CHINA RECYCLING ENERGY : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

Note Regarding Forward-Looking Statements

This quarterly report on Form 10-Q and other reports filed by the Company from
time to time with the SEC (collectively the "Filings") contain or may contain
forward-looking statements and information that are based upon beliefs of, and
information currently available to, Company's management as well as estimates
and assumptions made by Company's management. Readers are cautioned not to place
undue reliance on these forward-looking statements, which are only predictions
and speak only as of the date hereof. When used in the filings, the words "may",
"will", "should", "would", "anticipate", "believe", "estimate", "expect",
"future", "intend", "plan", or the negative of these terms and similar
expressions as they relate to Company or Company's management identify
forward-looking statements. Such statements reflect the current view of Company
with respect to future events and are subject to risks, uncertainties,
assumptions, and other factors (including the statements in the section "results
of operations" below), and any businesses that Company may acquire. Should one
or more of these risks or uncertainties materialize, or should the underlying
assumptions prove incorrect, actual results may differ significantly from those
anticipated, believed, estimated, expected, intended, or planned. Factors that
might cause or contribute to such a discrepancy, include, but are not limited
to, those listed under the heading "Risk Factors" and those listed in the Annual
Report on Form 10-K for the year ended December 31, 2019 (the "2019 Form 10-K").
The following discussion should be read in conjunction with our Financial
Statements and related Notes thereto included elsewhere in this report and

in
the 2019 Form 10-K.



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

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

OVERVIEW OF BUSINESS BACKGROUND

China Recycling Energy Corporation (the "Company" or "CREG") was incorporated on
May 8, 1980. On March 8, 2007, the Company again changed its name from China
Digital Wireless, Inc. to its current name, China Recycling Energy Corporation.
The Company, through its subsidiaries, sells and leases energy saving systems
and equipment to its customers in the People's Republic of China ("PRC").
Typically, the Company transfers ownership of the waste energy recycling power
generating projects to its customers at the end of each sales-type lease and
provides financing to its customers for the cost of the projects as described
below.

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



In December 2019, a novel strain of coronavirus (COVID-19) was reported in
Wuhan, China. The World Health Organization has declared the outbreak to
constitute a "Public Health Emergency of International Concern." This pandemic,
which continues to spread to additional countries, and is disrupting supply
chains and affecting production and sales across a range of industries as a
result of quarantines, facility closures, and travel and logistics restrictions
in connection with the outbreak. However, as a result of PRC government's effort
on disease control, most cities in China were reopened, the outbreak in China is
under the control. The Company disposed all of its systems and currently holds
only five power generating systems through Erdos TCH, the Company initially
expected to resume production of these five power generating systems in July
2020 from the renovation and furnace safety upgrade, but the resumption of
operations will be delayed due to the global pandemic of Covid-19; Erdos exports
ferrosilicon to 27 countries, the Company decided not to resume the production
in the third quarter of 2020 as a result of decreased sales order and
overstocked inventory. The Company expects the resumption date to be December
2020 and is currently doing the final testing of the equipment. There are some
new Covid-19 cases discovered in a few provinces of China, however, the number
of new cases is not significant due to PRC government's strict control.



                                       30





For the nine months ended September 30, 2020 and 2019, the Company had a net
loss of $0.28 million and net loss $11.31 million, respectively. For the three
months ended September 30, 2020 and 2019, the Company had a net loss of $0.67
million and net loss $4.10 million, respectively. The Company has an accumulated
deficit of $46.87 million as of September 30, 2020. The Company is in the
process of transforming and expanding into an energy storage integrated solution
provider as described above.

The historical operating results indicate substantial doubt exists related to
the Company's ability to continue as a going concern. However, the Company had
$73.79 million cash on hand at September 30, 2020, this also satisfies the
Company's estimated liquidity needs 12 months from the issuance of the financial
statements. The Company believes that the actions discussed above are probable
of occurring and the occurrence, as well as the cash flow discussed, mitigate
the substantial doubt raised by its historical operating results.



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

including bank loans.



Our Subsidiaries

Our business is primarily conducted through our wholly-owned subsidiaries,
Sifang Holdings Co., Ltd. ("Sifang") and Shanghai Yinghua Financial Leasing Co.,
Ltd ("Yinghua"); Sifang's wholly-owned subsidiaries, Huahong New Energy
Technology Co., Ltd. ("Huahong") and Shanghai TCH Energy Tech Co., Ltd.
("Shanghai TCH"); Shanghai TCH's wholly-owned subsidiary, Xi'an TCH Energy
Technology Company, Ltd ("Xi'an TCH"); Xi'an TCH's wholly-owned subsidiaries,
Erdos TCH Energy Saving Development Co., Ltd ("Erdos TCH") and Zhongxun Energy
Investment (Beijing) Co., Ltd ("Zhongxun"); and Xi'an TCH's 90% and Shanghai
TCH's 10% owned subsidiary, Xi'an Zhonghong New Energy Technology Co., Ltd.
("Zhonghong"). Zhonghong provides energy saving solutions and services,
including constructing, selling and leasing energy saving systems and equipment
to customers, project investment.



                                       31

The Company's organizational chart as of September 30, 2020 is as follows:

CREG Legal Structure



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Shanghai TCH and its Subsidiaries

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

The Fund Management Company and the HYREF Fund

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

and
Xi'an TCH, respectively.



The Fund Management Company is the general partner of Beijing Hongyuan Recycling
Energy Investment Center, LLP (the "HYREF Fund"), a limited liability
partnership established July 18, 2013 in Beijing. The Fund Management Company
made an initial capital contribution of RMB 5 million ($830,000) to the HYREF
Fund. RMB 460 million ($77 million) was fully subscribed by all partners for the
HYREF Fund. The HYREF Fund has three limited partners: (1) China Orient Asset
Management Co., Ltd., which made an initial capital contribution of RMB 280
million ($46.67 million) to the HYREF Fund and is a preferred limited partner;
(2) Hongyuan Huifu, which made an initial capital contribution of RMB 100
million ($16.67 million) to the HYREF Fund and is an ordinary limited partner;
and (3) the Company's wholly-owned subsidiary, Xi'an TCH, which made an initial
capital contribution of RMB 75 million ($12.5 million) to the HYREF Fund and is
a secondary limited partner. In addition, Xi'an TCH and Hongyuan Huifu formed
Beijing Hongyuan Recycling Energy Investment Management Company Ltd. to manage
this Fund and also subscribed in the amount of RMB 5 million ($830,000) from the
Fund. The term of the HYREF Fund's partnership is six years from the date of its
establishment, expiring on July 18, 2019. However, the HYREF Fund's partnership
will not terminate until the HYREF loan is fully repaid and the buy-back period
is over pursuant to that certain Buy-Back Agreement entered on December 29, 2018
by and among HYREF, Xi'an Zhonghong, Xi'an TCH, Guohua Ku, Chonggong Bai and
Xi'an Hanneng (the "Buy-Back Agreement") (see Note 9). The term is four years
from the date of contribution for the preferred limited partner, and four years
from the date of contribution for the ordinary limited partner. The size of the
HYREF Fund is RMB 460 million ($77 million). The HYREF Fund was formed for the
purpose of investing in Xi'an Zhonghong New Energy Technology Co., Ltd., a then
90% owned subsidiary of Xi'an TCH, for the construction of two coke dry
quenching ("CDQ") waste heat power generation ("WHPG") stations with Jiangsu
Tianyu Energy and Chemical Group Co., Ltd. ("Tianyu") and one CDQ WHPG station
with Boxing County Chengli Gas Supply Co., Ltd. ("Chengli").



                                       32





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



Erdos TCH - Joint Venture



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

of
27 MW power capacity.

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

After considering the challenging economic conditions facing Erdos, and to
maintain the long-term cooperative relationship between the parties, which we
believe will continue to produce long-term benefits, on April 28, 2016, Erdos
TCH and Erdos entered into a supplemental agreement, effective May 1, 2016.
Under the supplemental agreement, Erdos TCH cancelled monthly minimum lease
payments from Erdos, and agreed to charge Erdos based on actual electricity sold
at RMB 0.30 / KWH, which price will be adjusted annually based on prevailing
market conditions.  Since May 2019, Erdos TCH has ceased its operations due to
renovations and furnace safety upgrades of Erdos, and the Company originally
expected the resumption of operations in July 2020. but the resumption of
operations will be delayed due to the global pandemic of Covid-19, the Company
is not able to provide a resumption date as it will depend on the overall
progress of the global epidemic control. During this period, Erdos will
compensate Erdos TCH RMB 1 million ($145,460) per month, until operations
resume.



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



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



                                       33

Shenqiu Yuneng Biomass Power Generation Projects

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



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



On January 4, 2019, Xi'an Zhonghong, Xi'an TCH, and Mr. Chonggong Bai entered
into a Projects Transfer Agreement (the "Agreement"), pursuant to which Xi'an
TCH will transfer two Biomass Power Generation Projects in Shenqiu ("Shenqiu
Phase I and II Projects") to Mr. Bai for RMB 127,066,000 ($18.55 million). Mr.
Bai agreed to transfer all the equity shares of his wholly owned company, Xi'an
Hanneng Enterprises Management Consulting Co. Ltd. ("Xi'an Hanneng") to Beijing
Hongyuan Recycling Energy Investment Center, LLP (the "HYREF") as repayment for
the loan made by Xi'an Zhonghong to HYREF as consideration for the transfer of
the Shenqiu Phase I and II Projects (See Note 9). The transfer of projects was
completed February 15, 2019. The Company recorded $208,359 loss from the
transfer. Mr. Bai transferred all the equity shares of his wholly owned company,
Xi'an Hanneng to the HYREF Fund as repayment for the loan on January 10, 2019.
Xi'an Hanneng will own 47,150,000 shares of Xi'an Huaxin New Energy Co., Ltd for
the repayment of Shenqiu system and Huayu system. However, Xi'an Hanneng was not
able to obtain all the Huaxin shares due to halted trading of Huaxin stock by
NEEQ for not filing its 2018 annual report.  On December 19, 2019, Xi'an TCH,
Xi'an Zhonghong, Guohua Ku and Chonggong Bai jointly and severally agreed to buy
back all outstanding capital equity of Xi'an Hanneng which was transferred to
HYREF by Chonggong Bai earlier. The total buy back price was RMB 261,727,506
($37.52 million) including accrued interest of RMB 14,661,506 ($2.10 million),
and was paid in full by Xi'an TCH. On December 20, 2019, Mr. Bai, Xi'an TCH and
Xi'an Zhonghong, agreed to have Mr. Bai repay the Company in cash for the
transfer price of Xuzhou Huayu and Shenqiu in five installment payments. The
1st payment of RMB 50 million ($7.17 million) is due on January 5, 2020, the
2nd payment of RMB 50 million ($7.17 million) was due on February 5, 2020, the
3rd payment of RMB 50 million ($7.17 million) was due on April 5, 2020, the
4th payment of RMB 50 million ($7.17 million) was due on June 30, 2020, and the
final payment of RMB 47,066,000 ($6.75 million) was due on September 30, 2020.
As of this report date, the Company received full payment of RMB 247 million
($36.28 million).

Pucheng Biomass Power Generation Projects

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

I").



                                       34





On September 11, 2013, Xi'an TCH entered into a BMPG Asset Transfer Agreement
(the "Pucheng Transfer Agreement") with Pucheng Xin Heng Yuan Biomass Power
Generation Corporation ("Pucheng"), a limited liability company incorporated in
China. The Pucheng Transfer Agreement provided for the sale by Pucheng to Xi'an
TCH of a set of 12 MW BMPG systems with the completion of system transformation
for a purchase price of RMB 100 million ($16.48 million) in the form of 87,666
shares (post-reverse stock split) of Common Stock of the Company at $187.0
(post-reverse stock price) per share. Also on September 11, 2013, Xi'an TCH also
entered into a BMPG Project Lease Agreement with Pucheng (the "Pucheng Lease").
Under the Pucheng Lease, Xi'an TCH leases this same set of 12 MW BMPG system to
Pucheng, and combines this lease with the lease for the 12 MW BMPG station of
Pucheng Phase I project, under a single lease to Pucheng for RMB 3.8 million
($0.63 million) per month (the "Pucheng Phase II Project"). The term for the
consolidated lease is from September 2013 to June 2025. The lease agreement for
the 12 MW station from Pucheng Phase I project terminated upon the effective
date of the Pucheng Lease. The ownership of two 12 MW BMPG systems will transfer
to Pucheng at no additional charge when the Pucheng Lease expires.

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

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

Chengli Waste Heat Power Generation Projects

On July 19, 2013, Xi'an TCH formed a new company, "Xi'an Zhonghong New Energy
Technology Co., Ltd." ("Zhonghong"), with registered capital of RMB 30 million
($4.85 million). Xi'an TCH paid RMB 27 million ($4.37 million) and owns 90% of
Zhonghong. Zhonghong is engaged to provide energy saving solution and services,
including constructing, selling and leasing energy saving systems and equipment
to customers. On December 29, 2018, Shanghai TCH entered into a Share Transfer
Agreement with HYREF, pursuant to which HYREF agreed to transfer its 10%
ownership in Xi'an Zhonghong to Shanghai TCH for RMB 3 million ($0.44 million).
The transfer was completed January 22, 2019.



On July 24, 2013, Zhonghong entered into a Cooperative Agreement of CDQ and CDQ
WHPG Project with Boxing County Chengli Gas Supply Co., Ltd. ("Chengli"). The
parties entered into a supplement agreement on July 26, 2013. Pursuant to these
agreements, Zhonghong agreed to design, build and maintain a 25 MW CDQ system
and a CDQ WHPG system to supply power to Chengli, and Chengli agreed to pay
energy saving fees (the "Chengli Project"). Chengli will contract the operation
of the system to a third party contractor that is mutually agreed to by
Zhonghong. In addition, Chengli will provide the land for the CDQ system and CDQ
WHPG system at no cost to Zhonghong. The term of these Agreements is 20 years.
The watt hours generated by the Chengli Project will be charged at RMB 0.42
($0.068) per KWH (excluding tax). The operating time shall be based upon an
average 8,000 hours annually. If the operating time is less than 8,000 hours per
year due to a reason attributable to Chengli, then time charged shall be 8,000
hours a year, and if it is less than 8,000 hours due to a reason attributable to
Zhonghong, then it shall be charged at actual operating hours. The construction
of the Chengli Project was completed in the second quarter of 2015 and the
project successfully completed commissioning tests in the first quarter of 2017.
The Chengli Project is now operational, however, due to intensifying
environmental protection, the local environmental authorities required the
project owner constructing CDQ sewage treatment to complete supporting works,
which were completed and passed through acceptance inspection during the quarter
ended September 30, 2018. However, the owner of Chengli Project changed from
Chengli to Shandong Boxing Shengli Technology Company Ltd. ("Shengli"). This
change resulted from transfer of the equity ownership of Chengli to Shengli (a
private company) in March 2014. Chengli, a 100% state-owned enterprise that is
100% owned by the local Power Supply Bureau,  is no longer allowed to carry out
business activities, and Shengli, the new owner, is not entitled to the high
on-grid prices, and thus demanded a renegotiation of the settlement terms for
the project. The Company negotiated with the new project owner on the lease
term, settlement method and settlement price, but no agreement has been reached.



                                       35





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



On December 29, 2018, Xi'an Zhonghong, Xi'an TCH, the "HYREF", Guohua Ku, and
Mr. Chonggong Bai entered into a CDQ WHPG Station Fixed Assets Transfer
Agreement, pursuant to which Xi'an Zhonghong transferred Chengli CDQ WHPG
station as the repayment for the loan of RMB 188,639,400 ($27.54 million) to
HYREF. Xi'an Zhonghong, Xi'an TCH, Guohua Ku and Chonggong Bai also agreed to
buy back the CDQ WHPG Station when conditions under the Buy Back Agreement are
met (see Note 9). The transfer was completed January 22, 2019, and the Company
recorded $624,133 loss from this transfer. Since the original terms of Buy Back
Agreement are still valid, the Buy Back possibility is uncertain; therefore, the
assets of Chengli CDQ WHPG station, and the corresponding loan principal and
interest, cannot be terminated due to the existence of Buy Back clauses.

Tianyu Waste Heat Power Generation Project

On July 19, 2013, Zhonghong entered into a Cooperative Agreement (the "Tianyu
Agreement") for Energy Management of CDQ and CDQ WHPG with Jiangsu Tianyu Energy
and Chemical Group Co., Ltd ("Tianyu"). Pursuant to the Tianyu Agreement,
Zhonghong will design, build, operate and maintain two sets of 25 MW CDQ and CDQ
WHPG systems for two subsidiaries of Tianyu - Xuzhou Tian'an Chemical Co., Ltd
("Xuzhou Tian'an") and Xuzhou Huayu Coking Co., Ltd. ("Xuzhou Huayu") - to be
located at Xuzhou Tian'an and Xuzhou Huayu's respective locations (the "Tianyu
Project"). Upon completion of the Tianyu Project, Zhonghong will charge Tianyu
an energy saving fee of RMB 0.534 ($0.087) per KWH (excluding tax). The
operating time will be based upon an average 8,000 hours annually for each of
Xuzhou Tian'an and Xuzhou Huayu. If the operating time is less than 8,000 hours
per year due to a reason attributable to Tianyu, then time charged will be 8,000
hours a year. Because of the overcapacity and pollution of the iron and steel
and related industries, the government has imposed production limitations for
the energy-intensive enterprises with heavy pollution, including Xuzhou
Tian'an. Xuzhou Tian'an has slowed the construction process for its dry
quenching production line which caused the delay of our project. The
construction of the Xuzhou Tian'an Project is anticipated to be completed by the
second quarter of 2020. Xuzhou Tian'an will provide the land for the CDQ and CDQ
WHPG systems for free. Xuzhou Tian'an has also guaranteed that it will purchase
all of the power generated by the CDQ WHPG systems. The Xuzhou Huayu Project is
currently on hold due to a conflict between Xuzhou Huayu Coking Co., Ltd. and
local residents on certain pollution-related issues. The local government acted
in its capacity to coordinate the resolution of this issue. The local residents
were requested to move from the hygienic buffer zone of the project location in
exchange for compensatory payments from the government. Xuzhou Huayu was
required to stop production and implement technical innovations to mitigate
pollution discharge including sewage treatment, dust collection, noise control,
and recycling of coal gas. Currently, some local residents have moved. Xuzhou
Huayu completed the implementation of the technical innovations of sewage
treatment, dust collection, and noise control, and the Company is waiting for
local governmental agencies to approve these technical innovations so that we
can resume construction. Due to the stricter administration of environmental
protection policies and recent increase in environmental protections for the
coking industry in Xuzhou, all local coking, as well as steel iron enterprises,
are facing a similar situation of suspended production while rectifying
technologies and procedures.



                                       36





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



On January 4, 2019, Xi'an Zhonghong, Xi'an TCH, and Mr. Chonggong Bai entered
into a Projects Transfer Agreement (the "Agreement"), pursuant to which Xi'an
Zhonghong transferred a CDQ WHPG station (under construction) located in Xuzhou
City for Xuzhou Huayu Coking Co., Ltd. ("Xuzhou Huayu Project") to Mr. Bai for
RMB 120,000,000 ($17.52 million). Mr. Bai agreed to transfer all the equity
shares of his wholly owned company, Xi'an Hanneng, to the HYREF Fund as
repayment for the loan made by Xi'an Zhonghong to HYREF as consideration for the
transfer of the Xuzhou Huayu Project (see Note 9). The transfer of the projects
was completed February 15, 2019. The Company recorded $397,033 loss from this
transfer. On January 10, 2019, Mr. Bai transferred all the equity shares of his
wholly owned company, Xi'an Hanneng, to HYREF as repayment for the loan. Xi'an
Hanneng will own 47,150,000 shares of Xi'an Huaxin New Energy Co., Ltd for the
repayment of Huayu system and Shenqiu system. As of September 30, 2019, Xi'an
Hanneng already owned 29,948,000 shares of Huaxin, but was not able to obtain
the remaining 17,202,000 shares due to halted trading of Huaxin stock by NEEQ
for not filing its 2018 annual report.  On December 19, 2019, Xi'an TCH, Xi'an
Zhonghong, Guohua Ku and Chonggong Bai jointly and severally agreed to buy back
all outstanding capital equity of Xi'an Hanneng which was transferred to HYREF
by Chonggong Bai earlier. The total buy back price was RMB 261,727,506 ($37.52
million) including accrued interest of RMB 14,661,506 ($2.10 million), and was
paid in full by Xi'an TCH. On December 20, 2019, Mr. Bai, Xi'an TCH and Xi'an
Zhonghong, agreed to have Mr. Bai repay the Company in cash for the transfer
price of Xuzhou Huayu and Shenqiu in five installment payments. The 1st payment
of RMB 50 million ($7.17 million) was due on January 5, 2020, the 2nd payment of
RMB 50 million ($7.17 million) was due on February 5, 2020, the 3rd payment of
RMB 50 million ($7.17 million) was due on April 5, 2020, the 4th payment of RMB
50 million ($7.17 million) was due on June 30, 2020, and the final payment of
RMB 47,066,000 ($6.75 million) is due on September 30, 2020. As of this report
date, the Company received full payment of RMB 247 million ($36.28 million).



On January 10, 2020, Zhonghong, Tianyu and Huaxin signed a transfer agreement to
transfer all assets under construction and related rights and interests of
Xuzhou Tian'an Project to Tianyu for RMB 170 million ($24.37 million) by three
installment payments. The 1st installment payment of RMB 50 million ($7.17
million) to be paid within 20 working days after the contract is signed. The 2nd
installment payment of RMB 50 million ($7.17 million) is to be paid within 20
working days after completion of the project construction but no later than July
31, 2020. The final installment payment of RMB 70 million ($10.03 million) is to
be paid before December 31, 2020. On March 11, 2020, the Company received
1st installment payment. The repayment date for 2nd installment payment is
delayed to fourth quarter of 2020.

Zhongtai WHPG Energy Management Cooperative Agreement

On December 6, 2013, Xi'an TCH entered into a CDQ and WHPG Energy Management
Cooperative Agreement (the "Zhongtai Agreement") with Xuzhou Zhongtai Energy
Technology Co., Ltd. ("Zhongtai"), a limited liability company incorporated

in
Jiangsu Province, China.



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



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



                                       37





On March 14, 2016, Xi'an TCH entered into a Xuzhou Zhongtai CDQ and Waste Heat
Power Generation System Transfer Agreement (the "Transfer Agreement") with
Zhongtai and Xi'an Huaxin New Energy Co., Ltd., a limited liability company
incorporated in China (the "Contractor"). The Transfer Agreement provides for
the sale to Zhongtai of all the assets of the Project under construction from
Xi'an TCH. Additionally, Xi'an TCH will transfer to Zhongtai the Engineering,
Procurement and Construction ("EPC") Contract for the Project, which Xi'an TCH
had entered into with the Contractor in connection with the Project. As
consideration for the transfer of the Project, Zhongtai is to pay to Xi'an TCH
RMB 167,360,000 ($25.77 million and the "Transfer Price"), on the following
schedule: (i) RMB 50,000,000 ($7.70 million) of the Transfer Price was paid
within 20 business days from the execution of the Transfer Agreement; (ii) RMB
30,000,000 ($4.32 million) of the Transfer Price was paid within 20 business
days upon the completion of the construction of the Project but not later than
July 30, 2016; and (iii) RMB 87,360,000 ($13.45 million) of the Transfer Price
was to be paid before July 30, 2017. The temporary ownership of the Project was
transferred from Xi'an TCH to Zhongtai after the Xi'an TCH received the first
payment of RMB 50,000,000, and the full ownership of the Project is to be
officially transferred to Zhongtai upon full payment of the Transfer Price. The
Zhongtai Agreement is to be terminated and Xi'an TCH will agree not to pursue
any breach of contract liability against Zhongtai under the Zhongtai Agreement
once Zhongtai fully pays the Transfer Price according to the terms of the
Transfer Agreement. If the Transfer Price is not fully paid on time pursuant to
the Transfer Agreement, the Transfer Agreement automatically terminates and
Xi'an TCH retains ownership of the Project, and both parties would continue to
possess their respective rights and obligations according to the Zhongtai
Agreement and assume the liabilities for breach of the Zhongtai Agreement.
Xuzhou Taifa Special Steel Technology Co., Ltd. ("Xuzhou Taifa") has guaranteed
the payments by Zhongtai. The Company recorded a $2.82 million loss from this
transaction in 2016. In 2016, Xi'an TCH had received the first payment of $7.70
million and the second payment of $4.32 million. However, the Company received a
repayment commitment letter from Zhongtai on February 23, 2018, in which
Zhongtai committed to pay the remaining payment of RMB 87,360,000 ($13.45
million) no later than the end of July 2018; in July 2018, Zhongtai and the
Company reached a further oral agreement to extend the repayment term of RMB
87,360,000 ($13.45 million) by another two to three months. In August 2018, the
Company received $1,070,000 from Zhongtai. In January 2020, Zhongtai paid RBM 10
million (1.41 million); in March 2020, Zhongtai paid RMB 20 million ($2.82
million); in June 2020, Zhongtai paid RMB 10 million ($1.41 million). Zhongtai
is committed to pay in full the remaining balance of RMB 30 million ($4.24
million) no later than the end of 2020. As of September 30, 2020,  the Company
had receivables from Zhongtai for $4.41 million (with bad debt allowance of
$4.41 million).



On September 9, 2019, we entered into a letter of intent to acquire a
controlling interest in Xi'an Yineng Zhihui Technology Co., Ltd. ("YNZH"), a
next generation energy storage solution provider in China. YNZH is a leading
comprehensive high-tech intelligent energy service company integrated with
energy efficiency improvement and storage management in China. The energy
efficiency management is to fully use big data cloud computing technology,
effectively adopt the combination of the mature international and domestic clean
energy technologies to make the customers' energy management more efficient,
more economical, more secure and more scientific. The terms of this proposed
transaction are currently being negotiated.

Critical Accounting Policies and Estimates

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



                                       38

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

and
analysis.



Basis of Presentation

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

Basis of Consolidation



The CFS include the accounts of CREG and, its subsidiary, Sifang Holdings and
Yinghua; Sifang Holdings' wholly-owned subsidiaries, Huahong and Shanghai TCH;
Shanghai TCH's wholly-owned subsidiary Xi'an TCH; and Xi'an TCH's subsidiaries,
Erdos TCH, Zhonghong, and Zhongxun. Substantially all of the Company's revenues
are derived from the operations of Shanghai TCH and its subsidiaries, which
represent substantially all of the Company's consolidated assets and liabilities
as of September 30, 2020. All significant inter-company accounts and
transactions were eliminated in consolidation.



Use of Estimates



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

Concentration of Credit Risk

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

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



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



Accounts Receivable



As of September 30, 2020, the Company had gross accounts receivable of $29.27
million; of which, $6.91 million was for transferring the ownership of Huayu and
Shenqiu Phase I and II systems to Mr. Bai; $4.41 million was from the sales of
CDQ and a CDQ WHPG system to Zhongtai, $17.62 million was from transferring the
ownership of Tian'an project to Tianyu, and $0.33 million accounts receivable of
Erdos TCH for the electricity sold. As of September 30, 2020, the Company had
bad debt allowance of $4,405,222 for Zhongtai and $32,861 for Erdos TCH due to
not making the payments as scheduled. In July 2020, Erdos TCH collected RMB 6
million ($0.86 million) accounts receivable.

Investment in sales-type leases, net

The Company maintains reserves for potential credit losses on receivables.
Management reviews the composition of receivables and analyzes historical bad
debts, customer concentrations, customer credit worthiness, current economic
trends and changes in customer payment patterns to evaluate the adequacy of
these reserves.  Based on an evaluation of the collectability of such
receivables, as of September 30, 2020, the Company had bad debt allowance for
net investment receivable on sales-type leases of $0.



                                       39





Revenue Recognition

Sales-type Leasing and Related Revenue Recognition

On January 1, 2019, the Company adopted Financial Accounting Standards Board
("FASB") Accounting Standards Codification ("ASC") Topic 842 using the modified
retrospective transition approach by applying the new standard to all leases
existing at the date of initial application. Results and disclosure requirements
for reporting periods beginning after January 1, 2019 are presented under ASC
Topic 842, while prior period amounts have not been adjusted and continue to be
reported in accordance with our historical accounting under Topic 840. (See
Operating lease below as relates to the Company as a lessee). The Company's
sales type lease contracts for revenue recognition fall under ASC 842. During
the nine months ended September 30, 2020 and 2019, the Company did not sell any
new power generating projects.



The Company constructs and leases waste energy recycling power generating
projects to its customers. The Company typically transfers ownership of the
waste energy recycling power generating projects to its customers at the end of
the lease. Prior to January 1, 2019, the investment in these projects was
recorded as investment in sales-type leases in accordance with ASC Topic 840,
"Leases", and its various amendments and interpretations.



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



Contingent Rental Income

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

Foreign Currency Translation and Comprehensive Income (Loss)

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



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

                                       40





RESULTS OF OPERATIONS

Comparison of three months ended September 30, 2020 and 2019

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

                                              2020         % of Sales          2019         % of Sales
Sales - contingent rental income           $        -                - %  

$          -               - %
Cost of sales                                       -                - %              -               - %
Gross profit                                        -                - %              -               - %

Interest income on sales-type leases                -                - %   

          -               - %
Total operating income                              -                - %              -               - %
Total operating expenses                      (77,015 )              - %     (2,826,155 )             - %
Loss from operations                          (77,015 )              - %     (2,826,155 )               %

Total non-operating expenses, net            (594,265 )              - %   

 (2,030,447 )             - %
Loss before income tax                       (671,280 )              - %     (4,856,602 )             - %
Income tax benefit                                  -                - %       (755,840 )             - %
Net loss                                   $ (671,280 )              - %   $ (4,100,762 )             - %

SALES. Total sales for the three months ended September 30, 2020 and 2019 were $0, respectively.

COST OF SALES. Cost of sales ("COS") for the three months ended September 30, 2020 and 2019 were $0.

GROSS PROFIT. Gross income for the three months ended September 30, 2020 and 2019 were $0, a gross margin of 0%.

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



OPERATING EXPENSES. Operating expenses consisted of general and administrative
expenses, and bad debts expense (reversal) totaling $77,015 for the three months
ended September 30, 2020, compared to $2,826,155 operating expenses for the
three months ended September 30, 2019, a decrease of $2,749,140 or 97%. The
decrease was mainly due to decreased bad debts expense of $2,692,953 during the
three months ended September 30, 2020.



NET NON-OPERATING EXPENSES. Net non-operating expenses consisted of loss on note
redemption, interest income, interest expenses and miscellaneous expenses. For
the three months ended September 30, 2020, net non-operating expenses was
$594,265 compared to $2.03 million for the three months ended September 30,
2019. For the three months ended September 30, 2020, we had $51,688 interest
income but the amount was offset by $340,155 interest expense on entrusted loan
and note payable and $298,523 loss on note redemption. For the three months
ended September 30, 2019, we had $38,293 interest income and $24,240 gain on
note conversion, but the amounts were offset by a $2.09 million interest expense
on entrusted loan and note payable.

INCOME TAX EXPENSE. Income tax expense was $0 for the three months ended September 30, 2020, compared with $755,840 income tax benefit for the three months ended September 30, 2019. The consolidated effective income tax rates for the three months ended September 30, 2020 and 2019 were 0% and 15.6%, respectively. The decrease in income tax benefit for three months ended September 30, 2020 was due to decreased taxable loss.

NET LOSS. Net loss for three months ended September 30, 2020 was $671,280
compared to $4,100,762 for the three months ended September 30, 2019, a decrease
of loss of $3,429,482. This decrease in net loss was mainly due to the decrease
operating expenses resulting from decrease bad debts expense, and decrease
interest expense as described above.



                                       41

Comparison of nine months ended September 30, 2020 and 2019

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

                                               2020         % of Sales          2019           % of Sales
Sales - contingent rental income           $          -               - %  

$     702,973              100 %
Cost of sales                                         -               - %               -                - %
Gross profit                                          -               - %         702,973              100 %

Interest income on sales-type leases                  -               - %         173,360               25 %
Total operating income                                -               - %         876,333              125 %
Total operating income (expenses)             1,181,743               - %      (8,919,125 )         (1,269 )%
Income (loss) from operations                 1,181,743               - %      (8,042,792 )         (1,144 )%
Total non-operating expenses, net            (1,457,634 )             - %      (6,305,237 )           (897 )%
Loss before income tax                         (275,891 )             - %  

  (14,348,029 )         (2,041 )%
Income tax benefit                                    -               - %      (3,041,884 )           (433 )%
Net loss                                   $   (275,891 )             - %   $ (11,306,145 )         (1,608 )%




SALES. Total sales for the nine months ended September 30, 2020 and 2019 were $0
and $702,973, respectively. The sales were from the contingent rental income of
Erdos TCH.

COST OF SALES. Cost of sales ("COS") for the nine months ended September 30, 2020 and 2019 were $0.

GROSS PROFIT. Gross income for the nine months ended September 30, 2020 and 2019 were $0 and $702,973, a gross margin of 0% and 100%.

INTEREST INCOME ON SALES-TYPE LEASES. Interest income on sales-type leases for
the nine months ended September 30, 2020 and 2019 was $0 and $173,360, a $0.17
million decrease. During the nine months ended September 30, 2019, the interest
income was derived from the Shenqiu Phase I and II systems for the months of
January 2019. In February 2019, the Shenqiu Phase I and II systems were
transferred to Mr. Bai, and the Company only had Pucheng Phase I and II systems
since then, which the Company has ceased to accrue interest income since April
2018 because Pucheng power generation systems were suspended due to strict
environmental protection policies and lack of supply of biomass waste raw
materials. On September 29, 2019, Xi'an TCH entered into a Termination Agreement
of the Lease Agreement of the Biomass Power Generation Project with Pucheng. In
January 2020, the Company received the full payment of outstanding leasing fee
of Pucheng Phase I and II systems and transferred the ownership of two systems
to the lessee Pucheng. The decreased interest income was due to the transfer of
the Shenqiu Phase I and II systems to Mr. Bai in February 2019 and transfer of
Pucheng Phase I and II systems to Pucheng in January 2020.



OPERATING EXPENSES (INCOME). Operating expenses (income) consisted of general
and administrative expenses, loss on disposal of systems and bad debts expense
(reversal) totaling $(1,181,743) for the nine months ended September 30, 2020,
compared to $8,919,125 operating expenses for the nine months ended September
30, 2019, a decrease of $10,100,868 or 113%. The decrease was mainly due to
decreased bad debts expense by $7,167,478, decreased loss on disposal of systems
by $1,250,731, and decreased operating expenses of $1,787,274 of Erdos TCH

due
to cease of the operation.

NET NON-OPERATING EXPENSES. Net non-operating expenses consisted of loan on note
redemption, interest income, interest expenses and miscellaneous expenses. For
the nine months ended September 30, 2020, net non-operating expenses was $1.46
million compared to $6.31 million for the nine months ended September 30, 2019.
For the nine months ended September 30, 2020, we had $124,305 interest income
but the amount was offset by $1,037,183 interest expense on entrusted loan and
note payable, and $496,853 loss on note conversion. For the nine months ended
September 30, 2019, we had $120,903 interest income, but the amounts were offset
by a $5.89 million interest expense on entrusted loan and note payable, and
$869,718 loss on note conversion.



INCOME TAX BENEFIT. Income tax benefit was $0 for the nine months ended
September 30, 2020, compared with $3,041,884 income tax benefit for the nine
months ended September 30, 2019. The consolidated effective income tax rates for
the nine months ended September 30, 2020 and 2019 were 0% and (21.2)%,
respectively. The decrease in income tax benefit for nine months ended September
30, 2020 was due to decreased taxable loss.



                                       42





NET LOSS. Net loss for the nine months ended September 30, 2020 was $275,891
compared to net loss $11,306,145 for the nine months ended September 30, 2019, a
decrease of loss of $11,030,254. This decrease in net loss was mainly due to the
decrease operating expenses as described above.

Liquidity and Capital Resources

Comparison of nine months ended September 30, 2020 and 2019

As of September 30, 2020, the Company had cash and equivalents of $73.79 million, other current assets of $24.94 million, current liabilities of $36.94 million, working capital of $61.79 million, a current ratio of 2.67:1 and a liability-to-equity ratio of 0.52:1.

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



                                  2020             2019
Cash provided by (used in):
Operating Activities          $ 55,199,324     $ (6,084,671 )
Investing Activities                     -            5,106
Financing Activities               497,187        5,309,475




Net cash provided by operating activities was $55.20 million during the nine
months ended September 30, 2020, compared to $6.08 million cash used in
operating activities for the nine months ended September 30, 2019. The increase
in net cash inflow for the nine months ended September 30, 2020 was mainly due
to increased cash inflow from collection of sales type leases of Pucheng systems
by $13.96 million, and increased cash collection of accounts receivable by
$43.70 million for selling / disposing Huayu, Shenqiu, Zhongtai and Tian'an
systems and decreased cash outflow on accounts payable by $2.86 million.



Net cash provided by investing activities was $0 and $5,106, respectively, for
the nine months ended September 30, 2020 and 2019. For the nine months ended
September 30, 2019, $5,106 was the proceeds from disposal of the fixed assets.



Net cash provided by financing activities was $497,187 compared to net cash
provided by financing activities of $5.31 million during the nine months ended
September 30, 2020 and 2019, respectively. The cash inflow for the nine months
ended September 30, 2020 was from the issuance of Common Stock of $497,187. The
cash inflow for the nine months ended September 30, 2019 was from the issuance
of notes of $2.0 million and proceeds from issuance of Common Stock of $3.31
million.

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

Transfers of Cash to and from Our Subsidiaries

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



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



                                       43

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
           stockholders; the Company does not participate in a Common Welfare
           Fund;

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

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




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

PRC.



PRC Regulations



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



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



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



                                       44

Chart of the Company's Statutory Reserve

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

                                                                            As of
                                                               September 30,      December 31,
                                                                    2020              2019
Unrestricted retained earnings (accumulated deficit)           $  (46,865,542 )   $ (46,447,959 )
Restricted retained earnings (surplus reserve fund)                14,667,404        14,525,712
Total retained earnings (accumulated deficit)                  $  

(32,198,138 ) $ (31,922,247 )

Off-Balance Sheet Arrangements

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



Contractual Obligations



The Company's contractual obligations as of September 30, 2020 are as follows:



                                                           1 year or       More than         See Note
Contractual Obligation                                        less         

1 year (for details) Notes payable including accrued interest of $7,599 $ 599,573 $ -

                  12
Entrusted loan including interest payable of $9,387,757   $ 30,367,488     $  293,681                   9
Total                                                     $ 30,967,061     $  293,681




The Company believes it has a stable cash inflow each month and a sufficient
channel to commercial institutions to obtain any loans that may be necessary to
meet its working capital needs. Historically, we have been able to obtain loans
or otherwise achieve our financing objectives due to the Chinese government's
support for energy-saving businesses with stable cash inflows, good credit
ratings and history. The Company does not believe it will have difficulties
related to the repayment of its outstanding short-term loans since pursuant to
that certain Station Fixed Assets Transfer Agreement, dated as of December 29,
2018, by and among Xi'an Zhonghong, Xi'an TCH, HYREF, Guohua Ku, and Mr.
Chonggong Bai, Xi'an Zhonghong transferred Chengli CDQ WHPG station as the
repayment for this Entrusted loan of RMB 188,639,400 ($27.54 million) to the
lender, HYREF. The transfer was effectuated on January 22, 2019. Xi'an
Zhonghong, Xi'an TCH, Guohua Ku and Chonggong Bai also agreed to buy back the
Chengli CDQ WHPG Station when the conditions under the Buy-Back Agreement are
met. However, since the possibility of the repurchases under the terms of the
Buy-Back Agreement is uncertain, until the existing repurchase clauses in the
Buy Back Agreement are terminated, the assets of Chengli CDQ WHPG station, and
the corresponding loan principal and interest of the Entrusted Loan will
continue to show on the Company's books as outstanding contractual obligations
(See Note 9 for details).

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