760,463		9,672,754
Accumulated other comprehensive income		14,735,130		16,209,403
Retained earnings		59,227,665		50,603,291
Total Company stockholders' equity		162,914,221		154,676,411
Noncontrolling interest		298,365		345,117
Total equity		163,212,586		155,021,528
TOTAL LIABILITIES AND EQUITY	$	355,480,588	$	283,950,949

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

3

CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)

	SIX MONTHS ENDED June 30,						THREE MONTHS ENDED June 30,
	2014			2013			2014			2013
	(UNAUDITED)						(UNAUDITED)
Revenue
Sales of systems	$	18,946,044		$	27,702,800		$	18,946,044		$	13,623,004
Contingent rental income		388,154			550,334			210,547		$	289,559
Total revenue		19,334,198			28,253,134			19,156,591			13,912,563
Cost of sales
Cost of systems		14,616,592			21,402,848			14,594,688			10,501,936
Total cost of sales		14,616,592			21,402,848			14,594,688			10,501,936
Gross profit		4,717,606			6,850,286			4,561,903			3,410,627
Interest income on sales-type leases		12,421,000			8,553,546			6,115,284			4,728,706
Total operating income		17,138,606			15,403,832			10,677,187			8,139,333
Operating expenses
General and administrative		1,608,203			1,766,560			763,228			684,114
Total operating expenses		1,608,203			1,766,560			763,228			684,114
Income from operations		15,530,403			13,637,272			9,913,959			7,455,219
Non-operating income (expenses)
Interest income		56,800			153,232			17,511			60,644
Interest expense		(1,861,593	)		(2,787,689	)		(949,020	)		(1,293,193	)
Investment income		13,268			-			1,955			-
Other expenses		(831,491	)		2,873			(416,100	)		3,853
Total non-operating expenses, net		(2,623,016	)		(2,631,584	)		(1,345,654	)		(1,228,696	)
Income before income tax		12,907,387			11,005,688			8,568,305			6,226,523
Income tax expense		3,239,169			3,726,870			2,001,640			2,366,816
Income before noncontrolling interest		9,668,218			7,278,818			6,566,665			3,859,707
Less: Income (loss) attributable to noncontrolling interest		(43,864	)		247,284			(22,393	)		126,363
Net income attributable to China Recycling Energy Corp		9,712,082			7,031,534			6,589,058			3,733,344
Other comprehensive items
Foreign currency translation loss attributable to China Recycling Energy Corp		(1,474,273	)		2,360,535			(61,788	)		2,035,201
Foreign currency translation gain attributable to noncontrolling interest		(2,888	)		78,153			(90	)		66,379
Comprehensive income attributable to China Recycling Energy Corp	$	8,237,809		$	9,392,069			6,527,270		$	5,768,545
Comprehensive income (loss) attributable to noncontrolling interest	$	(46,752	)	$	325,437			(22,303	)	$	192,742
Basic weighted average shares outstanding		61,066,042			50,224,350			61,217,625			50,224,350
Diluted weighted average shares outstanding		61,181,229			50,857,523			61,299,932			50,770,461
Basic earnings per share	$	0.16		$	0.14			0.11		$	0.07
Diluted earnings per share	$	0.16		$	0.14			0.11		$	0.07

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

4

CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	SIX MONTHS ENDED JUNE 30,
	2014			2013
	(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Income including noncontrolling interest	$	9,668,218		$	7,278,818
Adjustments to reconcile income including noncontrolling
interest to net cash  used in operating activities:
Changes in sales type leases receivables		(18,946,044	)		(27,702,800	)
Shares to be issued for cost of Yida project		14,491,450			-
Depreciation and amortization		16,211			23,143
Amortization of prepaid loan fees		41,680			40,857
Changes in deferred tax		1,471,536			1,419,815
Changes in assets and liabilities:
Interest receivable on sales type lease		(220,343	)		262,055
Collection of principal on sales type leases		5,304,071			4,751,915
Prepaid expenses		729,902			433
Accounts receivable		9,895			17,251
Other receivables		13,502			(49,562	)
Construction in progress		(57,679,140	)		5,257,935
Accounts payable		8,278,300			(1,842,164	)
Taxes payable		132,582			154,630
Interest payable		(27,528	)		1,964,953
Accrued liabilities and other payables		156,908			255,153
Accrued interest on convertible notes		-			(202,975	)
Long term refundable deposit from customer		-			240,335
Net cash provided by (used in) operating activities		(36,558,800	)		(8,130,208	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Changes of restricted cash		(5,475,646	)		1,863,073
Acquisition of property & equipment		(556	)		(20,741	)
Long term investment		-			(640,892	)
Net cash provided by (used in) investing activities		(5,476,202	)		1,201,440
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes receivable		653,808			(801,115	)
Proceeds from loans		41,860,085			4,806,691
Repayment of loans		(10,379,209	)		(9,453,159	)
Long term payable		(703,938	)		(637,889	)
Advance from related parties		9,509,112			-
Net cash provided by (used in) financing activities		40,939,858			(6,085,472	)
EFFECT OF EXCHANGE RATE CHANGE ON CASH & EQUIVALENTS		9,256			641,174
NET DECREASE INCREASE IN CASH & EQUIVALENTS		(1,085,888	)		(12,373,066	)
CASH & EQUIVALENTS, BEGINNING OF PERIOD		7,701,530			45,004,304
CASH & EQUIVALENTS, END OF PERIOD	$	6,615,642		$	32,631,238
Supplemental cash flow data:
Income tax paid	$	1,632,341		$	2,203,339
Interest paid	$	6,986,923		$	1,518,052

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

5

 CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 (UNAUDITED) AND DECEMBER 31, 2013

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

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. On September 6, 2001, the Company changed its state of incorporation to the State of Nevada. In 2004, the Company changed its name from Boulder Brewing Company to China Digital Wireless, Inc. and on March 8, 2007, the Company again changed its name from China Digital Wireless, Inc. to its current name, China Recycling Energy Corporation. The Company, through its subsidiaries, provides energy saving solution and services, including selling and leasing energy saving systems and equipment to customers.

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 with a term of twenty (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 contributed 93%. According to the parties’ agreement on profit distribution, Xi’an TCH and Erdos will each 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 shareholder of the JV. In addition, Xi’an TCH paid 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. The JV currently has two power generation systems in Phase I with a total of 18MW power capacity, and three power generation systems in Phase II with a total of 27MW power capacity.

Pucheng Biomass Power Generation (“BMPG”) Projects

On June 29, 2010, Xi’an TCH entered into a Biomass Power Generation Project Lease Agreement with Pucheng Xin Heng Yuan Biomass Power Generation Co., Ltd. (“Pucheng”).  Under this lease agreement, Xi’an TCH leased a set of 12MW biomass power generation (“BMPG”) systems to Pucheng at a minimum of $279,400 (RMB 1,900,000) per month for a term of fifteen (15) years.

On September 11, 2013, Xi’an TCH entered into a Biomass Power Generation 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 12MW biomass power generation systems with completion of system transformation for a purchase price of RMB 100,000,000 ($16.48 million) in the form of 8,766,547 shares of common stock of the Company at the price of $1.87 per share. These shares were issued to Pucheng on October 29, 2013. Also on September 11, 2013, Xi’an TCH also entered into a Biomass Power Generation Project Lease Agreement with Pucheng (the “Pucheng Lease”). Under the Pucheng Lease, Xi’an TCH will lease this same set of 12MW biomass power generation system to Pucheng, and combine this lease with the lease for the 12MW biomass power generation 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 12MW station from Pucheng Phase I project terminated upon the effective date of the Pucheng Lease. The ownership of two 12 MW BMPG systems will be transferred to Pucheng at no additional charge when the Pucheng Lease expires.

Zhongbao Waste Heat Power Generation (“WHPG”) Projects

On September 30, 2010, Xi’an TCH delivered to Zhongbao Binhai Nickel Co., Ltd. (“Zhongbao”) a 7MW capacity waste heat power generation (“WHPG”) system, an integral part of the facilities designed to produce 80,000 tons of nickel-alloy per year according to the recovery and power generation of waste heat agreement with Zhongbao, a nickel-alloy manufacturing joint venture between Zhonggang and Shanghai Baoshan Steel Group established in June 2009.  The waste heat agreement with Zhongbao has a term of nine (9) years and provides that Xi’an TCH will recycle waste heat from the nickel-alloy rotary kilns of Zhongbao to generate power and steam, which will be supplied back to Zhongbao. In addition, Xi’an TCH is responsible for applying for the Clean Development Mechanism (“CDM”) under the Kyoto Protocol.  Net proceeds from any CDM credit will be distributed between Zhongbao and Xi’an TCH at 60% and 40%, respectively.  As of June 30, 2014, Xi’an TCH had not yet commenced the CDM application process.

6

Shenqiu Yuneng Biomass Power Generation (“BMPG”) 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 Biomass Power Generation 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 biomass power generation systems (after Xi’an TCH converted the system for biomass power generation purposes). As consideration for the biomass power generation systems, Xi’an TCH agreed to pay Shenqiu $10,937,500 (RMB 70 million) in cash in three installments within six (6) months upon the transfer of ownership of the systems. By the end of 2012, all of the consideration was paid. On September 28, 2011, Xi’an TCH and Shenqiu also entered into a Biomass Power Generation Project Lease Agreement (the “2011 Shenqiu Lease”). Under the 2011 Shenqiu Lease, Xi’an TCH agreed to lease a set of 12MW biomass power generation systems to Shenqiu at a monthly rental rate of $286,000 (RMB 1,800,000) for eleven (11) years. Upon expiration of the 2011 Shenqiu Lease, ownership of this system will be transferred from Xi’an TCH to Shenqiu at no additional cost. In connection with the 2011 Shenqiu Lease, Shenqiu paid one (1) 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 12MW biomass power generation system. After the reformation, the generation capacity of the power plant increased to 24MW. 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 Biomass Power Generation Project Lease Agreement (the “2013 Shenqiu Lease”). Under the 2013 Shenqiu Lease, Xi’an TCH agreed to lease the second set of 12MW biomass power generation 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 be transferred from Xi’an TCH to Shenqiu at no additional cost.

Shanxi Datong Coal Group Power Generation Projects

In February 2011, Xi’an TCH entered into an agreement with Shanxi Datong Coal Group Steel Co., Ltd (“Shanxi Datong”) to recycle gas and steam from groups of blast-furnaces and converters at Shanxi Datong’s metal refining plants to generate power and pursuant to which Xi’an TCH agreed to install two 3MW BPRT systems and, one 15MW WGPG system with a total of 21MW power capacity for an estimated total investment of $28.6 million (RMB 180 million). In June 2013, the two 3MW BPRT power generation systems were completed. The lease term is thirty (30) years, during which time Shanxi Datong will pay a service fee to Xi’an TCH. The service fee is based on an average of 8,000 electricity-generating hours per year and $0.05 (RMB 0.33) per kilowatt hour (“kWh”) for the first five (5) years from the completion of each power generation station. For each of the leases, at the 6th, 11th and 21st year anniversary of the date of the lease, the rates will change to RMB 0.3 kWh, 0.27 kWh and 0.25 kWh, respectively. On June 10, 2013, Xi’an TCH and Shanxi Datong entered into a supplemental agreement relating to the minimum service fee. The minimum service fee per month for the first five (5) years is $0.19 million (RMB 1.2 million), $0.18 million (RMB 1.1 million) for the second five (5) years, $0.16 million (RMB 1.0 million) for the following ten (10) years and $0.15 million (RMB 0.9 million) for the last ten (10) years. After thirty (30) years, the units will be transferred to Shanxi Datong at no additional charge.

Jitie Power Generation Projects

In May 2013, Xi’an TCH signed a contract with Sinosteel Jilin Ferroalloys Co., Ltd. (“Jitie”) to build furnace gas waste heat power generation systems for electricity generation from recycled heat and steam from groups of ferroalloy furnaces and electric furnaces (the “Jitie Project”). According to the contract, Xi’an TCH will install a 7.5 MW and a 3 MW turbine power generation system with a total of 10.5 MW power capacity for an estimated total investment of $9.71 million (RMB 60 million). The lease term is twenty-four (24) years. During the term of this lease, Jitie will pay a service fee to Xi’an TCH based on the actual generating capacity with a minimum service fee per month of $300,000 (RMB 1.8 million). Xi’an TCH will be responsible for the systems operation and will own the power generation systems. In December 2013, the Jitie Project was completed and began operations.

Yida Coke Oven Gas Power Generation Projects

On June 28, 2014, Xi’an TCH entered into an Asset Transfer Agreement (the “Transfer Agreement”) with Qitaihe City Boli Yida Coal Selection Co., Ltd. (“Yida”), a limited liability company incorporated in China. The Transfer Agreement provided for the sale to Xi’an TCH of a 15 MW coke oven gas power generation station, which has been converted from a 15 MW coal gangue power generation station from Yida. As consideration for the Transfer Asset, Xi’an TCH will pay to Yida RMB 115,000, 000 ($18.69 million) in the form of the common stock shares of the Company at the average closing price per share of the Stock for the 10 trading days prior to the closing date of the transaction ($2.27 per share). The exchange rate between U.S. Dollar and Chinese RMB in connection with the stock issuance is the rate equal to the middle rate published by the People’s Bank of China on the closing date of the assets transfer. Accordingly, the Company determined 8,233,779 shares to be issued for purchasing Yida 15 MW coke oven gas power generation station, the fair value of 8,233,779 shares was $14.49 million based on the stock price at agreement date ($1.76 per share), and was the cost of the power generation station.

On June 28, 2014, Xi’an TCH also entered into a Coke Oven Gas Power Generation Project (“WGPG”) Lease Agreement (the “Lease Agreement”) with Yida. Under the Lease Agreement, Xi'an TCH leased the Transfer Asset to Yida for RMB 3,000,000 ($0.49 million) per month, and the term of the lease is from June 28, 2014 to June 27, 2029. Yida will also provide an RMB 3,000,000 ($0.49 million) security deposit (without interest) for the lease. Xi’an TCH will transfer the Transfer Asset back to Yida at no cost at the end of the term of the lease.

7

The Fund Management Company

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

The Fund Management Company serves as the general partner of Beijing Hongyuan Recycling Energy Investment Center, LLP (the “HYREF Fund”), a limited liability partnership established on July 18, 2013 in Beijing. The Fund Management Company made an initial capital contribution of RMB 5 million ($830,000) to the HYREF Fund. An initial total amount of RMB 460 million ($75 million) has been fully subscribed by all partners for the HYREF Fund. The HYREF Fund has three limited partners: (1) China Orient Asset Management Co., Ltd., which made an initial capital contribution of RMB 280 million ($46.67 million) to the HYREF Fund and is a preferred limited partner; (2) Hongyuan Huifu, which made an initial capital contribution of RMB 100 million ($16.67 million) to the HYREF Fund and is an ordinary limited partner; and (3) the Company’s wholly-owned subsidiary, Xi’an TCH, which made an initial capital contribution of RMB 75 million ($12.5 million) to the HYREF Fund and is a secondary limited partner. The term of the HYREF Fund’s partnership is six (6) years from the date of its establishment, expiring on July 18, 2019. The term is three (3) years from the date of contribution for the preferred limited partner, or four (4) years from the date of contribution for the ordinary limited partner. The total size of the HYREF Fund is RMB 460 million (approximately $76.66 million). The HYREF Fund was formed for the purpose of investing in Xi’an Zhonghong New Energy Technology Co., Ltd., a 90% owned subsidiary of Xi’an TCH, for the construction of two coke dry quenching (“CDQ”) waste heat power generation stations with Jiangsu Tianyu Energy and Chemical Group Co., Ltd. (“Tianyu”) and one CDQ waste heat power generation station with Boxing County Chengli Gas Supply Co., Ltd. (“Chengli”).

Chengli Waste Heat Power Generation (“WHPG”) 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 July 24, 2013, Zhonghong entered into a Cooperative Agreement of Coke Dry Quenching (CDQ) and CDQ 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 waste heat power generation system to supply power to Chengli, and Chengli will pay energy saving fees (the “Chengli Project”).  Chengli will contract the operation of the system to a third party contractor that is mutually agreed to by Zhonghong. In addition, Chengli will provide the land for the CDQ system and CDQ waste heat power generation system at no cost to Zhonghong. The term of the Agreements is for twenty (20) years. The first 800 million watt hours generated by the Chengli Project will be charged at RMB 0.42 ($0.068) per kilowatt hour (excluding tax); thereafter, the energy saving fee will be RMB 0.20 ($0.036) per kilowatt hour (excluding tax).  The operating time shall be based upon an average 8,000 hours annually. If the operating time is less than 8,000 hours per year due to a reason attributable to Chengli, then time charged shall be 8,000 hours a year, and if it is less than 8,000 hours due to a reason attributable to Zhonghong, then it shall be charged at actual operating hours. The construction of the Chengli Project is anticipated to be completed twelve (12) months from the date the parties enter into a Technical Agreement. When operations begin, Chengli shall ensure its coking production line works properly and that working hours for the CDQ system are at least 8,000 hours per year, and Zhonghong shall ensure that working hours and the CDQ waste heat power generation system will be at least 7,200 hours per year.

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

Tianyu Waste Heat Power Generation (“WHPG”) Project

On July 19, 2013, Zhonghong entered into a Cooperative Agreement (the “Tianyu Agreement”) for Energy Management of Coke Dry Quenching (CDQ) and CDQ Waste Heat Power Generation Project with Jiangsu Tianyu Energy and Chemical Group Co., Ltd (“Tianyu”). Pursuant to the Tianyu Agreement, Zhonghong will design, build, operate and maintain two sets of 25 MW CDQ systems and CDQ WHPG systems for two subsidiaries of Tianyu – Xuzhou Tian’an Chemical Co., Ltd (“Xuzhou Tian’an”) and Xuzhou Huayu Coking Co., Ltd (“Xuzhou Huayu”) – to be located at Xuzhou Tian’an and Xuzhou Huayu’s respective locations (the “Tianyu Project”). Upon completion of the Tianyu Project, Zhonghong will charge Tianyu an energy saving service fee of RMB 0.534 ($0.087) per kilowatt hour (excluding tax). The operating time will be based upon an average 8,000 hours annually for each of Xuzhou Tian'an and Xuzhou Huayu. If the operating time is less than 8,000 hours per year due to a reason attributable to Tianyu, then time charged will be 8,000 hours a year. The term of the Tianyu Agreement is 20 years. The construction of the Tianyu Project is anticipated to be completed in fourteen (14) months from the date the parties enter into a Technical Agreement. Tianyu will provide the land for the CDQ systems and CDQ waste heat power generation systems for free. Tianyu also guarantees that it will purchase all of the power generated by the CDQ WHPG systems.

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

Zhongtai Waste Heat Power Generation Energy Management Cooperative Agreement

On December 6, 2013, Xi’an entered into a CDQ and Waste Heat Power Generation 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 design, build and maintain a 150 ton per hour CDQ system and a 25 MW CDQ waste heat power generation system and sell the power to Zhongtai, and Xi’an TCH will also build a furnace to generate steam from the waste heat of the smoke pipeline and sell the steam to Zhongtai.

The construction period of the Project is expected to be 18 months from the date when conditions are ready for construction to begin. Zhongtai will start to pay an energy saving service fee from the date when the waste heat power generation station passes the required 72 hour test run. The term of payment is for 20 years. For the first 10 years of the term, Zhongtai shall pay an energy saving service fee at RMB 0.534 ($0.089) per kilowatt hour (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 service fee at RMB 0.402 ($0.067) per kilowatt hour (including value added tax). During the term of the contract the energy saving service 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. 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 Agreement will be extended accordingly. If Zhongtai wants to terminate the Zhongtai Agreement early, it shall provide Xi’an TCH a 60 day notice and pay the termination fee and compensation for the damages to Xi’an TCH according to the following formula: 1) if it is less than 5 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 (5 years minus the years of which the system has already operated); or 2) if it is more than 5 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). 

Rongfeng CDQ Power Generation Energy Management Cooperative Agreement

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

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

Rongfeng will start to pay an energy saving service fee from the date when the waste heat power generation station passes the required 72 hour test run. The term of payment is for 20 years. For the first 10 years of the term, Rongfeng shall pay an energy saving service fee at RMB 0.582 ($0.095) per kilowatt hour (including tax) for the power generated from the system. For the second 10 years of the term, Rongfeng shall pay an energy saving service fee at RMB 0.432 ($0.071) per kilowatt hour (including tax). During the term of the contract the energy saving service fee shall be adjusted at the same percentage as the change of local grid electricity price. Rongfeng and its parent company will provide guarantees to ensure Rongfeng will fulfill its obligations under the Rongfeng Agreement. Upon the completion of the term, Xi’an TCH will transfer the systems to Rongfeng at RMB 1. Rongfeng shall provide waste heat to the systems for no less than 8,000 hours per year with a temperature no less than 950°C. If these requirements are not met, the term of the Agreement will be extended accordingly. If Rongfeng wants to terminate the Agreement early, it shall provide Xi’an TCH a 60 day notice and pay the termination fee and compensation for the damages to Xi’an TCH according to the following formula: 1) if it is less than 5 years (including 5 years) into the term when Rongfeng requests termination, Rongfeng shall pay: Xi’an TCH’s total investment amount plus Xi’an TCH’s average annual investment return times (5 years minus the years of which the system has already operated); 2) if it is more than 5 years into the term when Rongfeng requests the termination, Rongfeng shall pay: Xi’an TCH’s total investment amount minus total amortization cost (the amortization period is 10 year).

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Baoliyuan CDQ Power Generation Energy Management Cooperative Agreement 

  On March 26, 2014, Xi’an TCH entered into a CDQ Waste Heat Recycling Project Energy Management Cooperative Agreement with Tangshan Baoliyuan Coking Co., Ltd. (“Baoliyuan”), a limited liability company incorporated in Hebei Province, China.

Pursuant to the Agreement, Xi’an TCH will design, build and maintain a CDQ system and a CDQ waste heat power generation system and sell the power to Baoliyuan (the “CDQ Project”) and Xi’an TCH will also build a high scale waste water treatment system for Baoliyuan and charge monthly payment for two years (the “ Waste Water Treatment Project”).

The construction period of the CDQ Project is expected to be 15 months from the effective date of the Agreement. Baoliyuan will start to pay an energy saving fee from the date when the waste heat power generation station passes the required 72 hour test run. The term of payment is for 20 years and Baoliyuan shall pay an energy saving fee at RMB 0.7 (approximately $0.114) per kilowatt hour (including tax) for the power generated from the system, from which Xi’an TCH shall take 92.86% and Baoliyuan shall take 7.14% as parties to share the energy saving benefits. 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. Baoliyuan shall provide guarantees to ensure it will fulfill its obligations under the Agreement. Upon the completion of the term, Xi’an TCH will transfer the systems to Baoliyuan at RMB 1.

Baoliyuan shall provide waste heat to the systems for no less than 8,000 hours per year and coking production shall reach 80% of its capacity. If these requirements are not met, the energy saving fee will be calculated according to such hours and capacity.

If Baoliyuan wants to terminate the Agreement early, it shall provide Xi’an TCH a 60 day notice and pay the termination fee and compensation for the damages to Xi’an TCH according to the following formula: 1) if it is less than 5 years (including 5 years) into the term when Baoliyuan requests termination, Baoliyuan shall pay: Xi’an TCH’s total investment amount plus Xi’an TCH’s average annual investment return times (5 years minus the years of which the system has already operated); 2) if it is more than 5 years into the term when Baoliyuan requests the termination, Baoliyuan shall pay: Xi’an TCH’s total investment amount minus total amortization cost (the amortization period is 20 year).

From the first month of the completion of Waste Water Treatment Project, Baoliyuan shall pay a fixed monthly fee for the waste water treatment system at RMB 1.05 million per month (approximately $171,010) for the first 12 months and RMB 940,000 per month (approximately $153,094) for the next 12 months.

Summary for the six months ended June 30, 2014 Sales-Types Leases

As of June 30, 2014, Xi’an TCH leases the following systems: (i) TRT systems to Zhangzhi (13 year term); (ii) cement waste heat power generator (“CHPG”) systems to Jing Yang Shengwei (5 year term) expired on June 30, 2014; (iii) BMPG systems to Pucheng Phase I and II (15 and 11 year terms, respectively); (iv) BMPG systems to Shenqiu Phase I (11 year term); (v) Shenqiu Phase II (9.5 year term); (vi) WHPG system to Zhongbao (9 year term); (vii) WHPG systems to Jitie (24 year term); (viii) WGPG systems to Yida (15 year term); and (ix) two BPRT systems to Shanxi Datong (30 year term). In addition, as of June 30, 2014, Erdos TCH leased power and steam generating systems from waste heat from metal refining to Erdos (five systems) for a term of 20 years.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The unaudited financial statements included herein were prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) that are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) were omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited financial statements and footnotes included in the Company’s 2013 audited financial statements included in the Company’s Annual Report on Form 10-K.  The results for the six and three months ended June 30, 2014 are not necessarily indicative of the results expected for the full year ending December 31, 2014.

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Basis of Consolidation

The consolidated financial statements include the accounts of CREG and its subsidiary, Sifang Holdings, its wholly owned subsidiaries, Huahong New Energy Technology Co., Ltd. (“Huahong”) and Shanghai TCH, Shanghai TCH’s wholly-owned subsidiary, Xi’an TCH Energy Tech Co., Ltd. (“Xi’an TCH”) and Xi’an TCH’s subsidiaries, Erdos TCH Energy Saving Development Co., Ltd (“Erdos TCH”), 100% owned by Xi’an TCH (See note 1), and Zhonghong, 90% owned by Xi’an TCH.  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, 2014 and December 31, 2013, respectively. All significant inter-company accounts and transactions were eliminated in consolidation.

Use of Estimates

In preparing these consolidated financial statements 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.

Revenue Recognition

Sales-type Leasing and Related Revenue Recognition

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.  The investment in these projects is recorded as investment in sales-type leases in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 13, “Accounting for Leases” (codified in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 840) and its various amendments and interpretations. The Company finances construction of the waste energy recycling power generating projects.  The sales and cost of sales are recognized at the inception of lease. 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 payment consists of the gross lease payments net of executory costs and contingent rentals, if any. Unearned interest income is amortized to income over the lease term to produce a constant periodic rate of return on net investment in the lease.  While revenue is recognized at the inception of the lease, the cash flow from the sales-type lease occurs over the course of the lease, which results in interest income and reduction of receivables. Revenue is recognized net of sales tax.

Contingent Rental Income

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

Cash and Equivalents

Cash and equivalents includes cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three (3) months or less as of the purchase date of such investments.

Accounts Receivable

As of June 30, 2014 and December 31, 2013, the Company had accounts receivable of $61,083 and $71,573, respectively, from contingent rental income.

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

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Impairment of Long-life Assets

In accordance with SFAS 144 (codified in FASB ASC Topic 360), the Company reviews its long-lived assets, including property, plant 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 is 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. There was no impairment as of June 30, 2014 and December 31, 2013.

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.

Non-Controlling Interests

The Company follows FASB ASC Topic 810, “Consolidation,” which established new standards governing the accounting for and reporting of non-controlling 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 other 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.

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.

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

· Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

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

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

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

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

As of June 30, 2014, the Company’s long-term debt obligations consisted of the following: (i) various long-term bank loans and Zhongrong International Trust Co., Ltd (“ZRIT”) trust loan payable of $58.28 million, (ii) a long-term payable for a sale-leaseback transaction of $3.09 million, and (iii) Zhonghong entrusted loan of $62.09 million. As of December 31, 2013, the Company’s long-term debt obligations consisted of the following: (i) long-term bank loans payable of $18.86 million, (ii) a long-term payable for a sale-leaseback transaction of $3.83 million, and (iii) Zhonghong entrusted loan of $62.65 million.

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

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

As of June 30, 2014 and December 31, 2013, the Company did not identify any assets and liabilities that are required to be presented on the balance sheet at FV other than the sale-lease back transaction of $1.61 million on June 30, 2014 and $2.39 million on December 31, 2013, which was the present value of the total future cash outflow including principal and interest payments (See Note 15).

Stock Based Compensation

The Company accounts for its stock-based compensation in accordance with SFAS No. 123R, “Share-Based Payment, an Amendment of FASB Statement No. 123” (codified in FASB ASC Topic 718 and 505).  The Company recognizes in its statement of operations FV at the grant date for stock options and other equity-based compensation issued to employees and non-employees.

Basic and Diluted Earnings per Share

The Company presents net income (loss) per share (“EPS”) in accordance with SFAS No. 128, “Earnings per Share” (codified in FASB ASC Topic 740).  Accordingly, basic income (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of shares outstanding, without consideration for common stock equivalents.  Diluted EPS is computed by dividing the net income by the weighted-average number of common shares outstanding as well as common share equivalents outstanding for the period determined using the treasury-stock method for stock options and warrants and the if-converted method for convertible notes.  The Company made an accounting policy election to use the if-converted method for convertible securities that are eligible to receive common stock dividends, if declared.  Diluted EPS reflect the potential dilution that could occur based on the exercise of stock options or warrants or conversion of convertible securities using the if-converted method. The following table presents a reconciliation of basic and diluted EPS:

The following table presents a reconciliation of basic and diluted earnings per share for the six and three months ended June 30, 2014 and 2013:

	Six Months Ended				Three Months Ended
	2014		2013		2014		2013
Net income for common shares	$	9,712,082	$	7,031,534	$	6,589,058	$	3,733,344
Net income for diluted shares	$	9,712,082	$	7,031,534	$	6,589,058	$	3,733,344
Weighted average shares outstanding – basic		61,066,042		50,224,350		61,217,625		50,224,350
Effect of dilutive securities:
Options granted		115,187		633,173		82,307		546,111
Weighted average shares outstanding – diluted		61,181,229		50,857,523		61,299,932		50,770,461
Earnings per share – basic	$	0.16	$	0.14	$	0.11	$	0.07
Earnings per share – diluted	$	0.16	$	0.14	$	0.11	$	0.07

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 uses SFAS 130 “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.

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Segment Reporting

SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” (codified in FASB ASC Topic 280) 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. SFAS 131 has no effect on the Company’s financial statements as substantially all of the Company’s operations are conducted in one industry segment. All of the Company’s assets are located in the PRC.

New Accounting Pronouncements

In January 2014, FASB issued, Accounting Standards Update 2014-05, Service Concession Arrangements (Topic 853), The objective of this Update is to specify that an operating entity should not account for a service concession arrangement within the scope of this Update as a lease in accordance with Topic 840, Leases. Service concession arrangements may become more prevalent in the United States as public-sector entities seek alternative ways to provide public services on a more efficient and cost-effective basis. The amendments apply to an operating entity of a service concession arrangement entered into with a public-sector entity grantor when the arrangement meets certain conditions. The amendments in this Update should be applied on a modified retrospective basis to service concession arrangements that exist at the beginning of an entity’s fiscal year of adoption. The modified retrospective approach requires the cumulative effect of applying this Update to arrangements existing at the beginning of the period of adoption to be recognized as an adjustment to the opening retained earnings balance for the annual period of adoption. The amendments are effective for a public business entity for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The adoption of this ASU will not affect the Company’s financial statements.

The FASB has issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective on January 1, 2017 and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. The adoption of this standard is not expected to have a material impact on the Company's condensed consolidated financial position and results of operations.

The Financial Accounting Standards Board ("FASB") has issued Accounting Standards Update ("ASU") No. 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered.. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company's condensed consolidated financial position and results of operations.

3. NET INVESTMENT IN SALES-TYPE LEASES

Under sales-type leases, Xi’an TCH leases the following systems: (i) TRT systems to Zhangzhi (13 year term); (ii) CHPG systems to Jing Yang Shengwei (5 year term); (iii) BMPG systems to Pucheng Phase I and II (15 and 11 year terms, respectively); (iv) BMPG systems to Shenqiu Phase I (11 year term); (v) Shenqiu Phase II (9.5 year term); (vi) WHPG system to Zhongbao (9 year term); (vii) WHPG systems to Jitie (24 year term); viii) WGPG systems to Yida (15 year term); and (ix) two BPRT systems to Shanxi Datong (30 year term). In addition, as of June 30, 2014, Erdos TCH leased power and steam generating systems from waste heat from metal refining to Erdos (five systems) for a term of 20 years. The components of the net investment in sales-type leases as of June 30, 2014 and December 31, 2013 are as follows:

	2014			2013
Total future minimum lease payments receivable	$	611,006,335		$	560,187,391
Less: executory cost		(128,947,539	)		(134,447,605	)
Less: unearned interest income		(285,665,316	)		(241,234,839	)
Net investment in sales - type leases		196,393,480			184,504,947
Current portion		7,772,144			9,063,386
Noncurrent portion	$	188,621,336		$	175,441,561

As of June 30, 2014, the future minimum rentals to be received on non-cancelable sales-type leases by years are as follows:

2014	$	45,950,886
2015		44,636,372
2016		44,636,372
2017		44,636,372
2018		44,452,417
Thereafter		386,693,916
Total	$	611,006,335

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4. RESTRICTED CASH, NOTES PAYABLE – BANK ACCEPTANCES

Restricted cash as of June 30, 2014 and December 31, 2013 was $7,720,062 and $2,296,249, respectively, held by the bank as collateral to issue bank acceptances and bank loan. The Company endorses bank acceptances to vendors as payment of its own obligations.  Most of the bank acceptances have maturities of less than six months.

5. PREPAID EXPENSES

Prepaid expenses mainly consisted of prepayment for office rental and decorations, and consulting fees for the Company’s RMB 460 million ($75 million) fund project completed in July 2013. Before the HYREF Fund released the money to Zhonghong, Xi'an TCH paid 2% of the funds raised for Zhonghong, i.e. RMB 9.2 million ($1.5 million) to the Fund Management Company as a consulting fee and it shall pay such 2% on the amount of funds actually contributed as an annual management fee on every 365 day anniversary thereafter until Zhonghong fully repays the loan and the HYREF Fund no longer has an ownership interest in Zhonghong. The Company prepaid consulting expense to the Fund Management Company of $1.5 million in 2013, and had $0.12 million prepaid consulting expense as of June 30, 2014.

6. CONSTRUCTION IN PROGRESS

Construction in progress was for constructing power generation systems.  As of June 30, 2014, the Company had construction in progress of $140.31 million, including $17.99 million for Shanxi Datong Coal Group one 15MW WGPG; $25.08 million for Xuzhou Zhongtai project; $27.23 million for Tangshan Rongfeng project; $26.81 million for Xuzhou Huayu project; $18.03 for Xuzhou Tian’an project and $25.17 million for Boxing County Chengli project. As of December 31, 2013, the Company had construction in progress of $83.72 million, including $17.01 million for Shanxi Datong Coal Group one 15MW WGPG project; $25.54 million for Xuzhou Huayu project, $17.19 for Xuzhou Tian’an project and $23.98 million for Shandong Boxing project. As of June 30, 2014, the Company was committed to pay an additional $2.44 million for the Shanxi Datong Coal Group Power Generation project, $8.23 million for Xuzhou Zhongtai project, $2.41 million for Tangshan Rongfeng project, $8.13 million for Xuzhou Huayu project, $16.25 million for Xuzhou Tian’an project, and $9.75 million for Boxing County Chengli project.

7. TAXES PAYABLE

Taxes payable consisted of the following as of June 30, 2014 and December 31, 2013:

	2014		2013
Income	$	933,433	$	806,231
Business		312,082		316,485
VAT arising from transfer WGPG to Shenmu		390,066		393,643
Other		42,900		44,470
	$	1,678,481	$	1,560,829

8. ACCRUED LIABILITIES AND OTHER PAYABLES

Accrued liabilities and other payables consisted of the following as of June 30, 2014 and December 31, 2013:

	2014		2013
Employee training, labor union expenditure and social insurance payable	$	516,637	$	521,373
Consulting, auditing, and legal expenses		446,428		403,860
Accrued payroll and welfare		301,034		318,871
Accrued system maintenance expense		48,758		49,205
Other		351,128		223,882
Total	$	1,663,985	$	1,517,191

9.  RELATED PARTY TRANSACTIONS

On March 1, 2014, Xi’an TCH entered a loan agreement with Mr. Guohua Ku, a major shareholder and the Company's Chairman and CEO, pursuant to which Mr. Ku will loan the Company, from time to time, up to RMB 80 million ($13 million) for the Company’s operating needs. The loan bore no interest, had one-year term from the actual lending date, the Company can repay the principal in installment. As of June 30, 2014, the Company borrowed $11,813,443 from Mr. Ku, including $2,379,734 outstanding balance prior to the loan agreement date; and had $40,857 in advances from the Company’s management, which bore no interest, and payable upon demand of the management.

15

 As of December 31, 2013, due to related parties totaled $2,420,391, including $2,379,734 advance from Mr. Ku, a major shareholder and the Company's Chairman and CEO; and $40,657 in advances from the Company’s management, which bore no interest, and were payable on demand. The $2,379,734 advance from the Company’s shareholder became short term, non-interest bearing, one-year loan as a result of the loan agreement entered on March 31, 2014.

10. LONG TERM INVESTMENT

On June 25, 2013 Xi’an TCH with Hongyuan Huifu Venture Capital Co. Ltd (“Hongyuan Huifu”) jointly established Hongyuan Recycling Energy Investment Management Beijing Co., 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 coke dry quenching (“CDQ”) waste heat power generation projects. Xi’an TCH made an initial capital contribution of RMB 4 million ($0.65 million) and has a 40% ownership interest in 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 equity method. The Company recorded $77,091 equity based investment income during the six months ended June 30, 2014; however it was eliminated with financial fee of Zhonghong as 100% of Fund Management Company’s revenue is from Zhonghong’s financial fee and Zhonghong is 91.7% owned by Xi’an TCH (Note 11). Xi’an TCH paid $1.6 million one-time commission (recorded as other expense) to the Fund Management Company during 2013 for initiating and completion of the Fund financing for the Company.

On July 18, 2013, Beijing Hongyuan Recycling Energy Investment Center, LLP (the “HYREF Fund”) was established as a limited liability partnership in Beijing. Pursuant to the Partnership Agreement, the HYREF Fund has a general partner, the Fund Management Company, which made an initial capital 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 ($12.5 million) and is a secondary limited partner. The term of the HYREF Fund’s partnership is six (6) years from the date of its establishment, July 18, 2013. The term for the preferred limited partner is three (3) years from the date of its contribution and for the ordinary limited partner is four (4) years from the date of its contribution. Unless otherwise approved by the general partner (the Fund Management Company), upon the expiration of their respective terms, each partner shall exit from the partnership automatically. The total size of the HYREF Fund is RMB 460 million ($75.0 million), and the purpose of the HYREF Fund is to invest in Zhonghong for constructing 3 new CDQ WHPG projects. Xi’an TCH owns 16.3% of the HYREF Fund. The Company accounted for this investment using the cost method. The Company netted off the investment of RMB 75 million ($12.2 million) by Xi’an TCH with the entrusted loan payable of the HYREF Fund by Xi’an TCH.

11. NONCONTROLLING INTEREST

Prior to June 15, 2013, “Non-controlling interest” was a 7% equity interest of Erdos TCH (the “JV”) owned by Erdos Metallurgy Co., Ltd. (“Erdos”).

As of June 15, 2013, the total registered capital of Erdos TCH was $17.55 million (RMB 120,000,000), of which, $16.37 million (RMB 112 million) was contributed by Xi’an TCH, and $1.18 million (RMB 8 million) was from Erdos Metallurgy. Erdos TCH engages in a business similar to that of Xi’an TCH. On June 15, 2013, Xi’an and Erdos Metallurgy entered into a share purchase agreement. Xi’an TCH will pay Erdos Metallurgy $1.29 million (RMB 8 million) for the 7% equity interest of Erdos TCH and then become 100% owner of Erdos TCH. In addition, Erdos TCH distributed 20% of the accumulated profit (calculated under PRC GAAP) to Erdos Metallurgy up to June 30, 2013, in accordance with the supplementary agreement entered on August 6, 2013.  In July 2013, Xi’an TCH paid $1.29 million (RMB 8 million) to Erdos Metallurgy, and in August 2013, Xi’an TCH paid 20% of the accumulated profit (calculated under PRC GAAP) in the amount of $226,000 to Erdos Metallurgy.

On July 15, 2013, Xi’an TCH and HYREF Fund jointly established Xi’an Zhonghong New Energy Technology (“Zhonghong”) with registered capital of RMB 30 million ($4.88 million), to manage new projects. Xi’an TCH paid RMB 27 million ($4.37 million). Xi'an TCH owns 90% of Zhonghong while HYREF Fund owns 10% of Zhonghong as non-controlling interest of Zhonghong. 

In addition, the HYREF Fund was 16.3% owned by Xi’an TCH 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 10, 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%.

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12. DEFERRED TAX

Deferred tax asset resulted from accrued maintenance cost on power generation systems that can be deducted for tax purposes in the future, and 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, 2014 and December 31, 2013, deferred tax liability consisted of the following:

	2014			2013
Deferred tax asset — noncurrent (accrual of system maintenance cost)	$	69,910		$	70,551
Deferred tax asset — noncurrent (depreciation of fixed assets)		33,410,848			31,308,695
Deferred tax liability — noncurrent (net investment in sales-type leases)		(46,852,546	)		(43,263,314	)
Deferred tax liability, net of deferred tax asset – noncurrent	$	(13,371,788	)	$	(11,884,068	)
Deferred tax liability — current (net investment in sales-type leases)	$	(1,296,735	)	$	(1,442,317	)

13. INCOME TAX

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

The Company’s subsidiaries generate all of their net income from their PRC operations. Shanghai TCH’s effective income tax rate for 2014 and 2013 was 25%. During 2013, Xi’an TCH was re-approved for high tech enterprise status and enjoyed 15% preferential income tax rate for 3 years effective January 1, 2013. Huahong, Zhonghong and Erdos TCH’s effective income tax rate for 2014 and 2013 was 25%.  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 consolidated financial statements do not present any income tax provisions related to Cayman Islands tax jurisdiction where Sifang Holding is domiciled.

The parent company, China Recycling Energy Corporation, is taxed in the U.S. and, as of June 30, 2014, had net operating loss (“NOL”) carry forwards for income taxes of $12.81 million, which may be available to reduce future years’ taxable income as NOLs can be carried forward up to 20 years from the year the loss is incurred. Our management believes the realization of benefits from these losses may be uncertain due to the Company’s limited operating history and continuing operating losses. Accordingly, a 100% deferred tax asset valuation allowance was provided.

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the six and three months ended June 30, 2014 and 2013, respectively:

	Six Months						Three Months
	2014			2013			2014			2013
U.S. statutory rates		34.0	%		34.0	%		34.0	%		34.0	%
Tax rate difference – current provision		(6.1	)%		(9.9	)%		(4.3	)%		(9.5	)%
Effective tax holiday		(8.0	)%		-	%		(8.5	)%		-	%
Other		.5	%		-	%		.7	%		-	%
2013 income tax adjustment per income tax return filed in 2014		2.9	%		-	%		-	%		-	%
Effect of tax rate change on deferred tax items		-	%		6.3	%		-	%		11.5	%
Valuation allowance on US NOL		1.8	%		3.5	%		1.5	%		2.0	%
Tax per financial statements		25.1	%		33.9	%		23.4	%		38.0	%

The provision for income taxes expense for the six and three months ended June 30, 2014 and 2013 consisted of the following:

	Six Months				Three Months
	2014		2013		2014		2013
Income tax expense – current	$	1,767,633	$	2,307,055	$	878,386	$	1,698,403
Income tax expense benefit - deferred		1,471,536		1,419,815		1,123,254		668,413
Total income tax expense	$	3,239,169	$	3,726,870	$	2,001,640	$	2,366,816

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14. LOANS PAYABLE

Collective Capital Trust Plan

On December 3, 2009, the Company and Beijing International Trust Co., Ltd. (the “Beijing Trust”) formed a Low Carbon Fortune-Energy Recycling No. 1 Collective Capital Trust Plan (the “Capital Trust Plan”) pursuant to the Capital Trust Loan Agreement, dated November 19, 2009, entered into between Erdos TCH and the Beijing Trust (the “Capital Trust Agreement”). All amounts raised under the Capital Trust Plan were loaned to Erdos TCH in connection with its WHPG projects Phase II and Phase III construction and operation.

Under the Capital Trust Agreement, the annual base interest rate was 9.94% for A1 preferred trust fund units with a term of two (2) years, 11% for A2 preferred trust fund units with a term of three (3) years, 12.05% for A3 preferred trust fund units and 8.35% for the category B secondary trust fund units, each with a term of four (4) years. Erdos TCH provided a lien on its equipment, assets and accounts receivable to guarantee the loans under the Capital Trust Agreement. Xi’an TCH and Mr. Guohua Ku, the CEO, the Chairman of the Company’s Board of Directors and a major shareholder, provided unconditional and irrevocable joint liability guarantees to the Beijing Trust for Erdos TCH’s performance under the Capital Trust Agreement. Erdos (the former minority shareholder and customer of Erdos TCH) provided a commitment letter on minimum power purchase from Erdos TCH.

The Capital Trust Plan raised $44.1 million (RMB 300,000,000) through a series of capital raises in 2009 and 2010, including (i) 13,750,000 B1 units ($2.0 million) purchased by the management of Erdos TCH; (ii) 1,600,000 ($235,600) A1 units and (iii) 46,250,000 B2 units ($7.4 million) purchased by Xi’an TCH, which was considered an investment by Xi’an TCH into Erdos TCH and, accordingly, was eliminated in the consolidated financial statements. On behalf of Erdos TCH, Xi’an TCH paid in full to Beijing Trust for the Trust Loan in December 2013 except the principal of RMB 46.25 million ($7.59 million) that was previously invested by Xi’an TCH to the Trust Loan plus accumulated interest of RMB 2,775,000 ($0.46 million), and RMB 7,650,000 ($1.25 million) that was previously invested by Mr. Guohua Ku to the Trust Loan plus accumulated interest of RMB 459,000 ($75,000), remained as outstanding liability of Erdos TCH. Beijing Trust transferred credit rights of the above outstanding balances to Xian TCH and Mr. Guohua Ku. In addition, Xi’an TCH assumed liability of Erdos TCH to pay Mr. Ku. The outstanding liability of Erdos TCH to Xi’an TCH was eliminated in the consolidation. The related management incentive benefit and Clean Development Mechanism under the Kyoto Protoco were terminated accordingly without further execution as a result of repayment to Beijing Trust.

Entrusted Loan Payable

 The newly established HYREF Fund (Beijing Hongyuan Recycling Energy Investment Center, LLP) with total fund size of RMB 460 million ($75.0 million) invests in Xi’an Zhonghong for Zhonghong’s three new coke dry quenching (CDQ) waste heat power generation 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 an interest payment from Zhonghong for the HYREF Fund’s debt investment. The RMB 457 million ($74.5 million) was released to Zhonghong through an entrusted bank, which is also the supervising bank for the use of the loan. The loan was deposited to a bank account at the Supervising Bank (the Industrial Bank Xi’an Branch) and is jointly supervised by Zhonghong and the Fund Management Company. Project spending shall be verified by the Fund Management Company to confirm that it is in accordance with the project schedule before the funds are released. All the operating accounts of Zhonghong have been opened with the branches of the Supervising Bank and the Supervising Bank has the right to monitor all bank accounts opened by Zhonghong. The entrusted bank will charge 0.1% of loan amount as service fee and will not take any lending risk. The loan was collateralized by the accounts receivable and the fixed assets of Shenqiu Phase I and II power generation systems, the accounts receivable and fixed assets of Zhonghong’s three CDQ waste heat power generation systems, and a 27,000,000 RMB capital contribution made by Xi’an TCH. Repayment of the loan (principal and interest) was also jointly and severally guaranteed by Xi’an TCH and Mr. Guohua Ku, the Chairman and CEO of the Company.

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 2nd 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 2nd 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 2nd month of each quarter and no less than RMB 192,500 ($32,080) on the 14th day of the last month of each quarter.

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The term of this loan is for 60 months from July 31, 2013 to July 30, 2018. On August 6, 2016, Zhonghong shall repay principal in the amount of RMB 280 million ($45.54 million); on August 6, 2017, it shall repay principal of RMB 100 million ($16.27 million) and on July 30, 2018, it shall repay the remainder of RMB 77 million ($12.52 million). The interest rate is 12.5% per year. 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. As of June 30, 2014, the entrusted loan payable had an outstanding balance of $74.28 million, of which, $12.2 million was from the investment of Xi’an TCH; accordingly, the Company netted off the loan payable of $12.2 million with the long-term investment to the HYREF Fund made by Xi’an TCH. For the six months ended June 30, 2014, the Company recorded interest expense of $688,258 on this loan and capitalized $3.94 million interest to construction in progress.

Bank Loans - Industrial Bank

On March 31, 2011, Xi’an TCH entered into a loan agreement with the Industrial Bank for energy saving and emission reduction projects, whereby the Industrial Bank agreed to loan $4.88 million (RMB 30,000,000) to Xi’an TCH for three (3) years to March 30, 2014. The loan agreement has a floating interest rate that resets at the beginning of each quarter at 115% of the national base interest rate for the same term and same level loan (then 7.07%).  Under the loan, Xi’an TCH is required to make quarterly interest payments and, beginning six (6) months after the date of the release of the funds, to make minimum quarterly principal payments of $488,000 (RMB 3,000,000). The loan agreement contains standard representations, warranties and covenants, and the loan is guaranteed by Xi’an TCH, Mr. Guohua Ku and Ms. Chaoying Zhang. As of June 30, 2014, this loan was paid in full at maturity

On November 8, 2011, Xi’an TCH entered another loan agreement with the same Industrial Bank for energy saving and emission reduction projects, whereby the Lender agreed to loan $21.04 million (RMB 130,000,000) to Xi’an TCH for four years to November 28, 2015. The loan agreement has a floating interest rate that resets at the beginning of each quarter at 115% of the national base interest rate for the same term and same level loan (then 7.36%).  Under the loan, Xi’an TCH is required to make quarterly interest payments and, beginning nine months after the date of the release of the funds, to make minimum quarterly principal payments of $1,618,463 (RMB 10,000,000). For the first nine months, the loan was in a grace period and there was no repayment requirement. The loan is guaranteed by accounts receivable of Xi’an TCH, Pucheng and Shenqiu BMPG systems and Mr. Guohua Ku. As of June 30, 2014, this loan had outstanding balance of $8.13 million, of which, $6.50 million was to be repaid within one year and was classified as current liability, and $1.63 million will be repaid after one year and was classified as noncurrent liability.

On October 9, 2013, Xi’an TCH entered the third loan agreement with the same Industrial Bank for energy saving and emission reduction projects, whereby the Lender agreed to loan $16.40 million (RMB 100,000,000) to Xi’an TCH for four years to October 8, 2017. The loan agreement has a floating interest rate that resets at the beginning of each month at 120% of the national base interest rate for the same term and same level loan.  Under the loan, Xi’an TCH is required to make quarterly interest payments and, beginning six months after the date of the release of the funds, to make minimum quarterly principal payments of $615,067 (RMB 3,750,000) for 2014, $1,025,111 (RMB 6,250,000) for 2015, and $1,230,133 (RMB 7,500,000) for 2016 and 2017. For the first six months, the loan was in a grace period and there was no repayment requirement. The loan is guaranteed by the assets of the Erdos project systems, the accounts receivable of Jilin Ferroallys and Mr. Guohua Ku. As of June 30, 2014, this loan had outstanding balance of $15.03 million, of which, $4.26 million was to be repaid within one year and was classified as current liability, and $10.77 million will be repaid after one year and was classified as noncurrent liability. 

Bank Loan – Bank of Xi’an 

On March 28, 2013, Xi’an TCH entered into a loan agreement with Bank of Xi’an, whereby Bank of Xi’an agreed to loan $4.88 million (RMB 30,000,000) to Xi’an TCH for one (1) year with maturity on March 27, 2014. The monthly interest rate of the loan is 0.575%. Under the terms of the loan, Xi’an TCH is required to make monthly interest payments and the principal is to be repaid at maturity. The loan is guaranteed by a third party guarantee company and Mr. Guohua Ku. The Company paid a third party $115,315 (RMB 712,500) as a re-guarantee service fee. This loan was repaid at maturity.

On May 28, 2014, Xi’an TCH entered into another loan agreement with Bank of Xi’an, whereby Bank of Xi’an agreed to loan $6.50 million (RMB 40,000,000) to Xi’an TCH for one (1) year with maturity on May 29, 2015. The monthly interest rate of the loan is 0.65%. Under the terms of the loan, Xi’an TCH is required to make monthly interest payments and the principal is to be repaid at maturity. The loan is guaranteed by a third party guarantee company and Mr. Guohua Ku. The Company paid a third party $155,280 (RMB 950,000) as a re-guarantee service fee. As of June 30, 2014, this loan had outstanding balance of $6.50 million, to be repaid within one year and was classified as current liability.

Bank Loan – Bank of Chongqing

On April 11, 2014, Xi’an TCH entered into a loan agreement with Bank of Chongqing - Xi’an Branch, whereby Bank of Chongqing agreed to loan $8.13 million (RMB 50,000,000) to Xi’an TCH for three (3) years with maturity on April 10, 2017. The annual interest rate of the loan is 9.225%. Under the terms of the loan, Xi’an TCH is required to make monthly interest payments and, to make a principal payment of $0.81 million (RMB 5,000,000) on the 24^th month after receiving the loan and of the remaining $7.32 million (RMB 45,000,000) on the loan maturity date. The loan is guaranteed by a third party guarantee company and Mr. Guohua Ku. The company paid a third party $155,280 (RMB 950,000) as a re-guarantee service fee. In addition, Xi’an TCH should pledge its collection right for Tangshan Rongfeng and Xuzhou Zhongtai projects to Bank of Chongqing after the two projects are completed and put into operation, to ensure the repayment of loan. As of June 30, 2014, this loan had outstanding balance of $8.13 million, to be repaid after one year and was classified as noncurrent liability.

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Trust Loan - Zhongrong International Trust - Xuzhou Zhongtai and Tangshan Rongfeng

 On February 17, 2014, Xi’an TCH entered into a trust loan agreement with Zhongrong International Trust Co., Ltd (“ZRIT”), for Xi’an TCH to borrow RMB 150 million ($24.5 million) for the CDQ system and the CDQ Waste Heat Power Generation Project with Xuzhou Zhongtai Energy Technology Co., Ltd. (the “Zhongtai Project”). ZRIT will set up a Zhongrong-Green Recycling Energy Collective Capital Trust Plan No. 1 (the “Trust Plan No. 1”) to raise money and loan the proceeds to Xi’an TCH for the Zhongtai Project (the “Zhongtai Loan”). The Zhongtai Loan is secured by the pledge of CDQ equipment and power generation system of the Zhongtai Project, by personal guarantee of Mr. Ku Guohua, and by a corporate guarantee of Xuzhou Zhongtai Energy Technology Co., Ltd. and its affiliated companies. As of June 30, 2014, the Company had $16.40 million outstanding balance under Zhongtai Loan.

The Zhongtai Loan has a term of four years. The annual interest rate for the first 24 months of the loan is 12%. ZRIT has the right to adjust the interest rate according to the market conditions after 24 months and Xi'an TCH has the right to prepay the Zhongtai Loan before maturity if Xi’an TCH does not agree to such adjustment of interest rate. ZRIT has the right to request repayment of all principal and interest of the Zhongtai Loan on the 24-month anniversary date of the establishment of Trust Plan No. 1. Under the terms of the loan, Xi’an TCH should make the first, second, and all remaining repayment of the principal which is 30%, 30%, and 40% of the accumulated amount released by ZRIT on the last day of the 24^th month, 36^th month, and maturity date from the establishment of the trust plan.

On February 17, 2014, Xi’an TCH entered into another trust loan agreement with ZRIT, for Xi’an TCH to borrow RMB 135 million ($22.1 million) for the CDQ system and the CDQ WHPG Project with Tangshan Rongfeng Iron & Steel Co., Ltd. (the “Rongfeng Project”). ZRIT will set up a Zhongrong-Green Recycling Energy Collective Capital Trust Plan No. 2 (the “Trust Plan No. 2”) to raise money and loan the proceeds to Xi’an TCH for the Rongfeng Project (the “Rongfeng Loan”). The Rongfeng Loan is secured by the pledge of CDQ equipment and power generation system of the Rongfeng Project, by a personal guarantee of Mr. Ku Guohua, and by a corporate guarantee of Tangshan Rongfeng Iron & Steel Co., Ltd. and its parent company. As of June 30, 2014, the Company had $10.60 million outstanding balance under Rongfeng Loan.

The Rongfeng Loan has a term of four years. The annual interest rate for the first 24 months of the loan is 12%. ZRIT has the right to adjust the interest rate according to the market conditions after 24 months and Xi'an TCH has the right to prepay the Rongfeng Loan before maturity if Xi’an TCH does not agree to such adjustment of the interest rate. ZRIT has the right to request repayment of all principal and interest of the Rongfeng Loan on the 24-month anniversary date of the establishment of Trust Plan No. 2. Under the terms of the loan, Xi’an TCH should make the first, second, and all remaining repayment of the principal which is 30%, 30%, and 40% of the accumulated amount released by ZRIT on the last day of the 24^th month, 36^th month, and maturity date from the establishment of the trust plan.

For the six months ended June 30, 2014, the Company capitalized $1.18 million interest to construction in progress for ZRIT Trust loans.

As of June 30, 2014, the future minimum repayment of all the loans including entrusted loan to be made by years is as follows:

2015		17,268,561
2016		15,209,336
2017		65,796,060
2018		28,270,057
2019		325,055
Total	$	126,869,069

15.  LONG TERM PAYABLE – FINANCING AGREEMENT FOR SALE LEASE-BACK TRANSACTION

On June 28, 2011, Xi’an TCH entered into a Financing Agreement (the “Cinda Agreement”) with Cinda Financial, an affiliate of China Cinda (HK) Asset Management Co., Ltd, a company organized under the laws of the Hong Kong Special Administrative Region of China (“Cinda HK”).

Under the Cinda Agreement, Xi’an TCH transferred its ownership of (i) a set of 7MW steam turbine waste heat power generation systems and (ii) four furnaces and ancillary apparatus ((i) and (ii) collectively, the “Assets”) to Cinda Financial for $6.72 million (RMB 42.50 million), and Cinda Financial leased the Assets to Xi’an TCH for five (5) years for $8.15 million (RMB 51.54 million) based on the transfer cost and benchmark interest rate for five (5) year loans by People’s Bank of China (“PBOC”) (then 6.65%) plus 15% of that rate (7.6475%). The interest rate will increase if the five-year benchmark interest rate of PBOC increases but will remain the same if the benchmark rate decreases in the future. Xi’an TCH shall make pro rata quarterly payments to Cinda Financial for the leasing fees. Upon the completion of the lease term and full payment of all leasing fees and other fees, Xi’an TCH can pay $676 (RMB 4,250) to acquire the Assets from Cinda Financial. The quarterly minimum leasing payment to Cinda Financial is $412,855 (RMB 2,594,998).

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In addition to the leasing fees, Xi’an TCH prepaid a one-time non-refundable leasing service charge of $405,696 (RMB 2,550,000) and a refundable security deposit of $338,079 (RMB 2,125,000) to Cinda Financial. The prepaid leasing service fee is to be: amortized over five (5) years. For the six months ended June 30, 2014 and 2013, $41,680 (RMB 255,000) and $40,857 (RMB 255,000) was amortized, and $20,955 and $20,550 was amortized for the three months ended June 30, 2014 and 2013, respectively. The unamortized portion was recorded as prepaid loan fees of $82,899 and $82,879 into current and non-current portions, respectively, as of June 30, 2014.

In accordance with ASC 840-10-25-4, since CREG retains substantially all of the benefits and risks relating to the property, this transaction was a financing and was recorded as such. The proceeds of this financing were not received prior to September 30, 2011; therefore, this transaction was recorded in the third quarter of 2011. As of June 30, 2014, the Company made repayments of $4,639,569 to Cinda Financial.

As of June 30, 2014, the future minimum payment to be made by years was as follows:

2014	$	843,518
2015		1,687,036
2016		843,517
Total		3,374,071
Unamortized interest		(282,319	)
Total long term payable		3,091,752
Current portion		1,485,175
Noncurrent portion	$	1,606,577

16. STOCK-BASED COMPENSATION PLAN

Options to Employees

On August 4, 2008, the Company granted certain employees stock options under the Company’s 2007 Non-Statutory Stock Option Plan, which was later amended and restated in 2010, to acquire 3,000,000 shares of the Company’s common stock, par value $0.001, at $0.80 per share. The options vested over three years and have a life of five years. The Company’s 2007 Non-Statutory Stock Option Plan has expired.

Based on the FV method under SFAS No. 123 (Revised) “Share Based Payment” (“SFAS 123(R)”), codified in FASB ASC Topic 718, the FV of each 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 each option granted to employees is recognized as compensation expense over the vesting period of each stock option award. The FV of the options was calculated using the following assumptions, estimated life of five years, volatility of 100%, risk free interest rate of 2.76%, and dividend yield of 0%. No estimate of forfeitures was made as the Company has a short history of granting options. The options were accounted for as a modification of the options cancelled on June 25, 2008. The grant date FV of options was $5.04 million. The options expired on August 3, 2013.

On November 9 and 11, 2009, the Company and three option holders agreed to cancel 87,000 vested but unexercised shares and forfeit unvested options for 203,000 unvested shares.  On November 11, 2009, the Company granted options to two other employees for 290,000 shares of the Company’s common stock at $2.35 per share. The options vested over three years and have a life of five years. The FV of the options was calculated using the following assumptions, estimated life of five years, volatility of 100%, risk free interest rate of 3.84%, and dividend yield of 0%. The grant date FV of options was $518,513.

In July 2011, the Compensation Committee approved and provided the employees cashless exercise elections to the stock options granted by the Board of Directors of the Company (the “Board”) on August 4, 2008. On August 20, 2013, the Board further approved and provided the Employee Recipients (stock options granted to purchase shares of common stock of the Company in its resolutions on November 11, 2009 and August 13, 2010, as further discussed below) cashless exercise elections. The holder of the stock options may elect to receive shares equal to the value (as determined below) of his/her option (or the portion thereof being canceled) according to the following formula:

X =  Y (A-C)

A

Where	X =	the number of shares of Common Stock to be issued to the holder
	Y =	the number of shares of  stock option or, if only a portion of the stock option is being exercised, the portion of the option being canceled
	A =	the Fair Market Value of one share of Common Stock as defined below
	C =	Stock Option Exercise Price

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For purposes of the above calculation, the fair market value per share shall be the closing price quoted on the NASDAQ Global Market for the five (5) trading days prior to the date on which a written notice of such holder’s election to exercise his/her option has been received by the Company. During 2013, the Employee Recipients exercised 2,650,000 shares of stock options (granted on August 4, 2008) into 1,887,411 shares of the Company’s common stock. 

On August 13, 2010, the Company granted 2,200,000 options to acquire the Company’s common stock at $3.05 per share to 36 managerial and non-managerial employees as new equity awards pursuant to the Corporation’s Amended and Restated 2007 plan. According to the vesting terms, the options granted were divided into three tranches, (i) 1/3 (one third) of the total number of shares subject to the options shall vest and become exercisable if the Company meets its minimum revenue and earnings goals in the Company’s guidance for 2010 as delivered in its earnings releases and/or conference calls in the first quarter of 2010, such vesting to occur immediately upon completion of the annual audit confirming the financial results for 2010; and (ii) an additional 1/3 (one third) of the total number of shares subject to the options shall vest and become exercisable if the Company meets certain financial goals of 2011 which will be set out and decided by the Compensation Committee, such vesting to occur immediately upon Compensation Committee’s determination that the Company has met such goals for 2011; and (iii) the remaining 1/3 (one third) of the total number of shares subject to the options shall vest and become exercisable if the Company meets certain financial goals of 2012 which is set out and decided by the Compensation Committee, such vesting is to occur immediately upon Compensation Committee’s determination that the Company has met such goals for 2012.  The options may only be exercised to the extent that such options have become vested and exercisable.

The Company did not meet the financial goals of 2012 and 2011; accordingly, the second and third tranche (two thirds of the total number of 2,200,000 options) was forfeited.

The options have a life of five years. The FV of the options was calculated using the following assumptions; estimated life of five years, volatility of 92%, risk free interest rate of 3.54%, and dividend yield of 0%. Each tranche of the options is deemed to be independent of the others. Therefore, the FV of the first tranche of options was expensed during 2011; the second and third tranche of options were forfeited due to the non-achievement of established financial benchmarks.

The following table summarizes activity for employees in the Company’s Plan:

	Number of Shares		Average Exercise Price per Share		Weighted Average Remaining Contractual Term in Years
Outstanding at January 1, 2014		1,023,333		2.85		1.40
Exercisable at January 1, 2014		1,023,333		2.85		1.40
Granted		-		-		-
Exercised		-		-		-
Forfeited		-		-		-
Outstanding at June 30, 2014		1,023,333		2.85		0.90
Exercisable at June 30, 2014		1,023,333	$	2.85		0.90

Options to Independent Directors

On October 30, 2009, the Company granted stock options for 130,000 shares of the Company’s common stock, at $1.85 per share to three independent directors. The options vested and became exercisable on the six-month anniversary of the grant date with a life of five years. The FV of the options was calculated using the following assumptions: estimated life of five years, volatility of 100%, risk free interest rate of 3.54%, and dividend yield of 0%. The grant date FV of options was $183,000.

On January 20, 2010, the Company granted stock options for 40,000 shares of the Company’s common stock, at $4.68 per share to another independent director. The options vested and became exercisable on the six-month anniversary of the grant date with a life of five years. The FV of the options was calculated using the following assumptions: estimated life of five years, volatility of 100%, risk free interest rate of 3.54%, and dividend yield of 0%. The grant date FV of options was $142,000.

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On October 7, 2010, the Board appointed Mr. Yilin Ma and Mr. Chungui Shi as new members of the Board to fill the director vacancies until their successors have been duly elected and qualified. In connection with their appointment, the Board authorized the Company to provide Mr. Shi with (i) compensation of $2,000 per month and (ii) the grant of an option to purchase 40,000 shares of the Company’s common stock, at an exercise price equal to the closing price per share of the Company’s common stock on October 7, 2010. The Director Stock Options vested and became exercisable upon shareholder approval; the options had a life of five years from the original grant date. The FV of these options was calculated using the following assumptions: estimated life of five years, volatility of 87%, risk free interest rate of 3.54%, and dividend yield of 0%. The grant date FV of the Director Stock Options was $83,000. On October 31, 2013, the Company was notified by NASDAQ that the grant of options to Mr. Chungui Shi were subject to our shareholders’ approval pursuant to NASDAQ rule 5635(c); accordingly, on November 11, 2013, the Company and Mr. Shi entered into that certain First Amendment to the Non-Statutory Stock Option Agreement. Per the First Amendment, the parties agreed that the underlying Nonstatutory Stock Option Agreement would be subject to stockholder approval at the Company's 2014 Annual Meeting of Shareholders and that if shareholder approval is not obtained, the initial grant shall be deemed null and void and Mr. Shi shall not have a right to these shares, the stock options granted to Mr. Shi was approved in the Company’s 2014 Annual Meeting.

The Director Stock Options did not include a cashless exercise right clause. On August 20, 2013, the Board approved and provided the Director Recipients cashless exercise elections to the Director Stock Options. The holder of the stock options may elect to receive shares equal to the value (as determined below) of his/her option (or the portion thereof being canceled) according to the following formula:

X =  Y (A-C)

A

Where	X =	the number of shares of common stock to be issued to the holder
	Y =	the number of shares of stock option or, if only a portion of the stock option is being exercised, the portion of the option being canceled
	A =	the Fair Market Value of one share of common stock as defined below
	C =	Stock Option Exercise Price

For purposes of the above calculation, the fair market value per share shall be the closing price quoted on the NASDAQ Global Market for the five (5) trading days prior to the date on which a written notice of such holder’s election to exercise his/her option has been received by the Company. During 2013, one of the Company’s directors exercised 10,000 shares of stock options into 5,261 shares of the Company’s common stock. During the six months ended June 30, 2014, two of the Company’s directors exercised 60,000 shares (50,000 and 10,000 shares respectively) of stock options into 36,124 shares (30,575 and 5,549 shares respectively) of the Company’s common stock.

The following table summarizes option activity with respect to the independent directors:

	Number of  Shares		Average  Exercise  Price per Share		Weighted  Average  Remaining  Contractual  Term in Years
Outstanding at January 1, 2014		200,000		2.64		1.05
Exercisable at January 1, 2014		160,000		2.64		0.74
Granted		-		-		-
Exercised		60,000		1.85		-
Forfeited		-		-		-
Outstanding at June 30, 2014		140,000		2.98		0.74
Exercisable at June 30, 2014		140,000	$	2.98		0.74

Shares issued to a consulting firm

On October 16, 2013, the Company entered a one-year financing consulting service agreement with a consulting firm. The Company will pay 75,000 restricted Rule 144 shares for the service. The Board approved such share issuance on March 27, 2014. The fair value of the 75,000 shares was $187,500 at agreement date, and will be amortized over the term of the service.

17. 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.

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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.

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.

18. CONTINGENCIES

 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’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. In China, foreign exchange transactions are required by law to be transacted only by authorized financial institutions. Remittances in currencies other than RMB may require certain supporting documentation in order to make the remittance.

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 months. As of June 30, 2014 and December 31, 2013, Xi’an TCH had outstanding notes receivable of $0 and RMB 4,000,000 ($656,071), respectively.

Xi’an TCH was granted a subsidy by Xi’an City Science and Technology Bureau and Xi’an City Finance Bureau under Xi’an Hi-Tech Industry Development Special Project Fund. The special project fund for Xi’an TCH is for a three years period, from January 1, 2012 to December 31, 2014, with two criteria established to measure the performance of Xi’an TCH: (i) total accumulated sales in three years should be RMB 320 million ($52.8 million), and (ii) total accumulated taxable income should be RMB 56.9 million ($9.0 million). In 2012, Xi’an TCH’s total sales were RMB 129 million ($20.5 million) and total taxable income was RMB 59.8 million ($9.5 million) under PRC GAAP.  Xian TCH achieved total accumulated taxable income target of RMB 56.9 million ($9.0 million) in 2012 under PRC GAAP. In 2013, Xi’an TCH’s total sales were RMB 154 million ($24.9 million) under PRC GAAP; in the three months ended March 31, 2014, Xi’an TCH’s total sales were RMB 45 million ($7.4 million) under PRC GAAP; as a result, Xian TCH achieved total accumulated sales target of RMB 320 million ($52.8 million) under PRC GAAP as of March 31, 2014, and therefore was fully entitled to the subsidy income. Total subsidy income for 3 years was $499,000 (RMB 3,150,000) and Xi’an TCH paid third party consulting company fees of $149,700 (RMB 945,000), for services relating to project evaluation and audit, application document preparation, assembling and compiling, the net subsidy received was $349,300 (RMB 2,205,000), which was recorded as part of other income in 2012.

19. COMMITMENTS

Lease Commitment

On March 4, 2014, Xi’an TCH’s office lease expired. Xi’an TCH renewed this lease for an additional three (3) years with an 8% increase on rent upon renewal; the monthly rental payment was $18,000 before March 4, 2014 and is now $19,440 after Mach 4, 2014. In March 2013, Xi’an TCH leased an office in Jinan for a three (3) year term, expiring on March 22, 2016, with a monthly rental payment of $3,800, which amount will be increased by 5% each year. For the six months ended June 30, 2014 and 2013, the rental expense of Xi’an TCH was $223,425 and $148,100, respectively; for the three months ended June 30, 2014 and 2013, the rental expense was $116,994 and $93,566, respectively.

Future minimum annual rental payments required under operating leases as of June 30, 2014 were as below (by year):

2015	$	283,000
2016		272,000
2017		156,000
Total	$	711,000

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Construction Commitment

Refer to Note 1 for additional details related to lease commitments with Shanxi Datong, Chengli Boxing, Tianyu (and its subsidiaries Xuzhou Tian’an and Xuzhou Huayu), and Zhongtai, and Note 6 for commitment on construction in progress.

20. SUBSEQUENT EVENT

On July 8, 2014, the Company entered into a Standby Equity Distribution Agreement (the “Equity Distribution Agreement”) with YA Global Master SPV Ltd., a Cayman Islands exempt limited partnership (the “Investor”). The Equity Distribution Agreement will become effective on the date on which the SEC declares effective a registration statement registering the resale of the shares to be sold pursuant to the Equity Distribution Agreement by the Company to the Investor.

Pursuant to the Equity Distribution Agreement, the Investor committed to purchase, subject to certain restrictions and conditions, up to $50,000,000 of the Company’s common stock, over a period which is the shorter of the 24 month period from the effectiveness of the registration statement registering the resale of shares purchased by the Investor pursuant to the Equity Distribution Agreement or the 36 month period following the execution of the Equity Distribution Agreement, but no later than the date on which the Investor has made payment for advances equaling $50,000,000.

The Company may in its discretion draw on the facility from time to time, as and when the Company determines appropriate in accordance with the terms and conditions of the Equity Distribution Agreement by delivering an advance notice to the Investor. The maximum value of shares that the Company is entitled to put to the Investor in any one advance notice shall not exceed shares with a purchase price of $5,000,000, calculated in accordance with the Equity Distribution Agreement. The Company may deliver subsequent advance notices from time to time.

The purchase price shall be set at ninety-nine percent (99%) of the lowest daily volume weighted average price (“VWAP”) of the Company’s common stock during the five consecutive trading days immediately following the delivery of the advance notice (the “Pricing Period”). The advance notice will automatically be reduced by twenty percent (20%) for each trading day (an “Excluded Day”) during the Pricing Period that the Company's common stock is below ninety percent (90%) of the last closing price of the common stock of the Company on the principal market at the time of the delivery of the advance notice (the “Minimum Acceptable Price”). Any advance notice with an Excluded Day will automatically be increased by the number of shares of the Company's common stock sold by the Investor on the Excluded Day at a price equal to the Minimum Acceptable Price.

The Investor will not be permitted to purchase shares if the Investor’s total number of shares beneficially held at that time would exceed 4.99% of the number of shares of the Company’s common stock as determined in accordance with Rule 13d-1(j) of the Securities Exchange Act of 1934, as amended. Any portion of an advance notice that would exceed the pricing period volume limitation will be deemed to have been automatically withdrawn. In addition, the Company is not permitted to draw on the facility unless there is an effective registration statement to cover the resale of the shares.

Pursuant to the terms of the Equity Distribution Agreement, the Company is obligated to file one or more registrations statements with the SEC to register the resale by the Investor of the shares of common stock issued or issuable under the Equity Distribution Agreement.

In connection with the Equity Distribution Agreement, the Company will pay to the Investor a commitment fee in the amount of $375,000 payable in cash within ten days of the effective date of the registration statement. The Company will also pay to the Investor a due diligence and structuring fee totaling $12,000 which has been fully paid by the Company as of August 12, 2014.

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Item 2.   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.

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 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. On September 6, 2001, the Company changed its state of incorporation to the State of Nevada. In 2004, the Company changed its name from Boulder Brewing Company to China Digital Wireless, Inc. and on March 8, 2007, the Company again changed its name from China Digital Wireless, Inc. to its current name, China Recycling Energy Corporation. The Company, through its subsidiaries, sells and leases energy saving systems and equipment to its customers. 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 finances its customers for the cost of the projects as described below.

Our Subsidiaries

Our business is primarily conducted through our wholly-owned subsidiary, Sifang Holdings, its wholly-owned subsidiaries, Huahong New Energy Technology Co., Ltd. (“Huahong”) and Shanghai TCH, Shanghai TCH’s wholly-owned subsidiaries, Xi’an TCH Energy Technology Company, Ltd (“Xi’an TCH”), Xi’an TCH’s wholly-owned subsidiary Erdos TCH Energy Saving Development Co., Ltd (“Erdos TCH”) and Xi’an TCH’s 90% owned subsidiary Xi’an Zhonghong New Energy Technology Co., Ltd. Zhonghong is engaged to provide energy saving solutions and services, including constructing, selling and leasing energy saving systems and equipment to customers.

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The Company’s organizational chart is as follows:

 

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 a 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 a new company called Xi’an Zhonghong New Energy Technology Co., Ltd (“Zhonghong”). Xi’an TCH owns 90% of Zhonghong, which provides energy saving solutions and services, including constructing, selling and leasing energy saving systems and equipment to customers.

As of June 30, 2014, Shanghai TCH had sales or sales-type leases with the following parties: (i) Zhangzhi (for one top gas recovery turbine (“TRT”) system); (ii) Yida (for one coke oven gas power generation system (“WGPG” system); (iii) Erdos (for five recycling waste heat power generating systems); (iv) Zhongbao (for one waste heat power generation (“WHPG”) system); (v) Sinosteel Jilin Ferroalloys Co., Ltd. (for one waste heat power generation system (“WHPG”)); (vi) Pucheng (for two biomass power generation (“BMPG”) systems); (vii) Shenqiu (for two biomass power generation (“BMPG”) systems); and (viii) Shanxi Datong Coal Group Steel Co., Ltd (for two BPRT 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”) jointly established Hongyuan Recycling Energy Investment Management Beijing Co., Ltd (the ”Fund Management Company”) with registered capital of RMB 10 million. Xi’an TCH made an initial capital contribution of RMB 4 million ($650,000) and has a 40% ownership interest in the Fund Management Company. With respect to the Fund Management Company, voting rights and dividend rights are allocated 80% and 20% between Hongyuan Huifu and Xi’an TCH, respectively.

The Fund Management Company serves as the general partner of Beijing Hongyuan Recycling Energy Investment Center, LLP (the “HYREF Fund”), a limited liability partnership established on July 18, 2013 in Beijing. The Fund Management Company made an initial capital contribution of RMB 5 million ($830,000) to the HYREF Fund. An initial total amount of RMB 460 million ($75 million) has been fully subscribed by all partners for the HYREF Fund. The HYREF Fund has three limited partners: (1) China Orient Asset Management Co., Ltd., which made an initial capital contribution of RMB 280 million ($46.67 million) to the HYREF Fund and is a preferred limited partner; (2) Hongyuan Huifu, which made an initial capital contribution of RMB 100 million ($16.67 million) to the HYREF Fund and is an ordinary limited partner; and (3) the Company’s wholly-owned subsidiary, Xi’an TCH, which made an initial capital contribution of RMB 75 million ($12.5 million) to the HYREF Fund and is a secondary limited partner. The term of the HYREF Fund’s partnership is six (6) years from the date of its establishment, expiring on July 18, 2019. The term is three (3) years from the date of contribution for the preferred limited partner, or four (4) years from the date of contribution for the ordinary limited partner. The total size of the HYREF Fund is RMB 460 million (approximately $75 million). The HYREF Fund was formed for the purpose of investing in Xi’an Zhonghong New Energy Technology Co., Ltd., a 90% owned subsidiary of Xi’an TCH, for the construction of two coke dry quenching (“CDQ”) waste heat power generation stations with Jiangsu Tianyu Energy and Chemical Group Co., Ltd. (“Tianyu”) and one CDQ waste heat power generation station with Boxing County Chengli Gas Supply Co., Ltd. (“Chengli”).

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Erdos TCH – Joint Venture

On April 14, 2009, the Company formed Erdos TCH as 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 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 shareholder of the JV. 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. The JV currently has two power generation systems in Phase I with a total of 18MW power capacity, and three power generation systems in Phase II with a total of 27MW power capacity.

Shanxi Datong Coal Group Power Generation Projects

In February 2011, Xi’an TCH entered into an agreement with Shanxi Datong Coal Group Steel Co., Ltd (“Shanxi Datong”) to recycle gas and steam from groups of blast-furnaces and converters at Shanxi Datong’s metal refining plants to generate power and pursuant to which Xi’an TCH agreed to install two 3MW BPRT systems, and one 15MW WGPG system with a total of 21MW power capacity for an estimated total investment of $28.6 million (RMB 180 million). In June 2013, the two 3MW BPRT power generation systems were completed. The lease term is thirty (30) years, during which time Shanxi Datong will pay a service fee to Xi’an TCH. The service fee is based on an average of 8,000 electricity-generating hours per year and $0.05 (RMB 0.33) per kilowatt hour (“kWh”) for the first five (5) years from the completion of each power generation station. For each of the leases, at the 6th, 11th and 21st year anniversary of the date of the lease, the rates will change to RMB 0.3 kWh, 0.27 kWh and 0.25 kWh, respectively. On June 10, 2013, Xi’an TCH and Shanxi Datong entered into a supplemental agreement relating to the minimum service fee. The minimum service fee per month for the first five (5) years is $0.19 million (RMB 1.2 million), $0.18 million (RMB 1.1 million) for the second five (5) years, $0.16 million (RMB 1.0 million) for the following ten (10) years and $0.15 million (RMB 0.9 million) for the last ten (10) years. After thirty (30) years, the units will be transferred to Shanxi Datong at no additional charge. 

As of June 30, 2014, the Company had construction in progress of $17.99 million for the remaining Shanxi Datong Coal Group Power Generation project and is committed to paying an additional $2.44 million.   

Shenqiu Yuneng Biomass Power Generation (“BMPG”) 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 Biomass Power Generation 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 biomass power generation systems (after Xi’an TCH converted the system for biomass power generation purposes). As consideration for the biomass power generation systems, Xi’an TCH agreed to pay Shenqiu $10,937,500 (RMB 70 million) in cash in three installments within six (6) months upon the transfer of ownership of the systems. By the end of 2012, all of the consideration was paid. On September 28, 2011, Xi’an TCH and Shenqiu also entered into a Biomass Power Generation Project Lease Agreement (the “2011 Shenqiu Lease”). Under the 2011 Shenqiu Lease, Xi’an TCH agreed to lease a set of 12MW biomass power generation systems to Shenqiu at a monthly rental rate of $286,000 (RMB 1,800,000) for eleven (11) years. Upon expiration of the 2011 Shenqiu Lease, ownership of this system will be transferred from Xi’an TCH to Shenqiu at no additional cost. In connection with the 2011 Shenqiu Lease, Shenqiu paid one (1) 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 12MW biomass power generation system. After the reformation, the generation capacity of the power plant increased to 24MW. 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 Biomass Power Generation Project Lease Agreement (the “2013 Shenqiu Lease”). Under the 2013 Shenqiu Lease, Xi’an TCH agreed to lease the second set of 12MW biomass power generation 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 be transferred from Xi’an TCH to Shenqiu at no additional cost.

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Pucheng Biomass Power Generation (“BMPG”) Projects 

On September 11, 2013, Xi’an TCH entered into a Biomass Power Generation 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 12MW biomass power generation systems with completion of system transformation for a purchase price of RMB 100,000,000 ($16.48 million) in the form of 8,766,547 shares of common stock of the Company at the price of $1.87 per share. Also on September 11, 2013, Xi’an TCH also entered into a Biomass Power Generation Project Lease Agreement with Pucheng (the “Pucheng Lease”). Under the Pucheng Lease, Xi’an TCH will lease this same set of 12MW biomass power generation system to Pucheng, and combine this lease with the lease for the 12MW biomass power generation 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 12MW station from Pucheng Phase I project terminated upon the effective date of the Pucheng Lease. The ownership of two 12 MW BMPG systems will be transferred to Pucheng at no additional charge when the Pucheng Lease expires.

Jitie Power Generation Projects

In May 2013, Xi’an TCH signed a contract with Sinosteel Jilin Ferroalloys Co., Ltd. (“Jitie”) to build furnace gas waste heat power generation systems for electricity generation from recycled heat and steam from groups of ferroalloy furnaces and electric furnaces (the “Jitie Project”). According to the contract, Xi’an TCH will install a 7.5 MW and a 3 MW turbine power generation system with a total of 10.5 MW power capacity for an estimated total investment of $9.71 million (RMB 60 million). The lease term is twenty-four (24) years. During the term of this lease, Jitie will pay service fees to Xi’an TCH based on the actual generating capacity with a minimum service fee per month of $300,000 (RMB 1.8 million). Xi’an TCH will be responsible for the systems operation and will own the power generation systems. In December 2013, the Jitie Project was completed and began operations.

Chengli Waste Heat Power Generation (“WHPG”) Projects

On July 24, 2013, Zhonghong entered into a Cooperative Agreement of Coke Dry Quenching (CDQ) and CDQ 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 waste heat power generation system to supply power to Chengli, and Chengli will pay energy saving fees (the “Chengli Project”).  Chengli will contract the operation of the system to a third party contractor that is mutually agreed to by Zhonghong. In addition, Chengli will provide the land for the CDQ system and CDQ waste heat power generation system at no cost to Zhonghong. The term of the Agreements is for twenty (20) years. The first 800 million watt hours generated by the Chengli Project will be charged at RMB 0.42 ($0.068) per kilowatt hour (excluding tax); thereafter, the energy saving fee will be RMB 0.20 ($0.036) per kilowatt hour (excluding tax).  The operating time shall be based upon an average 8,000 hours annually. If the operating time is less than 8,000 hours per year due to a reason attributable to Chengli, then time charged shall be 8,000 hours a year, and if it is less than 8,000 hours due to a reason attributable to Zhonghong, then it shall be charged at actual operating hours. The construction of the Chengli Project is anticipated to be completed twelve (12) months from the date the parties enter into a Technical Agreement. When operations begin, Chengli shall ensure its coking production line works properly and that working hours for the CDQ system are at least 8,000 hours per year, and Zhonghong shall ensure that working hours and the CDQ waste heat power generation system will be at least 7,200 hours per year.

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

Tianyu Waste Heat Power Generation (“WHPG”) Project

On July 19, 2013, Zhonghong entered into a Cooperative Agreement (the “Tianyu Agreement”) for Energy Management of Coke Dry Quenching (CDQ) and CDQ Waste Heat Power Generation Project with Jiangsu Tianyu Energy and Chemical Group Co., Ltd (“Tianyu”). Pursuant to the Tianyu Agreement, Zhonghong will design, build, operate and maintain two sets of 25 MW CDQ systems and CDQ WHPG systems for two subsidiaries of Tianyu – Xuzhou Tian’an Chemical Co., Ltd (“Xuzhou Tian’an”) and Xuzhou Huayu Coking Co., Ltd (“Xuzhou Huayu”) – to be located at Xuzhou Tian’an and Xuzhou Huayu’s respective locations (the “Tianyu Project”). Upon completion of the Tianyu Project, Zhonghong will charge Tianyu an energy saving service fee of RMB 0.534 ($0.087) per kilowatt hour (excluding tax). The operating time will be based upon an average 8,000 hours annually for each of Xuzhou Tian'an and Xuzhou Huayu. If the operating time is less than 8,000 hours per year due to a reason attributable to Tianyu, then time charged will be 8,000 hours a year. The construction of the Tianyu Project is anticipated to be completed in fourteen (14) months from the date the parties enter into a Technical Agreement. Tianyu will provide the land for the CDQ systems and CDQ waste heat power generation systems for free. Tianyu also guarantees that it will purchase all of the power generated by the CDQ WHPG systems.

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On July 22, 2013, Xi’an Zhonghong New Energy Technology Co., Ltd. entered into a EPC (Engineering, Procurement and Construction) General Contractor Agreement for the Xuzhou Tianyu Group CDQ Power Generation 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 systems and 25 MW CDQ waste heat power generation 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 systems and CDQ waste heat power generation 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 (approximately $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.

Yida Coke Oven Gas Power Generation (“WGPG”) Project

On June 28, 2014, Xi’an TCH entered into an Asset Transfer Agreement (the “Transfer Agreement”) with Qitaihe City Boli Yida Coal Selection Co., Ltd. (“Yida”), a limited liability company incorporated in China. The Transfer Agreement provided for the sale to Xi’an TCH of a 15 MW coke oven gas power generation station, which has been converted from a 15 MW coal gangue power generation station from Yida. As consideration for the Transfer Asset, Xi’an TCH will pay to Yida RMB 115,000, 000 ($18.69 million) in the form of the common stock shares of the Company at the average closing price per share of the Stock for the 10 trading days prior to the closing date of the transaction. The exchange rate between U.S. Dollar and Chinese RMB in connection with the stock issuance is the rate equal to the middle rate published by the People’s Bank of China on the closing date of the assets transfer. The Company had 8,233,779 shares to be issued for purchasing Yida 15 MW coke oven gas power generation station at June 30, 2014.

On June 28, 2014, Xi’an TCH also entered into a Coke Oven Gas Power Generation Project (“WGPG”) Lease Agreement (the “Lease Agreement”) with Yida. Under the Lease Agreement, Xi'an TCH leased the Transfer Asset to Yida for RMB 3,000,000 ($0.49 million) per month, and the term of the lease is from June 28, 2014 to June 27, 2029. Yida will also provide an RMB 3,000,000 ($0.49 million) security deposit (without interest) for the lease. Xi’an TCH will transfer the Transfer Asset back to Yida at no cost at the end of the term of the lease.

Related Party Transactions

On March 1, 2014, Xi’an TCH entered a loan agreement with Mr. Ku, a major shareholder and the Company’s Chairman and CEO, in which Mr. Ku will loan the Company, from time to time, up to RMB 80 million ($13 million) for the Company’s operating needs. The loan bore no interest, had one-year term from the actual lending date, the Company can repay the principal in installment. As of June 30, 2014, the Company borrowed $11,813,443 from this shareholder.

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, which were prepared in accordance with 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 consolidated financial statements, 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 consolidated financial statements were prepared in accordance with US GAAP and pursuant to the rules and regulations of the SEC for financial statements.

Basis of Consolidation

The consolidated financial statements include the accounts of CREG and, its subsidiary, Sifang Holdings; 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 and Zhonghong. 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, 2014 and December 31, 2013, respectively. All significant inter-company accounts and transactions were eliminated in consolidation.

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Use of Estimates

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

Concentration of Credit Risk

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

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

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

Revenue Recognition

Sales-type Leasing and Related Revenue Recognition

The Company constructs and then leases waste energy recycling power generating projects to its customers. The Company typically transfers ownership of the waste energy recycling power generating projects to its customers at the end of each lease. Investment in these projects is recorded as investment in sales-type leases in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 13, “Accounting for Leases” (codified in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 840) and its various amendments and interpretations. The Company manufactures and constructs the waste energy recycling power generating projects and finances its customers for the costs of the projects. The sales and cost of sales are recognized at the time of sale or inception of the lease. The investment in sales-type leases consists of the sum of the total minimum lease payments receivable less unearned interest income and estimated executory cost. Unearned interest income is amortized to income over the lease term so as to produce a constant periodic rate of return on the net investment in the lease. While a portion of revenue is recognized at the inception of the lease, the cash flow from the sales-type lease occurs over the course of the lease. Revenue is net of the Value Added 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 the Renminbi (“RMB”). For financial reporting purposes, RMB figures were translated into United States dollars (“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 SFAS 130 “Reporting Comprehensive Income” (codified in FASB ASC Topic 220). Comprehensive income is comprised of net income and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders.

RESULTS OF OPERATIONS 

Comparison of Three Months Ended June 30, 2014 and 2013

The following table sets forth the results of our operations for the periods indicated as a percentage of net sales: 

	2014						2013
				% of Sales						% of Sales
Sales	$	19,156,591			100	%	$	13,912,563			100	%
Sales of systems		18,946,044			99	%		13,623,004			98	%
Contingent rental income		210,547			1	%		289,559			2	%
Cost of sales (“COS”)		14,594,688			76	%		10,501,936			75	%
Cost of systems		14,594,688			76	%		10,501,936			75	%
Gross profit		4,561,903			24	%		3,410,627			25	%
Interest income on sales-type lease		6,115,284			32	%		4,728,706			34	%
Total operating income		10,677,187			56	%		8,139,333			59	%
Total operating expenses		(763,228	)		(4	)%		(684,114	)		(5	)%
Income from operations		9,913,959			52	%		7,455,219			54	%
Total non-operating expenses, net		(1,345,654	)		(7	)%		(1,228,696	)		(9	)%
Income before income tax		8,568,305			45	%		6,226,523			45	%
Income tax expense		2,001,640			11	%		2,366,816			17	%
Less: net income attributable to noncontrolling-interest		(22,393	)		0	%		126,363			1	%
Net income attributable to China Recycling Energy Corp	$	6,589,058			34	%	$	3,733,344			27	%

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SALES. Total sales, including system sales and contingent rental income, for the three months ended June 30, 2014 was $19.16 million while total sales for the comparable period of 2013 was $13.91 million, an increase of $5.24 million as a result of increases in the sales of systems. Of the total sales, sales of systems for the three months ended June 30, 2014 was $18.95 million, as compared to $13.62 million for the comparable period of 2013, an increase of $5.32 million. For the three months ended June 30, 2014, Yida project – a 15MW WGPG power generation system was completed and sold. In comparison, in the same period of 2013, Shanxi Datong Phase I project - two 3MW BPRT power generation systems were completed and sold. For the three months ended June 30, 2014, the Company received contingent rental income of $0.21 million from the usage of electricity in addition to the minimum lease payments, compared to $0.29 million for the comparable period in 2013. For the sales-type lease, sales and cost of sales (“COS”) are recorded at the time of leases; interest income from the sales-type leases is our other major revenue source in addition to sales revenue.

COST OF SALES. COS for the three months ended June 30, 2014 was $14.59 million while our COS for the comparable period of 2013 was $10.50 million, an increase of $4.09 million. This increase was mainly due to the completion and sale of the Yida project.

GROSS PROFIT. Gross profit was $4.56 million for the three months ended June 30, 2014 compared to $3.41 million for the comparable period of 2013, a blended gross margin of 24% and 25% for the comparable periods of 2014 and 2013, respectively, the decreased profit margin in the three months ended June 30, 2014 was mainly due to the less contingent rental income received. 

INTEREST INCOME ON SALES TYPE LEASES. Interest income on sales-type leases for the three months ended June 30, 2014 was $6.12 million, a $1.39 million increase from $4.73 million for the comparable period of 2013. During the second quarter of 2014, interest income was derived from the following fifteen (15) sales-type leases:

i.	One (1) TRT system to Zhangzhi (13 years);
ii.	One (1) CHPG system to Jing Yang Shengwei (5 years);
iii.	Two (2) BMPG systems to Pucheng Phase I and II (15 and 11.9 years, respectively);
iv.	One (1) BMPG system to Shenqiu Phase I (11 years);
v.	One (1) BMPG system to Shenqiu Phase II (9.5 years);
vi.	Five (5) power and steam generating systems to Erdos (20 years);
vii.	One (1) WHPG system to Zhongbao (9 years);
viii.	One (1) WHPG system to Jitie (24 years); and
ix.	Two (2) BPRT systems to Shanxi Datong (30 years).

The Company sold Yida – a 15MW WGPG power generation system through a sales-type lease in June 2014 and the first payment will be collected in July 2014. The lease for the CHPG system to Jing Yang Shengwei expired on June 30, 2014.

In comparison, during the second quarter of 2013, interest income was derived from 12 systems: one TRT system, two CHPG systems, two systems with Erdos Phase I project and three systems of Erdos Phase II project, the Pucheng biomass power generation system, two Shenqiu biomass power generation systems and Zhongbao WHPG system. The Company sold Shanxi Datong Phase I project - two 3MW BPRT power generation systems in June 2013 and started collecting payments in July 2013.

OPERATING EXPENSES. Operating expenses consisted of selling, general and administrative expenses totaling $0.76 million for the three months ended June 30, 2014 as compared to $0.68 million for the comparable period of 2013, an increase of $0.08 million or 12%. This was mainly due to an increase of $0.14 million consulting expense, but offset with certain office expenses.

NON-OPERATING INCOME (EXPENSES). Non-operating income (expenses) consisted of non-sales-type lease interest income, interest expense, bank charges and miscellaneous expenses. For the three months ended June 30, 2014, net non-operating expense was $1.35 million compared to $1.23 million for the comparable period of 2013. For the three months ended June 30, 2014, we had $0.95 million interest expense on loans, and $0.42 million financial expenses including an amortized consulting fee of $0.38 million for the Company’s Zhonghong funding project. For the comparable period of 2013, we had $1.29 million interest expense on loans.

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INCOME TAX EXPENSE. Income tax expense was $2.00 million for the three months ended June 30, 2014, a decrease of $0.37 million from $2.37 million for the comparable period of 2013. The decrease was mainly due to the 15% preferential income tax rate of Xi’an TCH in 2014, and income tax rate of Xi’an TCH for the three months ended June 30, 2013 was 25%. In July 2013, Xi’an TCH was re-approved for high-tech enterprise status and enjoyed 15% preferential income tax rate effective on January 1, 2013; however, this is a change of accounting estimates and only affects the Company’s financial statements going forward. The consolidated effective income tax rate for the three months ended June 30, 2014 and 2013 was 23.4% and 38.0%, respectively, the decrease of effective income tax rate in 2014 was mainly due to the preferential income tax rate of 15% for Xi’an TCH. 

NET INCOME. Net income for the three months ended June 30, 2014 was $6.59 million compared to $3.73 million for the comparable period of 2013, an increase of $2.86 million. This increase in net income was mainly due to the increased sales, interest income on sales-type leases, and decreased income tax expenses compared with the same period of 2013.

Comparison of Six Months Ended June 30, 2014 and 2013

The following table sets forth the results of our operations for the periods indicated as a percentage of net sales:

	2014						2013
	$			% of Sales			$			% of Sales
Sales	$	19,334,198			100	%	$	28,253,134			100	%
Sales of systems		18,946,044			98	%		27,702,800			98	%
Contingent rental income		388,154			2	%		550,334			2	%
Cost of sales		14,616,592			76	%		21,402,848			76	%
Cost of systems		14,616,592			76	%		21,402,848			76	%
Gross profit		4,717,606			24	%		6,850,286			24	%
Interest income on sales-type lease		12,421,000			64	%		8,553,546			30	%
Total operating income		17,138,606			88	%		15,403,832			54	%
Total operating expenses		(1,608,203	)		(8	)%		(1,766,560	)		(6	)%
Income from operations		15,530,403			80	%		13,637,272			48	%
Total non-operating expenses, net		(2,623,016	)		(13	)%		(2,631,584	)		(9	)%
Income  before income tax		12,907,387			67	%		11,005,688			39	%
Income tax expense		3,239,169			17	%		3,726,870			13	%
Less: net income (loss) attributable to non-controlling interest		(43,864	)		0	%		247,284			1	%
Net income attributable to China Recycling Energy Corp	$	9,712,082			50	%	$	7,031,534			25	%

SALES. Total sales, including system sales and contingent rental income, for the six months ended June 30, 2014 were $19.33 million while total sales for the comparable period of 2013 were $28.25 million, a decrease of $8.92 million as a result of sales of fewer systems. Of the total sales, sales of systems for the six months ended June 30, 2014 were $18.95 million, as compared to $27.70 million for the comparable period of 2013, a decrease of $8.76 million. For the six months ended June 30, 2014, the Yida project was completed and sold. In comparison, in the same period of 2013, the Shenqiu Phase II project and Shanxi Datong Phase I project were completed and sold. For the six months ended June 30, 2014, the Company received contingent rental income of $0.39 million from the usage of electricity in addition to the minimum lease payments, compared to $0.55 million for the comparable period in year 2013. For the sales-type lease, sales and cost of sales (“COS”) are recorded at the time of the lease; in addition to sales revenue, our other major source of revenue is interest income from the sales-type leases.

COST OF SALES. COS for the six months ended June 30, 2014 was $14.62 million while our COS for the comparable period of 2013 was $21.40 million, a decrease of $6.79 million. This decrease was mainly due to only sales of the Yida project for the six months ended June 30, 2014, in comparison to the comparable period in 2013 when the Shenqiu Phase II project and Shanxi Datong Phase I project were sold.

GROSS PROFIT. Gross profit was $4.72 million for the six months ended June 30, 2014, compared to $6.85 million for the comparable period of 2013, representing a blended gross margin of 24% and 24% for the comparable period of 2014 and 2013, respectively.

INTEREST INCOME ON SALES-TYPE LEASES. Interest income on sales-type leases for the six months ended June 30, 2014 was $12.42 million, a $3.87 million increase from $8.55 million for the comparable period of 2013. This increase was primarily due to a greater number of sales-type leases in the comparable period of 2014. During the six months ended June 30, 2014, interest income was derived from the following fifteen (15) sales-type leases:

i.	One (1) TRT system to Zhangzhi (13 years);
ii.	One (1) CHPG system to Jing Yang Shengwei (5 years);
iii.	Two (2) BMPG systems to Pucheng Phase I and II (15 and 11.9 years, respectively);
iv.	One (1) BMPG system to Shenqiu Phase I (11 years);
v.	One (1) BMPG system to Shenqiu Phase II (9.5 years);
vi.	Five (5) power and steam generating systems to Erdos (20 years);
vii.	One (1) WHPG system to Zhongbao (9 years);
viii.	One (1) WHPG system to Jitie (24 years); and
ix.	Two (2) BPRT systems to Shanxi Datong (30 years).

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In comparison, during the comparable period of 2013, interest income was derived from twelve (12) systems: one (1) TRT system, two (2) CHPG systems, two (2) systems for the Erdos Phase I project, three (3) systems for the Erdos Phase II project, one (1) BMPG system to Pucheng, two (2) BMPG systems to Shenqiu, and one (1) WHPG system to Zhongbao.

OPERATING EXPENSES. Operating expenses consisted of selling, general and administrative expenses totaling $1.61 million for the six months ended June 30, 2014 as compared to $1.77 million for the comparable period of 2013, a decrease of $0.16 million or 9%. The decrease was mainly due to a $0.21 million decrease in legal and consulting expenses compared to the same period of last year.

NON-OPERATING INCOME (EXPENSES). Non-operating income (expenses) consisted of non-sales-type lease interest income, interest expenses, bank charges and miscellaneous expenses. For the six months ended June 30, 2014, net non-operating expense was $2.62 million compared to $2.63 million for the comparable period of 2013. For the six months ended June 30, 2014, we had $1.86 million interest expense on loans, and $0.83 million financial expense including an amortized consulting fee of $0.38 million for the Company’s Zhonghong funding project as well as $0.06 million interest income and $0.01 million investment income. For the comparable period of 2013, we had $2.79 million interest expense on loans, which were partly offset by $0.15 million interest income.

INCOME TAX EXPENSE. Income tax expense was $3.24 million for the six months ended June 30, 2014, a decrease of $0.49 million from $3.73 million for the comparable period of 2013. The decrease was mainly due to the 15% preferential income tax rate of Xi’an TCH in 2014, and income tax rate for the six months ended June 30, 2013 was 25%. In July 2013, Xi’an TCH was re-approved for high tech enterprise status and enjoyed 15% preferential income tax rate effective on January 1, 2013; however, it is a change of accounting estimates and only affect the Company’s financial statements going forward. The consolidated effective income tax rate for the six months ended June 30, 2014 and 2013 were 25.1% and 33.9%, respectively; the decrease of effective income tax rate in 2014 was mainly due to the preferential income tax rate of 15% for Xi’an TCH. The income tax rate for Shanghai TCH was 25% for 2014 and 2013. Huahong, Erdos TCH and Zhonghong’s income tax rate for 2014 and 2013 was 25%.

NET INCOME. Net income for the six months ended June 30, 2014 was $9.71 million compared to net income of $7.03 million for the comparable period of 2013, an increase of $2.68 million. This increase in net income was mainly due to increased interest income from sales-type leases in the six months ended June 30, 2014.

Liquidity and Capital Resources

Comparison of the six months ended June 30, 2014 and 2013

As of June 30, 2014, the Company had cash and equivalents of $6.62 million, other current assets of $18.71 million, current liabilities of $52.04 million, a working capital deficit of $(26.72) million, and a debt-to-equity ratio of 0.80:1.

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, 2014 and 2013:

	2014			2013
Cash provided by (used in):
Operating Activities	$	(36,558,800	)	$	(8,130,208	)
Investing Activities		(5,476,202	)		1,201,440
Financing Activities		40,939,858			(6,085,472	)

Net cash used in operating activities was $36.56 million during the six months ended June 30, 2014, compared to $8.13 million used in operating activities in the comparable period of 2013. The increase in net cash outflow was mainly due to increased payments of $25.22 million in connection with the construction and commencement of the Xuzhou Zhongtai project and increased payments of $27.38 million in connection with the construction and commencement of the Tangshan Rongfeng project; however, the increase in cash outflow was partially offset by the increased collection on sales-type lease receivables and net income, non-cash cost for stock issued for the Yida WGPG station, and increased accounts payable outstanding.

Net cash used in investing activities was $5.48 million for the six months ended June 30, 2014, compared to $1.20 million provided by investing activities in the comparable period of 2013. We had $5.48 million cash outflow for restricted cash in the six months ended June 30, 2014 compared with $1.86 million cash inflow from release of restricted cash in the same period of 2013.

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Net cash provided by financing activities was $40.94 million for the six months ended June 30, 2014 compared to net cash used in financing activities of $6.09 million for the comparable period of 2013. The cash inflow in the six months ended June 30, 2014 included $41.86 million of loan proceeds, $9.51 million from an advance from Mr. Ku, a major shareholder and the Company's Chairman and CEO, and $0.65 million from decreased notes receivable, which were offset by $10.38 million repayment of bank loans and $0.70 million repayment of a long-term payable. In comparison, the cash outflow for the six months ended June 30, 2013, resulted from $9.45 million repayment of bank loans, $0.64 million repayment of a long-term payable, and $0.80 million increased notes receivable, which were partially offset by the $4.80 million proceeds from bank loans.

We believe we have sufficient cash to continue our current business through 2014 based on recurring receipts from existing sales-type leases. As of June 30, 2014, the lease on one (1) CHPG system had expired, we have one (1) TRT system, five (5) recycling WHPG systems from the Erdos projects, four (4) BMPG systems (two for Pucheng and two for Shenqiu), two (2) WHPG systems for Zhongbao and Jitie each, two (2) BPRT systems for Shanxi Datong, and one (1) WGPG system for Yida (first receipt comes in July 2014), all of which generate cash flow. In addition, we have access to bank loans in case of an immediate need for working capital. We believe we have sufficient cash resources to cover our anticipated capital expenditures in 2014. In addition, we currently have 15 projects in operation with minimum monthly lease payments of RMB 18.38 million ($3.01 million).

We do not believe inflation has had or will have a significant negative impact on our results of operations in 2014.

Transfers of Cash To and From our Subsidiaries

The PRC has currency and capital transfer regulations that require us to comply with regulations for the movement of capital. The Company is able to transfer cash (U.S. dollars) to its PRC subsidiaries through: (i) an investment (by increasing the Company’s registered capital in a PRC subsidiary), or (ii) a shareholder loan. Except as described below, 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 shareholders, (ii) to service any debt obligations and (iii) to pay operating expenses. As a result of PRC laws and regulations (noted below) that require annual appropriations of 10% of after-tax income to be set aside in a general reserve fund prior to payment of dividends, the Company’s PRC subsidiaries are restricted in that respect, as well as in others respects noted below, in their ability to transfer a portion of their net assets to the Company as a dividend.

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

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

1. 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 shareholders; 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 shareholder dividends or make other cash distributions; and

6. The Company is subject to covenants and consent requirements (presently, the Company has all consents necessary).

If, for the reasons noted above, our subsidiaries are unable to pay shareholder 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

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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. An 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. In the event that the FIE’s statutory accounts are insufficient to satisfy this requirement, the FIE’s shareholders are required to contribute capital required to satisfy the registered capital requirement. Until such contribution of capital is satisfied, the FIE is not allowed to repatriate profits to its shareholders, 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 an 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. A domestic enterprise is also required to provide discretionary surplus reserve, at the discretion of the board of directors, from the profits determined in accordance with the enterprise’s PRC statutory accounts. The aforementioned reserves can only be used for specific purposes and may not be distributed as cash dividends. Xi’an TCH, Huahong, 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 on January 1, 2006, the Company is now required to maintain a statutory reserve by appropriating from its after-tax profit before declaration or payment of dividends. The statutory reserve represents restricted retained earnings. Our restricted and unrestricted retained earnings under US GAAP are set forth below:

	As at
	June 30,  2014		December 31,  2013
Unrestricted retained earnings	$	59,227,665	$	50,603,291
Restricted retained earnings (surplus reserve fund)		10,760,463		9,672,754
Retained earnings (including surplus reserve fund)	$	69,988,128	$	60,276,045

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

Company’s contractual obligations as of June 30, 2014 are as follows:

Contractual Obligation	1 year or  less		More than 1  year		See Note  (for details)
Bank loans and trust loan payable	$	17,268,561	$	47,514,953		14
Long term payable		1,485,175		1,606,577		15
Entrusted loan		-		62,085,555		14
Total	$	18,753,736	$	111,207,085

The Company believes that 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.

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Commitments

Shanxi Datong Coal Group Power Generation Projects

In February 2011, Xi’an TCH entered into an agreement with Shanxi Datong Coal Group Steel Co., Ltd (“Shanxi Datong”) to recycle gas and steam from groups of blast-furnaces and converter of Shanxi Datong’s metal refining plants to generate power. According to the contract, Xi’an TCH will install two 3MW BPRT, and one 15MW WGPG with a total of 21MW power capacity for an estimated total investment of $27.45 million (RMB 180 million). The lease term is 30 years. During the term of the lease, Shanxi Datong will pay service fee to Xi’an TCH. The service fee is based on an average of 8,000 electricity-generating hours per year and $0.05 (RMB 0.33) per kilowatt hour (“kWh”) for the first 5 years from the completion of each power generation station. For each of the leases, at the 6th year, 11th year and 21st year thereafter, the rate will be RMB 0.3 kWh, 0.27 kWh and 0.25 kWh, respectively. After 30 years, the units will be transferred to Shanxi Datong without any charge.

As of June 30, 2014, the two 3 MW BPRT systems were completed, and the Company had paid $17.99 million for the remaining Shanxi Datong Coal Group Power Generation projects. The Company is committed to pay an additional $2.44 million for completing the Shanxi Datong Coal Group Power Generation projects.

Boxing Chengli Power Generation Projects

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

Pursuant to the agreements, Zhonghong will design, build and maintain a CDQ system and a 25 MW CDQ waste heat power generation system to supply power to Chengli, and Chengli will pay energy saving fees. Chengli will contract the operation of the system to a third party contractor that is mutually agreed to by Zhonghong. In addition, Chengli will provide the land for the CDQ system and CDQ waste heat power generation system at no cost to Zhonghong. The term of the Agreements is for 20 years. The energy saving service fees generated by the 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 due to a reason attributable to Chengli’s, then time charged shall be 8,000 hours a year, and if it is less than 8,000 hours due to a reason attributable to Zhonghong, then it shall be charged at actual operating hours. The construction of the Project is anticipated to be completed in 12 months from the date the parties enter into a Technical Agreement. From the date of the operation, Chengli shall ensure its coking production line works properly and that working hours for the CDQ system are no less than 8,000 hours/year, while Zhonghong shall ensure that working hours and the CDQ waste heat power generation system will be no less than 7,200 hours/year.

On July 22, 2013, Xi’an Zhonghong New Energy Technology Co., Ltd. entered into a EPC (Engineering, Procurement and Construction) General Contractor Agreement for the Boxing County Chengli Gas Supply Co., Ltd. CDQ Power Generation Project (the “Project”) with Xi’an Huaxin New Energy Co., Ltd. (“Huaxin”). Zhonghong as the owner of the Project contracted EPC for a CDQ system and a 25 MW CDQ waste heat power generation system for Chengli to Huaxin. Huaxin shall provide construction, equipment procurement, transportation, installation and adjustment, test run, construction engineering management and other necessary works to complete the Project and ensure the CDQ system and CDQ waste heat power generation system for Chengli meet the inspection and acceptance requirements and work normally. The project is a turn-key project and Huaxin is responsible for the quality, safety, duration and cost of the Project. The total contract price is RMB 200 million (approximately $33.34 million). The price is a cover-all price which includes but is not limited to all the materials, equipment, labor, transportation, electricity, water, waste disposal, machinery and safety matters. As of June 30, 2014, Zhonghong has paid $25.17 million for the project, and is committed to pay additional $9.75 million for the Boxing project.

Xuzhou Tian’an and Xuzhou Huayu CDQ Power Generation Projects

On July 19, 2013, Zhonghong entered into a Cooperative Agreement for Energy Management of Coke Dry Quenching (CDQ) and CDQ Waste Heat Power Generation Project (the “Tianyu Project”) with Jiangsu Tianyu Energy and Chemical Group Co., Ltd (“Tianyu”).

Pursuant to the Tianyu Agreement, Zhonghong will design, build, operate and maintain two sets of 25 MW CDQ systems and CDQ waste heat power generation systems for two subsidiaries of Tianyu: one is for and will be located at Xuzhou Tian’an Chemical Co., Ltd and one set is for and will be located at Xuzhou Huayu Coking Co., Ltd.  Upon the completion of the Tianyu Project, Zhonghong will charge Tianyu an energy saving service fee of RMB 0.534 ($0.088) per 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 a year due to the reason attributable to Tianyu, then time charged shall be 8,000 hours a year. The construction of the Tianyu Project is anticipated to be completed in 14 months from the date the parties enter into a Technical Agreement. Tianyu will provide the land for the CDQ systems and CDQ waste heat power generation systems for free. Tianyu also provided guarantee to purchase all the power generated by CDQ Waste Heat Power Generation system.

On July 22, 2013, Xi’an Zhonghong New Energy Technology Co., Ltd. entered into a EPC (Engineering, Procurement and Construction) 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 systems and 25 MW CDQ waste heat power generation 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 systems and CDQ waste heat power generation 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 (approximately $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. As of June 30, 2014, Zhonghong has paid $26.81 million for Huayu project and $18.03 million for the Tian’an project and is committed to pay an additional $8.13 million for Huayu project and $16.25 million for Tian’an project.

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Zhongtai Waste Heat Power Generation Energy Management Cooperative Agreement

On December 6, 2013, Xi’an entered into a CDQ” and Waste Heat Power Generation Energy Management Cooperative Agreement with Xuzhou Zhongtai Energy Technology Co., Ltd. (the “Zhongtai Agreement”), a limited liability company incorporated in Jiangsu Province, China.

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 waste heat power generation system and sell the power to Zhongtai, and Xi’an TCH will also build a furnace to generate steam from the waste heat of the smoke pipeline and sell the steam to Zhongtai.

The construction period of the Project is expected to be 18 months from the date when conditions are ready for construction to begin. Zhongtai will start to pay an energy saving service fee from the date when the waste heat power generation station passes the required 72 hour test run. The term of payment is for 20 years. For the first 10 years of the term, Zhongtai shall pay an energy saving service fee at RMB 0.534 ($0.089) per kilowatt hour (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 service fee at RMB 0.402 ($0.067) per kilowatt hour (including value added tax). 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). Upon the completion of the term, Xi’an TCH will transfer the systems to Zhongtai at RMB 1. 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 Agreement will be extended accordingly. If Zhongtai wants to terminate the Agreement early, it shall provide Xi’an TCH a 60 day notice and pay the termination fee and compensation for the damages to Xi’an TCH according to the following formula: 1) if it is less than 5 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 (5 years minus the years of which the system has already operated); 2) if it is more than 5 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 year). As of June 30, 2014, the Company has paid $25.08 million for the Zhongtai project, and is committed to pay additional $8.23 million for completing the project.

Rongfeng CDQ Power Generation Energy Management Cooperative Agreement

On December 12, 2013, Xi’an TCH entered into a CDQ Power Generation Energy Management Cooperative Agreement (with Tangshan Rongfeng Iron & Steel Co., Ltd. (the “Rongfeng Agreement”), a limited liability company incorporated in Hebei Province, China. Pursuant to the Rongfeng Agreement, Xi’an TCH will design, build and maintain a CDQ system and a CDQ waste heat power generation system and sell the power to Rongfeng. The construction period of the Project is expected to be 18 months after the Agreement takes effect and from the date when conditions are ready for construction to begin.

Rongfeng will start to pay an energy saving service fee from the date when the waste heat power generation station passes the required 72 hour test run. The term of payment is for 20 years. For the first 10 years of the term, Rongfeng shall pay an energy saving service fee at RMB 0.582 ($0.095) per kilowatt hour (including tax) for the power generated from the system. For the second 10 years of the term, Rongfeng shall pay an energy saving service fee at RMB 0.432 ($0.071) per kilowatt hour (including tax). During the term of the contract the energy saving service fee shall be adjusted at the same percentage as the change of local grid electricity price. Rongfeng and its parent company will provide guarantees to ensure Rongfeng will fulfill its obligations under the Rongfeng Agreement. Upon the completion of the term, Xi’an TCH will transfer the systems to Rongfeng at RMB 1. Rongfeng shall provide waste heat to the systems for no less than 8,000 hours per year with a temperature no less than 950°C. If these requirements are not met, the term of the Agreement will be extended accordingly. If Rongfeng wants to terminate the Agreement early, it shall provide Xi’an TCH a 60 day notice and pay the termination fee and compensation for the damages to Xi’an TCH according to the following formula: 1) if it is less than 5 years (including 5 years) into the term when Rongfeng requests termination, Rongfeng shall pay: Xi’an TCH’s total investment amount plus Xi’an TCH’s average annual investment return times (5 years minus the years of which the system has already operated); 2) if it is more than 5 years into the term when Rongfeng requests the termination, Rongfeng shall pay: Xi’an TCH’s total investment amount minus total amortization cost (the amortization period is 10 year). As of June 30, 2014, the Company has paid $27.23 million for the Zhongtai project, and is committed to pay additional $2.41 million for completing the 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.

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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, 2014, 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, 2014, 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

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

The following are additional risk factors to the ones previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013.  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.

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The following additional risks are associated with the Standby Equity Distribution Agreement (the “Equity Distribution Agreement”) the Company entered into with YA Global Master SPV Ltd., a Cayman Islands exempt limited partnership (the “Investor”), on July 8, 2014. The Equity Distribution Agreement will become effective on the date on which the SEC declares effective a registration statement registering the resale of the shares to be sold pursuant to the Equity Distribution Agreement by the Company to the Investor.

Our Equity Line with YA Global may not be available to us if we elect to make a draw down.

Pursuant to the Equity Line, YA Global committed to purchase, subject to certain conditions, up to $50 million of shares of our Common Stock over a period which is the shorter of the 24 month period from the effectiveness of the registration statement registering the resale of shares purchased by the Investor pursuant to the Equity Distribution Agreement or the 36 month period following the execution of the Equity Distribution Agreement.  

YA Global will not be obligated to purchase shares under the Equity Line unless certain conditions are met, which include, among others:  effectiveness of the registration statement; the continued listing of our Common Stock on the NASDAQ Global Market; our compliance with our obligations under the Equity Distribution Agreement entered into with YA Global; the absence of injunctions or other governmental actions prohibiting the issuance of Common Stock to YA Global; and the accuracy of representations and warranties made to YA Global.  

Any draw downs under our Equity Line with YA Global may result in dilution to our shareholders.

Under the Equity Distribution Agreement with YA Global, upon effectiveness of the registration statement, and subject to other conditions, we may direct YA Global to purchase in a series of transactions up to $50,000,000 of our shares of common stock over a period which is the shorter of the 24 month period from the effectiveness of the registration statement registering the resale of shares purchased by the Investor pursuant to the Equity Distribution Agreement or the 36 month period following the execution of the Equity Distribution Agreement.

Specifically, because the per share purchase price for the shares subject to a draw down notice will be equal to 99.0% of the arithmetic average of the VWAPs over a five day trading period during the applicable Pricing Period as set forth in the Equity Distribution Agreement, YA Global will pay less than the then-prevailing market price for the shares subject to a draw down notice, and the actual purchase price for the Shares that we may sell to YA Global pursuant to a draw down notice will fluctuate based on the VWAP of our common stock during the applicable pricing period. As a result of this discount, YA Global may have a financial incentive to sell our common stock immediately to realize the profit equal to the difference between the purchase price and the market price during the applicable pricing period. If YA Global sells the common stock, the market price of our common stock could decrease during the applicable pricing period. If the market price of our common stock decreases, YA Global may have a further incentive to sell the common stock that it holds. These sales may have a further impact on the market price of our common stock. Notwithstanding the foregoing, the Company has absolute discretion to determine when it will submit a draw down notice and the Company does not anticipate that management will issue any draw down notice in circumstances in which the prevailing market price for the stock would not provide a meaningful amount of capital without undue dilution.

We may use the net proceeds from sales of our common stock to YA Global pursuant to the Equity Distribution Agreement in ways with which you may disagree.

We intend to use the net proceeds from sales of our common stock to YA Global pursuant to the Equity Distribution Agreement for working capital and general corporate purposes. Accordingly, we will have significant discretion in the use of the net proceeds of sales of common stock to YA Global pursuant to the Equity Distribution Agreement. It is possible that we may allocate the proceeds differently than investors in this offering desire or that we will fail to maximize our return on these proceeds. We may, subsequent to this offering, modify our intended use of the proceeds from sales of common stock to YA Global pursuant to the Equity Distribution Agreement to pursue strategic opportunities that may arise, such as potential acquisition opportunities. You will be relying on the judgment of our management with regard to the use of the net proceeds from the sales of common stock to YA Global pursuant to the Equity Distribution Agreement, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. Any failure to apply the proceeds from sales of common stock to YA Global pursuant to the Equity Distribution Agreement effectively could have a material adverse effect on our business and cause a decline in the market price of our common stock.

40

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

On June 28, 2014, Xi’an TCH entered into an Asset Transfer Agreement (the “Transfer Agreement”) with Qitaihe City Boli Yida Coal Selection Co., Ltd. (“Yida”), a limited liability company incorporated in China. The Transfer Agreement provided for the sale to Xi’an TCH of a 15 MW coke oven gas power generation station, which has been converted from a 15 MW coal gangue power generation station from Yida. As consideration for the Transfer Asset, Xi’an TCH will pay to Yida RMB 115,000, 000 ($18.69 million) in the form of the common stock shares of the Company at the average closing price per share of the Stock for the 10 trading days prior to the closing date of the transaction ($2.27 per share). The exchange rate between U.S. Dollar and Chinese RMB in connection with the stock issuance is the rate equal to the middle rate published by the People’s Bank of China on the closing date of the assets transfer. Accordingly, the Company determined 8,233,779 shares to be issued for purchasing Yida 15 MW coke oven gas power generation station, the fair value of 8,233,779 shares was $14.49 million based on the stock price at agreement date ($1.76 per share), and was the cost of the power generation station. The shares issuable in connection with the transaction described will be issued by the Company in reliance on an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Act”) for the private placement of our securities pursuant to Regulation S of the Act. The shares will be issued to non-U.S. persons (as such term is defined in Regulation S) in an offshore transaction relying on Regulation S. The Yida has acknowledged that the shares to be issued have not been registered under the Act.

Item 3.     Defaults Upon Senior Securities

None.

Item 4.     Mine Safety Disclosures.

Not Applicable.

Item 5.     Other Information

None.

Item 6.     Exhibits

Exhibit Number	Description
10.1	Asset Transfer Agreement, dates as of June 29, 2014, by and between TCH energy Technology Co., Ltd. and Qitaihe City Boli Yida Coal Selection Co., Ltd.
10.2	Lease Agreement for Coking Coal Gas Power Generation Project, dated as of Jun 29, 2014, by and between TCH Energy Technology Co., Ltd. and Qitaihe City Boli Yida Coal Selection Co., Ltd.
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a).*
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a).*
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.*
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.LAB	XBRL Taxonomy Extension Label Linkbase Document.**
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.**
101.DEF	XBRL Taxonomy Definitions Linkbase Document.**

*       Filed herewith

**     Furnished with the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2014

41

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)
Date: August 14, 2014		/s/ Guohua Ku
		Guohua Ku Chairman of the Board and Chief Executive Officer (Principal Executive Officer)

Date: August 14, 2014	/s/ David Chong
	David Chong Chief Financial Officer, Principal Financial Officer and Secretary

42

EXHIBIT INDEX

Exhibit Number	Description
10.1	Asset Transfer Agreement, dates as of June 28, 2014, by and between TCH Energy Technology Co., Ltd. and Qitaihe City Boli Yida Coal Selection Co., Ltd.
10.2	Lease Agreement for Coking Coal Gas Power Generation Project, dated as of June 28, 2014, by and between TCH Energy Technology Co., Ltd. and Qitaihe City Boli Yida Coal Selection Co., Ltd.
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a).*
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a).*
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.*
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.LAB	XBRL Taxonomy Extension Label Linkbase Document.**
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.**
101.DEF	XBRL Taxonomy Definitions Linkbase Document.**

*       Filed herewith

**     Furnished with the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2014

43

EX-10.1

Exhibit 10.1

Asset Transfer Agreement

This agreement is signed on June 28, 2014 in Xi’an City, Shaanxi Province between Qitaihe City Boli Yida Coal Selection Co., Ltd. and Xi’an TCH Energy Technology Co., Ltd.

Asset Transfer Agreement

Transferor: Qitaihe City Boli Yida Coal Selection Co., Ltd. (hereinafter referred to as Transferor)

Legal Representative: Gui Liu

Transferee: Xi’an TCH Energy Technology Co., Ltd (hereinafter referred to as Transferee)

Legal Representative: Guohua Ku

This agreement is the final official agreement based on the Letter of Intent for Technical Transformation signed on April 10, 2014 between two parties.

Whereas

1. The Transferor is a limited liability company established and existed under the laws of People’s Republic of China.

2. The Transferee is a limited liability company established and existed under the laws of People’s Republic of China.

3. Through amicable negotiation, Parties entered the Letter of Intent for Technical Transformation on April 10, 2014, in which the Transferor would transfer its coal gangue power plant to the Transferee and would reform the coal gangue power plant under the instruction of the Transferee in order for the parties to complete this assets transfer.

4. Parties have completed the transformation in accordance with the technical plan and requirements of the Transferee. The power plant has met requirements as a coking coal gas power generation plant, and equipment runs properly.

Item One: Definition

Unless otherwise specified in this agreement, the terms are defined as follows:

1. Transferred assets: all assets stipulated in Exhibit A of this agreement, Assets Transfer List.

2. Working Days: Monday through Friday of every week, excluding public holidays of China.

3. Effective Day: the date when this agreement comes into legal force.

4. Signature Date: the date when Parties sign or seal the agreement.

5. Closing Day: the day on which the Transferor transfers the assets and ownership to the Transferee, that is, the effective date of this agreement.

6. Chinese Law: applicable laws, regulations, orders, notices, and rules that are promulgated by the Chinese government and its agencies on or before the effective date of this agreement.

Item Two: Assets Transfer

1. The Transferor agrees to transfer all assets stipulated on Exhibit A of this agreement—Assets Transfer List to the Transferee.

2. The Transferee agrees to accept the transferred assets from the Transferor according to this agreement.

3. All assets under this agreement shall be transferred to the Transferee on the Closing Day.

4. The Transferee will become the only legal owner of the transferred assets and assumes all rights and obligations of them from the Closing Day; and the Transferor will no longer own any rights of the transferred assets and will not assume any obligations of them after the Closing Day, unless otherwise specified.

Item Three: Transfer of Assets

Parties agreed that the assets and their ownership to be transferred are all listed on the exhibit of this agreement. Any contracts, agreements, rights and responsibilities in the agreements between Transferor and any third parties that relate to the transferred assets and their debt and credit relationship are not included. The Transferor shall assume such responsibilities to the third party by itself and protect, and ensure Transferee is free from these liabilities and responsibilities. Parties agree, the Transferee will not assume any debt, liability, account receivable, bank loan, government tax or fee or any other mortgages on the transferred assets.

Item Four: Others

1. If Transferor has purchased any type of insurance for the transfer assets, and such insurance is still valid upon the closing date, then Transferor shall change the insurer and beneficiary person on the insurance policy to Transferee within 5 working days of the Closing Date, and provide the original insurance policy to Transferee. The Transferee shall receive all the benefit and income from the insurance policy from the closing date.

2. Transferor promise, upon and after the closing date, if Transferor acknowledges any business information directly relates to the business that Transferee is operating, Transferor shall first and immediately provide such business information to the Transferee.

Item Five: Price, Time and Method of Payment

Based on the construction and transfer price for gas power generation plants with the same capacity on the current market, and the assets condition and transformation cost for the original coal gangue power plant of the Transferor, Parties agreed that the transfer price is RMB 115 million in total (including RMB 43 million for transformation cost). Parties agreed that the payment shall be made by issuing common stock shares by the parent company of Transferee, China Recycling Energy Corporation (CREG) to the legal entity or natural person designated by the Transferor at the average closing price per share for the ten trading days prior to the Closing Day. Within five days after the Effective Day of the agreement, the Transferor shall return RMB 10 million retainer paid by the Transferee according to the letter of intent.

1. The Transferee shall issue common stock shares of CREG (the “Shares”) as payment to the Transferor within ten working days upon the Closing Date. Both parties agree that the exchange rate of USD and RMB for the agreement shall be the middle price of exchange rate published by People’s Bank of China on the Closing Day, and the Transferee agrees that its U.S. parent company CREG shall register all the Shares with SEC in the Form S-3.

2. The Transferee shall complete all procedures for the issuance of shares, and the Transferor shall provide required documents.

Item Six: Representation, Warrant and Covenants of the Transferor

Transferor represents and warrants to the Transferee:

1. The Transferor is a Chinese legal business entity with good standing.

2. Transferor has lawful and full ownership rights to the transferred assets and has the rights to execute this agreement and transfer the assets. The transferred assets or their related rights and beneficiaries are free of any mortgage, lien, pledge, restrictions or claims from any third parties as well as free from any court judgment or verdict by arbitration commissions or any other defects. Transferee shall have all the lawful ownership rights of the transferred assets upon the effective date of this Agreement, including but not limited to possession, use, beneficial and disposal rights of the transferred assets. The transferred assets are not to be confiscated or detained under Chinese law or by any third person or be imposed with any mortgage, lien, pledge or any other forms of obligations.

3. Transferor warrants, as to the effective date of this Agreement, Transferor has not infringed any third party’s patents, copy rights, trademark intellectual property rights or any other property rights with regard to the transferred assets, and there is no third party has made any claims for these rights. Upon and after the closing date, the exercise of the transferred assets rights by Transferee will not infringe any third party’s patents, copy rights, trademark intellectual property rights or any other property rights.

4. As to the effective date of this Agreement, Transferor has notified all third parties that are related to the transferred assets with regard to the transfer.

5. Transferor didn’t make any promises, agreements or arrangements that could create or cause any mortgage, lien, pledge or any other rights on the transferred assets which will benefit any third party on or after the closing date,.

6. As to the closing date of this Agreement, Transferor hasn’t acknowledged any claims or requests from any third party regarding to any part of the transferred assets which could have negative impact on Transferee’s rights, nor has it had any direct or indirect disputes, litigation or arbitration related to the transfer assets.

7. Transferor has disclosed to Transferee all the information related to the transferred assets that Transferee needs to know for the daily operation of the transfer assets, and hasn’t withheld any information the disclosure of which might affect the execution of this Agreement.

8. Transferor shall deliver the transferred assets list to Transferee on the date of signature date of this Agreement.

The above representations, warrants and covenants have the effect of tracing to the effective date of this Agreement and will keep effect after the signature date of this Agreement.

Item Seven: Representations, Warrants and Covenants of the Transferee

1. Transferee is a legally incorporated and existing legal entity under Chinese Laws.

2. Transferee has the full rights to conduct the assets transfer under this Agreement and has obtained any authorization to execute and perform this Agreement. Transferee’s board of directors have approved the assets transfer under this Agreement by its resolution.

3. Make the payments to Transferor according to the terms of this Agreement.

Item Eight: Other Items

1. Parties agree, based upon the principle of honesty and trust, Transferor shall complete the assets transfer process within five working days of the signature date of this Agreement.

2. Transferor agrees to complete any other matters, including but not limited to sign or have any third party to sign any documents or application, or obtain any approval consent or permit, or complete any registration or filing before the closing date. Parties further agree, upon the execution of this Agreement, to make supplement agreements before the closing date, so the transaction could be completed. The supplement agreement shall be an integrated part of this Agreement.

Item Nine: Liabilities for Breach

1. Any party’s breach of its representation, warrants and covenants or any other terms of this Agreement will be consider as a breach of the Agreement. The breaching party shall pay full and adequate compensation to the other party, including but not limited to the legal fees of another party due to the breach (including but not limited to the professional consulting fees) and lawsuits with any third party or compensation to any third party (including but not limited to the professional consulting fees).

2. On and after the closing date, if there are any disputes or debts related to the transferred assets which Transferor didn’t disclose to Transferee on or before the closing date, Transferor shall try its best to solve it to avoid any damages to the Transferee and the transferred assets. If such disputes or debts cause any loss to the Transferee or the transferred assets, Transferor shall compensate Transferee for all losses.

Item Ten: Dispute Resolution

1. Disputes arising from the execution of this Agreement or in connection with this Agreement shall be settled by both parties through amicable negotiation. If consensus cannot be reached, either party may, according to the Agreement, submit the dispute to China International Economic and Trade Arbitration Commission Beijing Branch for arbitration in accordance with its current effective rules. The arbitration award shall be final and binding to both parties.

2. During the arbitration, except for the matters or obligations in dispute submitted to arbitration, both parties shall continue to fulfill the other undisputed obligations under this Agreement.

Item Eleven: Entire Agreement

According to Chinese law, if any terms are considered invalid by Arbitration Commission, the validity of other terms of this Agreement shall not be affected.

Item Twelve: Applicable Law

Any issues relating to the execution, effectiveness, interpretation, performance and disputes of this Agreement shall be governed by Chinese laws.

Item Thirteen: Agreement Rights

Without written consent by the other party, no party shall transfer its rights and obligations under this Agreement to any other party.

Item Fourteen: Taxes

Parties agree any taxes or fees required for each party by the Chinese laws due to its performance of this Agreement shall be assumed by such party itself. If the taxes or fees are required to be assumed by both parties, the parties shall split it equally.

Item Fifteen: Force Majeure

1. Force Majeure is the event that could not be controlled, foreseen or even is foreseen but could not be avoided, and such event prevents, delays or affects any party of the Agreement to perform all or part of its obligations. Such event includes but not limited to earthquake, typhoon, flood, fire or any other natural disaster, war, riot, strike or serious epidemic decease or other similar events.

2. If there is a force majeure event, the party suffering such event shall notify the other party by the fastest possible measure, and it shall provide supporting evidences within 15 days with details and reasons why such party cannot perform all or part of its obligations or needs to delay its performance, then the Parties shall consult whether to delay the performance of this Agreement or terminate this Agreement.

Item Sixteen: Exhibits

All the exhibits of this Agreement are integrated parts of this Agreement and have same legal effect.

Item Seventeen: Copies

This Agreement is written in Chinese. There are four original copies and each party holds two copies. Each original copy has same legal effect.

Item Eighteen: Others

1. Any notice from one party to another in connection with this Agreement shall be in written format and sent by personal delivery, fax, telex or mail. If the notice is sent by personal delivery, it is considered as delivered when it is taken to the other party’s mailing address with a signature demonstrating receipt has been obtained. If it is sent by fax or telex, it is considered as delivered when the sender received the sent answer report from the machine; if it is sent by registered mail, it is considered as delivered on the 5th working days after the mailing out date.

2. Any change to this Agreement shall be agreed upon in writing by both parties before it could take effect. Any change and supplement to this Agreement is an integrated part of this Agreement.

3. Any party fails to or delays to exercise its rights or benefits under this Agreement should not be considered as the waiver of such rights. Also, the partial non-exercise of such rights should not prevent such party from exercising such rights or benefits in the future.

4. The rights or remedies under this Agreement are cumulative and don’t eliminate other rights and remedies provided by Chinese Laws or provided by laws, regulations or other legally enforceable measures and documents issued by Chinese government after the closing date.

5. Parties confirm that this Agreement will take effect upon the Parties or their representatives’ execution of this Agreement.

Parties have signed this assets transfer agreement and acknowledge holding two fully executed copies of this agreement.

Transferor: Qitaihe City Boli Yida Coal Selection Co., Ltd.

Authorized Representative: __________________

Transferee: Xi’an TCH Energy Technology Co., Ltd.

Authorized Representative: ___________________

EX-10.2

Exhibit 10.2

Xi’an TCH Energy Technology Co., Ltd.

Qitaihe City Boli Yida Coal Selection Co., Ltd.

Lease Agreement for Coking Coal Gas Power Generation Project

June 2014

Lease Agreement for Coking Coal Gas Power Generation Project

Lessor: Xi’an TCH Energy Technology Co., Ltd. (“Party A”)

Lessee: Qitaihe City Boli Yida Coal Selection Co., Ltd. (“Party B”)

Whereas,

1. In order to improve the efficiency of assets operation and decrease the management cost, Party A agrees Party B to lease its coking coal gas power generation assets, and Party B agrees to lease such coking coal gas power generation assets and pay the leasing fee according to this agreement.

2. Both parties have received valid authorization for the lease agreement, and such lease does not need any further review, verification or approval by relevant government agencies.

3. Through friendly negotiation, Parties reach the agreement on Party B leasing Party A’s coking coal gas power generation assets. According to the “Contract Law of China” and other laws and regulations, Parties hereby enter into the lease agreement that is binding on both.

Article 1, Lease Scope

1.1 The coking coal gas power generation equipment assets that Party B leases from Party A (hereinafter referred to as “Lease Project”) has a capacity of 15 MW. The details of the Lease Project see “Target Assets List” as an attachment of this agreement.

1.2 Party B leases the Lease Project for its power generation purpose, and Party B will enjoy the incomes from such power generation.

1.3 Party B operates the Lease Project, keeps its own accounts, and is responsible for its own profits or losses. Party B shall bear all the taxes and fees in connection with the operation of the Lease Project.

Article 2, Lease Term

The lease term is as follows:

June 28, 2014 to June 27, 2029.

Upon the expiration, Party A will transfer the lease assets to Party B at no cost.

Article 3, Leasing fee and method of payment

3.1 The leasing fee is RMB 3 million per month. The payment of the leasing fee will be made monthly by wire.

3.2 Party B ensures to make payment of leasing fees on the 15^th day of each month. (If the 15^th day of the month is a weekend or national holiday, such payment shall be made on the first working day after the weekend or holiday) Party B shall pay a default fee to Party A everyday that equals to 0.08% of leasing fee for everyday of its delaying payment.

3.3 Party B confirms that the operation expense, depreciation and the amount of power generated of the lease project remain the same during the lease term.

Article 4, Lease Deposit

4.1 To ensure the operating profit of the Lease Project and Party B to fulfill its obligations under this Agreement, both Parties agree that Party B shall pay Party A certain amount of security deposit. The security deposit will guarantee Party B operates the project honestly, manage the power generation assets diligently and carefully and bear the operating risk during the operation period.

4.2 Party B shall pay RMB 3 million to Party A as deposit within 10 days after the execution of this Agreement.

4.3 If there is any damage or loss to the Lease Project caused by the operating risk during Party B’s operation process, Party A has the rights to deduct the relevant amount from leasing deposit paid by Party B as a compensation based upon specific situation according to this Agreement and its attachment. If the deposit is not enough to pay for Party A’s loss, Party A has the right to request Party B to pay for the difference.

4.4 Upon the expiration of this Agreement, Party A shall return the deposit to Party B after Parties conclude the accounting based upon this Agreement, excluding the amount that should be deducted subject to this Agreement and its attachment.

Article 5, Rights and Obligations of Party A

5.1 Party A has the right to supervise Party B on Lease Project. For the activities that could damage the Lease Project and affect the economy of the operation, Party A has the right to stop them and terminate this Agreement.

5.2 Party B shall pay the leasing fee on schedule. If Party B delays the payment, Party A has the right to deduct the fee from leasing deposit. If the deposit is not enough to pay for the leasing fee, Party A has the right to request Party B to pay the default fee subject to this Agreement and request Party B to compensate Party A’s losses.

5.3 Party A shall not interfere with Party B’s normal operation and management activities. The incomes that Party B obtains during its lease term belong to Party B after payment of the leasing fee and leasing deposit in full.

Article 6, Rights and Obligations to Party B

6.1 During the operating period, Party B has the rights to autonomous management, assuming full responsibilities for profits and losses, and independent and separate accounts.

6.2 Party B shall complete all related review and approval procedures for the Lease Project and obtain the operating rights for the Lease Project. 

6.3 Party B shall ensure the integrity and good operating condition of the Lease Project. If the Lease Project has problems during operation, Party B is responsible for the repair, maintenance and their costs.

6.4 Party B shall pay the leasing fee on schedule and give written notice to Party A when making leasing payments.

6.5 Party B shall pay the lease deposit in full, and such deposit accrues no interest.

6.6 During the operating period, Party B shall not terminate or cancel this Agreement without Party A’s consent. If this Agreement is terminated due to Party B’s reason and cause losses to Party A, it shall be considered as a breach of Agreement by Party B. Party B shall be responsible to compensate Party A’s direct and indirect losses (subject to the evaluation of the third party).

Article 7, Force Majeure (as defined by the law)

If the “Lease Project” could not be appropriately used due to force majeure, Party A or Party B can be partially or wholly exempted from its liability practically and realistically according to the impact caused by the force majeure. Either Party that suffers a force majeure shall notify the other party within 2 working days and provide proofs for the force majeure within 15 working days, and shall endeavor to retrieve any loss as much as possible. Party A has the right to terminate this Agreement if this Agreement cannot be performed due to the force majeure.

Article 8, Liability of breach of contract

8.1 Unless otherwise agreed in this Agreement or other written consents by Parties, neither party can modify or terminate this Agreement during the term without the written consent from the other party. If any party breaches this Agreement, it shall pay for all the losses suffered by the other party as a result of its breach.

8.2. Party B shall pay a daily default fee to Party A that equals to 0.08% of the leasing fee for everyday of its delaying payment.

8.3 If Party B defaults payment of leasing fee accumulatively for 3 months, it is considered as lack of ability to pay leasing fee, and Party A has the right to terminate this Agreement, and Party B shall compensate all the losses of Party A and pay default fees.

8.4 If Party B breaches the term of Article 6 of this Agreement and causes losses to Party A, Party B shall be responsible to compensate Party A’s losses and pay a breach of contract penalty fee that equals to 40% of the overall leasing fees of this Agreement to Party A. At the same time, Party A has the right to seek compensation from the person who provides guarantee for the Party B.

Article 9, Effect of the Agreement

This Agreement is established when both Parties sign and seal the Agreement. This Agreement will take effect on the date when Parties sign “List of Target Assets”. If the document is dated differently on the aforementioned documents, this Agreement takes effect on the date of the last agreement is signed.

If any term of this Agreement is considered invalid by the Court, the validity of other terms of this Agreement shall not be affected.

Article 10, Settlement of dispute

Any disputes arising out of this Agreement shall be settled through friendly negotiation, in case no settlement can be reached, each party can file a law suit to the local People’s Court with jurisdiction in which the Party A is located.

Article 11, Others

11.1. For any other matters not addressed in this Agreement, Party A and Party B may reach “Supplement Agreement”, and “Supplement Agreement” has the same legal effect to this Agreement.

11.2. Party B agrees, during the implementation of this Agreement, Part A can change or assign this Agreement to any other party that Party A designates, if necessary. Party B shall not assign/transfer its rights and obligations under this Agreement without the written approval of Party A.

11.3. This Agreement has six original copies. Party A and Party B each holds three copies and they all have same legal effect.

Party A :     (sealed)	Party B :     (sealed)
Signature of representative:	Signature of representative:
Signing date	Signing date

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Guohua Ku, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of China Recycling Energy Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2014

/s/  Guohua Ku

Guohua Ku

Chairman of the Board and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, David Chong, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of China Recycling Energy Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2014

/s/ David Chong

David Chong

Chief Financial Officer and Secretary

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of China Recycling Energy Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2014 as filed with the Securities and Exchange Commission (the “Report”), I, Guohua Ku, Chairman of the Board and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 14, 2014	/s/  Guohua Ku
	Guohua Ku Chairman of the Board and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of China Recycling Energy Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2014 as filed with the Securities and Exchange Commission (the “Report”), I David Chong, Chief Financial Officer and Secretary of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 14, 2014	/s/ David Chong
	David Chong Chief Financial Officer and Secretary

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Property and Equipment Estimated Useful Lives) (Details)	6 Months Ended
	Jun. 30, 2014
Building [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	20 years
Vehicles [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	5 years
Vehicles [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	2 years
Office Equipment [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	5 years
Office Equipment [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	2 years
Computer Software, Intangible Asset [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	3 years
Computer Software, Intangible Asset [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	2 years

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INCOME TAX (Schedule of Effective Tax Rate) (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Schedule Of Effective Tax Rate [Line Items]
U.S. statutory rates	34.00%	34.00%	34.00%	34.00%
Tax rate difference - current provision	(4.30%)	(9.50%)	(6.10%)	(9.90%)
Effective tax holiday	(8.50%)	0.00%	(8.00%)	0.00%
Other	0.70%	0.00%	0.50%	0.00%
2013 income tax adjustment per income tax return filed in 2014	0.00%	0.00%	2.90%	0.00%
Effect of tax rate change on deferred tax items	0.00%	11.50%	0.00%	6.30%
Valuation allowance on US NOL	1.50%	2.00%	1.80%	3.50%
Tax per financial statements	23.40%	38.00%	25.10%	33.90%

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ACCRUED LIABILITIES AND OTHER PAYABLES (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Accounts Payable and Accrued Liabilities [Line Items]
Accrued liabilities and other payables	$ 1,663,985	$ 1,517,191
Employee training, labor union expenditure and social insurance [Member]
Accounts Payable and Accrued Liabilities [Line Items]
Accrued liabilities and other payables	516,637	521,373
Consulting, auditing, and legal expenses [Member]
Accounts Payable and Accrued Liabilities [Line Items]
Accrued liabilities and other payables	446,428	403,860
Accrued payroll and welfare [Member]
Accounts Payable and Accrued Liabilities [Line Items]
Accrued liabilities and other payables	301,034	318,871
Accrued system maintenance expense [Member]
Accounts Payable and Accrued Liabilities [Line Items]
Accrued liabilities and other payables	48,758	49,205
Other [Member]
Accounts Payable and Accrued Liabilities [Line Items]
Accrued liabilities and other payables	$ 351,128	$ 223,882

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COMMITMENTS (Future Minimum Annual Rental Payments) (Details) (USD $)	Jun. 30, 2014
Loss Contingencies [Line Items]
2015	$ 283,000
2016	272,000
2017	156,000
Total	$ 711,000

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INCOME TAX (Provision for Income Taxes) (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Provision For Income Taxes Expenses [Line Items]
Income tax expense - current	$ 878,386	$ 1,698,403	$ 1,767,633	$ 2,307,055
Income tax expense benefit - deferred	1,123,254	668,413	1,471,536	1,419,815
Total income tax expense	$ 2,001,640	$ 2,366,816	$ 3,239,169	$ 3,726,870

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CONSTRUCTION IN PROGRESS (Narrative) (Details) (USD $)	6 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Construction Contracts [Line Items]
Construction in progress	$ 140,311,888	$ 83,719,596
Shannxi Datong Coal Group [Member]
Construction Contracts [Line Items]
Construction in progress	17,990,000	17,010,000
Additional Construction In Progress Gross	2,440,000
Xuzhou Huayu project [Member]
Construction Contracts [Line Items]
Construction in progress	26,810,000	25,540,000
Additional Construction In Progress Gross	8,130,000
Xuzhou Tian'an project [Member]
Construction Contracts [Line Items]
Construction in progress	18.03	17.19
Additional Construction In Progress Gross	16,250,000
Shandong Boxing project [Member]
Construction Contracts [Line Items]
Construction in progress		23,980,000
Xuzhou Zhongtai project [Member]
Construction Contracts [Line Items]
Construction in progress	25,080,000
Additional Construction In Progress Gross	8,230,000
Tangshan Rongfeng project [Member]
Construction Contracts [Line Items]
Construction in progress	27,230,000
Additional Construction In Progress Gross	2,410,000
Chengli Boxing Project [Member]
Construction Contracts [Line Items]
Construction in progress	25,170,000
Additional Construction In Progress Gross	$ 9,750,000

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LOANS PAYABLE (Tables)

6 Months Ended

Jun. 30, 2014

Future Minimum Payment to be made by Years

As of June 30, 2014, the future minimum payment to be made by years was as follows:

2014	$	843,518
2015		1,687,036
2016		843,517
Total		3,374,071
Unamortized interest		(282,319)
Total long term payable		3,091,752
Current portion		1,485,175
Noncurrent portion	$	1,606,577

Bank Loans and Entrusted Loan [Member]

Future Minimum Payment to be made by Years

As of June 30, 2014, the future minimum repayment of all the loans including entrusted loan to be made by years is as follows:

2015		17,268,561
2016		15,209,336
2017		65,796,060
2018		28,270,057
2019		325,055
Total	$	126,869,069

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LOANS PAYABLE (Entrusted Loan Payable) - (Narrative) (Details)	6 Months Ended			6 Months Ended
	Jun. 30, 2014 USD ($)	Jun. 30, 2014 Xi'an TCH Limited Partner [Member] USD ($)	Jun. 30, 2014 Xi'an TCH Limited Partner [Member] CNY	Jun. 30, 2014 Entrusted loan [Member] USD ($)	Jun. 30, 2014 Entrusted loan [Member] CNY	Jun. 30, 2014 Entrusted loan [Member] Xi'an TCH Limited Partner [Member] USD ($)	Jun. 30, 2014 Zhonghong [Member] USD ($)	Jun. 30, 2014 Zhonghong [Member] CNY	Jun. 30, 2014 HYREF Fund [Member] USD ($)	Jun. 30, 2014 HYREF Fund [Member] CNY
Equity Method Investments									$ 500,000	3,000,000
Debt Investments				74,500,000	457,000,000		74,500,000	457,000,000
Percentage Of Service Fee On Loan	0.10%
Description Of Loan Payable1				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 2nd 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
Description Of Loan Payable2				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 2nd 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
Total Fund Capital Contribution							75,000,000	460,000,000
Description Of Loan Payable3				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 2nd month of each quarter and no less than RMB 192,500 ($32,080) on the 14th day of the last month of each quarter
Loan Payable Term				60 months
Long-term Debt, Maturities, Repayments of Principal in Rolling Year Three				45,540,000	280,000,000
Long-term Debt, Maturities, Repayments of Principal in Rolling Year Four				16,270,000	100,000,000
Long-term Debt, Maturities, Repayments of Principal in Rolling Year Five				12,520,000	77,000,000
Debt Instrument, Interest Rate, Stated Percentage				12.50%
Interest Expense, Debt				688,258
Loans Payable To Bank, Noncurrent						12,200,000
Capital Contribution			27,000,000	3,940,000
Loans Payable, Fair Value Disclosure	$ 15,030,000	$ 12,200,000		$ 74,280,000

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SUBSEQUENT EVENT (Narrative) (Details) (Subsequent Event [Member], USD $)	0 Months Ended
	Jul. 08, 2014
Subsequent Event [Line Items]
Payments for Advance to Affiliate	$ 50,000,000
Share-based Compensation Arrangement by Share-based Payment Award, Purchase Price of Common Stock, Percent	99.00%
Reduction In Percentage Price Of Common Stock	20.00%
Line of Credit Facility, Commitment Fee Amount	375,000
Payment Of Due Diligence And Structuring Fee	12,000
Investor [Member]
Subsequent Event [Line Items]
Stock Issued During Period, Value, New Issues	5,000,000
Equity Distribution Agreement [Member]
Subsequent Event [Line Items]
Stock Issued During Period, Value, New Issues	$ 50,000,000

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SUBSEQUENT EVENT

6 Months Ended

Jun. 30, 2014

Subsequent Events [Abstract]

SUBSEQUENT EVENT

20. SUBSEQUENT EVENT

On July 8, 2014, the Company entered into a Standby Equity Distribution Agreement (the “Equity Distribution Agreement”) with YA Global Master SPV Ltd., a Cayman Islands exempt limited partnership (the “Investor”). The Equity Distribution Agreement will become effective on the date on which the SEC declares effective a registration statement registering the resale of the shares to be sold pursuant to the Equity Distribution Agreement by the Company to the Investor.

Pursuant to the Equity Distribution Agreement, the Investor committed to purchase, subject to certain restrictions and conditions, up to $50,000,000 of the Company’s common stock, over a period which is the shorter of the 24 month period from the effectiveness of the registration statement registering the resale of shares purchased by the Investor pursuant to the Equity Distribution Agreement or the 36 month period following the execution of the Equity Distribution Agreement, but no later than the date on which the Investor has made payment for advances equaling $50,000,000.

The Company may in its discretion draw on the facility from time to time, as and when the Company determines appropriate in accordance with the terms and conditions of the Equity Distribution Agreement by delivering an advance notice to the Investor. The maximum value of shares that the Company is entitled to put to the Investor in any one advance notice shall not exceed shares with a purchase price of $5,000,000, calculated in accordance with the Equity Distribution Agreement. The Company may deliver subsequent advance notices from time to time.

The purchase price shall be set at ninety-nine percent (99%) of the lowest daily volume weighted average price (“VWAP”) of the Company’s common stock during the five consecutive trading days immediately following the delivery of the advance notice (the “Pricing Period”). The advance notice will automatically be reduced by twenty percent (20%) for each trading day (an “Excluded Day”) during the Pricing Period that the Company's common stock is below ninety percent (90%) of the last closing price of the common stock of the Company on the principal market at the time of the delivery of the advance notice (the “Minimum Acceptable Price”). Any advance notice with an Excluded Day will automatically be increased by the number of shares of the Company's common stock sold by the Investor on the Excluded Day at a price equal to the Minimum Acceptable Price.

The Investor will not be permitted to purchase shares if the Investor’s total number of shares beneficially held at that time would exceed 4.99% of the number of shares of the Company’s common stock as determined in accordance with Rule 13d-1(j) of the Securities Exchange Act of 1934, as amended. Any portion of an advance notice that would exceed the pricing period volume limitation will be deemed to have been automatically withdrawn. In addition, the Company is not permitted to draw on the facility unless there is an effective registration statement to cover the resale of the shares.

Pursuant to the terms of the Equity Distribution Agreement, the Company is obligated to file one or more registrations statements with the SEC to register the resale by the Investor of the shares of common stock issued or issuable under the Equity Distribution Agreement.

In connection with the Equity Distribution Agreement, the Company will pay to the Investor a commitment fee in the amount of $375,000 payable in cash within ten days of the effective date of the registration statement. The Company will also pay to the Investor a due diligence and structuring fee totaling $12,000 which has been fully paid by the Company as of August 12, 2014.

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LONG TERM INVESTMENT (Narrative) (Details)	1 Months Ended			6 Months Ended	12 Months Ended		1 Months Ended							1 Months Ended
	Jul. 18, 2013 HYREF Fund [Member]	Jun. 25, 2013 Xi'an TCH Limited Partner [Member] USD ($)	Jun. 25, 2013 Xi'an TCH Limited Partner [Member] CNY	Jun. 30, 2014 Xi'an TCH Limited Partner [Member] USD ($)	Dec. 31, 2013 Xi'an TCH Limited Partner [Member] USD ($)	Jul. 18, 2013 Xi'an TCH Limited Partner [Member]	Jun. 25, 2013 Xi'an TCH Limited Partner [Member] Ownership Interest [Member]	Jul. 18, 2013 Xi'an TCH Limited Partner [Member] HYREF Fund [Member] USD ($)	Jul. 18, 2013 Xi'an TCH Limited Partner [Member] HYREF Fund [Member] CNY	Jul. 18, 2013 China Orient Asset Management Co., Ltd [Member] HYREF Fund [Member] USD ($)	Jul. 18, 2013 China Orient Asset Management Co., Ltd [Member] HYREF Fund [Member] CNY	Jun. 25, 2013 Hongyuan Recycling Energy Investment Management Co.Ltd [Member] USD ($)	Jun. 25, 2013 Hongyuan Recycling Energy Investment Management Co.Ltd [Member] CNY	Jun. 25, 2013 Hongyuan Huifu [Member]	Jul. 18, 2013 Hongyuan Huifu [Member] USD ($)	Jul. 18, 2013 Hongyuan Huifu [Member] CNY	Jul. 18, 2013 Hongyuan Huifu [Member] HYREF Fund [Member] USD ($)	Jul. 18, 2013 Hongyuan Huifu [Member] HYREF Fund [Member] CNY	Jul. 18, 2013 Zhonghong [Member] USD ($)	Jul. 18, 2013 Zhonghong [Member] CNY
Long Term Investment [Line Items]
Registered Capital												$ 1,600,000	10,000,000
Original Investment By Subsidiary		650,000	4,000,000														46,670,000	280,000,000
Profit distribution percentage		20.00%	20.00%				40.00%							80.00%
One Time Commission To Fund Management					1,600,000
Investment cost															830,000	5,000,000
Subscribed Amount Of Initial Capital Contribution								12,500,000	75,000,000	16,670,000	100,000,000
Percentage Of Owned Fund						16.30%
Cost Method Investments								12,200,000	75,000,000
Total Fund Capital Contribution																			75,000,000	460,000,000
Preferred Limited Partnership Term	3 years
Partnership Term	6 years
Ordinary Limited Partnership Terms	4 years
Equity based invstment income				$ 77,091

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NET INVESTMENT IN SALES-TYPE LEASES (Components of Net Investment in Leases) (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Total future minimum lease payments receivable	$ 611,006,335	$ 560,187,391
Less: executory cost	(128,947,539)	(134,447,605)
Less: unearned interest income	(285,665,316)	(241,234,839)
Net investment in sales - type leases	196,393,480	184,504,947
Current portion	7,772,144	9,063,386
Noncurrent portion	$ 188,621,336	$ 175,441,561

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ORGANIZATION AND DESCRIPTION OF BUSINESS (Narrative) (Details)			0 Months Ended	6 Months Ended	0 Months Ended	1 Months Ended					0 Months Ended		1 Months Ended								0 Months Ended	1 Months Ended						1 Months Ended	0 Months Ended								0 Months Ended				1 Months Ended		0 Months Ended		1 Months Ended	0 Months Ended	1 Months Ended							1 Months Ended									1 Months Ended			0 Months Ended		1 Months Ended							0 Months Ended								1 Months Ended								1 Months Ended
	Jun. 30, 2014 USD ($)	Jun. 30, 2014 CNY	Dec. 12, 2013 Rongfeng [Member]	Jun. 30, 2014 Rongfeng [Member]	Dec. 06, 2013 Zhongtai [Member]	Mar. 26, 2014 Baoliyuan [Member]	Mar. 26, 2014 Baoliyuan [Member] Payment Period One [Member] USD ($)	Mar. 26, 2014 Baoliyuan [Member] Payment Period One [Member] CNY	Mar. 26, 2014 Baoliyuan [Member] Payment Period Two [Member] USD ($)	Mar. 26, 2014 Baoliyuan [Member] Payment Period Two [Member] CNY	Sep. 11, 2013 Biomass Power Generation Asset Transfer Agreement [Member] USD ($) MW	Sep. 11, 2013 Biomass Power Generation Asset Transfer Agreement [Member] CNY	Jun. 29, 2010 Biomass Power Generation Project Lease Agreement [Member] USD ($) MW	Jun. 29, 2010 Biomass Power Generation Project Lease Agreement [Member] CNY	Jul. 19, 2013 Xi'an Zhonghong New Energy Technology Co., Ltd [Member] USD ($)	Jul. 19, 2013 Xi'an Zhonghong New Energy Technology Co., Ltd [Member] CNY	Jul. 22, 2013 Boxing County Chengli Gas Supply Co Ltd [Member] USD ($)	Jul. 22, 2013 Boxing County Chengli Gas Supply Co Ltd [Member] CNY	Jul. 22, 2013 Boxing County Chengli Gas Supply Co Ltd [Member] EPC General Contractor Agreement [Member] USD ($)	Jul. 22, 2013 Boxing County Chengli Gas Supply Co Ltd [Member] EPC General Contractor Agreement [Member] CNY	Oct. 08, 2012 Shenqiu Project [Member]	Sep. 28, 2011 Shenqiu Project [Member] USD ($)	Sep. 28, 2011 Shenqiu Project [Member] CNY	May 25, 2011 Shenqiu Project [Member] USD ($) MW	May 25, 2011 Shenqiu Project [Member] CNY MW	Oct. 25, 2012 Shenqiu Project [Member] USD ($)	Oct. 25, 2012 Shenqiu Project [Member] CNY	Jun. 25, 2013 Hongyuan Huifu [Member]	Dec. 12, 2013 First Ten Year [Member] Rongfeng [Member]	Dec. 06, 2013 First Ten Year [Member] Zhongtai [Member]	Dec. 12, 2013 Second Ten Year [Member] Rongfeng [Member]	Dec. 06, 2013 Second Ten Year [Member] Zhongtai [Member]	Apr. 14, 2009 Erdos Metallurgy Company Limited [Member] USD ($)	Apr. 14, 2009 Erdos Metallurgy Company Limited [Member] CNY	Apr. 14, 2009 Erdos Metallurgy Company Limited [Member] Initial Investment [Member] USD ($)	Apr. 14, 2009 Erdos Metallurgy Company Limited [Member] Initial Investment [Member] CNY	Jun. 15, 2013 Erdos Tch [Member] USD ($)	Jun. 15, 2013 Erdos Tch [Member] CNY	Aug. 31, 2013 Erdos Tch [Member] USD ($)	Apr. 14, 2009 Erdos Tch [Member]	Aug. 31, 2013 Erdos Tch [Member] Phase One [Member] MW	Aug. 31, 2013 Erdos Tch [Member] Phase Two [Member] MW	Apr. 14, 2009 Erdos Tch [Member] Initial Investment [Member]	Apr. 14, 2009 Erdos Tch [Member] After Return Of Initial Investment [Member]	Jul. 18, 2013 Xian Tch [Member]	Oct. 08, 2012 Xian Tch [Member]	Jul. 31, 2013 Xian Tch [Member] USD ($)	Jun. 25, 2013 Xian Tch [Member]	Jun. 30, 2013 Xian Tch [Member]	Jun. 28, 2014 Xian Tch [Member] USD ($)	Jun. 28, 2014 Xian Tch [Member] CNY	Aug. 31, 2013 Xian Tch [Member]	Apr. 14, 2009 Xian Tch [Member]	Mar. 30, 2013 Xian Tch [Member] Shenqiu Project [Member]	Sep. 28, 2011 Xian Tch [Member] Shenqiu Project [Member]	Sep. 30, 2010 Xian Tch [Member] Clean Development Mechanism [Member]	Feb. 28, 2011 Xian Tch [Member] Shanxi Datong Coal Group Steel Co Ltd [Member] USD ($)	Feb. 28, 2011 Xian Tch [Member] Shanxi Datong Coal Group Steel Co Ltd [Member] CNY	May 31, 2013 Xian Tch [Member] Sinosteel Jilin Ferroalloys Co Ltd Jitie [Member] USD ($) MW	May 31, 2013 Xian Tch [Member] Sinosteel Jilin Ferroalloys Co Ltd Jitie [Member] CNY	Jun. 25, 2013 Xian Tch [Member] Hongyuan Huifu [Member] USD ($)	Jun. 25, 2013 Xian Tch [Member] Hongyuan Huifu [Member] CNY	Jun. 28, 2014 Xian Tch [Member] Qitaihe City Boli Yida Coal Selection Co Ltd Yida [Member] USD ($)	Jun. 28, 2014 Xian Tch [Member] Qitaihe City Boli Yida Coal Selection Co Ltd Yida [Member] CNY	Jun. 30, 2014 Xian Tch [Member] Qitaihe City Boli Yida Coal Selection Co Ltd Yida [Member] USD ($)	Apr. 14, 2009 Xian Tch [Member] Initial Investment [Member]	Apr. 14, 2009 Xian Tch [Member] After Return Of Initial Investment [Member]	Mar. 30, 2013 Xian Tch [Member] Biomass Power Generation System [Member] USD ($)	Mar. 30, 2013 Xian Tch [Member] Biomass Power Generation System [Member] CNY	May 31, 2013 Xian Tch [Member] Minimum [Member] MW	May 31, 2013 Xian Tch [Member] Maximum [Member] MW	Feb. 28, 2011 Xian Tch [Member] Location One [Member] Shanxi Datong Coal Group Steel Co Ltd [Member]	Sep. 30, 2010 Zhongbao [Member] MW	Sep. 30, 2010 Zhongbao [Member] Clean Development Mechanism [Member]	Jun. 10, 2013 Xian TCH And Shanxi Datong [Member] First Five Years [Member] USD ($)	Jun. 10, 2013 Xian TCH And Shanxi Datong [Member] First Five Years [Member] CNY	Jun. 10, 2013 Xian TCH And Shanxi Datong [Member] Second Five Years [Member] USD ($)	Jun. 10, 2013 Xian TCH And Shanxi Datong [Member] Second Five Years [Member] CNY	Jun. 10, 2013 Xian TCH And Shanxi Datong [Member] Minimum Ten Years [Member] USD ($)	Jun. 10, 2013 Xian TCH And Shanxi Datong [Member] Minimum Ten Years [Member] CNY	Jun. 10, 2013 Xian TCH And Shanxi Datong [Member] MaximumTen Years [Member] USD ($)	Jun. 10, 2013 Xian TCH And Shanxi Datong [Member] MaximumTen Years [Member] CNY	Jul. 18, 2013 HYREF Fund [Member] USD ($)	Jul. 18, 2013 HYREF Fund [Member] CNY	Jul. 18, 2013 HYREF Fund [Member] China Orient Asset Management Co., Ltd [Member] USD ($)	Jul. 18, 2013 HYREF Fund [Member] China Orient Asset Management Co., Ltd [Member] CNY	Jul. 18, 2013 HYREF Fund [Member] Xi'an TCH Limited Partners [Member] USD ($)	Jul. 18, 2013 HYREF Fund [Member] Xi'an TCH Limited Partners [Member] CNY	Jul. 18, 2013 HYREF Fund [Member] Hongyuan Huifu [Member] USD ($)	Jul. 18, 2013 HYREF Fund [Member] Hongyuan Huifu [Member] CNY	Jun. 25, 2013 Hongyuan Recycling Energy Investment Management Beijing Co Ltd [Member] CNY
Organization and Nature Of Operations [Line Items]
Capacity of plant																					12																									24								12			3	3					15	15								15
Term of joint ventures																																	20 years	20 years
Investment cost																																	$ 79,000,000	500,000,000	$ 17,550,000	120,000,000														$ 490,000	3,000,000						$ 28,600,000	180,000,000	$ 9,710,000	60,000,000			$ 18,690,000	115,000,000
Contribution percentage in total investment															90.00%	90.00%																					7.00%	7.00%		7.00%													93.00%
Profit distribution percentage																												80.00%															20.00%	40.00%				20.00%								40.00%										80.00%	60.00%							60.00%																	40.00%
Construction cost																																					1,290,000	8,000,000
Terms of contracts																																																																									9 years
Leasing fees													279,400	1,900,000								286,000	1,800,000																																													239,000	1,500,000
Lease period													15 years	15 years								11 years	11 years																										30 years										24 years	24 years								9 years 6 months	9 years 6 months
Total cost of project																										11,100,000	68,000,000
Original investment by subsidiary															4,850,000	30,000,000																																													650,000	4,000,000																					830,000	5,000,000							10,000,000
Consideration of thermal power generation project																								3,570,000	22,500,000
Minimum service fee																																																											300,000	1,800,000															190,000	1,200,000	180,000	1,100,000	160,000	1,000,000	150,000	900,000
Installed Plant Capacity											12	12	12	12										12	12																18	27																	10.5	10.5										3	7.5		7
Subscribed amount of initial capital contribution																																																																																			75,000,000	460,000,000	46,670,000	280,000,000	12,500,000	75,000,000	16,670,000	100,000,000
Total Fund Capital Contribution																																																																																			76,660,000	460,000,000
Partnership Term																																																																																			6 years	6 years
Preferred Limited Partnership Term																																																																																			3 years	3 years
Percentage Of Subsidiary For Construction Of Two Coke																																													90.00%
Energy Saving Solution And Services Cost															4,370,000	27,000,000
Total Contract Price For Materials Equipment																	66,680,000	400,000,000	33,340,000	200,000,000
Purchase price for Power Generation Systems											16,480,000	100,000,000
Common Stock Issuable For Power Generation Systems											8,766,547	8,766,547																																																					8,233,779
Common Stock Issuable Per Share For Power Generation Systems											$ 1.87
Lease Amount Per Month											630,000	3,800,000
Accumulated profit																																							226,000
Consideration of power generation project																						10,937,500	70,000,000
Payment term			20 years		20 years																								10 years	10 years	10 years	10 years
Percentage of accumulated profit																																																				20.00%
Capacity per year																																																																									80,000
Minority interest decrease from redemptions																																															1,290,000
Monthly rent term																																																							1 month
Ordinary limited partnership term																																																																																			4 years	4 years
Partnership expiration																																																																																			Jul. 18, 2019	Jul. 18, 2019
Fixed monthly fee for waste water treatment system							171,010	1,050,000	153,094	940,000
Description on termination of agreement				1) if it is less than 5 years (including 5 years) into the term when Rongfeng requests termination, Rongfeng shall pay: Xian TCHs total investment amount plus Xian TCHs average annual investment return times (5 years minus the years of which the system has already operated); 2) if it is more than 5 years into the term when Rongfeng requests the termination, Rongfeng shall pay: Xian TCHs total investment amount minus total amortization cost (the amortization period is 10 year).		1) if it is less than 5 years (including 5 years) into the term when Baoliyuan requests termination, Baoliyuan shall pay: Xian TCHs total investment amount plus Xian TCHs average annual investment return times (5 years minus the years of which the system has already operated); 2) if it is more than 5 years into the term when Baoliyuan requests the termination, Baoliyuan shall pay: Xian TCHs total investment amount minus total amortization cost (the amortization period is 20 year).
Security Deposit	338,079	2,125,000																																																													490,000	3,000,000
Shares Issued, Price Per Share																																																															$ 2.27		$ 1.76
Common Stock Value Issuable For Power Generation Systems																																																																	$ 14,490,000

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DEFERRED TAX (Summary of Deferred Tax Liability) (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Schedule Of Deferred Income Tax Assets and Liabilities [Line Items]
Deferred tax liability, net	$ 13,371,788	$ 11,884,068
Deferred Tax Liabilities, Net, Current	(1,296,735)	(1,442,317)
Deferred Tax Assets, Net, Noncurrent	(13,371,788)	(11,884,068)
Accrual of system maintenance cost [Member]
Schedule Of Deferred Income Tax Assets and Liabilities [Line Items]
Deferred tax liability, net	69,910	70,551
Depreciation of fixed assets [Member]
Schedule Of Deferred Income Tax Assets and Liabilities [Line Items]
Deferred tax liability, net	33,410,848	31,308,695
Net investment in sales-type leases [Member]
Schedule Of Deferred Income Tax Assets and Liabilities [Line Items]
Deferred Tax Liabilities, Net, Current	(1,296,735)	(1,442,317)
Deferred Tax Assets, Net, Noncurrent	$ (46,852,546)	$ (43,263,314)

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STATUTORY RESERVES (Narrative) (Details) (Statutory Surplus Reserve Fund [Member])	6 Months Ended
	Jun. 30, 2014
Subsidiary or Equity Method Investee [Line Items]
Percentage of income transferred to retained earnings appropriated for legal reserve	10.00%
Statutory surplus reserve fund percentage	50.00%
Maximum [Member]
Subsidiary or Equity Method Investee [Line Items]
Percentage Of Income Transferred To Common Welfare Fund For Legal Reserve	10.00%
Minimum [Member]
Subsidiary or Equity Method Investee [Line Items]
Percentage of total remaining reserve	25.00%
Percentage Of Income Transferred To Common Welfare Fund For Legal Reserve	5.00%

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LOANS PAYABLE (Trust Loan - Zhongrong International Trust - Xuzhou Zhongtai and Tangshan Rongfeng) (Narrative) (Details)		6 Months Ended				6 Months Ended
	Jun. 30, 2014 USD ($)	Jun. 30, 2014 Trust Loan Agreement With Zhongrong International Trust Co Ltd One [Member] USD ($)	Jun. 30, 2014 Trust Loan Agreement With Zhongrong International Trust Co Ltd One [Member] Zhongtai [Member] USD ($)	Feb. 17, 2014 Trust Loan Agreement With Zhongrong International Trust Co Ltd One [Member] Zhongtai [Member] USD ($)	Feb. 17, 2014 Trust Loan Agreement With Zhongrong International Trust Co Ltd One [Member] Zhongtai [Member] CNY	Jun. 30, 2014 Trust Loan Agreement With Zhongrong International Trust Co Ltd Two [Member] Rongfeng [Member]	Feb. 17, 2014 Trust Loan Agreement With Zhongrong International Trust Co Ltd Two [Member] Rongfeng [Member] USD ($)	Feb. 17, 2014 Trust Loan Agreement With Zhongrong International Trust Co Ltd Two [Member] Rongfeng [Member] CNY
Debt Instrument [Line Items]
Debt Instrument, Face Amount				$ 24,500,000	150,000,000		$ 22,100,000	135,000,000
Long-term Debt, Gross	11,813,443		16,400,000
Debt Instrument Repayment Of Principal Percentage One			30.00%			30.00%
Debt Instrument Repayment Of Principal Percentage Two			30.00%			30.00%
Debt Instrument Repayment Of Principal Percentage Three			40.00%			40.00%
Interest Paid, Capitalized		$ 1,180,000

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TAXES PAYABLE (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Taxes Payable [Line Items]
Taxes payable	$ 1,678,481	$ 1,560,829
Income [Member]
Taxes Payable [Line Items]
Taxes payable	933,433	806,231
Business [Member]
Taxes Payable [Line Items]
Taxes payable	312,082	316,485
VAT arising from transfer WGPG to Shenmu [Member]
Taxes Payable [Line Items]
Taxes payable	390,066	393,643
Other [Member]
Taxes Payable [Line Items]
Taxes payable	$ 42,900	$ 44,470

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RESTRICTED CASH, NOTES PAYABLE - BANK ACCEPTANCES

6 Months Ended

Jun. 30, 2014

Restricted Cash Notes Payable Bank Acceptances [Abstract]

RESTRICTED CASH, NOTES PAYABLE -BANK ACCEPTANCES

4. RESTRICTED CASH, NOTES PAYABLE – BANK ACCEPTANCES

Restricted cash as of June 30, 2014 and December 31, 2013 was $7,720,062 and $2,296,249, respectively, held by the bank as collateral to issue bank acceptances and bank loan. The Company endorses bank acceptances to vendors as payment of its own obligations.  Most of the bank acceptances have maturities of less than six months.

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LOANS PAYABLE (Future Minimum Repayments of all Bank Loans and Entrusted Loan) (Details) (Bank Loans and Entrusted Loan [Member], USD $)	Jun. 30, 2014
Bank Loans and Entrusted Loan [Member]
Debt Instrument [Line Items]
2015	$ 17,268,561
2016	15,209,336
2017	65,796,060
2018	28,270,057
2019	325,055
Total	$ 126,869,069

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NET INVESTMENT IN SALES-TYPE LEASES (Schedule of Future Minimum Rentals) (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
2014	$ 45,950,886
2015	44,636,372
2016	44,636,372
2017	44,636,372
2018	44,452,417
Thereafter	386,693,916
Total	$ 611,006,335	$ 560,187,391

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TAXES PAYABLE (Tables)

6 Months Ended

Jun. 30, 2014

Taxes Payable [Abstract]

Schedule of Taxes Payable

Taxes payable consisted of the following as of June 30, 2014 and December 31, 2013:

	2014		2013
Income	$	933,433	$	806,231
Business		312,082		316,485
VAT arising from transfer WGPG to Shenmu		390,066		393,643
Other		42,900		44,470
	$	1,678,481	$	1,560,829

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NET INVESTMENT IN SALES-TYPE LEASES (Tables)

6 Months Ended

Jun. 30, 2014

Investments [Abstract]

Components of Net Investment in Sales-Type Leases

The components of the net investment in sales-type leases as of June 30, 2014 and December 31, 2013 are as follows:

	2014		2013
Total future minimum lease payments receivable	$	611,006,335	$	560,187,391
Less: executory cost		(128,947,539)		(134,447,605)
Less: unearned interest income		(285,665,316)		(241,234,839)
Net investment in sales - type leases		196,393,480		184,504,947
Current portion		7,772,144		9,063,386
Noncurrent portion	$	188,621,336	$	175,441,561

Future Minimum Rentals to be Received on Non-Cancelable Sales-Type Leases by Years

As of June 30, 2014, the future minimum rentals to be received on non-cancelable sales-type leases by years are as follows:

2014	$	45,950,886
2015		44,636,372
2016		44,636,372
2017		44,636,372
2018		44,452,417
Thereafter		386,693,916
Total	$	611,006,335

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LOANS PAYABLE (Collective Capital Trust Plan) (Narrative) (Details)		6 Months Ended								6 Months Ended			1 Months Ended	6 Months Ended
	Jun. 30, 2014 USD ($)	Jun. 30, 2014 Mr. Guoha Ku [Member] USD ($)	Jun. 30, 2014 Mr. Guoha Ku [Member] CNY	Jun. 30, 2014 Xi'an TCH [Member] USD ($)	Jun. 30, 2014 Xi'an TCH [Member] CNY	Jun. 30, 2014 A1 [Member]	Jun. 30, 2014 A1 [Member] Xi'an TCH [Member] USD ($)	Jun. 30, 2014 A2 [Member]	Jun. 30, 2014 A3 [Member]	Jun. 30, 2014 B Category [Member]	Jun. 30, 2014 B Category [Member] Erdos TCH [Member] USD ($)	Jun. 30, 2014 B Category [Member] Xi'an TCH [Member] USD ($)	Mar. 31, 2011 Industrial Bank Loan Two [Member]	Jun. 30, 2014 Capital Trust Loan Agreement [Member] USD ($)	Jun. 30, 2014 Capital Trust Loan Agreement [Member] CNY
Debt Instrument [Line Items]
Debt Instrument, stated rate						9.94%		11.00%	12.05%	8.35%
Debt instrument maturity term						2 years		3 years		4 years			3 years
Stock unit issued							$ 1,600,000				$ 2,000,000	$ 7,400,000		$ 44,100,000	300,000,000
Stock unit issued (in units)							235,600				13,750,000	46,250,000
Long-term debt, gross	11,813,443	1,250,000	7,650,000	7,590,000	46,250,000
Debt instrument, increase, accrued interest		$ 75,000	459,000	$ 460,000	2,775,000

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RESTRICTED CASH, NOTES PAYABLE - BANK ACCEPTANCES (Narrative) (Details) (USD $)	6 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Restricted Cash and Cash Equivalents Items [Line Items]
Restricted cash	$ 7,720,062	$ 2,296,249
Bank acceptance maturity period	6 months

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ACCRUED LIABILITIES AND OTHER PAYABLES (Tables)

6 Months Ended

Jun. 30, 2014

Accounts Payable and Accrued Liabilities, Current [Abstract]

Accrued Liabilities and Other Payables

Accrued liabilities and other payables consisted of the following as of June 30, 2014 and December 31, 2013:

	2014		2013
Employee training, labor union expenditure and social insurance payable	$	516,637	$	521,373
Consulting, auditing, and legal expenses		446,428		403,860
Accrued payroll and welfare		301,034		318,871
Accrued system maintenance expense		48,758		49,205
Other		351,128		223,882
Total	$	1,663,985	$	1,517,191

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DEFERRED TAX (Tables)

6 Months Ended

Jun. 30, 2014

Deferred Tax [Abstract]

Deferred Tax Liability

As of June 30, 2014 and December 31, 2013, deferred tax liability consisted of the following:

	2014		2013
Deferred tax asset — noncurrent (accrual of system maintenance cost)	$	69,910	$	70,551
Deferred tax asset — noncurrent (depreciation of fixed assets)		33,410,848		31,308,695
Deferred tax liability — noncurrent (net investment in sales-type leases)		(46,852,546)		(43,263,314)
Deferred tax liability, net of deferred tax asset – noncurrent	$	(13,371,788)	$	(11,884,068)
Deferred tax liability — current (net investment in sales-type leases)	$	(1,296,735)	$	(1,442,317)

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NET INVESTMENT IN SALES-TYPE LEASES

6 Months Ended

Jun. 30, 2014

Investments [Abstract]

NET INVESTMENT IN SALES-TYPE LEASES

3. NET INVESTMENT IN SALES-TYPE LEASES

Under sales-type leases, Xi’an TCH leases the following systems: (i) TRT systems to Zhangzhi (13 year term); (ii) CHPG systems to Jing Yang Shengwei (5 year term); (iii) BMPG systems to Pucheng Phase I and II (15 and 11 year terms, respectively); (iv) BMPG systems to Shenqiu Phase I (11 year term); (v) Shenqiu Phase II (9.5 year term); (vi) WHPG system to Zhongbao (9 year term); (vii) WHPG systems to Jitie (24 year term); viii) WGPG systems to Yida (15 year term); and (ix) two BPRT systems to Shanxi Datong (30 year term). In addition, as of June 30, 2014, Erdos TCH leased power and steam generating systems from waste heat from metal refining to Erdos (five systems) for a term of 20 years. The components of the net investment in sales-type leases as of June 30, 2014 and December 31, 2013 are as follows:

	2014		2013
Total future minimum lease payments receivable	$	611,006,335	$	560,187,391
Less: executory cost		(128,947,539)		(134,447,605)
Less: unearned interest income		(285,665,316)		(241,234,839)
Net investment in sales - type leases		196,393,480		184,504,947
Current portion		7,772,144		9,063,386
Noncurrent portion	$	188,621,336	$	175,441,561

As of June 30, 2014, the future minimum rentals to be received on non-cancelable sales-type leases by years are as follows:

2014	$	45,950,886
2015		44,636,372
2016		44,636,372
2017		44,636,372
2018		44,452,417
Thereafter		386,693,916
Total	$	611,006,335

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INCOME TAX (Tables)

6 Months Ended

Jun. 30, 2014

Income Tax Disclosure [Abstract]

Reconciliation of U.S. Statutory Rates to Effective Tax Rate

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the six and three months ended June 30, 2014 and 2013, respectively:

	Six Months						Three Months
	2014			2013			2014			2013
U.S. statutory rates		34.0	%		34.0	%		34.0	%		34.0	%
Tax rate difference – current provision		(6.1)	%		(9.9)	%		(4.3)	%		(9.5)	%
Effective tax holiday		(8.0)	%		-	%		(8.5)	%		-	%
Other		.5	%		-	%		.7	%		-	%
2013 income tax adjustment per income tax return filed in 2014		2.9	%		-	%		-	%		-	%
Effect of tax rate change on deferred tax items		-	%		6.3	%		-	%		11.5	%
Valuation allowance on US NOL		1.8	%		3.5	%		1.5	%		2.0	%
Tax per financial statements		25.1	%		33.9	%		23.4	%		38.0	%

Provision for Income Tax Expenses

The provision for income taxes expense for the six and three months ended June 30, 2014 and 2013 consisted of the following:

	Six Months				Three Months
	2014		2013		2014		2013
Income tax expense – current	$	1,767,633	$	2,307,055	$	878,386	$	1,698,403
Income tax expense benefit - deferred		1,471,536		1,419,815		1,123,254		668,413
Total income tax expense	$	3,239,169	$	3,726,870	$	2,001,640	$	2,366,816

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Reconciliation of Basic and Diluted Earnings per Share) (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Reconciliation Of Basic and Diluted Earnings [Line Items]
Net income for common shares	$ 6,589,058	$ 3,733,344	$ 9,712,082	$ 7,031,534
Net income for diluted shares	$ 6,589,058	$ 3,733,344	$ 9,712,082	$ 7,031,534
Weighted average shares outstanding - basic (in shares)	61,217,625	50,224,350	61,066,042	50,224,350
Effect of dilutive securities:
Options granted	82,307	546,111	115,187	633,173
Weighted average shares outstanding - diluted (in shares)	61,299,932	50,770,461	61,181,229	50,857,523
Earnings per share - basic (in dollars per share)	$ 0.11	$ 0.07	$ 0.16	$ 0.14
Earnings per share - diluted (in dollars per share)	$ 0.11	$ 0.07	$ 0.16	$ 0.14

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INCOME TAX (Narrative) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended				12 Months Ended	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014 Shanghai TCH [Member]	Jun. 30, 2013 Shanghai TCH [Member]	Dec. 31, 2013 Xian TCH [Member]	Jun. 30, 2014 China [Member]	Jun. 30, 2014 Erdos TCH Zhonghong Huahong [Member]	Jun. 30, 2013 Erdos TCH Zhonghong Huahong [Member]
Income Taxes [Line Items]
Effective income tax rate	23.40%	38.00%	25.10%	33.90%	25.00%	25.00%	15.00%	25.00%	25.00%	25.00%
Net operating losses	$ 12.81		$ 12.81
Deferred tax assets, valuation allowance, percentage	100.00%		100.00%
Operating Income Loss Carryforwards Year			20 years

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CONSOLIDATED BALANCE SHEETS (USD $)	Jun. 30, 2014	Dec. 31, 2013
CURRENT ASSETS
Cash & equivalents	$ 6,615,642	$ 7,701,530
Restricted cash	7,720,062	2,296,249
Accounts receivable	61,083	71,573
Current portion of investment in sales type leases, net	7,772,144	9,063,386
Interest receivable on sales type leases	977,156	765,010
Prepaid expenses	310,527	1,045,802
Other receivables	1,788,957	1,813,220
Notes receivable	0	656,071
Prepaid loan fees - current	82,899	83,649
Total current assets	25,328,470	23,496,490
NON-CURRENT ASSETS
Prepaid loan fees - noncurrent	82,879	125,474
Investment in sales type leases, net	188,621,336	175,441,561
Long term investment	726,167	738,513
Long term deposit	381,574	385,073
Property and equipment, net	28,274	44,243
Construction in progress	140,311,888	83,719,596
Total non-current assets	330,152,118	260,454,459
TOTAL ASSETS	355,480,588	283,950,949
CURRENT LIABILITIES
Accounts payable	1,423,526	2,642,662
Notes payable - bank acceptances	15,115,070	5,740,622
Taxes payable	1,678,481	1,560,829
Accrued liabilities and other payables	1,663,985	1,517,191
Due to related parties	11,854,300	2,420,391
Deferred tax liability	1,296,735	1,442,317
Loans payable - current	17,268,561	14,925,618
Interest payable on entrusted loans	257,900	287,887
Current portion of long term payable	1,485,175	1,441,051
Total current liabilities	52,043,733	31,978,568
NONCURRENT LIABILITIES
Deferred tax liability, net	13,371,788	11,884,068
Refundable deposit from customers for systems leasing	1,153,946	1,164,526
Shares to be issued	14,491,450	0
Long term payable	1,606,577	2,385,422
Loans payable	47,514,953	18,862,045
Entrusted loan payable	62,085,555	62,654,792
Total noncurrent liabilities	140,224,269	96,950,852
Total liabilities	192,268,002	128,929,421
CONTINGENCIES AND COMMITMENTS	0	0
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value; 200,000,000 shares authorized, 60,946,182 and 60,910,058 shares issued and outstanding as of June 30, 2014 and December 31, 2013, respectively	60,946	60,910
Additional paid in capital	78,130,017	78,130,053
Statutory reserve	10,760,463	9,672,754
Accumulated other comprehensive income	14,735,130	16,209,403
Retained earnings	59,227,665	50,603,291
Total Company stockholders' equity	162,914,221	154,676,411
Noncontrolling interest	298,365	345,117
Total equity	163,212,586	155,021,528
TOTAL LIABILITIES AND EQUITY	$ 355,480,588	$ 283,950,949

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PREPAID EXPENSES (Narrative) (Details) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2014 USD ($)	Jun. 30, 2014 CNY	Dec. 31, 2013 USD ($)	Jul. 31, 2013 USD ($)	Jul. 31, 2013 CNY
Prepaid Expense Current And Noncurrent				$ 75	460
Percentage Of Funds Raised	2.00%	2.00%
Consulting Fees	1.5	9.2
Percentage Of Funds Actually Contributed	2.00%	2.00%
Prepaid Consulting Expenses	$ 0.12		$ 1.50

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ORGANIZATION AND DESCRIPTION OF BUSINESS

6 Months Ended

Jun. 30, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

ORGANIZATION AND DESCRIPTION OF BUSINESS

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

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. On September 6, 2001, the Company changed its state of incorporation to the State of Nevada. In 2004, the Company changed its name from Boulder Brewing Company to China Digital Wireless, Inc. and on March 8, 2007, the Company again changed its name from China Digital Wireless, Inc. to its current name, China Recycling Energy Corporation. The Company, through its subsidiaries, provides energy saving solution and services, including selling and leasing energy saving systems and equipment to customers.

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 with a term of twenty (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 contributed 93%. According to the parties’ agreement on profit distribution, Xi’an TCH and Erdos will each 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 shareholder of the JV. In addition, Xi’an TCH paid 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. The JV currently has two power generation systems in Phase I with a total of 18MW power capacity, and three power generation systems in Phase II with a total of 27MW power capacity.

Pucheng Biomass Power Generation (“BMPG”) Projects

On June 29, 2010, Xi’an TCH entered into a Biomass Power Generation Project Lease Agreement with Pucheng Xin Heng Yuan Biomass Power Generation Co., Ltd. (“Pucheng”).  Under this lease agreement, Xi’an TCH leased a set of 12MW biomass power generation (“BMPG”) systems to Pucheng at a minimum of $279,400 (RMB 1,900,000) per month for a term of fifteen (15) years.

On September 11, 2013, Xi’an TCH entered into a Biomass Power Generation 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 12MW biomass power generation systems with completion of system transformation for a purchase price of RMB 100,000,000 ($16.48 million) in the form of 8,766,547 shares of common stock of the Company at the price of $1.87 per share. These shares were issued to Pucheng on October 29, 2013. Also on September 11, 2013, Xi’an TCH also entered into a Biomass Power Generation Project Lease Agreement with Pucheng (the “Pucheng Lease”). Under the Pucheng Lease, Xi’an TCH will lease this same set of 12MW biomass power generation system to Pucheng, and combine this lease with the lease for the 12MW biomass power generation 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 12MW station from Pucheng Phase I project terminated upon the effective date of the Pucheng Lease. The ownership of two 12 MW BMPG systems will be transferred to Pucheng at no additional charge when the Pucheng Lease expires.

Zhongbao Waste Heat Power Generation (“WHPG”) Projects

On September 30, 2010, Xi’an TCH delivered to Zhongbao Binhai Nickel Co., Ltd. (“Zhongbao”) a 7MW capacity waste heat power generation (“WHPG”) system, an integral part of the facilities designed to produce 80,000 tons of nickel-alloy per year according to the recovery and power generation of waste heat agreement with Zhongbao, a nickel-alloy manufacturing joint venture between Zhonggang and Shanghai Baoshan Steel Group established in June 2009.  The waste heat agreement with Zhongbao has a term of nine (9) years and provides that Xi’an TCH will recycle waste heat from the nickel-alloy rotary kilns of Zhongbao to generate power and steam, which will be supplied back to Zhongbao. In addition, Xi’an TCH is responsible for applying for the Clean Development Mechanism (“CDM”) under the Kyoto Protocol.  Net proceeds from any CDM credit will be distributed between Zhongbao and Xi’an TCH at 60% and 40%, respectively.  As of June 30, 2014, Xi’an TCH had not yet commenced the CDM application process.

Shenqiu Yuneng Biomass Power Generation (“BMPG”) 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 Biomass Power Generation 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 biomass power generation systems (after Xi’an TCH converted the system for biomass power generation purposes). As consideration for the biomass power generation systems, Xi’an TCH agreed to pay Shenqiu $10,937,500 (RMB 70 million) in cash in three installments within six (6) months upon the transfer of ownership of the systems. By the end of 2012, all of the consideration was paid. On September 28, 2011, Xi’an TCH and Shenqiu also entered into a Biomass Power Generation Project Lease Agreement (the “2011 Shenqiu Lease”). Under the 2011 Shenqiu Lease, Xi’an TCH agreed to lease a set of 12MW biomass power generation systems to Shenqiu at a monthly rental rate of $286,000 (RMB 1,800,000) for eleven (11) years. Upon expiration of the 2011 Shenqiu Lease, ownership of this system will be transferred from Xi’an TCH to Shenqiu at no additional cost. In connection with the 2011 Shenqiu Lease, Shenqiu paid one (1) 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 12MW biomass power generation system. After the reformation, the generation capacity of the power plant increased to 24MW. 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 Biomass Power Generation Project Lease Agreement (the “2013 Shenqiu Lease”). Under the 2013 Shenqiu Lease, Xi’an TCH agreed to lease the second set of 12MW biomass power generation 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 be transferred from Xi’an TCH to Shenqiu at no additional cost.

Shanxi Datong Coal Group Power Generation Projects

In February 2011, Xi’an TCH entered into an agreement with Shanxi Datong Coal Group Steel Co., Ltd (“Shanxi Datong”) to recycle gas and steam from groups of blast-furnaces and converters at Shanxi Datong’s metal refining plants to generate power and pursuant to which Xi’an TCH agreed to install two 3MW BPRT systems and, one 15MW WGPG system with a total of 21MW power capacity for an estimated total investment of $28.6 million (RMB 180 million). In June 2013, the two 3MW BPRT power generation systems were completed. The lease term is thirty (30) years, during which time Shanxi Datong will pay a service fee to Xi’an TCH. The service fee is based on an average of 8,000 electricity-generating hours per year and $0.05 (RMB 0.33) per kilowatt hour (“kWh”) for the first five (5) years from the completion of each power generation station. For each of the leases, at the 6th, 11th and 21st year anniversary of the date of the lease, the rates will change to RMB 0.3 kWh, 0.27 kWh and 0.25 kWh, respectively. On June 10, 2013, Xi’an TCH and Shanxi Datong entered into a supplemental agreement relating to the minimum service fee. The minimum service fee per month for the first five (5) years is $0.19 million (RMB 1.2 million), $0.18 million (RMB 1.1 million) for the second five (5) years, $0.16 million (RMB 1.0 million) for the following ten (10) years and $0.15 million (RMB 0.9 million) for the last ten (10) years. After thirty (30) years, the units will be transferred to Shanxi Datong at no additional charge.

 

Jitie Power Generation Projects

In May 2013, Xi’an TCH signed a contract with Sinosteel Jilin Ferroalloys Co., Ltd. (“Jitie”) to build furnace gas waste heat power generation systems for electricity generation from recycled heat and steam from groups of ferroalloy furnaces and electric furnaces (the “Jitie Project”). According to the contract, Xi’an TCH will install a 7.5 MW and a 3 MW turbine power generation system with a total of 10.5 MW power capacity for an estimated total investment of $9.71 million (RMB 60 million). The lease term is twenty-four (24) years. During the term of this lease, Jitie will pay a service fee to Xi’an TCH based on the actual generating capacity with a minimum service fee per month of $300,000 (RMB 1.8 million). Xi’an TCH will be responsible for the systems operation and will own the power generation systems. In December 2013, the Jitie Project was completed and began operations.

Yida Coke Oven Gas Power Generation Projects

On June 28, 2014, Xi’an TCH entered into an Asset Transfer Agreement (the “Transfer Agreement”) with Qitaihe City Boli Yida Coal Selection Co., Ltd. (“Yida”), a limited liability company incorporated in China. The Transfer Agreement provided for the sale to Xi’an TCH of a 15 MW coke oven gas power generation station, which has been converted from a 15 MW coal gangue power generation station from Yida. As consideration for the Transfer Asset, Xi’an TCH will pay to Yida RMB 115,000,000 ($18.69 million) in the form of the common stock shares of the Company at the average closing price per share of the Stock for the 10 trading days prior to the closing date of the transaction ($2.27 per share). The exchange rate between U.S. Dollar and Chinese RMB in connection with the stock issuance is the rate equal to the middle rate published by the People’s Bank of China on the closing date of the assets transfer. Accordingly, the Company determined 8,233,779 shares to be issued for purchasing Yida 15 MW coal over gas power generation station, the fair value of 8,233,779 shares was $14.49 million based on the stock price at agreement date ($1.76 per share), and was the cost of the power generation station. 

On June 28, 2014, Xi’an TCH also entered into a Coke Oven Gas Power Generation Project (“WGPG”) Lease Agreement (the “Lease Agreement”) with Yida. Under the Lease Agreement, Xi'an TCH leased the Transfer Asset to Yida for RMB 3,000,000 ($0.49 million) per month, and the term of the lease is from June 28, 2014 to June 27, 2029. Yida will also provide an RMB 3,000,000 ($0.49 million) security deposit (without interest) for the lease. Xi’an TCH will transfer the Transfer Asset back to Yida at no cost at the end of the term of the lease.

 

The Fund Management Company

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

The Fund Management Company serves as the general partner of Beijing Hongyuan Recycling Energy Investment Center, LLP (the “HYREF Fund”), a limited liability partnership established on July 18, 2013 in Beijing. The Fund Management Company made an initial capital contribution of RMB 5 million ($830,000) to the HYREF Fund. An initial total amount of RMB 460 million ($75 million) has been fully subscribed by all partners for the HYREF Fund. The HYREF Fund has three limited partners: (1) China Orient Asset Management Co., Ltd., which made an initial capital contribution of RMB 280 million ($46.67 million) to the HYREF Fund and is a preferred limited partner; (2) Hongyuan Huifu, which made an initial capital contribution of RMB 100 million ($16.67 million) to the HYREF Fund and is an ordinary limited partner; and (3) the Company’s wholly-owned subsidiary, Xi’an TCH, which made an initial capital contribution of RMB 75 million ($12.5 million) to the HYREF Fund and is a secondary limited partner. The term of the HYREF Fund’s partnership is six (6) years from the date of its establishment, expiring on July 18, 2019. The term is three (3) years from the date of contribution for the preferred limited partner, or four (4) years from the date of contribution for the ordinary limited partner. The total size of the HYREF Fund is RMB 460 million (approximately $76.66 million). The HYREF Fund was formed for the purpose of investing in Xi’an Zhonghong New Energy Technology Co., Ltd., a 90% owned subsidiary of Xi’an TCH, for the construction of two coke dry quenching (“CDQ”) waste heat power generation stations with Jiangsu Tianyu Energy and Chemical Group Co., Ltd. (“Tianyu”) and one CDQ waste heat power generation station with Boxing County Chengli Gas Supply Co., Ltd. (“Chengli”).

Chengli Waste Heat Power Generation (“WHPG”) 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 July 24, 2013, Zhonghong entered into a Cooperative Agreement of Coke Dry Quenching (CDQ) and CDQ 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 waste heat power generation system to supply power to Chengli, and Chengli will pay energy saving fees (the “Chengli Project”).  Chengli will contract the operation of the system to a third party contractor that is mutually agreed to by Zhonghong. In addition, Chengli will provide the land for the CDQ system and CDQ waste heat power generation system at no cost to Zhonghong. The term of the Agreements is for twenty (20) years. The first 800 million watt hours generated by the Chengli Project will be charged at RMB 0.42 ($0.068) per kilowatt hour (excluding tax); thereafter, the energy saving fee will be RMB 0.20 ($0.036) per kilowatt hour (excluding tax).  The operating time shall be based upon an average 8,000 hours annually. If the operating time is less than 8,000 hours per year due to a reason attributable to Chengli, then time charged shall be 8,000 hours a year, and if it is less than 8,000 hours due to a reason attributable to Zhonghong, then it shall be charged at actual operating hours. The construction of the Chengli Project is anticipated to be completed twelve (12) months from the date the parties enter into a Technical Agreement. When operations begin, Chengli shall ensure its coking production line works properly and that working hours for the CDQ system are at least 8,000 hours per year, and Zhonghong shall ensure that working hours and the CDQ waste heat power generation system will be at least 7,200 hours per year.

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

Tianyu Waste Heat Power Generation (“WHPG”) Project

On July 19, 2013, Zhonghong entered into a Cooperative Agreement (the “Tianyu Agreement”) for Energy Management of Coke Dry Quenching (CDQ) and CDQ Waste Heat Power Generation Project with Jiangsu Tianyu Energy and Chemical Group Co., Ltd (“Tianyu”). Pursuant to the Tianyu Agreement, Zhonghong will design, build, operate and maintain two sets of 25 MW CDQ systems and CDQ WHPG systems for two subsidiaries of Tianyu – Xuzhou Tian’an Chemical Co., Ltd (“Xuzhou Tian’an”) and Xuzhou Huayu Coking Co., Ltd (“Xuzhou Huayu”) – to be located at Xuzhou Tian’an and Xuzhou Huayu’s respective locations (the “Tianyu Project”). Upon completion of the Tianyu Project, Zhonghong will charge Tianyu an energy saving service fee of RMB 0.534 ($0.087) per kilowatt hour (excluding tax). The operating time will be based upon an average 8,000 hours annually for each of Xuzhou Tian'an and Xuzhou Huayu. If the operating time is less than 8,000 hours per year due to a reason attributable to Tianyu, then time charged will be 8,000 hours a year. The term of the Tianyu Agreement is 20 years. The construction of the Tianyu Project is anticipated to be completed in fourteen (14) months from the date the parties enter into a Technical Agreement. Tianyu will provide the land for the CDQ systems and CDQ waste heat power generation systems for free. Tianyu also guarantees that it will purchase all of the power generated by the CDQ WHPG systems.

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

Zhongtai Waste Heat Power Generation Energy Management Cooperative Agreement

On December 6, 2013, Xi’an entered into a CDQ and Waste Heat Power Generation 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 design, build and maintain a 150 ton per hour CDQ system and a 25 MW CDQ waste heat power generation system and sell the power to Zhongtai, and Xi’an TCH will also build a furnace to generate steam from the waste heat of the smoke pipeline and sell the steam to Zhongtai.

The construction period of the Project is expected to be 18 months from the date when conditions are ready for construction to begin. Zhongtai will start to pay an energy saving service fee from the date when the waste heat power generation station passes the required 72 hour test run. The term of payment is for 20 years. For the first 10 years of the term, Zhongtai shall pay an energy saving service fee at RMB 0.534 ($0.089) per kilowatt hour (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 service fee at RMB 0.402 ($0.067) per kilowatt hour (including value added tax). During the term of the contract the energy saving service 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. 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 Agreement will be extended accordingly. If Zhongtai wants to terminate the Zhongtai Agreement early, it shall provide Xi’an TCH a 60 day notice and pay the termination fee and compensation for the damages to Xi’an TCH according to the following formula: 1) if it is less than 5 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 (5 years minus the years of which the system has already operated); or 2) if it is more than 5 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). 

Rongfeng CDQ Power Generation Energy Management Cooperative Agreement

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

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

Rongfeng will start to pay an energy saving service fee from the date when the waste heat power generation station passes the required 72 hour test run. The term of payment is for 20 years. For the first 10 years of the term, Rongfeng shall pay an energy saving service fee at RMB 0.582 ($0.095) per kilowatt hour (including tax) for the power generated from the system. For the second 10 years of the term, Rongfeng shall pay an energy saving service fee at RMB 0.432 ($0.071) per kilowatt hour (including tax). During the term of the contract the energy saving service fee shall be adjusted at the same percentage as the change of local grid electricity price. Rongfeng and its parent company will provide guarantees to ensure Rongfeng will fulfill its obligations under the Rongfeng Agreement. Upon the completion of the term, Xi’an TCH will transfer the systems to Rongfeng at RMB 1. Rongfeng shall provide waste heat to the systems for no less than 8,000 hours per year with a temperature no less than 950°C. If these requirements are not met, the term of the Agreement will be extended accordingly. If Rongfeng wants to terminate the Agreement early, it shall provide Xi’an TCH a 60 day notice and pay the termination fee and compensation for the damages to Xi’an TCH according to the following formula: 1) if it is less than 5 years (including 5 years) into the term when Rongfeng requests termination, Rongfeng shall pay: Xi’an TCH’s total investment amount plus Xi’an TCH’s average annual investment return times (5 years minus the years of which the system has already operated); 2) if it is more than 5 years into the term when Rongfeng requests the termination, Rongfeng shall pay: Xi’an TCH’s total investment amount minus total amortization cost (the amortization period is 10 year). 

Baoliyuan CDQ Power Generation Energy Management Cooperative Agreement

   On March 26, 2014, Xi’an TCH entered into a CDQ Waste Heat Recycling Project Energy Management Cooperative Agreement with Tangshan Baoliyuan Coking Co., Ltd. (“Baoliyuan”), a limited liability company incorporated in Hebei Province, China.

Pursuant to the Agreement, Xi’an TCH will design, build and maintain a CDQ system and a CDQ waste heat power generation system and sell the power to Baoliyuan (the “CDQ Project”) and Xi’an TCH will also build a high scale waste water treatment system for Baoliyuan and charge monthly payment for two years (the “ Waste Water Treatment Project”).

The construction period of the CDQ Project is expected to be 15 months from the effective date of the Agreement. Baoliyuan will start to pay an energy saving fee from the date when the waste heat power generation station passes the required 72 hour test run. The term of payment is for 20 years and Baoliyuan shall pay an energy saving fee at RMB 0.7 (approximately $0.114) per kilowatt hour (including tax) for the power generated from the system, from which Xi’an TCH shall take 92.86% and Baoliyuan shall take 7.14% as parties to share the energy saving benefits. 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. Baoliyuan shall provide guarantees to ensure it will fulfill its obligations under the Agreement. Upon the completion of the term, Xi’an TCH will transfer the systems to Baoliyuan at RMB 1.

Baoliyuan shall provide waste heat to the systems for no less than 8,000 hours per year and coking production shall reach 80% of its capacity. If these requirements are not met, the energy saving fee will be calculated according to such hours and capacity.

If Baoliyuan wants to terminate the Agreement early, it shall provide Xi’an TCH a 60 day notice and pay the termination fee and compensation for the damages to Xi’an TCH according to the following formula: 1) if it is less than 5 years (including 5 years) into the term when Baoliyuan requests termination, Baoliyuan shall pay: Xi’an TCH’s total investment amount plus Xi’an TCH’s average annual investment return times (5 years minus the years of which the system has already operated); 2) if it is more than 5 years into the term when Baoliyuan requests the termination, Baoliyuan shall pay: Xi’an TCH’s total investment amount minus total amortization cost (the amortization period is 20 year).   

From the first month of the completion of Waste Water Treatment Project, Baoliyuan shall pay a fixed monthly fee for the waste water treatment system at RMB 1.05 million per month (approximately $171,010) for the first 12 months and RMB 940,000 per month (approximately $153,094) for the next 12 months. 

Summary for the six months ended June 30, 2014 Sales-Types Leases

As of June 30, 2014, Xi’an TCH leases the following systems: (i) TRT systems to Zhangzhi (13 year term); (ii) cement waste heat power generator (“CHPG”) systems to Jing Yang Shengwei (5 year term) expired on June 30, 2014; (iii) BMPG systems to Pucheng Phase I and II (15 and 11 year terms, respectively); (iv) BMPG systems to Shenqiu Phase I (11 year term); (v) Shenqiu Phase II (9.5 year term); (vi) WHPG system to Zhongbao (9 year term); (vii) WHPG systems to Jitie (24 year term); (viii) WGPG systems to Yida (15 year term); and (ix) two BPRT systems to Shanxi Datong (30 year term). In addition, as of June 30, 2014, Erdos TCH leased power and steam generating systems from waste heat from metal refining to Erdos (five systems) for a term of 20 years.

XML

LOANS PAYABLE (Bank Loan - Bank of Xi'an) (Narrative) (Details)	6 Months Ended		1 Months Ended			1 Months Ended
	Jun. 30, 2014 USD ($)	Jun. 30, 2014 CNY	May 28, 2014 Mr. Guohua Ku [Member] USD ($)	May 28, 2014 Mr. Guohua Ku [Member] CNY	Jun. 30, 2014 Mr. Guohua Ku [Member] USD ($)	Mar. 28, 2013 Loan From Bank Of Xian [Member] USD ($)	Mar. 28, 2013 Loan From Bank Of Xian [Member] CNY	May 28, 2014 Loan From Bank Of Xian [Member] USD ($)	May 28, 2014 Loan From Bank Of Xian [Member] CNY
Debt Instrument [Line Items]
Bank loans payable issued						$ 4,880,000	30,000,000	$ 6,500,000	40,000,000
Debt instrument maturity term						1 year	1 year
Debt Instrument, stated rate			0.65%	0.65%		0.575%	0.575%
Re-guarantee service fee	405,696	2,550,000	155,280	950,000		115,315	712,500
Loans Payable, Noncurrent	$ 10,770,000				$ 6,500,000

XML

STOCK-BASED COMPENSATION PLAN (Tables)

6 Months Ended

Jun. 30, 2014

Employee Stock Option [Member]

Summary of Option Activity

The following table summarizes activity for employees in the Company’s Plan:

	Number of Shares		Average Exercise Price per Share		Weighted Average Remaining Contractual Term in Years
Outstanding at January 1, 2014		1,023,333		2.85		1.40
Exercisable at January 1, 2014		1,023,333		2.85		1.40
Granted		-		-		-
Exercised		-		-		-
Forfeited		-		-		-
Outstanding at June 30, 2014		1,023,333		2.85		0.90
Exercisable at June 30, 2014		1,023,333	$	2.85		0.90

Independent Directors Compensation Plan [Member]

Summary of Option Activity

The following table summarizes option activity with respect to the independent directors:

	Number of Shares		Average Exercise Price per Share		Weighted Average Remaining Contractual Term in Years
Outstanding at January 1, 2014		200,000		2.64		1.05
Exercisable at January 1, 2014		160,000		2.64		0.74
Granted		-		-		-
Exercised		60,000		1.85		-
Forfeited		-		-		-
Outstanding at June 30, 2014		140,000		2.98		0.74
Exercisable at June 30, 2014		140,000	$	2.98		0.74

XML

STOCK-BASED COMPENSATION PLAN (Narrative) (Details) (USD $)	0 Months Ended		6 Months Ended	12 Months Ended	6 Months Ended		0 Months Ended	1 Months Ended		0 Months Ended	6 Months Ended	0 Months Ended						12 Months Ended
	Oct. 16, 2013	Aug. 13, 2010	Jun. 30, 2014	Dec. 31, 2013	Jun. 30, 2014 Director One [Member]	Jun. 30, 2014 Director Two [Member]	Oct. 07, 2010 Independent Directors Compensation Plan [Member]	Jan. 20, 2010 Independent Directors Compensation Plan [Member]	Oct. 30, 2009 Independent Directors Compensation Plan [Member]	Nov. 11, 2009 Employee Stock Option [Member]	Jun. 30, 2014 Employee Stock Option [Member]	Aug. 13, 2010 Employee Stock Option [Member] Second and Third Tranche [Member]	Nov. 11, 2009 Employee Stock Option [Member] Options Vested [Member]	Nov. 11, 2009 Employee Stock Option [Member] Unvested Options [Member]	Aug. 04, 2008 2007 Plan [Member] Employee Stock Option [Member]	Nov. 11, 2009 Two Other Employees [Member]	Aug. 13, 2010 Managerial And Non Managerial Employees [Member] 2007 Plan [Member] Employee Stock Option [Member]	Dec. 31, 2013 NASDAQ Global Market [Member] Employee Stock Option [Member]
Granted							40,000	40,000	130,000		0				3,000,000	290,000	2,200,000
Common Stock, Par or Stated Value Per Share			$ 0.001	$ 0.001											$ 0.001
Grant date excersise price								$ 4.68	$ 1.85		$ 0				$ 0.80	$ 2.35	$ 3.05
Vesting period										3 years					3 years
Estimated life							5 years	5 years	5 years	5 years		5 years			5 years
Volatility percentage rate							87.00%	100.00%	100.00%	100.00%		92.00%			100.00%
Risk free interest rate							3.54%	3.54%	3.54%	3.84%		3.54%			2.76%
Dividend yield							0.00%	0.00%	0.00%	0.00%		0.00%			0.00%
Grant date fair value							$ 83,000	$ 142,000	$ 183,000	$ 518,513					$ 5,040,000
Vesting terms		According to the vesting terms, the options granted were divided into three tranches, (i) 1/3 (one third) of the total number of shares subject to the options shall vest and become exercisable if the Company meets its minimum revenue and earnings goals in the Companys guidance for 2010 as delivered in its earnings releases and/or conference calls in the first quarter of 2010, such vesting to occur immediately upon completion of the annual audit confirming the financial results for 2010; and (ii) an additional 1/3 (one third) of the total number of shares subject to the options shall vest and become exercisable if the Company meets certain financial goals of 2011 which will be set out and decided by the Compensation Committee, such vesting to occur immediately upon Compensation Committees determination that the Company has met such goals for 2011; and (iii) the remaining 1/3 (one third) of the total number of shares subject to the options shall vest and become exercisable if the Company meets certain financial goals of 2012 which is set out and decided by the Compensation Committee, such vesting is to occur immediately upon Compensation Committees determination that the Company has met such goals for 2012.
Cancelled/forfeited													87,000	203,000
Exercised			60,000	10,000	50,000	10,000					0							2,650,000
Compensation per month							2,000
Stock Issued During Period, Shares, Conversion of Convertible Securities			36,124	5,261	30,575	5,549												1,887,411
Stock Issued During Period, Shares, Restricted Stock Award, Gross	75,000
Stock Issued During Period, Value, Restricted Stock Award, Gross	$ 187,500

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STATUTORY RESERVES

6 Months Ended

Jun. 30, 2014

Statutory Reserves [Abstract]

STATUTORY RESERVES

17. 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.

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.

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COMMITMENTS (Tables)

6 Months Ended

Jun. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

Future Minimum Rental Payments Required Under Operating Leases

Future minimum annual rental payments required under operating leases as of June 30, 2014 were as below (by year):

2015	$	283,000
2016		272,000
2017		156,000
Total	$	711,000

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COMMITMENTS

6 Months Ended

Jun. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS

19. COMMITMENTS

Lease Commitment

On March 4, 2014, Xi’an TCH’s office lease expired. Xi’an TCH renewed this lease for an additional three (3) years with an 8% increase on rent upon renewal; the monthly rental payment was $18,000 before March 4, 2014 and is now $19,440 after Mach 4, 2014. In March 2013, Xi’an TCH leased an office in Jinan for a three (3) year term, expiring on March 22, 2016, with a monthly rental payment of $3,800, which amount will be increased by 5% each year. For the six months ended June 30, 2014 and 2013, the rental expense of Xi’an TCH was $223,425 and $148,100, respectively; for the three months ended June 30, 2014 and 2013, the rental expense was $116,994 and $93,566, respectively.

Future minimum annual rental payments required under operating leases as of June 30, 2014 were as below (by year):

2015	$	283,000
2016		272,000
2017		156,000
Total	$	711,000

Construction Commitment

Refer to Note 1 for additional details related to lease commitments with Shanxi Datong, Chengli Boxing, Tianyu (and its subsidiaries Xuzhou Tian’an and Xuzhou Huayu), and Zhongtai, and Note 6 for commitment on construction in progress.

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CONTINGENCIES (Narrative) (Details)	3 Months Ended		6 Months Ended		3 Months Ended	6 Months Ended		12 Months Ended					6 Months Ended		3 Months Ended
	Jun. 30, 2014 USD ($)	Jun. 30, 2013 USD ($)	Jun. 30, 2014 USD ($)	Jun. 30, 2013 USD ($)	Mar. 31, 2014 Xi'an TCH [Member] USD ($)	Jun. 30, 2014 Xi'an TCH [Member] USD ($)	Jun. 30, 2014 Xi'an TCH [Member] CNY	Dec. 31, 2013 Xi'an TCH [Member] USD ($)	Dec. 31, 2013 Xi'an TCH [Member] CNY	Dec. 31, 2012 Xi'an TCH [Member] USD ($)	Dec. 31, 2012 Xi'an TCH [Member] CNY	Mar. 31, 2014 Xi'an TCH [Member] CNY	Jun. 30, 2014 Xi'an TCH [Member] Third Party [Member] USD ($)	Jun. 30, 2014 Xi'an TCH [Member] Third Party [Member] CNY	Mar. 31, 2014 Xi'an TCH [Member] PRC [Member] USD ($)	Mar. 31, 2014 Xi'an TCH [Member] PRC [Member] CNY
Schedule Of Contingencies [Line Items]
Project period						3 years	3 years
Estimated taxable income										$ 9,000,000	56,900,000
Accumulated sales	18,946,044	13,623,004	18,946,044	27,702,800	52,800,000	52,800,000	320,000,000			20,500,000	129,000,000				52,800,000	320,000,000
Taxable income										9,500,000	59,800,000
Total accumulated taxable income target						9,000,000	56,900,000
Probability of achieving accumulated sales								24,900,000	154,000,000
Operating leases future monthly minimum payments due					7,400,000							45,000,000
Payment of cash to third party													149,700	945,000
Other income										2,205,000	349,300
Subsidy income						3,150,000	499,000
Notes Payable, Related Parties, Current						$ 0	320,000,000	$ 656,071	4,000,000

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The unaudited financial statements included herein were prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) that are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) were omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited financial statements and footnotes included in the Company’s 2013 audited financial statements included in the Company’s Annual Report on Form 10-K.  The results for the six and three months ended June 30, 2014 are not necessarily indicative of the results expected for the full year ending December 31, 2014.

Basis of Consolidation

The consolidated financial statements include the accounts of CREG and its subsidiary, Sifang Holdings, its wholly owned subsidiaries, Huahong New Energy Technology Co., Ltd. (“Huahong”) and Shanghai TCH, Shanghai TCH’s wholly-owned subsidiary, Xi’an TCH Energy Tech Co., Ltd. (“Xi’an TCH”) and Xi’an TCH’s subsidiaries, Erdos TCH Energy Saving Development Co., Ltd (“Erdos TCH”), 100% owned by Xi’an TCH (See note 1), and Zhonghong, 90% owned by Xi’an TCH.  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, 2014 and December 31, 2013, respectively. All significant inter-company accounts and transactions were eliminated in consolidation.

Use of Estimates

In preparing these consolidated financial statements 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.

Revenue Recognition

Sales-type Leasing and Related Revenue Recognition

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.  The investment in these projects is recorded as investment in sales-type leases in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 13, “Accounting for Leases” (codified in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 840) and its various amendments and interpretations. The Company finances construction of the waste energy recycling generating projects.  The sales and cost of sales are recognized at the inception of lease. 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 payment consists of the gross lease payments net of executory costs and contingent rentals, if any. Unearned interest income is amortized to income over the lease term to produce a constant periodic rate of return on net investment in the lease.  While revenue is recognized at the inception of the lease, the cash flow from the sales-type lease occurs over the course of the lease, which results in interest income and reduction of receivables. Revenue is recognized net of sales tax.

Contingent Rental Income

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

Cash and Equivalents

Cash and equivalents includes cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three (3) months or less as of the purchase date of such investments.

Accounts Receivable

As of June 30, 2014 and December 31, 2013, the Company had accounts receivable of $61,083 and $71,573, respectively, from contingent rental income.

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-life Assets

In accordance with SFAS 144 (codified in FASB ASC Topic 360), the Company reviews its long-lived assets, including property, plant 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 is 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. There was no impairment as of June 30, 2014 and December 31, 2013.

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.

Non-Controlling Interests

The Company follows FASB ASC Topic 810, “Consolidation,” which established new standards governing the accounting for and reporting of non-controlling 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 other 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.

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.

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

· Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

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

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

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

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

As of June 30, 2014, the Company’s long-term debt obligations consisted of the following: (i) various long-term bank loans and Zhongrong International Trust Co., Ltd (“ZRIT”) trust loan payable of $58.28 million, (ii) a long-term payable for a sale-leaseback transaction of $3.09 million, and (iii) Zhonghong entrusted loan of $62.09 million. As of December 31, 2013, the Company’s long-term debt obligations consisted of the following: (i) long-term bank loans payable of $18.86 million, (ii) a long-term payable for a sale-leaseback transaction of $3.83 million, and (iii) Zhonghong entrusted loan of $62.65 million.

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

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

As of June 30, 2014 and December 31, 2013, the Company did not identify any assets and liabilities that are required to be presented on the balance sheet at FV other than the sale-lease back transaction of $1.61 million on June 30, 2014 and $2.39 million on December 31, 2013, which was the present value of the total future cash outflow including principal and interest payments (See Note 15).

Stock Based Compensation

The Company accounts for its stock-based compensation in accordance with SFAS No. 123R, “Share-Based Payment, an Amendment of FASB Statement No. 123” (codified in FASB ASC Topic 718 and 505).  The Company recognizes in its statement of operations FV at the grant date for stock options and other equity-based compensation issued to employees and non-employees.

Basic and Diluted Earnings per Share

The Company presents net income (loss) per share (“EPS”) in accordance with SFAS No. 128, “Earnings per Share” (codified in FASB ASC Topic 740).  Accordingly, basic income (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of shares outstanding, without consideration for common stock equivalents.  Diluted EPS is computed by dividing the net income by the weighted-average number of common shares outstanding as well as common share equivalents outstanding for the period determined using the treasury-stock method for stock options and warrants and the if-converted method for convertible notes.  The Company made an accounting policy election to use the if-converted method for convertible securities that are eligible to receive common stock dividends, if declared.  Diluted EPS reflect the potential dilution that could occur based on the exercise of stock options or warrants or conversion of convertible securities using the if-converted method. The following table presents a reconciliation of basic and diluted EPS:

The following table presents a reconciliation of basic and diluted earnings per share for the six and three months ended June 30, 2014 and 2013:

	Six Months Ended				Three Months Ended
	2014		2013		2014		2013
Net income for common shares	$	9,712,082	$	7,031,534	$	6,589,058	$	3,733,344
Net income for diluted shares	$	9,712,082	$	7,031,534	$	6,589,058	$	3,733,344
Weighted average shares outstanding – basic		61,066,042		50,224,350		61,217,625		50,224,350
Effect of dilutive securities:
Options granted		115,187		633,173		82,307		546,111
Weighted average shares outstanding – diluted		61,181,229		50,857,523		61,299,932		50,770,461
Earnings per share – basic	$	0.16	$	0.14	$	0.11	$	0.07
Earnings per share – diluted	$	0.16	$	0.14	$	0.11	$	0.07

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 uses SFAS 130 “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.

Segment Reporting

SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” (codified in FASB ASC Topic 280) 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. SFAS 131 has no effect on the Company’s financial statements as substantially all of the Company’s operations are conducted in one industry segment. All of the Company’s assets are located in the PRC.

New Accounting Pronouncements

In January 2014, FASB issued, Accounting Standards Update 2014-05, Service Concession Arrangements (Topic 853), The objective of this Update is to specify that an operating entity should not account for a service concession arrangement within the scope of this Update as a lease in accordance with Topic 840, Leases. Service concession arrangements may become more prevalent in the United States as public-sector entities seek alternative ways to provide public services on a more efficient and cost-effective basis. The amendments apply to an operating entity of a service concession arrangement entered into with a public-sector entity grantor when the arrangement meets certain conditions. The amendments in this Update should be applied on a modified retrospective basis to service concession arrangements that exist at the beginning of an entity’s fiscal year of adoption. The modified retrospective approach requires the cumulative effect of applying this Update to arrangements existing at the beginning of the period of adoption to be recognized as an adjustment to the opening retained earnings balance for the annual period of adoption. The amendments are effective for a public business entity for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The adoption of this ASU will not affect the Company’s financial statements.

The FASB has issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective on January 1, 2017 and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. The adoption of this standard is not expected to have a material impact on the Company's condensed consolidated financial position and results of operations.

The Financial Accounting Standards Board ("FASB") has issued Accounting Standards Update ("ASU") No. 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered.. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company's condensed consolidated financial position and results of operations.

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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Common Stock, Par or Stated Value Per Share	$ 0.001	$ 0.001
Common Stock, Shares Authorized	200,000,000	200,000,000
Common Stock, Shares, Issued	60,946,182	60,910,058
Common Stock, Shares, Outstanding	60,946,182	60,910,058

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DEFERRED TAX

6 Months Ended

Jun. 30, 2014

Deferred Tax [Abstract]

DEFERRED TAX

12. DEFERRED TAX

Deferred tax asset resulted from accrued maintenance cost on power generation systems that can be deducted for tax purposes in the future, and 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, 2014 and December 31, 2013, deferred tax liability consisted of the following:

	2014		2013
Deferred tax asset — noncurrent (accrual of system maintenance cost)	$	69,910	$	70,551
Deferred tax asset — noncurrent (depreciation of fixed assets)		33,410,848		31,308,695
Deferred tax liability — noncurrent (net investment in sales-type leases)		(46,852,546)		(43,263,314)
Deferred tax liability, net of deferred tax asset – noncurrent	$	(13,371,788)	$	(11,884,068)
Deferred tax liability — current (net investment in sales-type leases)	$	(1,296,735)	$	(1,442,317)

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Document And Entity Information	6 Months Ended
	Jun. 30, 2014	Aug. 07, 2014
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q2
Entity Registrant Name	CHINA RECYCLING ENERGY CORP
Entity Central Index Key	0000721693
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Trading Symbol	CREG
Entity Common Stock, Shares Outstanding		60,946,182

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INCOME TAX

6 Months Ended

Jun. 30, 2014

Income Tax Disclosure [Abstract]

INCOME TAX

13. INCOME TAX

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

The Company’s subsidiaries generate all of their net income from their PRC operations. Shanghai TCH’s effective income tax rate for 2014 and 2013 was 25%. During 2013, Xi’an TCH was re-approved for high tech enterprise status and enjoyed 15% preferential income tax rate for 3 years effective January 1, 2013. Huahong, Zhonghong and Erdos TCH’s effective income tax rate for 2014 and 2013 was 25%.  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 consolidated financial statements do not present any income tax provisions related to Cayman Islands tax jurisdiction where Sifang Holding is domiciled.

The parent company, China Recycling Energy Corporation, is taxed in the U.S. and, as of June 30, 2014, had net operating loss (“NOL”) carry forwards for income taxes of $12.81 million, which may be available to reduce future years’ taxable income as NOLs can be carried forward up to 20 years from the year the loss is incurred. Our management believes the realization of benefits from these losses may be uncertain due to the Company’s limited operating history and continuing operating losses. Accordingly, a 100% deferred tax asset valuation allowance was provided.

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the six and three months ended June 30, 2014 and 2013, respectively:

	Six Months						Three Months
	2014			2013			2014			2013
U.S. statutory rates		34.0	%		34.0	%		34.0	%		34.0	%
Tax rate difference – current provision		(6.1)	%		(9.9)	%		(4.3)	%		(9.5)	%
Effective tax holiday		(8.0)	%		-	%		(8.5)	%		-	%
Other		.5	%		-	%		.7	%		-	%
2013 income tax adjustment per income tax return filed in 2014		2.9	%		-	%		-	%		-	%
Effect of tax rate change on deferred tax items		-	%		6.3	%		-	%		11.5	%
Valuation allowance on US NOL		1.8	%		3.5	%		1.5	%		2.0	%
Tax per financial statements		25.1	%		33.9	%		23.4	%		38.0	%

The provision for income taxes expense for the six and three months ended June 30, 2014 and 2013 consisted of the following:

	Six Months				Three Months
	2014		2013		2014		2013
Income tax expense – current	$	1,767,633	$	2,307,055	$	878,386	$	1,698,403
Income tax expense benefit - deferred		1,471,536		1,419,815		1,123,254		668,413
Total income tax expense	$	3,239,169	$	3,726,870	$	2,001,640	$	2,366,816

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CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Revenue
Sales of systems	$ 18,946,044	$ 13,623,004	$ 18,946,044	$ 27,702,800
Contingent rental income	210,547	289,559	388,154	550,334
Total revenue	19,156,591	13,912,563	19,334,198	28,253,134
Cost of sales
Cost of systems	14,594,688	10,501,936	14,616,592	21,402,848
Total cost of sales	14,594,688	10,501,936	14,616,592	21,402,848
Gross profit	4,561,903	3,410,627	4,717,606	6,850,286
Interest income on sales-type leases	6,115,284	4,728,706	12,421,000	8,553,546
Total operating income	10,677,187	8,139,333	17,138,606	15,403,832
Operating expenses
General and administrative	763,228	684,114	1,608,203	1,766,560
Total operating expenses	763,228	684,114	1,608,203	1,766,560
Income from operations	9,913,959	7,455,219	15,530,403	13,637,272
Non-operating income (expenses)
Interest income	17,511	60,644	56,800	153,232
Interest expense	(949,020)	(1,293,193)	(1,861,593)	(2,787,689)
Investment income	1,955	0	13,268	0
Other expenses	(416,100)	3,853	(831,491)	2,873
Total non-operating expenses, net	(1,345,654)	(1,228,696)	(2,623,016)	(2,631,584)
Income before income tax	8,568,305	6,226,523	12,907,387	11,005,688
Income tax expense	2,001,640	2,366,816	3,239,169	3,726,870
Income before noncontrolling interest	6,566,665	3,859,707	9,668,218	7,278,818
Less: Income (loss) attributable to noncontrolling interest	(22,393)	126,363	(43,864)	247,284
Net income attributable to China Recycling Energy Corp	6,589,058	3,733,344	9,712,082	7,031,534
Other comprehensive items
Foreign currency translation loss attributable to China Recycling Energy Corp	(61,788)	2,035,201	(1,474,273)	2,360,535
Foreign currency translation gain attributable to noncontrolling interest	(90)	66,379	(2,888)	78,153
Comprehensive income attributable to China Recycling Energy Corp	6,527,270	5,768,545	8,237,809	9,392,069
Comprehensive income (loss) attributable to noncontrolling interest	$ (22,303)	$ 192,742	$ (46,752)	$ 325,437
Basic weighted average shares outstanding (in shares)	61,217,625	50,224,350	61,066,042	50,224,350
Diluted weighted average shares outstanding (in shares)	61,299,932	50,770,461	61,181,229	50,857,523
Basic earnings per share (in dollars per share)	$ 0.11	$ 0.07	$ 0.16	$ 0.14
Diluted earnings per share (in dollars per share)	$ 0.11	$ 0.07	$ 0.16	$ 0.14

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TAXES PAYABLE

6 Months Ended

Jun. 30, 2014

Taxes Payable [Abstract]

TAXES PAYABLE

7. TAXES PAYABLE

Taxes payable consisted of the following as of June 30, 2014 and December 31, 2013:

	2014		2013
Income	$	933,433	$	806,231
Business		312,082		316,485
VAT arising from transfer WGPG to Shenmu		390,066		393,643
Other		42,900		44,470
	$	1,678,481	$	1,560,829

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CONSTRUCTION IN PROGRESS

6 Months Ended

Jun. 30, 2014

Receivables, Long-Term Contracts Or Programs [Abstract]

CONSTRUCTION IN PROGRESS

6. CONSTRUCTION IN PROGRESS

Construction in progress was for constructing power generation systems.  As of June 30, 2014, the Company had construction in progress of $140.31 million, including $17.99 million for Shanxi Datong Coal Group one 15MW WGPG; $25.08 million for Xuzhou Zhongtai project; $27.23 million for Tangshan Rongfeng project; $26.81 million for Xuzhou Huayu project; $18.03 for Xuzhou Tian’an project and $25.17 million for Boxing County Chengli project. As of December 31, 2013, the Company had construction in progress of $83.72 million, including $17.01 million for Shanxi Datong Coal Group one 15MW WGPG project; $25.54 million for Xuzhou Huayu project, $17.19 for Xuzhou Tian’an project and $23.98 million for Shandong Boxing project. As of June 30, 2014, the Company was committed to pay an additional $2.44 million for the Shanxi Datong Coal Group Power Generation project, $8.23 million for Xuzhou Zhongtai project, $2.41 million for Tangshan Rongfeng project, $8.13 million for Xuzhou Huayu project, $16.25 million for Xuzhou Tian’an project, and $9.75 million for Boxing County Chengli project.

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CONTINGENCIES

6 Months Ended

Jun. 30, 2014

Contingencies [Abstract]

CONTINGENCIES

18. CONTINGENCIES

 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’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. In China, foreign exchange transactions are required by law to be transacted only by authorized financial institutions. Remittances in currencies other than RMB may require certain supporting documentation in order to make the remittance.

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 months. As of June 30, 2014 and December 31, 2013, Xi’an TCH had outstanding notes receivable of $0 and RMB 4,000,000 ($656,071), respectively.

Xi’an TCH was granted a subsidy by Xi’an City Science and Technology Bureau and Xi’an City Finance Bureau under Xi’an Hi-Tech Industry Development Special Project Fund. The special project fund for Xi’an TCH is for a three years period, from January 1, 2012 to December 31, 2014, with two criteria established to measure the performance of Xi’an TCH: (i) total accumulated sales in three years should be RMB 320 million ($52.8 million), and (ii) total accumulated taxable income should be RMB 56.9 million ($9.0 million). In 2012, Xi’an TCH’s total sales were RMB 129 million ($20.5 million) and total taxable income was RMB 59.8 million ($9.5 million) under PRC GAAP.  Xian TCH achieved total accumulated taxable income target of RMB 56.9 million ($9.0 million) in 2012 under PRC GAAP. In 2013, Xi’an TCH’s total sales were RMB 154 million ($24.9 million) under PRC GAAP; in the three months ended March 31, 2014, Xi’an TCH’s total sales were RMB 45 million ($7.4 million) under PRC GAAP; as a result, Xian TCH achieved total accumulated sales target of RMB 320 million ($52.8 million) under PRC GAAP as of March 31, 2014, and therefore was fully entitled to the subsidy income. Total subsidy income for 3 years was $499,000 (RMB 3,150,000) and Xi’an TCH paid third party consulting company fees of $149,700 (RMB 945,000), for services relating to project evaluation and audit, application document preparation, assembling and compiling, the net subsidy received was $349,300 (RMB 2,205,000), which was recorded as part of other income in 2012.

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LOANS PAYABLE

6 Months Ended

Jun. 30, 2014

Debt Disclosure [Abstract]

LOANS PAYABLE

14. LOANS PAYABLE

Collective Capital Trust Plan

On December 3, 2009, the Company and Beijing International Trust Co., Ltd. (the “Beijing Trust”) formed a Low Carbon Fortune-Energy Recycling No. 1 Collective Capital Trust Plan (the “Capital Trust Plan”) pursuant to the Capital Trust Loan Agreement, dated November 19, 2009, entered into between Erdos TCH and the Beijing Trust (the “Capital Trust Agreement”). All amounts raised under the Capital Trust Plan were loaned to Erdos TCH in connection with its WHPG projects Phase II and Phase III construction and operation.

Under the Capital Trust Agreement, the annual base interest rate was 9.94% for A1 preferred trust fund units with a term of two (2) years, 11% for A2 preferred trust fund units with a term of three (3) years, 12.05% for A3 preferred trust fund units and 8.35% for the category B secondary trust fund units, each with a term of four (4) years. Erdos TCH provided a lien on its equipment, assets and accounts receivable to guarantee the loans under the Capital Trust Agreement. Xi’an TCH and Mr. Guohua Ku, the CEO, the Chairman of the Company’s Board of Directors and a major shareholder, provided unconditional and irrevocable joint liability guarantees to the Beijing Trust for Erdos TCH’s performance under the Capital Trust Agreement. Erdos (the former minority shareholder and customer of Erdos TCH) provided a commitment letter on minimum power purchase from Erdos TCH.

The Capital Trust Plan raised $44.1 million (RMB 300,000,000) through a series of capital raises in 2009 and 2010, including (i)  13,750,000 B1 units ($2.0 million) purchased by the management of Erdos TCH; (ii)  1,600,000 ($235,600) A1 units and (iii)  46,250,000 B2 units ($7.4 million) purchased by Xi’an TCH, which was considered an investment by Xi’an TCH into Erdos TCH and, accordingly, was eliminated in the consolidated financial statements. On behalf of Erdos TCH, Xi’an TCH paid in full to Beijing Trust for the Trust Loan in December 2013 except the principal of RMB 46.25 million ($7.59 million) that was previously invested by Xi’an TCH to the Trust Loan plus accumulated interest of RMB 2,775,000 ($0.46 million), and RMB 7,650,000 ($1.25 million) that was previously invested by Mr. Guohua Ku to the Trust Loan plus accumulated interest of RMB 459,000 ($75,000), remained as outstanding liability of Erdos TCH. Beijing Trust transferred credit rights of the above outstanding balances to Xian TCH and Mr. Guohua Ku. In addition, Xi’an TCH assumed liability of Erdos TCH to pay Mr. Ku. The outstanding liability of Erdos TCH to Xi’an TCH was eliminated in the consolidation. The related management incentive benefit and Clean Development Mechanism under the Kyoto Protoco were terminated accordingly without further execution as a result of repayment to Beijing Trust.

Entrusted Loan Payable

 The newly established HYREF Fund (Beijing Hongyuan Recycling Energy Investment Center, LLP) with total fund size of RMB 460 million ($75.0 million) invests in Xi’an Zhonghong for Zhonghong’s three new coke dry quenching (CDQ) waste heat power generation 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 an interest payment from Zhonghong for the HYREF Fund’s debt investment. The RMB 457 million ($74.5 million) was released to Zhonghong through an entrusted bank, which is also the supervising bank for the use of the loan. The loan was deposited to a bank account at the Supervising Bank (the Industrial Bank Xi’an Branch) and is jointly supervised by Zhonghong and the Fund Management Company. Project spending shall be verified by the Fund Management Company to confirm that it is in accordance with the project schedule before the funds are released. All the operating accounts of Zhonghong have been opened with the branches of the Supervising Bank and the Supervising Bank has the right to monitor all bank accounts opened by Zhonghong. The entrusted bank will charge 0.1% of loan amount as service fee and will not take any lending risk. The loan was collateralized by the accounts receivable and the fixed assets of Shenqiu Phase I and II power generation systems, the accounts receivable and fixed assets of Zhonghong’s three CDQ waste heat power generation systems, and a 27,000,000 RMB capital contribution made by Xi’an TCH. Repayment of the loan (principal and interest) was also jointly and severally guaranteed by Xi’an TCH and Mr. Guohua Ku, the Chairman and CEO of the Company.

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 2nd 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 2nd 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 2nd 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 is for 60 months from July 31, 2013 to July 30, 2018. On August 6, 2016, Zhonghong shall repay principal in the amount of RMB 280 million ($45.54 million); on August 6, 2017, it shall repay principal of RMB 100 million ($16.27 million) and on July 30, 2018, it shall repay the remainder of RMB 77 million ($12.52 million). The interest rate is 12.5% per year. 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. As of June 30, 2014, the entrusted loan payable had an outstanding balance of $74.28 million, of which, $12.2 million was from the investment of Xi’an TCH; accordingly, the Company netted off the loan payable of $12.2 million with the long-term investment to the HYREF Fund made by Xi’an TCH. For the six months ended June 30, 2014, the Company recorded interest expense of $688,258 on this loan and capitalized $3.94 million interest to construction in progress.

Bank Loans - Industrial Bank

On March 31, 2011, Xi’an TCH entered into a loan agreement with the Industrial Bank for energy saving and emission reduction projects, whereby the Industrial Bank agreed to loan $4.88 million (RMB 30,000,000) to Xi’an TCH for three (3) years to March 30, 2014. The loan agreement has a floating interest rate that resets at the beginning of each quarter at 115% of the national base interest rate for the same term and same level loan (then 7.07%).  Under the loan, Xi’an TCH is required to make quarterly interest payments and, beginning six (6) months after the date of the release of the funds, to make minimum quarterly principal payments of $488,000 (RMB 3,000,000). The loan agreement contains standard representations, warranties and covenants, and the loan is guaranteed by Xi’an TCH, Mr. Guohua Ku and Ms. Chaoying Zhang. As of June 30, 2014, this loan was paid in full at maturity

On November 8, 2011, Xi’an TCH entered another loan agreement with the same Industrial Bank for energy saving and emission reduction projects, whereby the Lender agreed to loan $21.04 million (RMB 130,000,000) to Xi’an TCH for four years to November 28, 2015. The loan agreement has a floating interest rate that resets at the beginning of each quarter at 115% of the national base interest rate for the same term and same level loan (then 7.36%).  Under the loan, Xi’an TCH is required to make quarterly interest payments and, beginning nine months after the date of the release of the funds, to make minimum quarterly principal payments of $1,618,463 (RMB 10,000,000). For the first nine months, the loan was in a grace period and there was no repayment requirement. The loan is guaranteed by accounts receivable of Xi’an TCH, Pucheng and Shenqiu BMPG systems and Mr. Guohua Ku. As of June 30, 2014, this loan had outstanding balance of $8.13 million, of which, $6.50 million was to be repaid within one year and was classified as current liability, and $1.63 million will be repaid after one year and was classified as noncurrent liability.

On October 9, 2013, Xi’an TCH entered the third loan agreement with the same Industrial Bank for energy saving and emission reduction projects, whereby the Lender agreed to loan $16.40 million (RMB 100,000,000) to Xi’an TCH for four years to October 8, 2017. The loan agreement has a floating interest rate that resets at the beginning of each month at 120% of the national base interest rate for the same term and same level loan.  Under the loan, Xi’an TCH is required to make quarterly interest payments and, beginning six months after the date of the release of the funds, to make minimum quarterly principal payments of $615,067 (RMB 3,750,000) for 2014, $1,025,111 (RMB 6,250,000) for 2015, and $1,230,133 (RMB 7,500,000) for 2016 and 2017. For the first six months, the loan was in a grace period and there was no repayment requirement. The loan is guaranteed by the assets of the Erdos project systems, the accounts receivable of Jilin Ferroallys and Mr. Guohua Ku. As of June 30, 2014, this loan had outstanding balance of $15.03 million, of which, $4.26 million was to be repaid within one year and was classified as current liability, and $10.77 million will be repaid after one year and was classified as noncurrent liability.

Bank Loan – Bank of Xi’an

On March 28, 2013, Xi’an TCH entered into a loan agreement with Bank of Xi’an, whereby Bank of Xi’an agreed to loan $4.88 million (RMB 30,000,000) to Xi’an TCH for one (1) year with maturity on March 27, 2014. The monthly interest rate of the loan is 0.575%. Under the terms of the loan, Xi’an TCH is required to make monthly interest payments and the principal is to be repaid at maturity. The loan is guaranteed by a third party guarantee company and Mr. Guohua Ku. The Company paid a third party $115,315 (RMB 712,500) as a re-guarantee service fee. This loan was repaid at maturity.

On May 28, 2014, Xi’an TCH entered into another loan agreement with Bank of Xi’an, whereby Bank of Xi’an agreed to loan $6.50 million (RMB 40,000,000) to Xi’an TCH for one (1) year with maturity on May 29, 2015. The monthly interest rate of the loan is 0.65%. Under the terms of the loan, Xi’an TCH is required to make monthly interest payments and the principal is to be repaid at maturity. The loan is guaranteed by a third party guarantee company and Mr. Guohua Ku. The Company paid a third party $155,280 (RMB 950,000) as a re-guarantee service fee. As of June 30, 2014, this loan had outstanding balance of $6.50 million, to be repaid within one year and was classified as current liability.

Bank Loan – Bank of Chongqing

On April 11, 2014, Xi’an TCH entered into a loan agreement with Bank of Chongqing - Xi’an Branch, whereby Bank of Chongqing agreed to loan $8.13 million (RMB 50,000,000) to Xi’an TCH for three (3) years with maturity on April 10, 2017. The annual interest rate of the loan is 9.225%. Under the terms of the loan, Xi’an TCH is required to make monthly interest payments and, to make a principal payment of $0.81 million (RMB 5,000,000) on the 24^th month after receiving the loan and of the remaining $7.32 million (RMB 45,000,000) on the loan maturity date. The loan is guaranteed by a third party guarantee company and Mr. Guohua Ku. The company paid a third party $155,280 (RMB 950,000) as a re-guarantee service fee. In addition, Xi’an TCH should pledge its collection right for Tangshan Rongfeng and Xuzhou Zhongtai projects to Bank of Chongqing after the two projects are completed  and put into operation, to ensure the repayment of loan. As of June 30, 2014, this loan had outstanding balance of $8.13 million, to be repaid after one year and was classified as noncurrent liability.

Trust Loan - Zhongrong International Trust - Xuzhou Zhongtai and Tangshan Rongfeng

 On February 17, 2014, Xi’an TCH entered into a trust loan agreement with Zhongrong International Trust Co., Ltd (“ZRIT”), for Xi’an TCH to borrow RMB 150 million ($24.5 million) for the CDQ system and the CDQ Waste Heat Power Generation Project with Xuzhou Zhongtai Energy Technology Co., Ltd. (the “Zhongtai Project”). ZRIT will set up a Zhongrong-Green Recycling Energy Collective Capital Trust Plan No. 1 (the “Trust Plan No. 1”) to raise money and loan the proceeds to Xi’an TCH for the Zhongtai Project (the “Zhongtai Loan”). The Zhongtai Loan is secured by the pledge of CDQ equipment and power generation system of the Zhongtai Project, by personal guarantee of Mr. Ku Guohua, and by a corporate guarantee of Xuzhou Zhongtai Energy Technology Co., Ltd. and its affiliated companies. As of June 30, 2014, the Company had $16.40 million outstanding balance under Zhongtai Loan.

The Zhongtai Loan has a term of four years. The annual interest rate for the first 24 months of the loan is 12%. ZRIT has the right to adjust the interest rate according to the market conditions after 24 months and Xi'an TCH has the right to prepay the Zhongtai Loan before maturity if Xi’an TCH does not agree to such adjustment of interest rate. ZRIT has the right to request repayment of all principal and interest of the Zhongtai Loan on the 24-month anniversary date of the establishment of Trust Plan No. 1. Under the terms of the loan, Xi’an TCH should make the first, second, and all remaining repayment of the principal which is 30%, 30%, and 40% of the accumulated amount released by ZRIT on the last day of the 24^th month, 36^th  month, and maturity date from the establishment of the trust plan.

On February 17, 2014, Xi’an TCH entered into another trust loan agreement with ZRIT, for Xi’an TCH to borrow RMB 135 million ($22.1 million) for the CDQ system and the CDQ WHPG Project with Tangshan Rongfeng Iron & Steel Co., Ltd. (the “Rongfeng Project”). ZRIT will set up a Zhongrong-Green Recycling Energy Collective Capital Trust Plan No. 2 (the “Trust Plan No. 2”) to raise money and loan the proceeds to Xi’an TCH for the Rongfeng Project (the “Rongfeng Loan”). The Rongfeng Loan is secured by the pledge of CDQ equipment and power generation system of the Rongfeng Project, by a personal guarantee of Mr. Ku Guohua, and by a corporate guarantee of Tangshan Rongfeng Iron & Steel Co., Ltd. and its parent company. As of June 30, 2014, the Company had $10.60 million outstanding balance under Rongfeng Loan.

The Rongfeng Loan has a term of four years. The annual interest rate for the first 24 months of the loan is 12%. ZRIT has the right to adjust the interest rate according to the market conditions after 24 months and Xi'an TCH has the right to prepay the Rongfeng Loan before maturity if Xi’an TCH does not agree to such adjustment of the interest rate. ZRIT has the right to request repayment of all principal and interest of the Rongfeng Loan on the 24-month anniversary date of the establishment of Trust Plan No. 2. Under the terms of the loan, Xi’an TCH should make the first, second, and all remaining repayment of the principal which is 30%, 30%, and 40% of the accumulated amount released by ZRIT on the last day of the 24^th month, 36^th  month, and maturity date from the establishment of the trust plan.

For the six months ended June 30, 2014, the Company capitalized $1.18 million interest to construction in progress for ZRIT Trust loans.

As of June 30, 2014, the future minimum repayment of all the loans including entrusted loan to be made by years is as follows:

2015		17,268,561
2016		15,209,336
2017		65,796,060
2018		28,270,057
2019		325,055
Total	$	126,869,069

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LONG TERM INVESTMENT

6 Months Ended

Jun. 30, 2014

Long-term Investments [Abstract]

LONG TERM INVESTMENT

10. LONG TERM INVESTMENT

On June 25, 2013 Xi’an TCH with Hongyuan Huifu Venture Capital Co. Ltd (“Hongyuan Huifu”) jointly established Hongyuan Recycling Energy Investment Management Beijing Co., 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 coke dry quenching (“CDQ”) waste heat power generation projects. Xi’an TCH made an initial capital contribution of RMB 4 million ($0.65 million) and has a 40% ownership interest in 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 equity method. The Company recorded $77,091 equity based investment income during the six months ended June 30, 2014; however it was eliminated with financial fee of Zhonghong as 100% of Fund Management Company’s revenue is from Zhonghong’s financial fee and Zhonghong is 91.7% owned by Xi’an TCH (Note 11). Xi’an TCH paid $1.6 million one-time commission (recorded as other expense) to the Fund Management Company during 2013 for initiating and completion of the Fund financing for the Company.

On July 18, 2013, Beijing Hongyuan Recycling Energy Investment Center, LLP (the “HYREF Fund”) was established as a limited liability partnership in Beijing. Pursuant to the Partnership Agreement, the HYREF Fund has a general partner, the Fund Management Company, which made an initial capital 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 ($12.5 million) and is a secondary limited partner. The term of the HYREF Fund’s partnership is six (6) years from the date of its establishment, July 18, 2013. The term for the preferred limited partner is three (3) years from the date of its contribution and for the ordinary limited partner is four (4) years from the date of its contribution. Unless otherwise approved by the general partner (the Fund Management Company), upon the expiration of their respective terms, each partner shall exit from the partnership automatically. The total size of the HYREF Fund is RMB 460 million ($75.0 million), and the purpose of the HYREF Fund is to invest in Zhonghong for constructing 3 new CDQ WHPG projects. Xi’an TCH owns 16.3% of the HYREF Fund. The Company accounted for this investment using the cost method. The Company netted off the investment of RMB 75 million ($12.2 million) by Xi’an TCH with the entrusted loan payable of the HYREF Fund by Xi’an TCH.

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LOANS PAYABLE (Bank Loan – Bank of Chongqing) (Narrative) (Details)	6 Months Ended		0 Months Ended
	Jun. 30, 2014 USD ($)	Jun. 30, 2014 CNY	Apr. 11, 2014 Loan From Bank of Chongqing [Member] USD ($)	Apr. 11, 2014 Loan From Bank of Chongqing [Member] CNY	Jun. 30, 2014 Loan From Bank of Chongqing [Member] USD ($)
Debt Instrument [Line Items]
Debt Instrument, Face Amount			$ 8,130,000	50,000,000
Debt Instrument Maturity In Years			3 years	3 years
Debt Instrument, Maturity Date			Apr. 10, 2017	Apr. 10, 2017
Debt Instrument, Interest Rate, Stated Percentage			9.225%	9.225%
Debt Instrument, Periodic Payment, Principal			810,000	5,000,000
Debt Instrument Remaining loans Receivable			7,320,000	45,000,000
Payments of Debt Issuance Costs	405,696	2,550,000	155,280	950,000
Loans Payable, Noncurrent	$ 10,770,000				$ 8,130,000

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ACCRUED LIABILITIES AND OTHER PAYABLES

6 Months Ended

Jun. 30, 2014

Accounts Payable and Accrued Liabilities, Current [Abstract]

ACCRUED LIABILITIES AND OTHER PAYABLES

8. ACCRUED LIABILITIES AND OTHER PAYABLES

Accrued liabilities and other payables consisted of the following as of June 30, 2014 and December 31, 2013:

	2014		2013
Employee training, labor union expenditure and social insurance payable	$	516,637	$	521,373
Consulting, auditing, and legal expenses		446,428		403,860
Accrued payroll and welfare		301,034		318,871
Accrued system maintenance expense		48,758		49,205
Other		351,128		223,882
Total	$	1,663,985	$	1,517,191

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RELATED PARTY TRANSACTIONS

6 Months Ended

Jun. 30, 2014

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

9.  RELATED PARTY TRANSACTIONS

On March 1, 2014, Xi’an TCH entered a loan agreement with Mr. Guohua Ku, a major shareholder and the Company's Chairman and CEO, pursuant to which Mr. Ku will loan the Company, from time to time, up to RMB 80 million ($13 million) for the Company’s operating needs. The loan bore no interest, had one-year term from the actual lending date, the Company can repay the principal in installment. As of June 30, 2014, the Company borrowed $11,813,443 from Mr. Ku, including $2,379,734 outstanding balance prior to the loan agreement date; and had $40,857 in advances from the Company’s management, which bore no interest, and payable upon demand of the management.

 As of December 31, 2013, due to related parties totaled $2,420,391, including $2,379,734 advance from Mr. Ku, a major shareholder and the Company's Chairman and CEO; and $40,657 in advances from the Company’s management, which bore no interest, and were payable on demand. The $2,379,734 advance from the Company’s shareholder became short term, non-interest bearing, one-year loan as a result of the loan agreement entered on March 31, 2014.

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NONCONTROLLING INTEREST

6 Months Ended

Jun. 30, 2014

Noncontrolling Interest [Abstract]

NONCONTROLLING INTEREST

11. NONCONTROLLING INTEREST

Prior to June 15, 2013, “Non-controlling interest” was a 7% equity interest of Erdos TCH (the “JV”) owned by Erdos Metallurgy Co., Ltd. (“Erdos”).

As of June 15, 2013, the total registered capital of Erdos TCH was $17.55 million (RMB 120,000,000), of which, $16.37 million (RMB 112 million) was contributed by Xi’an TCH, and $1.18 million (RMB 8 million) was from Erdos Metallurgy. Erdos TCH engages in a business similar to that of Xi’an TCH. On June 15, 2013, Xi’an and Erdos Metallurgy entered into a share purchase agreement. Xi’an TCH will pay Erdos Metallurgy $1.29 million (RMB 8 million) for the 7% equity interest of Erdos TCH and then become 100% owner of Erdos TCH. In addition, Erdos TCH distributed 20% of the accumulated profit (calculated under PRC GAAP) to Erdos Metallurgy up to June 30, 2013, in accordance with the supplementary agreement entered on August 6, 2013.  In July 2013, Xi’an TCH paid $1.29 million (RMB 8 million) to Erdos Metallurgy, and in August 2013, Xi’an TCH paid 20% of the accumulated profit (calculated under PRC GAAP) in the amount of $226,000 to Erdos Metallurgy.

On July 15, 2013, Xi’an TCH and HYREF Fund jointly established Xi’an Zhonghong New Energy Technology (“Zhonghong”) with registered capital of RMB 30 million ($4.88 million), to manage new projects. Xi’an TCH paid RMB 27 million ($4.37 million). Xi'an TCH owns 90% of Zhonghong while HYREF Fund owns 10% of Zhonghong as non-controlling interest of Zhonghong.

In addition, the HYREF Fund was 16.3% owned by Xi’an TCH 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 10, 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%.

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LONG TERM PAYABLE - FINANCING AGREEMENT FOR SALE LEASE-BACK TRANSACTION (Schedule of Future Minimum Payments) (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Schedule Of Future Minimum Payments [Line Items]
2014	$ 843,518
2015	1,687,036
2016	843,517
Total	3,374,071
Unamortized interest	(282,319)
Total long term payable	3,091,752
Current portion	1,485,175	1,441,051
Noncurrent portion	$ 1,606,577

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STOCK-BASED COMPENSATION PLAN (Summary of Option Activity) (Details) (USD $)	6 Months Ended	12 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Number of Shares
Exercised	60,000	10,000
Employee Stock Option [Member]
Number of Shares
Beginning Balance, Outstanding	1,023,333
Beginning Balance, Exercisable	1,023,333
Granted	0
Exercised	0
Forfeited	0
Ending Balnce, Outstanding	1,023,333	1,023,333
Ending Balance, Exercisable	1,023,333	1,023,333
Average Exercise Price per Share
Beginning Balance, Outstanding	$ 2.85
Beginning Balance, Exercisable	$ 2.85
Granted	$ 0
Exercised	$ 0
Forfeited	$ 0
Ending Balance, Outstanding	$ 2.85	$ 2.85
Ending Balance, Exercisable	$ 2.85	$ 2.85
Weighted Average Remaining Contractual Term in Years
Granted	0 years
Exercised	0 years
Forfeited	0 years
Outstanding	10 months 24 days	1 year 4 months 24 days
Exercisable	10 months 24 days	1 year 4 months 24 days
Independent Directors Compensation Plan [Member]
Number of Shares
Beginning Balance, Outstanding	200,000
Beginning Balance, Exercisable	160,000
Granted	0
Exercised	60,000
Forfeited	0
Ending Balnce, Outstanding	140,000	200,000
Ending Balance, Exercisable	140,000	160,000
Average Exercise Price per Share
Beginning Balance, Outstanding	$ 2.64
Beginning Balance, Exercisable	$ 2.64
Granted	$ 0
Exercised	$ 1.85
Forfeited	$ 0
Ending Balance, Outstanding	$ 2.98	$ 2.64
Ending Balance, Exercisable	$ 2.98	$ 2.64
Weighted Average Remaining Contractual Term in Years
Granted	0 years
Exercised	0 years
Forfeited	0 years
Outstanding	8 months 26 days	1 year 18 days
Exercisable	8 months 26 days	8 months 26 days

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LONG TERM PAYABLE - FINANCING AGREEMENT FOR SALE LEASE-BACK TRANSACTION (Long Term Payable) - (Narrative) (Details)	3 Months Ended		6 Months Ended					6 Months Ended
	Jun. 30, 2014 USD ($)	Jun. 30, 2013 USD ($)	Jun. 30, 2014 USD ($)	Jun. 30, 2014 CNY	Jun. 30, 2013 USD ($)	Jun. 30, 2013 CNY	Dec. 31, 2013 USD ($)	Jun. 30, 2014 Financing Agreement with Cinda Financial Leasing Co., Ltd [Member] USD ($)	Jun. 30, 2014 Financing Agreement with Cinda Financial Leasing Co., Ltd [Member] CNY
Sale Leaseback Transaction [Line Items]
Sale Leaseback Transaction, Net Proceeds								$ 6,720,000	42,500,000
Sales leaseback term								5 years	5 years
Rate as percentage of national base interest rate used to reset floating interest rate								6.65%	6.65%
Debt Instrument, Basis Spread on Variable Rate								15.00%	15.00%
Debt Instrument, stated rate								7.6475%	7.6475%
Present value of future minimum lease Payments, Sale leaseback transactions	3,091,752		3,091,752					8,150,000	51,540,000
Final reacquisition amount to be paid under sale leaseback agreement								676	4,250
Sale Leaseback Transaction, Quarterly Rental Payments								412,855	2,594,998
One-time non-refundable leasing service charge			405,696	2,550,000
Refundable security deposit	338,079		338,079	2,125,000
Amortization of prepaid leasing service fee	20,955	20,550	41,680	255,000	40,857	255,000
Prepaid loan fees - current	82,899		82,899				83,649
Prepaid loan fees - noncurrent	82,879		82,879				125,474
Repayment								$ 4,639,569

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LONG TERM PAYABLE - FINANCING AGREEMENT FOR SALE LEASE-BACK TRANSACTION (Tables)

6 Months Ended

Jun. 30, 2014

Leases [Abstract]

Future Minimum Payment to be made by Years

As of June 30, 2014, the future minimum payment to be made by years was as follows:

2014	$	843,518
2015		1,687,036
2016		843,517
Total		3,374,071
Unamortized interest		(282,319)
Total long term payable		3,091,752
Current portion		1,485,175
Noncurrent portion	$	1,606,577

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NONCONTROLLING INTEREST (Narrative) (Details)	0 Months Ended		1 Months Ended			1 Months Ended			0 Months Ended
	Jun. 15, 2013 Erdos Metallurgy [Member] USD ($)	Jun. 15, 2013 Erdos Metallurgy [Member] CNY	Jul. 31, 2013 Erdos Metallurgy [Member] USD ($)	Jul. 31, 2013 Erdos Metallurgy [Member] CNY	Jun. 30, 2014 Erdos Metallurgy [Member]	Aug. 31, 2013 Erdos Metallurgy [Member] Noncontrolling Interest [Member] USD ($)	Jun. 15, 2013 ErdosTCH [Member] USD ($)	Jun. 15, 2013 ErdosTCH [Member] CNY	Jul. 15, 2013 Xi'an TCH [Member] USD ($)	Jul. 15, 2013 Xi'an TCH [Member] CNY	Jul. 15, 2013 Investment Center [Member]	Jun. 15, 2013 Erdos Tch Energy Saving Development Co Ltd [Member] USD ($)	Jun. 15, 2013 Erdos Tch Energy Saving Development Co Ltd [Member] CNY	Jun. 15, 2013 Xian Tch Energy Tech Co Ltd [Member] USD ($)	Jun. 15, 2013 Xian Tch Energy Tech Co Ltd [Member] CNY
Noncontrolling Interest [Line Items]
Total registered capital							$ 17,550,000	120,000,000
Profit distribution percentage	20.00%	20.00%				20.00%
Contributed in capital												1,180,000	8,000,000	16,370,000	112,000,000
Minority interest decrease from redemptions	1,290,000	8,000,000	1,290,000	8,000,000
Minority interest ownership percentage by noncontrolling owners					7.00%		7.00%	7.00%
Retained earnings accumulated deficit						226,000
Capital									4,880,000	30,000,000
Equity Method Investments									$ 4,370,000	27,000,000
Equity Method Investment, Ownership Percentage							100.00%	100.00%	90.00%	90.00%	10.00%
Indirect Ownership Percentage Details									HYREF Fund was 16.3% owned by Xian TCH and 1.1% owned by the Fund Management Company, and the Fund Management Company was 40% owned by Xian TCH as described in Note 10, which resulted in an additional indirect ownership of Xian TCH in Zhonghong of 1.7%	HYREF Fund was 16.3% owned by Xian TCH and 1.1% owned by the Fund Management Company, and the Fund Management Company was 40% owned by Xian TCH as described in Note 10, which resulted in an additional indirect ownership of Xian TCH in Zhonghong of 1.7%
Noncontrolling Interest, Ownership Percentage by Parent											8.30%

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STOCK-BASED COMPENSATION PLAN

6 Months Ended

Jun. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

STOCK-BASED COMPENSATION PLAN

16. STOCK-BASED COMPENSATION PLAN

Options to Employees

On August 4, 2008, the Company granted certain employees stock options under the Company’s 2007 Non-Statutory Stock Option Plan, which was later amended and restated in 2010, to acquire 3,000,000 shares of the Company’s common stock, par value $0.001, at $0.80 per share. The options vested over three years and have a life of five years. The Company’s 2007 Non-Statutory Stock Option Plan has expired.

Based on the FV method under SFAS No. 123 (Revised) “Share Based Payment” (“SFAS 123(R)”), codified in FASB ASC Topic 718, the FV of each 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 each option granted to employees is recognized as compensation expense over the vesting period of each stock option award. The FV of the options was calculated using the following assumptions, estimated life of five years, volatility of 100%, risk free interest rate of 2.76%, and dividend yield of 0%. No estimate of forfeitures was made as the Company has a short history of granting options. The options were accounted for as a modification of the options cancelled on June 25, 2008. The grant date FV of options was $5.04 million. The options expired on August 3, 2013.

On November 9 and 11, 2009, the Company and three option holders agreed to cancel 87,000 vested but unexercised shares and forfeit unvested options for 203,000 unvested shares.  On November 11, 2009, the Company granted options to two other employees for 290,000 shares of the Company’s common stock at $2.35 per share. The options vested over three years and have a life of five years. The FV of the options was calculated using the following assumptions, estimated life of five years, volatility of 100%, risk free interest rate of 3.84%, and dividend yield of 0%. The grant date FV of options was $518,513.

In July 2011, the Compensation Committee approved and provided the employees cashless exercise elections to the stock options granted by the Board of Directors of the Company (the “Board”) on August 4, 2008. On August 20, 2013, the Board further approved and provided the Employee Recipients (stock options granted to purchase shares of common stock of the Company in its resolutions on November 11, 2009 and August 13, 2010, as further discussed below) cashless exercise elections. The holder of the stock options may elect to receive shares equal to the value (as determined below) of his/her option (or the portion thereof being canceled) according to the following formula:

X =  Y (A-C)

A

Where	X =	the number of shares of Common Stock to be issued to the holder
	Y =	the number of shares of  stock option or, if only a portion of the stock option is being exercised, the portion of the option being canceled
	A =	the Fair Market Value of one share of Common Stock as defined below
	C =	Stock Option Exercise Price

For purposes of the above calculation, the fair market value per share shall be the closing price quoted on the NASDAQ Global Market for the five (5) trading days prior to the date on which a written notice of such holder’s election to exercise his/her option has been received by the Company. During 2013, the Employee Recipients exercised 2,650,000 shares of stock options (granted on August 4, 2008) into 1,887,411 shares of the Company’s common stock.

On August 13, 2010, the Company granted 2,200,000 options to acquire the Company’s common stock at $3.05 per share to 36 managerial and non-managerial employees as new equity awards pursuant to the Corporation’s Amended and Restated 2007 plan. According to the vesting terms, the options granted were divided into three tranches, (i) 1/3 (one third) of the total number of shares subject to the options shall vest and become exercisable if the Company meets its minimum revenue and earnings goals in the Company’s guidance for 2010 as delivered in its earnings releases and/or conference calls in the first quarter of 2010, such vesting to occur immediately upon completion of the annual audit confirming the financial results for 2010; and (ii) an additional 1/3 (one third) of the total number of shares subject to the options shall vest and become exercisable if the Company meets certain financial goals of 2011 which will be set out and decided by the Compensation Committee, such vesting to occur immediately upon Compensation Committee’s determination that the Company has met such goals for 2011; and (iii) the remaining 1/3 (one third) of the total number of shares subject to the options shall vest and become exercisable if the Company meets certain financial goals of 2012 which is set out and decided by the Compensation Committee, such vesting is to occur immediately upon Compensation Committee’s determination that the Company has met such goals for 2012.  The options may only be exercised to the extent that such options have become vested and exercisable.

The Company did not meet the financial goals of 2012 and 2011; accordingly, the second and third tranche (two thirds of the total number of 2,200,000 options) was forfeited.

The options have a life of five years. The FV of the options was calculated using the following assumptions; estimated life of five years, volatility of 92%, risk free interest rate of 3.54%, and dividend yield of 0%. Each tranche of the options is deemed to be independent of the others. Therefore, the FV of the first tranche of options was expensed during 2011; the second and third tranche of options were forfeited due to the non-achievement of established financial benchmarks.

The following table summarizes activity for employees in the Company’s Plan:

	Number of Shares		Average Exercise Price per Share		Weighted Average Remaining Contractual Term in Years
Outstanding at January 1, 2014		1,023,333		2.85		1.40
Exercisable at January 1, 2014		1,023,333		2.85		1.40
Granted		-		-		-
Exercised		-		-		-
Forfeited		-		-		-
Outstanding at June 30, 2014		1,023,333		2.85		0.90
Exercisable at June 30, 2014		1,023,333	$	2.85		0.90

Options to Independent Directors

On October 30, 2009, the Company granted stock options for 130,000 shares of the Company’s common stock, at $1.85 per share to three independent directors. The options vested and became exercisable on the six-month anniversary of the grant date with a life of five years. The FV of the options was calculated using the following assumptions: estimated life of five years, volatility of 100%, risk free interest rate of 3.54%, and dividend yield of 0%. The grant date FV of options was $183,000.

On January 20, 2010, the Company granted stock options for 40,000 shares of the Company’s common stock, at $4.68 per share to another independent director. The options vested and became exercisable on the six-month anniversary of the grant date with a life of five years. The FV of the options was calculated using the following assumptions: estimated life of five years, volatility of 100%, risk free interest rate of 3.54%, and dividend yield of 0%. The grant date FV of options was $142,000.

On October 7, 2010, the Board appointed Mr. Yilin Ma and Mr. Chungui Shi as new members of the Board to fill the director vacancies until their successors have been duly elected and qualified. In connection with their appointment, the Board authorized the Company to provide Mr. Shi with (i) compensation of $2,000 per month and (ii) the grant of an option to purchase 40,000 shares of the Company’s common stock, at an exercise price equal to the closing price per share of the Company’s common stock on October 7, 2010. The Director Stock Options vested and became exercisable upon shareholder approval; the options had a life of five years from the original grant date. The FV of these options was calculated using the following assumptions: estimated life of five years, volatility of 87%, risk free interest rate of 3.54%, and dividend yield of 0%. The grant date FV of the Director Stock Options was $83,000. On October 31, 2013, the Company was notified by NASDAQ that the grant of options to Mr. Chungui Shi were subject to our shareholders’ approval pursuant to NASDAQ rule 5635(c); accordingly, on November 11, 2013, the Company and Mr. Shi entered into that certain First Amendment to the Non-Statutory Stock Option Agreement. Per the First Amendment, the parties agreed that the underlying Nonstatutory Stock Option Agreement would be subject to stockholder approval at the Company's 2014 Annual Meeting of Shareholders and that if shareholder approval is not obtained, the initial grant shall be deemed null and void and Mr. Shi shall not have a right to these shares, the stock options granted to Mr. Shi was approved in the Company’s 2014 Annual Meeting.

The Director Stock Options did not include a cashless exercise right clause. On August 20, 2013, the Board approved and provided the Director Recipients cashless exercise elections to the Director Stock Options. The holder of the stock options may elect to receive shares equal to the value (as determined below) of his/her option (or the portion thereof being canceled) according to the following formula:

X =  Y (A-C)

A

Where	X =	the number of shares of common stock to be issued to the holder
	Y =	the number of shares of stock option or, if only a portion of the stock option is being exercised, the portion of the option being canceled
	A =	the Fair Market Value of one share of common stock as defined below
	C =	Stock Option Exercise Price

For purposes of the above calculation, the fair market value per share shall be the closing price quoted on the NASDAQ Global Market for the five (5) trading days prior to the date on which a written notice of such holder’s election to exercise his/her option has been received by the Company. During 2013, one of the Company’s directors exercised 10,000 shares of stock options into 5,261 shares of the Company’s common stock. During the six months ended June 30, 2014, two of the Company’s directors exercised 60,000 shares (50,000 and 10,000 shares respectively) of stock options into 36,124 shares (30,575 and 5,549 shares respectively) of the Company’s common stock.

The following table summarizes option activity with respect to the independent directors:

	Number of Shares		Average Exercise Price per Share		Weighted Average Remaining Contractual Term in Years
Outstanding at January 1, 2014		200,000		2.64		1.05
Exercisable at January 1, 2014		160,000		2.64		0.74
Granted		-		-		-
Exercised		60,000		1.85		-
Forfeited		-		-		-
Outstanding at June 30, 2014		140,000		2.98		0.74
Exercisable at June 30, 2014		140,000	$	2.98		0.74

Shares issued to a consulting firm

On October 16, 2013, the Company entered a one-year financing consulting service agreement with a consulting firm. The Company will pay 75,000 restricted Rule 144 shares for the service. The Board approved such share issuance on March 27, 2014. The fair value of the 75,000 shares was $187,500 at agreement date, and will be amortized over the term of the service.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The unaudited financial statements included herein were prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) that are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) were omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited financial statements and footnotes included in the Company’s 2013 audited financial statements included in the Company’s Annual Report on Form 10-K.  The results for the six and three months ended June 30, 2014 are not necessarily indicative of the results expected for the full year ending December 31, 2014.

Basis of Consolidation

Basis of Consolidation

The consolidated financial statements include the accounts of CREG and its subsidiary, Sifang Holdings, its wholly owned subsidiaries, Huahong New Energy Technology Co., Ltd. (“Huahong”) and Shanghai TCH, Shanghai TCH’s wholly-owned subsidiary, Xi’an TCH Energy Tech Co., Ltd. (“Xi’an TCH”) and Xi’an TCH’s subsidiaries, Erdos TCH Energy Saving Development Co., Ltd (“Erdos TCH”), 100% owned by Xi’an TCH (See note 1), and Zhonghong, 90% owned by Xi’an TCH.  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, 2014 and December 31, 2013, respectively. All significant inter-company accounts and transactions were eliminated in consolidation.

Use of Estimates

Use of Estimates

In preparing these consolidated financial statements 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.

Revenue Recognition

Revenue Recognition

Sales-type Leasing and Related Revenue Recognition

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.  The investment in these projects is recorded as investment in sales-type leases in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 13, “Accounting for Leases” (codified in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 840) and its various amendments and interpretations. The Company finances construction of the waste energy recycling generating projects.  The sales and cost of sales are recognized at the inception of lease. 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 payment consists of the gross lease payments net of executory costs and contingent rentals, if any. Unearned interest income is amortized to income over the lease term to produce a constant periodic rate of return on net investment in the lease.  While revenue is recognized at the inception of the lease, the cash flow from the sales-type lease occurs over the course of the lease, which results in interest income and reduction of receivables. Revenue is recognized net of sales tax.

Contingent Rental Income

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

Cash and Equivalents

Cash and Equivalents

Cash and equivalents includes cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three (3) months or less as of the purchase date of such investments.

Accounts Receivable

Accounts Receivable

As of June 30, 2014 and December 31, 2013, the Company had accounts receivable of $61,083 and $71,573, respectively, from contingent rental income.

Property and Equipment

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-life Assets

Impairment of Long-life Assets

In accordance with SFAS 144 (codified in FASB ASC Topic 360), the Company reviews its long-lived assets, including property, plant 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 is 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. There was no impairment as of June 30, 2014 and December 31, 2013.

Non-Controlling Interests

Non-Controlling Interests

The Company follows FASB ASC Topic 810, “Consolidation,” which established new standards governing the accounting for and reporting of non-controlling 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 other 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.

Fair Value of Financial Instruments

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.

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

· Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

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

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

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

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

As of June 30, 2014, the Company’s long-term debt obligations consisted of the following: (i) various long-term bank loans and Zhongrong International Trust Co., Ltd (“ZRIT”) trust loan payable of $58.28 million, (ii) a long-term payable for a sale-leaseback transaction of $3.09 million, and (iii) Zhonghong entrusted loan of $62.09 million. As of December 31, 2013, the Company’s long-term debt obligations consisted of the following: (i) long-term bank loans payable of $18.86 million, (ii) a long-term payable for a sale-leaseback transaction of $3.83 million, and (iii) Zhonghong entrusted loan of $62.65 million.

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

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

As of June 30, 2014 and December 31, 2013, the Company did not identify any assets and liabilities that are required to be presented on the balance sheet at FV other than the sale-lease back transaction of $1.61 million on June 30, 2014 and $2.39 million on December 31, 2013, which was the present value of the total future cash outflow including principal and interest payments (See Note 15).

Stock Based Compensation

Stock Based Compensation

The Company accounts for its stock-based compensation in accordance with SFAS No. 123R, “Share-Based Payment, an Amendment of FASB Statement No. 123” (codified in FASB ASC Topic 718 and 505).  The Company recognizes in its statement of operations FV at the grant date for stock options and other equity-based compensation issued to employees and non-employees.

Basic and Diluted Earnings per Share

Basic and Diluted Earnings per Share

The Company presents net income (loss) per share (“EPS”) in accordance with SFAS No. 128, “Earnings per Share” (codified in FASB ASC Topic 740).  Accordingly, basic income (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of shares outstanding, without consideration for common stock equivalents.  Diluted EPS is computed by dividing the net income by the weighted-average number of common shares outstanding as well as common share equivalents outstanding for the period determined using the treasury-stock method for stock options and warrants and the if-converted method for convertible notes.  The Company made an accounting policy election to use the if-converted method for convertible securities that are eligible to receive common stock dividends, if declared.  Diluted EPS reflect the potential dilution that could occur based on the exercise of stock options or warrants or conversion of convertible securities using the if-converted method. The following table presents a reconciliation of basic and diluted EPS:

The following table presents a reconciliation of basic and diluted earnings per share for the six and three months ended June 30, 2014 and 2013:

	Six Months Ended				Three Months Ended
	2014		2013		2014		2013
Net income for common shares	$	9,712,082	$	7,031,534	$	6,589,058	$	3,733,344
Net income for diluted shares	$	9,712,082	$	7,031,534	$	6,589,058	$	3,733,344
Weighted average shares outstanding – basic		61,066,042		50,224,350		61,217,625		50,224,350
Effect of dilutive securities:
Options granted		115,187		633,173		82,307		546,111
Weighted average shares outstanding – diluted		61,181,229		50,857,523		61,299,932		50,770,461
Earnings per share – basic	$	0.16	$	0.14	$	0.11	$	0.07
Earnings per share – diluted	$	0.16	$	0.14	$	0.11	$	0.07

Foreign Currency Translation and Comprehensive Income (Loss)

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 uses SFAS 130 “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.

Segment Reporting

Segment Reporting

SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” (codified in FASB ASC Topic 280) 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. SFAS 131 has no effect on the Company’s financial statements as substantially all of the Company’s operations are conducted in one industry segment. All of the Company’s assets are located in the PRC.

New Accounting Pronouncements

New Accounting Pronouncements

In January 2014, FASB issued, Accounting Standards Update 2014-05, Service Concession Arrangements (Topic 853), The objective of this Update is to specify that an operating entity should not account for a service concession arrangement within the scope of this Update as a lease in accordance with Topic 840, Leases. Service concession arrangements may become more prevalent in the United States as public-sector entities seek alternative ways to provide public services on a more efficient and cost-effective basis. The amendments apply to an operating entity of a service concession arrangement entered into with a public-sector entity grantor when the arrangement meets certain conditions. The amendments in this Update should be applied on a modified retrospective basis to service concession arrangements that exist at the beginning of an entity’s fiscal year of adoption. The modified retrospective approach requires the cumulative effect of applying this Update to arrangements existing at the beginning of the period of adoption to be recognized as an adjustment to the opening retained earnings balance for the annual period of adoption. The amendments are effective for a public business entity for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The adoption of this ASU will not affect the Company’s financial statements.

The FASB has issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective on January 1, 2017 and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. The adoption of this standard is not expected to have a material impact on the Company's condensed consolidated financial position and results of operations.

The Financial Accounting Standards Board ("FASB") has issued Accounting Standards Update ("ASU") No. 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered.. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company's condensed consolidated financial position and results of operations.

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RELATED PARTY TRANSACTIONS (Narrative) (Details)	Jun. 30, 2014 USD ($)	Dec. 31, 2013 USD ($)	Jun. 30, 2014 Loan Agreement [Member] USD ($)	Mar. 01, 2014 Loan Agreement [Member] USD ($)	Mar. 01, 2014 Loan Agreement [Member] CNY	Dec. 31, 2013 Management [Member] USD ($)	Dec. 31, 2013 Chief Executive Officer [Member] USD ($)	Jun. 30, 2014 Mr. Ku [Member] USD ($)	Dec. 31, 2013 Mr. Ku [Member] USD ($)
Related Party Transaction [Line Items]
Advance to related party	$ 11,854,300	$ 2,420,391	$ 40,857			$ 40,657	$ 2,379,734	$ 2,379,734	$ 2,379,734
Debt Instrument, Unused Borrowing Capacity, Amount				13,000,000	80,000,000
Long-term Debt, Gross	$ 11,813,443

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NET INVESTMENT IN SALES-TYPE LEASES (Narrative) (Details)	6 Months Ended
	Jun. 30, 2014
Investment [Line Items]
Sale Leaseback Transaction Lease Terms	Under sales-type leases, Xian TCH leases the following systems: (i) TRT systems to Zhangzhi (13 year term); (ii) CHPG systems to Jing Yang Shengwei (5 year term); (iii) BMPG systems to Pucheng Phase I and II (15 and 11 year terms, respectively); (iv) BMPG systems to Shenqiu Phase I (11 year term); (v) Shenqiu Phase II (9.5 year term); (vi) WHPG system to Zhongbao (9 year term); (vii) WHPG systems to Jitie (24 year term); viii) WGPG systems to Yida (15 year term); and (ix) two BPRT systems to Shanxi Datong (30 year term). In addition, as of June 30, 2014, Erdos TCH leased power and steam generating systems from waste heat from metal refining to Erdos (five systems) for a term of 20 years.

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Income including noncontrolling interest	$ 9,668,218	$ 7,278,818
Adjustments to reconcile income including noncontrolling interest to net cash used in operating activities:
Changes in sales type leases receivables	(18,946,044)	(27,702,800)
Shares to be issued for cost of Yida project	14,491,450	0
Depreciation and amortization	16,211	23,143
Amortization of prepaid loan fees	41,680	40,857
Changes in deferred tax	1,471,536	1,419,815
Changes in assets and liabilities:
Interest receivable on sales type lease	(220,343)	262,055
Collection of principal on sales type leases	5,304,071	4,751,915
Prepaid expenses	729,902	433
Accounts receivable	9,895	17,251
Other receivables	13,502	(49,562)
Construction in progress	(57,679,140)	5,257,935
Accounts payable	8,278,300	(1,842,164)
Taxes payable	132,582	154,630
Interest payable	(27,528)	1,964,953
Accrued liabilities and other payables	156,908	255,153
Accrued interest on convertible notes	0	(202,975)
Long term refundable deposit from customer	0	240,335
Net cash provided by (used in) operating activities	(36,558,800)	(8,130,208)
CASH FLOWS FROM INVESTING ACTIVITIES:
Changes of restricted cash	(5,475,646)	1,863,073
Acquisition of property & equipment	(556)	(20,741)
Long term investment	0	(640,892)
Net cash provided by (used in) investing activities	(5,476,202)	1,201,440
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes receivable	653,808	(801,115)
Proceeds from loans	41,860,085	4,806,691
Repayment of loans	(10,379,209)	(9,453,159)
Long term payable	(703,938)	(637,889)
Advance from related parties	9,509,112	0
Net cash provided by (used in) financing activities	40,939,858	(6,085,472)
EFFECT OF EXCHANGE RATE CHANGE ON CASH & EQUIVALENTS	9,256	641,174
NET DECREASE INCREASE IN CASH & EQUIVALENTS	(1,085,888)	(12,373,066)
CASH & EQUIVALENTS, BEGINNING OF PERIOD	7,701,530	45,004,304
CASH & EQUIVALENTS, END OF PERIOD	6,615,642	32,631,238
Supplemental cash flow data:
Income tax paid	1,632,341	2,203,339
Interest paid	$ 6,986,923	$ 1,518,052

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PREPAID EXPENSES

6 Months Ended

Jun. 30, 2014

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

PREPAID EXPENSES

5. PREPAID EXPENSES

Prepaid expenses mainly consisted of prepayment for office rental and decorations, and consulting fees for the Company’s RMB 460 million ($75 million) fund project completed in July 2013. Before the HYREF Fund released the money to Zhonghong, Xi'an TCH paid 2% of the funds raised for Zhonghong, i.e. RMB 9.2 million ($1.5 million) to the Fund Management Company as a consulting fee and it shall pay such 2% on the amount of funds actually contributed as an annual management fee on every 365 day anniversary thereafter until Zhonghong fully repays the loan and the HYREF Fund no longer has an ownership interest in Zhonghong. The Company prepaid consulting expense to the Fund Management Company of $1.5 million in 2013, and had $0.12 million prepaid consulting expense as of June 30, 2014.

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LOANS PAYABLE (Bank Long Term Loans - Industrial Bank) (Narrative) (Details)		1 Months Ended	6 Months Ended		0 Months Ended				6 Months Ended
	Jun. 30, 2014 USD ($)	Mar. 31, 2011 Industrial Bank Loan Two [Member]	Jun. 30, 2014 Industrial Bank Loan Three [Member] USD ($)	Jun. 30, 2014 Industrial Bank Loan Three [Member] CNY	Nov. 08, 2011 Industrial Bank Loan Four [Member] USD ($)	Nov. 08, 2011 Industrial Bank Loan Four [Member] CNY	Oct. 09, 2013 Industrial Bank Loan Five [Member] USD ($)	Oct. 09, 2013 Industrial Bank Loan Five [Member] CNY	Jun. 30, 2014 Industrial Bank Loan Five [Member] USD ($)	Jun. 30, 2014 Industrial Bank Loan Five [Member] CNY	Jun. 30, 2014 2014 [Member] USD ($)	Jun. 30, 2014 2014 [Member] CNY	Jun. 30, 2014 2015 [Member] USD ($)	Jun. 30, 2014 2015 [Member] CNY	Jun. 30, 2014 2016 [Member] USD ($)	Jun. 30, 2014 2016 [Member] CNY
Debt Instrument [Line Items]
Bank loans payable issued					$ 21,040,000	130,000,000	$ 16,400,000	100,000,000
Debt instrument maturity term		3 years
Rate as percentage of national base interest rate used to reset floating interest rate		115.00%			115.00%	115.00%	120.00%	120.00%
Debt instrument, basis spread on variable rate		7.07%			7.36%	7.36%
Minimum quarterly payment			488,000	3,000,000					1,618,463	10,000,000	615,067	3,750,000	1,025,111	6,250,000	1,230,133	7,500,000
Loan outstanding balance	15,030,000								8,130,000
Loans outstanding, current	4,260,000								6,500,000
Long-term loans	$ 10,770,000								$ 1,630,000

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COMMITMENTS (Narrative) (Details) (Xi'an TCH [Member], USD $)	1 Months Ended		3 Months Ended		6 Months Ended
	Mar. 04, 2014	Mar. 31, 2013	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Loss Contingencies [Line Items]
Operating Lease Term		3 years
Operating lease expiry date	Mar. 22, 2016
Monthly rental payment		$ 3,800
Rental expense			116,994	93,566	223,425	148,100
Percentage increases in monthly rental payment	8.00%	5.00%
Before
Loss Contingencies [Line Items]
Monthly rental payment					18,000
After
Loss Contingencies [Line Items]
Monthly rental payment					$ 19,440

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Property and Equipment Estimated Lives

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

Reconciliation of Basic and Diluted Earnings Per Share

The following table presents a reconciliation of basic and diluted earnings per share for the six and three months ended June 30, 2014 and 2013:

	Six Months Ended				Three Months Ended
	2014		2013		2014		2013
Net income for common shares	$	9,712,082	$	7,031,534	$	6,589,058	$	3,733,344
Net income for diluted shares	$	9,712,082	$	7,031,534	$	6,589,058	$	3,733,344
Weighted average shares outstanding – basic		61,066,042		50,224,350		61,217,625		50,224,350
Effect of dilutive securities:
Options granted		115,187		633,173		82,307		546,111
Weighted average shares outstanding – diluted		61,181,229		50,857,523		61,299,932		50,770,461
Earnings per share – basic	$	0.16	$	0.14	$	0.11	$	0.07
Earnings per share – diluted	$	0.16	$	0.14	$	0.11	$	0.07

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Narrative) (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Significant Accounting Policies [Line Items]
Accounts receivable	$ 61,083	$ 71,573
Bank loans payable [Member]
Significant Accounting Policies [Line Items]
Long term loans from bank	58,280,000	18,860,000
Long term payable [member]
Significant Accounting Policies [Line Items]
Sale leaseback transaction, amount due under financing arrangement	3,090,000	3,830,000
Xian Tch [Member]
Significant Accounting Policies [Line Items]
Equity interest percentage	100.00%
Zhonghong [Member]
Significant Accounting Policies [Line Items]
Equity interest percentage	90.00%
Long term loans from bank	$ 62,090,000	$ 62,650,000

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LONG TERM PAYABLE - FINANCING AGREEMENT FOR SALE LEASE-BACK TRANSACTION

6 Months Ended

Jun. 30, 2014

Leases [Abstract]

LONG TERM PAYABLE - FINANCING AGREEMENT FOR SALE LEASE-BACK TRANSACTION

15.  LONG TERM PAYABLE – FINANCING AGREEMENT FOR SALE LEASE-BACK TRANSACTION

On June 28, 2011, Xi’an TCH entered into a Financing Agreement (the “Cinda Agreement”) with Cinda Financial, an affiliate of China Cinda (HK) Asset Management Co., Ltd, a company organized under the laws of the Hong Kong Special Administrative Region of China (“Cinda HK”).

Under the Cinda Agreement, Xi’an TCH transferred its ownership of (i) a set of 7MW steam turbine waste heat power generation systems and (ii) four furnaces and ancillary apparatus ((i) and (ii) collectively, the “Assets”) to Cinda Financial for $6.72 million (RMB 42.50 million), and Cinda Financial leased the Assets to Xi’an TCH for five (5) years for $8.15 million (RMB 51.54 million) based on the transfer cost and benchmark interest rate for five (5) year loans by People’s Bank of China (“PBOC”) (then 6.65%) plus 15% of that rate (7.6475%). The interest rate will increase if the five-year benchmark interest rate of PBOC increases but will remain the same if the benchmark rate decreases in the future. Xi’an TCH shall make pro rata quarterly payments to Cinda Financial for the leasing fees. Upon the completion of the lease term and full payment of all leasing fees and other fees, Xi’an TCH can pay $676 (RMB 4,250) to acquire the Assets from Cinda Financial. The quarterly minimum leasing payment to Cinda Financial is $412,855 (RMB 2,594,998).

In addition to the leasing fees, Xi’an TCH prepaid a one-time non-refundable leasing service charge of $405,696 (RMB 2,550,000) and a refundable security deposit of $338,079 (RMB 2,125,000) to Cinda Financial. The prepaid leasing service fee is to be: amortized over five (5) years. For the six months ended June 30, 2014 and 2013, $41,680 (RMB 255,000) and $40,857 (RMB 255,000) was amortized, and $20,955 and $20,550 was amortized for the three months ended June 30, 2014 and 2013, respectively. The unamortized portion was recorded as prepaid loan fees of $82,899 and $82,879 into current and non-current portions, respectively, as of June 30, 2014.

In accordance with ASC 840-10-25-4, since CREG retains substantially all of the benefits and risks relating to the property, this transaction was a financing and was recorded as such. The proceeds of this financing were not received prior to September 30, 2011; therefore, this transaction was recorded in the third quarter of 2011. As of June 30, 2014, the Company made repayments of $4,639,569 to Cinda Financial.

As of June 30, 2014, the future minimum payment to be made by years was as follows:

2014	$	843,518
2015		1,687,036
2016		843,517
Total		3,374,071
Unamortized interest		(282,319)
Total long term payable		3,091,752
Current portion		1,485,175
Noncurrent portion	$	1,606,577