21. RESTATEMENT OF FINANCIAL STATEMENTS

The consolidated financial statements for the years ended December 31, 2011 and 2010 were restated to reflect the following:

According to FASB ASC 480-10-35-5, all other financial instruments recognized under the guidance in Section 480-10-25 shall be measured subsequently at fair value with changes in fair value recognized in earnings, unless either this subtopic or another subtopic specifies another measurement attribute.

Accordingly, the shares to be issued to Dong (with fixed obligation of RMB 80 million ( $11.78 million)) pursuant to Biomass Power Generation Asset Transfer Agreement entered on June 29, 2010 (“Note 17 - Shareholders’ Equity”) should be classified as a liability on the balance sheet and adjusted to fair value at each reporting period. Previously, the Company did not measure the changes in fair value of the liability at each reporting date.

The following table presents the effects of the restatement adjustment on the accompanying consolidated statement of income and comprehensive income for the year ended December 31, 2011:

Consolidated Statement of Income and Comprehensive Income	As Previously Reported		Restated			Net Adjustment
Changes in fair value of the liability	$	8,251,060	$	5,441,176		$	(2,809,884	)
Total non-operating income (expense), net	$	989,032	$	(1,820,852	)	$	(2,809,884	)
Income before income taxes	$	26,630,985	$	23,821,101		$	(2,809,884	)
Income from operations	$	22,398,040	$	19,588,156		$	(2,809,884	)
Net income attributable to CREG	$	21,449,879	$	18,639,995		$	(2,809,884	)
Comprehensive income attributable to CREG	$	26,650,229	$	23,840,345		$	(2,809,884	)
Basic	$	0.51	$	0.44		$	(0.07	)
Diluted	$	0.39	$	0.34		$	(0.05	)

The following table presents the effects of the restatement adjustment on the accompanying consolidated statement of cash flows for the year ended December 31, 2011:

	As Previously Reported			Restated			Net Adjustment
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	22,398,040		$	19,588,156		$	(2,809,884	)
Changes in fair value of the liability	$	(8,251,090	)	$	(5,441,176	)	$	2,809,884

The following table presents the effects of the restatement adjustment on the accompanying consolidated balance sheet at December 31, 2010:

Consolidated Balance Sheet	As Previously Reported		Restated		Net Adjustment
Shares to be issued	$	11,780,471	$	8,970,587	$	(2,809,884	)
Retained earnings	$	14,812,630	$	17,622,514	$	2,809,884

The following table presents the effects of the restatement adjustment on the accompanying consolidated statement of income and comprehensive income for the year ended December 31, 2010:

Consolidated Statement of Income and Comprehensive Income	As Previously Reported			Restated		Net Adjustment
Changes in fair value of the liability	$	-		$	2,809,884	$	2,809,884
Total non-operating income (expense), net	$	(2,675,662	)	$	134,222	$	2,809,884
Income before income taxes	$	24,692,109		$	27,501,993	$	2,809,884
Income from operations	$	17,826,069		$	20,635,953	$	2,809,884
Net income attributable to CREG	$	16,032,597		$	18,842,481	$	2,809,884
Comprehensive income attributable to CREG	$	18,406,947		$	21,216,831	$	2,809,884
Basic	$	0.41		$	0.49	$	0.08
Diluted	$	0.33		$	0.38	$	0.05

The following table presents the effects of the restatement adjustment on the accompanying consolidated statement of cash flows for the year ended December 31, 2010:

	As Previously Reported		Restated			Net Adjustment
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	17,826,069	$	20,635,953		$	2,809,884
Changes in fair value of the liability	$	-	$	(2,809,884	)	$	(2,809,884	)