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EX-31 - EXHIBIT 31.1 - LivingVentures, Inc.creh063011q_ex31z1.htm
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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, 2011


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 NUMBER: 000-50196


CHINA RENEWABLE ENERGY HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Florida

(State or other jurisdiction of Incorporation or Organization)


Suite 802, Beautiful Group Tower

74-77 Connaught Road Central

Wanchai, Hong Kong

 (Address of principal executive offices)

65-0968842

(I.R.S. Employer Identification No.)



not applicable

(Zip Code)


(852) 2384-6070

(Registrant’s telephone number, including area code)


(Former name, former address and former fiscal year, if changed since last report)


Indicate by check mark whether the registrant (1) has filed all reports 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  ý  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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  ¨  No ¨ (Not required)


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (check one).


Large accelerated filer

£

 

Accelerated filer

£

Non-accelerated filer

£

 

Smaller reporting company

S

(Do not check if smaller reporting company)

 

 

 

 


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes¨    No ý

Indicated the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.  24,580,000 shares of common stock are issued and outstanding as of July 27, 2011.





TABLE OF CONTENTS


 

Page No.

PART I. - FINANCIAL INFORMATION

Item 1.

Financial Statements.

3

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations.

12

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

14

Item 4T

Controls and Procedures.

14

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings.

16

Item 1A.

Risk Factors.

16

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

16

Item 3.

Defaults Upon Senior Securities.

16

Item 4.

Submission of Matters to a Vote of Security Holders.

16

Item 5.

Other Information.

16

Item 6.

Exhibits.

16


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION


Certain statements in this report contain or may contain forward-looking statements.  These statements, identified by words such as “plan”, “anticipate”, “believe”, “estimate”, “should,” “expect” and similar expressions include our expectations and objectives regarding our future financial position, operating results and business strategy.  These statements are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward - looking statements.  These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements.  These factors include, but are not limited to, economic, political and market conditions and fluctuations, government and industry regulation, interest rate risk, U.S. and global competition, and other factors.  Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Readers should carefully review this annual report in its entirety, including but not limited to our financial statements and the notes thereto and the risks described in our Annual Report on Form 10-K for the year ended December 31, 2009 appearing under Part I., Item 1. Description of Business - Risk Factors.  We advise you to carefully review the reports and documents we file from time to time with the Securities and Exchange Commission (the “SEC”), particularly our quarterly reports on Form 10-Q and our current reports on Form 8-K.  Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events.


OTHER PERTINENT INFORMATION


Unless otherwise specifically stated, all reference to “us,” “our,” “we,” or the “Company” are to China Renewable Energy Holdings, Inc., a Florida corporation, and our subsidiaries China Clean & Renewable Energy Limited, a corporation formed under the laws of Hong Kong (“CCRL”), Renewable Energy Enterprises (Shanghai) Company, Ltd., a company formed under the laws of the Peoples Republic of China (“REEC”), EEP Ltd., a company formed under the laws of Hong Kong (“EEPL”), and  C B Resources Limited, a company formed under the laws of Hong Kong.





-2-



PART 1 - FINANCIAL INFORMATION


Item 1.

Financial Statements.




CHINA RENEWABLE ENERGY HOLDINGS, INC.

AND SUBSIDIARIES



CONTENTS


 

CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2011 AND DECEMBER 31, 2010 (UNAUDITED).

 

CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, OF 2011 AND 2010 (UNAUDITED).

 

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (UNAUDITED).

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED).

 





-3-




CHINA RENEWABLE ENERGY HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


 

 

As of

 

As of

 

 

June 30,2011

 

December 31,2010

ASSETS

 

 

 

 

Current Assets

 

 

 

 

   Cash

$

94,316 

 

105,426

   Restricted cash

 

317,071 

 

252,619

   Accounts receivable

 

230,270 

 

383,077

   Deferred charges

 

17,784 

 

8,374

   Deposits

 

27,093 

 

72,501

   Inventories

 

234,927 

 

330,582

          Total Current Assets

 

921,461 

 

1,152,579

 

 

 

 

 

Fixed Assets, net

 

33,035 

 

35,005

 

 

 

 

 

          Total Assets

 

954,496 

 

1,187,584

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

Current Liabilities

 

 

 

 

   Bank loan

$

111,648 

 

295,545 

   Loan Payable

 

340,525 

 

373,983 

   Note payable-related party

 

837,334 

 

510,659 

   Accounts payable and accrued expenses

 

138,424 

 

321,245 

   Taxation

 

1,165 

 

1,167 

          Total Liabilities

 

1,429,096 

 

1,502,599 

 

 

 

 

 

Stockholders' (Deficit) Equity

 

 

 

 

   Preferred stock, $01 par value, 10,000,000 shares|
    authorised, none issued and outstanding

 

 

   Common stock, $01 par value; 100,000,000 shares and outstanding

 

24,580 

 

24,580 

   Additional paid-in capital

 

684,483 

 

684,483 

   Other comprehensive loss

 

(4,769)

 

(539)

   Deficit

 

(1,178,894)

 

(1,023,539)

          Total Stockholders' Deficit

 

(474,600)

 

(315,015)

 

 

 

 

 

          Total Liabilities and Stockholders' Deficit

$

954,496 

 

1,187,584 






-4-



CHINA RENEWABLE ENERGY HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



 

 

For the three months ended June 30

 

 

For the six months ended June 30

 

 

2011

 

2010

 

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

Revenue

 $

1,502,572 

 $

2,786,384 

 

 $

2,346,752 

 $

3,057,634 

 

 

 

 

 

 

 

 

 

 

Cost of Revenue

 

(1,380,493)

 

(2,561,390)

 

 

(2,154,227)

 

(2,812,513)

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

122,079 

 

224,994 

 

 

192,525 

 

245,121 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

Professional fees

 

19,698 

 

8,252 

 

 

40,247 

 

22,532 

Salary expense

 

62,173 

 

35,691 

 

 

140,537 

 

75,434 

General and administrative

 

66,007 

 

56,457 

 

 

114,811 

 

85,301 

Total Operating Expenses

 

147,878 

 

100,400 

 

 

295,595 

 

183,267 

 

 

 

 

 

 

 

 

 

 

Loss/Profit from Operations

 

(25,799)

 

124,594 

 

 

(103,070)

 

61,854 

 

 

 

 

 

 

 

 

 

 

Other Income

 

727 

 

610 

 

 

8,037 

 

1,774 

Bad debt provision written back

 

 

43,522 

 

 

 

43,522 

Interest Income

 

116 

 

17 

 

 

190 

 

43 

Interest Expense

 

(34,095)

 

(16,670)

 

 

(60,513)

 

(30,240)

Total other income(loss)

 

(33,252)

 

27,479 

 

 

(52,286)

 

15,099 

 

 

 

 

 

 

 

 

 

 

Net loss/profit before provision for Income taxes

 

(59,051)

 

152,073 

 

 

(155,356)

 

76,953 

 

 

 

 

 

 

 

 

 

 

Provision for Income  Taxes

 

 

(29,105)

 

 

 

(29,105)

 

 

 

 

 

 

 

 

 

 

Net (Loss)/ Profit

 $

(59,051)

 $

122,968 

 

 $

(155,356)

 $

47,848 

 

 

 

 

 

 

 

 

 

 

Net Loss Per Share  - basic and diluted

 $

(0.00)

 $

0.01 

 

 $

(0.01)

 $

0.00 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding
 during the period - basic and diluted

 

24,580,000 

 

24,580,000 

 

 

24,580,000 

 

24,580,000 



See accompanying notes to financial statements




-5-



CHINA RENEWABLE ENERGY HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


 

 

For the six months ended June 30,

 

 

 

2011

 

2010

 

 

 

 

 

 

 

Cash Flows From Operating Activities:

 

 

 

 

 

Net (Loss)/ Profit

$

(155,355)

 $

47,848 

 

   Adjustments to reconcile net loss to net cash used in operations:

 

 

 

 

 

   Depreciation

 

6,178 

 

2,420 

 

   Change in operating assets and liabilities:

 

 

 

 

 

   (Increase) in restricted cash

 

(64,452)

 

 

   Decrease/ (Increase) in accounts receivable

 

152,807 

 

(1,099,331)

 

   Decrease/ (Increase) in deposits

 

45,408 

 

(55,853)

 

   (Increase) in deferred charges

 

(9,410)

 

(14,522)

 

   Decrease/ (Increase) in inventories

 

95,655 

 

(389,313)

 

   (Decrease)/ Increase in accounts payable and accrued expenses

 

(182,821)

 

1,465,628 

 

   Increase in customer deposit received

 

 

18,175 

 

Net Cash Used In Operating Activities

 

(111,990)

 

(24,948)

 

 

 

 

 

 

 

Cash Flows From Investing Activities :

 

 

 

 

 

   Purchase of fixed assets

 

(3,775)

 

(8,545)

 

Net Cash Used in Investing Activities

 

(3,775)

 

(8,545)

 

 

 

 

 

 

 

Cash Flows From Financing Activities :

 

 

 

 

 

Repayment of bank loan

 

(183,897)

 

 

Note payable-related party

 

326,675 

 

165,304 

 

Repayment/ Proceeds from other loan

 

(33,458)

 

32,977 

 

Net Cash Provided by Financing Activities

 

109,320 

 

198,281 

 

 

 

 

 

 

 

Net (Decrease)Increase in Cash prior to effect of

 

 

 

 

 

Foreign currency transactions

 

(6,445)

 

164,788 

 

Foreign currency exchange rate on cash effect

 

(4,665)

 

(1)

 

 

 

 

 

 

 

Net (Decrease) Increase in cash

 

(11,110)

 

164,787 

 

Cash at Beginning of Year

 

105,426 

 

14,005 

 

Cash at End of Period

$

94,316 

 $

178,792 

 



The Company paid $5,000 during the six months in 2011 and none for interest six months in 2010, respectively.

The Company did not pay taxes in 2011 and 2010


See accompanying notes to financial statements





-6-



CHINA RENEWABLE ENERGY HOLDINGS, INC. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011 AND 2010

(UNAUDITED)


NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION


(A)

Organization


China Renewable Energy Holdings, Inc. ("CREH") was incorporated under the laws of the State of Florida on December 17, 1999. China Renewable Energy Holdings, Inc. was originally organized to provide business services and financing to emerging growth entities, and later redirected its business focus to market and to distribute energy-efficient products in China.


China Clean and Renewable Energy Limited (“CCRL”) was incorporated under the laws of Hong Kong, China on April 19, 2006.  China Clean and Renewable Energy Limited was organized to provide consulting services on environmental protection projects in China.


Renewable Energy Enterprises (Shanghai) Co. Ltd (“REEC”) was incorporated under the laws of the People’s Republic of China on February 27, 2008. REEC was organized to provide renewable energy products and equipment in China.


EEP Limited (“EEPL”) was incorporated under the laws of Hong Kong, China on March 23, 2009.  The company was organized to market and distribute products and equipment that are environmentally friendly and energy-efficient in China.


C B Resources Limited (“CBRL”) was incorporated under the laws of Hong Kong, China.  The company was organized to own and invest in energy related facilities and resources in China.


CREH and its’ wholly owned subsidiaries, CCRL, REEC, EEPL, and CBRL are hereafter referred to as the “Company”.


(B)

Basis of Presentation


The accompanying unaudited consolidated financial statements include the accounts of the China Renewable Energy Holdings, Inc. (“CREH”), China Clean Renewable Energy Limited (“CCRL”) (Hong Kong), Renewable Energy Enterprise (Shanghai) and Company Limited (“REEC”), and EEP Limited.  As of June 30, 2011, C B Resources Limited (“CBRL”) did not have any business transaction recorded.  Both REEC and EEPL are wholly-owned subsidiaries of CCRL, which is itself a wholly-owned subsidiary of CREH.


The foregoing financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the Securities and Exchange Commission for interim financial information.  Accordingly, they do not include all the information necessary for the comprehensive presentation financial position and results of operations.


It is in the management’s opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made, which are necessary for a fair financial statements presentation.  The results for the interim period are not necessarily indicative of the results to be expected for the year.





-7-



(C)

Use of Estimates


In preparing financial statements in conformity with generally accepted accounting principles, management is required 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 and revenues and expenses during the reported period.  Actual results could differ from those estimates.


(D)

Cash and Cash Equivalents


For purposes of the cash flow statements, the Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents.


(E)

Accounts Receivable


The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated credit risk by actively pursuing past due accounts.  


(F)

Inventories


Inventories are stated at the lower of cost or market.  Cost is determined using the “first-in, first-out” (FIFO) method.  The Company buys raw materials to fill customer orders.  Excess in raw materials is created when a vendor imposes a minimum buy that is in excess of the actual requirement.  Any excess in materials not utilized after two fiscal years is fully reserved.  Any inventory item once designated as reserved is carried at zero value in all subsequent valuation activities.  The Company’s inventories consisting of raw materials were $234,927 and $330,582 at June 30, 2011 and December 31, 2010, respectively.


(G)

Concentrations of Credit Risk


Financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of cash and trade receivables.  The Company places its cash with high credit quality institutions.  At times such amounts may be in excess of the FDIC insurance limits.  The Company has not experienced any losses in such account and believes that it is not exposed to any significant credit risk on the account.  With respect to the trade receivables, most of the Company’s products are custom made pursuant to contracts with customers.  The Company performs ongoing credit evaluations of its customers’ financial condition and maintains allowances for potential credit losses.  Actual losses and allowances have historically been within management’s expectations.


(H)

Earnings per Share


Basic and diluted net earnings per common share is computed based upon the weighted average common shares outstanding as defined by FASB ASC Topic 260 "Earnings per Share."  As of June 30, 2011 and 2010, respectively, there were no common share equivalents outstanding.


(I)

Income Taxes


The Company accounts for income taxes under FASB ASC Topic 740 “Income Taxes”.  Under Topic 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  Under Topic 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.




-8-




(J)

Property and Equipment


The Company values property and equipment at cost and depreciates these assets using the straight-line method over their expected useful life.  The Company uses a three to five-year life for computer equipment.


(K)

Business Segments


The company considers its divisions as one segment for management purpose.


(L)

Revenue Recognition


The Company recognized revenue on arrangements in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" and No. 104, "Revenue Recognition".  In all cases, revenue is recognized only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured.


(M)

Recent Accounting Pronouncements


The Company has adopted all recently issued accounting pronouncements that are applicable to its operations.  The adoption of the accounting pronouncements, including those not yet effective, is not anticipated to have a material effect on the financial position or results of operations of the Company.



NOTE 2.

PROPERTY, PLANT AND EQUIPMENT


As of June 30, 2011, property, plant, and equipment consist of the following:


 

 

 

Estimated

 

 

 

Useful Life

 

 

 

 

Office Equipment

$

22,020.38

3-5 years

Furniture and Fixture

 

2,087.44

 

Transportation Equipment

 

23,367.84

3-5 years

 

 

47,475.66

 

Less Accumulated Depreciation

 

14,441.03

 

 

$

33,034.63

 


Depreciation and amortization expense was $3,196.09 and $992 for the three months ended June 30, 2011 and 2010 respectively, and is included in General and Administrative expense in the accompanying Statements of Operations.



NOTE 3.

NOTE PAYABLE


The Company has received the following loans from a principal shareholder:


·

The first loan of $10,000 was received on November 7, 2007.  Pursuant to the terms of the loan, the note bears interest at 7% p.a., was unsecured, and matured on November 8, 2008.  The loan was extended in the same terms until November 7, 2011, and $4,091.88 of which still remains to be repaid.




-9-




·

The second loan of $108,301.90 was received on April 29, 2009.  Pursuant to the terms of the loan, the note bears no interest, is unsecured.  The original maturation date of April 28, 2010 has been extended to April 28, 2012.


·

The third loan of $25,700 was received on May 19, 2009.  Pursuant to the terms of the loan, the note bears interest at 4% p.a., is unsecured.  The original maturation date of November 18, 2009 was extended for another twelve months to November 18, 2011.


·

The fourth loan of $25,700 was received on September 24, 2009.  Pursuant to the terms of the loan, the note bears interest at 4% p.a., is unsecured.  The original maturation date of March 23, 2010 was extended for another twelve months to March 23, 2012.


·

The fifth loan of $25,700 was received on March 30, 2010.  Pursuant to the terms of the loan, the note bears interest at 4% p.a., is unsecured, and matured on March 29, 2012.


·

The sixth loan of $18,427.31 was received on February 11, 2010.  Pursuant to the terms of the loan, the note bears interest at 1% per month and is unsecured, and matures on February 10, 2012.


·

The seventh loan of $38,597.70 was received on April 12, 2010.  Pursuant to the terms of the loan, the note bears interest at 1% p.m., is unsecured, and matured on April 10, 2012.


·

The eighth loan of $45,030.65 was received on May 14, 2010.  Pursuant to the terms of the loan, the note bears interest at 1% per month and is unsecured, and matures on May 12, 2012.


·

The ninth loan of $164,480 was received on September 14, 2010.  Pursuant to the terms of the loan, the note bears interest at 1% per month and is unsecured, and matures on December 31, 2011.


·

The tenth loan of $17,990 was received on October 6, 2010.  Pursuant to the terms of the loan, the note bears interest at 1% per month and is unsecured, and matures on October 5, 2011.


·

The eleventh loan of $205,600 was received on February 16, 2011.  Pursuant to the terms of the loan, the note bears interest at 1% per month and is unsecured, and matures on August 15, 2011.


·

The twelfth loan of $51,400 was received on March 23, 2011.  Pursuant to the terms of the loan, the note bears interest at 1% per month and is unsecured, and matures on April 21, 2012.


·

The thirteenth loan of $43,349.48 was received on April 28, 2011.  Pursuant to the terms of the loan, the note bears no interest, and is unsecured.  The loan will mature on April 27, 2012.


In addition, the Company received a loan from another stockholder, who is also an executive officer:


·

The first loan of $38,550 was received from an EEPL director on March 10, 2010.  Pursuant to the terms of the loan, the note carried an interest at 1% per month, unsecured, originally matured on June 9, 2010, and was now extended to August 8, 2011.


·

The second loan of $24,415 was received from the same EEPL officer on June 19, 2011.  Pursuant to the terms of the loan, the note bears an interest at 1% per month, unsecured, and matures on July 26, 2011.





-10-



NOTE 4.

LOAN PAYABLE


The Company has also received from an unrelated creditor the following loans:


·

The first loan of $96,375 was received on May 25, 2009.  Pursuant to the terms of the loan, the note bears interest at 1% per month and is unsecured.  The original maturation date of November 24, 2009 was extended to November 20, 2011.


·

The second loan of $25,700 was received on October 12, 2009.  Pursuant to the terms of the loan, the note bears interest at 1% per month and is unsecured, and matures on October 11, 2011.


·

The third loan of $64,250 was received on November 11, 2009.  Pursuant to the terms of the loan, the note bears interest at 1% per month and is unsecured, and matures on November 9, 2011.


·

The fourth loan of $154,200 was received on November 26, 2009.  Pursuant to the terms of the loan, the note bears interest at 1% per month and is unsecured, and matures on November 24, 2011.



NOTE 5.

RELATED PARTY TRANSACTIONS


The only related party transactions were the loans received from the principal stockholder as disclosed in NOTE 3 above.



NOTE 6.

SUBSEQUENT EVENTS


There was no significant event outstanding subsequent to June 30, 2011.



NOTE 7.

COMMITMENTS


There was no major commitment outstanding as at June 30, 2011.



NOTE 8.

GOING CONCERN


The Company sustained a net loss of $1,178,895 for the period from December 17, 1999 (inception) to June 30, 2011, and used cash in operations of $1,852,187 from inception. This raises substantial doubt about its ability to continue as a going concern.  The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan.  The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.




-11-



Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations.


Overview


The Company is a smaller reporting Company as described by the Rules of the Securities and Exchange Commission Regulations. For a further disclosure of the Company and its operations see Note 1 of the financial statements for the period ended June 30, 2011 included in this quarterly report on Form 10-Q as well as the Company’s annual report on Form 10-K for the year ended December 31, 2010.


Business


China Renewable Energy Holdings, Inc. ("CREH") was incorporated under the laws of the State of Florida on December 17, 1999. We were originally organized to provide business services and financing to emerging growth entities, and later redirected its business focus to market and to distribute energy-efficient products in China.  In view of the growing concerns regarding BPA leaching by the PC materials, we vision a market for PC and clear ABS (CABS) substitutes emerging for industries such as toys and food packaging.  Starting in late 2009, we invested in formulating new resin products for the replacement of the more traditional CABS and PC materials.


The K-resins/MS blend (KMS) product family, which are proprietary formulated resins developed by EEPL.  They are blended under a formulation mainly targeting at the clear ABS and PC markets.  The materials itself are composed of K-resins produced by Chevron Phillips and SMMA produced by Nippon Steel Chemical.  The KMS products are aiming at two market segments: The superior clear ABS (CABS) substitute market, and the premium CABS substitute and PC substitute markets.


Our other major product line, the MB Series, is an energy-efficient resin product line produced by Chevron Phillips Chemicals (China) Company Limited.  The MB Series are considered a desirable substitute for the conventional resin products used widely in the toy industry, household goods industry, and electronic goods industries.


Based on market feedback, CREH management has developed a sales forecast for the new resin products to take up 03% (approximately 3,000 tons) of the PC market in China.  However, the recent fluctuations in the styrene monomer (SM) supplies and the possible shortage of industrial raw material from Japan derived from the recent disasters add uncertainty to the KMS markets.  The price increases of SM, which is an essential component in the KMS formulations, may in the near future hinder the sales growth of KMS.  Nonetheless, we are confident about market acceptance of CRK 038 and expect a steady take-up by customers going forward.


During 2009 and 2010, we invested a lot of our time and resources on the strategic account management (SAM) customers on various production trials.  We expect the KMS business to start taking off.  For 2011, our business plan is to continue focus on developing the markets for the KMS blend products, and the MB Series resin products.


Overall, we generated revenues of $1,502,572 from the sales of the MB series and the CRK products during the second quarter of 2011 ended June 30.  Of the $1,502,572 total sales, $482,460 was from the fulfilled orders for the CRK and the new H900 series resin products. The corresponding cost of sales amounted to $1,380,493, or 92% of the total sales.


For the three months ended June 30, 2011, the global economic downturn continued to reflect in our operations in terms of decreases in order quantities as well as a shift from the higher-priced product series to the lower priced ones in the order mix.  The cost increases in the resin materials contributed by




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the recessed productivity of resin materials in Japan due to the Tohuku earthquake added challenges to our operations.


During the three months ended June 30, 2011, the Company made a net loss of $59,051, compared to a net profit of $122,968 for the comparable period in 2010.  In view of the recent years’ limited operations, net losses, working capital deficiency and projected cash requirement, our independent registered public accounting firm, in their audit report, which covers the period through December 31, 2009, has expressed a substantial concern about our ability to continue as a going concern.  Since the 2008 private placement, in which we raised approximately $560,000 of capital, we have obtained loans from a principle stockholder and an executive officer; and also from an unrelated company as well.   As at June 30, 2011, such loan balances were $837,334 and $340,525, respectively.  Our cash on hand was $94,316 as of June 30, 2011.  Our ability to continue as a going concern is dependent upon whether or not we can generate sufficient revenues through the execution of our business plan.  While the recent adverse economic conditions have hindered us from further improving our operations and financial situation, we shall nonetheless continue to monitor and review our position from time to time, and exercise our best effort to secure the necessary financing to meet our obligations as they become due.


Results of Operations


Three and six months ended June 30, 2011 as compared to the three and six months ended June 30, 2010


During the three and six months ended June 30, 2011 we report revenues of $1,502,572 and $2,346,752, respectively, compared to $2,786,384 and $3,057,634 during the three and six months, respectively, ended June 30, 2010.  The decreases in sales for the three and six months ended June 30, 2011 were due to the lower than expected sales quantity and a change in sales mix of the higher-priced KMS resin products and the MB Series products.  Our costs of sales for the three and six months ended June 30, 2011 were $1,380,493 and $2,154,227, respectively, as compared to $2,561,390 and $2,812,513 for the three and six months, respectively, ended June 30, 2010. The difference in cost of sales was directly attributed to the decrease in sales in 2011. As a percentage, costs of sales for both of the three and six months ended June 30, 2011 were 92%, which was the same for the comparable periods in 2010.


Our total operating expenses for the three months and six months ended June 30, 2011 were $147,878 and $295,595, respectively, as compared to $100,400 and $183,267, respectively, for the corresponding periods of 2010.  The change in the total operating expenses was due to an overall increase in the professional fees, salary expenses, and the general and administrative expense.  The increase in the professional fees was attributed to the consulting service used by the Company for business development in the US.  This consulting service started on March 1, 2011 and is provided by Ms. Lisa Mitchell for a monthly fee of $5,000.


For the three- and six-month periods ended June 30, 2011, we incurred $62,173 and $140,537, respectively, in salary expense; while we spent $35,691 and $75,434 of salary in the three- and six-month ended June 30 of 2010.  In 2009 and 2010, as part of the management’s rationalization program, the executive officers agreed to either waive their salary payments or take a much discounted salary.  Since the beginning of 2011, the compensations for some of these executive officers resumed to a level that was not discounted as deeply.


Regarding the general and administrative expenses, we incurred $66,007 and $114,811, respectively, during the three- and six-month periods ended June 30, 2011; while we spent $56,457 and $85,301, respectively, for the comparable periods in 2010.  Our general and administrative expenses consisted of ordinary business expenses, including rent, traveling and entertainment related to business development, and advertising expenses.  The increases in the general administrative expenses in the three- and six-month periods ended June 30, 2011 as compared to the comparative periods in 2010 are mainly




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attributed to the increases in bank charges, car expenses, and business traveling expenses.  As the management continues its cost rationalization efforts, we anticipate that our general and administrative expenses for the remaining of 2011 will remain at a level comparable to the six months ended June 30, 2011.


Liquidity and Capital Resources


At June 30, 2011, we had a deficiency in working capital of $507,635 as compared to a deficiency of $350,020 at December 31, 2010.  Major changes in the liquidity include a decrease in cash balances by $11,110, an increase in restricted cash for import facilities by $64,452, a decrease of $152,807 in accounts receivable, an decrease of $45,408 in deposits, a decrease of $95,655 in inventory, a decrease of bank loan by $183,897, a decrease of loan payable by $33,458, an increase of $326,675 in notes payable to stockholder, and an increase in accounts payable by $182,821.  In particular, the cash position has changed as follows:


Net cash used in operating activities for the six months ended June 30, 2011 was $111,990 as compared to $24,948 for the six months ended June 30, 2010.


Net cash used in investing activities for the six months ended June 30, 2011 was $3,775, as compared to $8,545 during the six months ended June 30, 2010.


Net cash provided by financing activities for the six months ended June 30, 2011 was $109,320, as compared to $198,281 for the six months ended June 30, 2010 which represented proceeds to us from borrowing.


We are not currently bound by any long or short-term agreements for the purchase or lease of capital expenditures. Any amounts expended for capital expenditures would be the result of an increase in the capacity needed to adequately service any increase in our business. To date we have paid for every needed additions to our capital equipment infrastructure from working capital funds and anticipate this being the case in the future.


Off Balance Sheet Transactions


None.



Item 3.

Quantitative and Qualitative Disclosures About Market Risk.


Not applicable for a smaller reporting company.



Item 4T.

Controls and Procedures.


Evaluation of Disclosure Controls and Procedures.  We maintain "disclosure controls and procedures" as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934.  In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met.  Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.  The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events.  Based on his evaluation as of the end of the period covered by this report, our President who also serves as our principal executive officer and our principal




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financial officer, concluded that our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and were effective at the reasonable assurance level for which they were designed such that the information relating to our company, including our consolidating subsidiary, required to be disclosed by us in reports that it files or submits under the Securities Exchange Act of 1934 (i) is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (ii) is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.


Changes in Internal Control over Financial Reporting.  There have been no changes in our internal control over financial reporting during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.




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PART II - OTHER INFORMATION


Item 1.

Legal Proceedings.


None.



Item 1A.

Risk Factors.


Not applicable for a smaller reporting company.



Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.


None.



Item 3.

Defaults Upon Senior Securities.


None.



Item 4.

Submission of Matters to a Vote of Security Holders.


None.



Item 5.

Other Information.


None.



Item 6.

Exhibits


No.

Description


31.1

Rule 13a-14(a)/ 15d-14(a) Certification of principal executive officer

31.2

Rule 13a-14(a)/ 15d-14(a) Certification of principal financial and accounting officer

32.1

Section 1350 Certification of principal executive officer and principal financial and accounting officer





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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 Renewable Energy Holdings, Inc.

 

By: /s/ Allen Huie

Allen Huie, CEO, President, principal executive officer and principal financial and accounting officer

Date: August 12, 2011





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