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    Unassociated Document

Albany

Atlanta

Brussels

Denver

Los Angeles

THOMAS WARDELL

(404) 527-4990

www.mckennalong.com

New York

Philadelphia

San Diego

San Francisco

Washington, DC

EMAIL ADDRESS

twardell@mckennalong.com

February 24, 2011

Via EDGAR

United States Securities and Exchange Commission

Division of Corporation Finance

100 F Street, NE

Washington, D.C.  20549-0405

Attn:

William H. Thompson, Accounting Branch Chief

Re:

China Recycling Energy Corporation

Form 10-K for the Fiscal Year Ended December 31, 2009

Filed March 16, 2010

File No. 1-34625

Dear Mr. Thompson:

This firm is counsel to the above-referenced company, China Recycling Energy Corporation (“CREG” or the “Company” and sometimes referred to as “we” or “our”) and is filing this response to your comment letter, dated February 9, 2011, with respect to the above-referenced filings on CREG’s behalf.  For convenience of reference, we have included, in this response letter, the same caption and paragraph number, as well as the text of the comment, set forth in your comment letter followed by our response.

Form 10-K for Fiscal Year Ended December 31, 2009

Item 8.  Financial Statements and Supplementary Data, page 26

Consolidated Statements of Cash Flows, page 30

1.

We reviewed your response to comment one in our letter, dated January 4, 2011, which indicates that revised consolidated statements of cash flows are attached to the response. However, we are unable to locate the revised statements in submitted correspondence files. Please submit the revised statements as correspondence so that we are able to review your proposed revisions. In addition, please tell us whether you plan to restate your statements of cash flows presented in the filing and in subsequently filed quarterly reports on Form 10-Q. If so, tell how you intend to disclose the restatements. If not, please explain the quantitative and qualitative reasons why a restatement is not necessary. Refer to SAB Topics 1:M and 1:N.

United States Securities and Exchange Commission

February 24, 2011

Page 2

Response:

The revised Consolidated Statements of Cash Flows are submitted with this response in accordance with your comment letter, dated of February 9, 2011.  The Company does not plan to restate its statements of cash flows presented in its Form 10-K for the fiscal year ended December 31, 2009, or its quarterly reports on Form 10-Q for fiscal year 2010.  The Company does intend to disclose the reclassification of cash flows for fiscal year ended December 31, 2009, for certain line items, from investing to operating activities, and implement such reclassification prospectively, including in our Form 10-K for the fiscal year ended December 31, 2010, in a footnote to the 2010 financial statements included in its Form 10-K, and will present its Cash Flow statements consistent with its presentation on the attached statement in all reports thereafter.

Qualitatively, the reclassification of cash flows is undertaken in order to provide consistency in presentation.  The Company believes that the decision as to classification of cash flows with respect to the construction of its projects and payments received under sales-type leases of these projects as either operating or investing inflow or outflow is subject to interpretation and is not clearly directed by GAAP.  In connection with its conversations with the Staff, the Company understands and agrees with the position that consistency in treatment of both cash inflow and outflow provides disclosure that is more easily understood.  However, the change to treating both outflows and inflows as operating items has no overall effect either on the net cash flow itself or on the other financial statements of the Company, and as such the Company does not believe that the reclassification rises to the level of requiring retrospective restatements of the cash flows in its prior filings.

In addition, qualitatively, the Company does not believe there is any need to retroactively restate the cash flows because:

·

There is no change in net income or earnings per share

·

There is no change in the net cash flows for any period

·

There is no change in any balance sheet or income statement line items

·

There is no cumulative effect of the change on retained earnings or any other component of equity or net assets.

Should you have further comments or require further information, or if any questions should arise in connection with this submission, please call me at (404) 527-4990 or Mr. James Thornton at (404) 527-8118.

Very truly yours,

/s/ Thomas Wardell

Thomas Wardell

cc:

David Chong, CFO, China Recycling Energy Corp.

Jeffrey Li, Esq.

James L. Thornton, Esq.

CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

September 30, 2010 (Unaudited)

December 31, 2009

ASSETS

CURRENT ASSETS

     Cash & cash equivalents

$
6,488,518

$
1,111,943

     Restricted cash

2,253,361

1,461,659

     Investment in sales type leases, net

6,635,231

4,396,395

     Interest receivable on sales type leases

766,580

437,626

     Prepaid expenses

154,798

445,458

     Other receivables

414,248

184,355

     Subscription receivable

430,500

-

     VAT receivables - current

1,268,448

383,027

        Total current assets

18,411,684

8,420,463

NON-CURRENT ASSETS

     VAT receivables - noncurrent

1,053,437

957,567

     Investment in sales type leases, net

86,733,485

48,147,738

     Property and equipment, net

172,524

97,311

     Construction in progress

45,907,791

34,858,845

        Total non-current assets

133,867,237

84,061,461

TOTAL ASSETS

$
152,278,921

$
92,481,924

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES

     Accounts payable

$
6,208,498

$
3,583,219

     Notes payable - bank acceptances

2,999,508

1,461,659

     Interest payable

2,509,889

-

     Taxes payable

1,707,112

681,707

     Accrued liabilities and other payables

2,945,354

2,785,796

     Advance from related parties, net

4,036,492

468,475

     Convertible note, net of discount due to beneficial conversion feature

3,980,937

-

     Accrued interest on short term convertible note

127,939

-

     Deferred tax liability-current

54,466

148,193

     Loans payable - current

1,343,063

-

         Total current liabilities

25,913,258

9,129,049

NONCURRENT LIABILITIES

      Shares to be issued

12,812,971

-

      Deferred tax liability, net

5,446,238

2,762,115

      Convertible notes

3,000,000

8,000,000

      Accrued interest on long term convertible notes

346,668

353,024

      Loans payable

40,761,965

25,570,429

         Total noncurrent liabilities

62,367,842

36,685,568

         Total liabilities

88,281,100

45,814,617

CONTINGENCIES AND COMMITMENTS

STOCKHOLDERS' EQUITY

     Common stock, $0.001 par value; 100,000,000 shares

           authorized, 38,778,035 shares issued and outstanding

           as of September 30, 2010 and December 31, 2009, respectively

38,779

38,779

     Additional paid in capital

42,583,642

38,319,163

     Statutory reserve

4,288,441

2,497,724

     Accumulated other comprehensive income

4,929,794

3,709,490

     Retained earnings

9,922,599

1,485,914

         Total Company stockholders' equity

61,763,255

46,051,070

         Noncontrolling interest

2,234,566

616,237

         Total equity

63,997,821

46,667,307

TOTAL LIABILITIES AND EQUITY

$
152,278,921

$
92,481,924

Updated

CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

NINE MONTHS ENDED SEPTEMBER 30,

2010

2009

CASH FLOWS FROM OPERATING ACTIVITIES:

            Income including noncontrolling interest

$
10,817,221

$
8,097,090

            Adjustments to reconcile income including noncontrolling

            interest to net cash provided by operating activities:

            Changes in gross sales type leases receivables

(30,724,470
)

(11,032,444
)

            Depreciation and amortization

9,298

23,155

            Amortization of discount related to conversion feature of convertible note

1,326,274

-

            Stock options and warrants

1,919,102

1,129,328

            Stock compensation expense

602,000

-

            Accrued interest on convertible notes

121,583

60,182

            Changes in deferred tax

2,495,828

1,731,344

                         (Increase) decrease in current assets:

                                   Interest receivable on sales type leases

(315,675
)

(379,331
)

                                   Collection of principal on sales type leases

3,267,917

1,547,527

                                   Prepaid expenses

294,464

3,828,438

                                   VAT receivable and other receivables

(1,163,901
)

(113,744
)

                         Increase (decrease) in current liabilities:

                                   Accounts payable

4,004,280

847,314

                                   Taxes payable

996,753

(1,917,728
)

                                   Unearned revenue

-

(658,655
)

                                   Interest payable

2,470,914

-

                                   Accrued liabilities and other payables

112,574

(260,167
)

                                   Construction in progress

(10,226,469
)

(8,255,441
)

            Net cash used in operating activities

(13,992,307
)

(5,353,132
)

CASH FLOWS FROM INVESTING ACTIVITIES:

            Increase investment in subsidiary

-

(16,100
)

            Restricted cash

(752,116
)

(4,393,159
)

            Acquisition of property & equipment

(81,526
)

(15,096
)

            Net cash used in investing activities

(833,642
)

(4,424,355
)

CASH FLOWS FROM FINANCING ACTIVITIES:

            Insurance of common stock

-

2,000,000

            Insurance of convertible notes

-

3,000,000

            Cash contribution from noncontrolling interest

908,279

263,439

            Proceeds from loans

15,800,376

2,927,358

            Advance from related parties

3,504,613

-

            Net cash provided by financing activities

20,213,268

8,190,797

EFFECT OF EXCHANGE RATE CHANGE ON CASH & CASH EQUIVALENTS

(10,744
)

2,646

NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS

5,376,575

(1,584,044
)

CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD

1,111,943

7,267,344

CASH & CASH EQUIVALENTS, END OF PERIOD

$
6,488,518

$
5,683,300

Supplemental Cash flow data:

   Income tax paid

$
1,307,901

$
1,307,406

   Interest paid

$
269,083

$
319,086

Original

CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

NINE MONTHS ENDED SEPTEMBER 30,

2010

2009

CASH FLOWS FROM OPERATING ACTIVITIES:

            Income including noncontrolling interest

$
10,817,221

$
8,097,090

            Adjustments to reconcile income including noncontrolling

            interest to net cash provided by operating activities:

            Depreciation and amortization

9,298

23,155

            Amortization of discount related to conversion feature of convertible note

1,326,274

-

            Stock options and warrants

1,919,102

1,129,328

            Stock compensation expense

602,000

-

            Accrued interest on convertible notes

121,583

60,182

            Changes in deferred tax

2,495,828

1,731,344

                         (Increase) decrease in current assets:

                                   Interest receivable on sales type leases

(315,675
)

(379,331
)

                                   Prepaid expenses

294,464

3,828,438

                                   VAT receivable and other receivables

(1,163,901
)

(113,744
)

                         Increase (decrease) in current liabilities:

                                   Accounts payable

4,004,280

847,314

                                   Taxes payable

996,753

(1,917,728
)

                                   Unearned revenue

-

(658,655
)

                                   Interest payable

2,470,914

-

                                   Accrued liabilities and other payables

112,574

(260,167
)

                                   Construction in progress

(10,226,469
)

(8,255,441
)

            Net cash provided by operating activities

13,464,246

4,131,785

CASH FLOWS FROM INVESTING ACTIVITIES:

            Initial investment in sales type leases

(30,724,470
)

(11,032,444
)

            Collection of principal on sales type leases

3,267,917

1,547,527

            Increase investment in subsidiary

-

(16,100
)

            Restricted cash

(752,116
)

(4,393,159
)

            Acquisition of property & equipment

(81,526
)

(15,096
)

            Net cash used in investing activities

(28,290,195
)

(13,909,272
)

CASH FLOWS FROM FINANCING ACTIVITIES:

            Insurance of common stock

-

2,000,000

            Insurance of convertible notes

-

3,000,000

            Cash contribution from noncontrolling interest

908,279

263,439

            Proceeds from loans

15,800,376

2,927,358

            Advance from related parties

3,504,613

-

            Net cash provided by financing activities

20,213,268

8,190,797

EFFECT OF EXCHANGE RATE CHANGE ON CASH & CASH EQUIVALENTS

(10,744
)

2,646

NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS

5,376,575

(1,584,044
)

CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD

1,111,943

7,267,344

CASH & CASH EQUIVALENTS, END OF PERIOD

$
6,488,518

$
5,683,300

Supplemental Cash flow data:

   Income tax paid

$
1,307,901

$
1,307,406

   Interest paid

$
269,083

$
319,086