##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 20-F
 
 (Mark One)
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 OR
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 OR
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Date of event requiring this shell company report
 For the transition period from           to         .
 Commission file number: 001-34609
 
 CHINA HYDROELECTRIC CORPORATION
 (Exact name of Registrant as specified in its charter)
 Not applicable
(Translation of Registrants name into English)
 Cayman Islands
(Jurisdiction of incorporation or organization)

25B, New Poly Plaza, No. 1 North Chaoyangmen Street
 Dongcheng District, Beijing
Peoples Republic of China 100010
(Address of principal executive offices)
 
 Securities registered or to be registered pursuant to Section 12(b) of the Act.
 Title of each class
    
    Name of each exchange on which registeredAmerican Depositary Shares, each representing three ordinary
    
    New York Stock Exchangeshares, par value US$0.001 per share
 Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
 Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
 
  o þ
 o þ
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
  þ  o o
 o o
 o þ




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##### 



CHINA HYDROELECTRIC CORPORATION
 TABLE OF CONTENTS
 PageINTRODUCTION
    
    
    3SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
    
    
    4PART I.
    
    
    5ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
    
    
    5ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
    
    
    5ITEM 3. KEY INFORMATION
    
    
    5ITEM 4. INFORMATION ON THE COMPANY
    
    
    31ITEM 4A. UNRESOLVED STAFF COMMENTS
    
    
    63ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    63ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    97ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    109ITEM 8. FINANCIAL INFORMATION
    
    
    113ITEM 9. THE OFFER AND LISTING
    
    
    114ITEM 10. ADDITIONAL INFORMATION
    
    
    115ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    122ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    123PART II.
    
    
    123ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    123ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
    
    
    123ITEM 15. CONTROLS AND PROCEDURES
    
    
    123ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    124ITEM 16B. CODE OF ETHICS
    
    
    124ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    124ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
    
    
    124ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
    
    
    124ITEM 16F. CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT
    
    
    124ITEM 16G. CORPORATE GOVERNANCE
    
    
    124PART III.
    
    
    125ITEM 17. FINANCIAL STATEMENTS
    
    
    125ITEM 18. FINANCIAL STATEMENTS
    
    
    125ITEM 19. EXHIBITS
    
    
    125INDEX TO CONSOLIDATED FINANCIAL STATEMENTSEX-4.70EX-4.71EX-4.72EX-4.73EX-4.74EX-4.75EX-4.76EX-4.77Ex-4.78EX-8.1EX-12.1EX-12.2EX-13.1EX-13.2EX-15.1
  2




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##### Table of Contents



INTRODUCTION
   
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 3




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##### Table of Contents



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
   
 
 
 
 
 
 
 
 
  
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 
 
 
 
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 4




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##### Table of Contents




 
 
 
  
 PART I.
 
 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
  
 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
  
 ITEM 3. KEY INFORMATION
 A. Selected Consolidated and Other Financial and Operating Data
    5




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##### Table of Contents



Binglangjiang (Predecessor)
    
    
    Our Company (Successor)For the
    
    For theYear
    
    Period from
    
    
    For the PeriodEnded
    
    January 1
    
    
    from July 10December
    
    to
    
    
    (inception) to
    
    For the Year Ended31,
    
    April 24,
    
    
    December 31,
    
    December 31,2006
    
    2007
    
    
    2006
    
    2007
    
    2008
    
    2009(US$ in thousands, except share and per share data)Consolidated Statements of
Operations DataRevenue
    
    
    2,075
    
    
    
    571
    
    
    
    
    
    
    
    
    2,434
    
    
    
    14,715
    
    
    
    36,175Cost of Revenue
    
    
    (691
    )
    
    
    (219
    )
    
    
    
    
    
    
    
    (813
    )
    
    
    (6,025
    )
    
    
    (17,183
    )Gross profit
    
    
    1,384
    
    
    
    352
    
    
    
    
    
    
    
    
    1,621
    
    
    
    8,690
    
    
    
    18,992Operating expenses:General and Administrative expenses
    
    
    (13
    )
    
    
    (23
    )
    
    
    
    (901
    )
    
    
    (2,560
    )
    
    
    (6,761
    )
    
    
    (9,099
    )Operating income(loss)
    
    
    1,371
    
    
    
    329
    
    
    
    
    (901
    )
    
    
    (939
    )
    
    
    1,929
    
    
    
    9,893Other income and expenses:Interest income
    
    
    1
    
    
    
    
    
    
    
    
    340
    
    
    
    1,051
    
    
    
    1,340
    
    
    
    510Interest expenses
    
    
    (914
    )
    
    
    (285
    )
    
    
    
    (873
    )
    
    
    (3,275
    )
    
    
    (5,847
    )
    
    
    (14,228
    )Change in fair value of derivative financial
liabilities and warrant liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (266
    )
    
    
    420
    
    
    
    (13,793
    )Exchange loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,095
    )
    
    
    (1,067
    )
    
    
    (23
    )Share of losses in an equity
investee
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27
    )
    
    
    (503
    )
    
    
    (70
    )Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    144
    
    
    
    (225
    )Income (loss) before income tax expenses
    
    
    458
    
    
    
    44
    
    
    
    
    (1,434
    )
    
    
    (4,543
    )
    
    
    (3,584
    )
    
    
    (17,936
    )Income tax expenses
    
    
    (19
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    (17
    )
    
    
    (444
    )
    
    
    (1,492
    )Consolidated net income (loss)
    
    
    439
    
    
    
    43
    
    
    
    
    (1,434
    )
    
    
    (4,560
    )
    
    
    (4,028
    )
    
    
    (19,428
    )Less:Net loss attributable to noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    32Net income (loss) attributable to China Hydroelectric
Corporation shareholders
    
    
    439
    
    
    
    43
    
    
    
    
    (1,434
    )
    
    
    (4,560
    )
    
    
    (3,987
    )
    
    
    (19,396
    )
 6




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##### Table of Contents



Binglangjiang (Predecessor)
    
    
    Our Company (Successor)For theFor the
    
    PeriodYear
    
    from
    
    
    For the PeriodEnded
    
    January 1
    
    
    from July 10December
    
    to
    
    
    (inception) to
    
    For the Year Ended31,
    
    April 24,
    
    
    December 31,
    
    December 31,2006
    
    2007
    
    
    2006
    
    2007
    
    2008
    
    2009(US$ in thousands, except share and per share data)Consolidated Statements of
Operations DataLess:Cumulative dividends on Series
A convertible redeemable
preferred shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,680
    )
    
    
    (19,836
    )Cumulative dividends on Series
B convertible redeemable
preferred shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,531
    )
    
    
    (14,412
    )Cumulative dividends on Series
C convertible redeemable
preferred shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (356
    )Changes in redemption value of
Series A convertible
redeemable preferred shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,569
    )
    
    
    Changes in redemption value of
Series B convertible
redeemable preferred shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,134
    )
    
    
    Changes in redemption value of
Series C convertible
redeemable preferred shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,872
    )Loss attributable to ordinary
shareholders
    
    
    
    
    
    
    
    
    
    
    
    (1,434
    )
    
    
    (4,560
    )
    
    
    (38,901
    )
    
    
    (55,872
    )Basic and diluted net loss
attributable to China
Hydroelectric Corporation
shareholders per share
    
    
    
    
    
    
    
    
    
    
    
    (0.34
    )
    
    
    (0.33
    )
    
    
    (2.50
    )
    
    
    (3.59
    )Weighted average ordinary shares
used in basic and diluted net
loss attributable to China
Hydroelectric Corporation
shareholders per share
computation
    
    
    *
    
    
    
    *
    
    
    
    
    4,240,822
    
    
    
    13,817,466
    
    
    
    15,554,416
    
    
    
    15,541,666
 7




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##### Table of Contents



Binglangjiang (Predecessor)
    
    
    
    
    
    Our Company (Successor)For thePeriodfrom
    
    For the PeriodFor the Year
    
    January 1
    
    from July 10Ended
    
    to
    
    (inception) to
    
    For the Year EndedDecember 31,
    
    April 24,
    
    December 31
    
    December 31,2006
    
    2007
    
    2006
    
    2007
    
    2008
    
    2009(US$ in thousands, except share and per share data)Pro forma basic net (loss) income
attributable to China
Hydroelectric Corporation
shareholders per share on an as
converted basis
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.07)
    (1)
    
    
    (0.16)
    (1)Pro forma diluted net (loss)
income attributable to China
Hydroelectric Corporation
shareholders per share on an as
converted basis
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.07)
    (1)
    
    
    (0.16)
    (1)Shares used in pro forma basic
net (loss) income attributable to
China Hydroelectric Corporation
shareholders per share
computation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,415,130
    (1)
    
    
    122,427,137
    (1)Shares used in pro forma diluted net (loss) income
attributable to China Hydroelectric Corporation
shareholders per share
computation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,415,130
    (1)
    
    
    122,427,137
    (1)Number of shares as adjusted to
reflect changes in capital
    
    
    *
    
    
    
    *
    
    
    
    
    
    
    
    
    
    
    
    58,289,666
    (1)
    
    
    134,100,575
    (1)Other Financial Data:EBITDA, as adjusted (2)
    
    
    *
    
    
    
    *
    
    
    
    (901
    )
    
    
    (320
    )
    
    
    6,474
    
    
    
    22,188
 
 *
    
    Not provided, as the information relates to the results of operations of Binglangjiang prior to its acquisitions by us.(1)
    
    This calculation of pro forma basic and diluted loss per share for the year ended December 31, 2008 and December 31, 2009 assumes that all Series A convertible redeemable preferred shares, Series B convertible redeemable preferred shares
were converted into ordinary shares on January 1, 2008, and that all Series A convertible redeemable preferred shares, Series B convertible redeemable preferred shares and Series C convertible redeemable preferred shares were converted into
ordinary shares on January 1, 2009. The number of shares as adjusted to reflect change in capital for the year ended December 31, 2008 includes the outstanding ordinary shares of 15,541,666 and the 23,529,286 and 19,218,714 ordinary shares to be
issued upon conversion of the Series A convertible redeemable preferred shares and the Series B convertible redeemable preferred shares, respectively, including the conversion of dividends accrued on the Series A convertible redeemable preferred
shares and Series B convertible redeemable preferred shares to be paid in kind but not yet issued as of December 31, 2008. The number of shares as adjusted to reflect changes in capital for the year ended December 31, 2009 includes the
outstanding ordinary shares of 15,541,666 and the 62,345,354, 50,318,921 and 5,894,634 ordinary shares to be issued upon conversion of the Series A convertible redeemable preferred shares, the Series B convertible redeemable preferred shares,
and the Series C convertible redeemable preferred shares, respectively, including the conversion of dividends accrued on the Series A convertible redeemable preferred shares, Series B convertible redeemable preferred shares and Series C
convertible preferred shares to be paid in kind but not yet issued as of December 31, 2009.(2)
    
    See Operating and Financial Review and Prospects-Results of Operations-EBITDA, as adjusted for a reconciliation of this non-GAAP number. 8




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##### Table of Contents



Our Company (Successor)Binglangjiang
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Pro forma(Predecessor)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance SheetAs of December 31,
    
    
    As of December 31,
    
    At December 312006
    
    
    2006
    
    2007
    
    2008
    
    2009
    
    2009(US$ in thousands)Consolidated Balance Sheet Data:Cash and cash
equivalents
    
    
    142
    
    
    
    
    628
    
    
    
    15,606
    
    
    
    38,693
    
    
    
    31,618
    
    
    
    31,618Restricted cash
    
    
    
    
    
    
    
    50,340
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accounts receivable, net
    
    
    152
    
    
    
    
    
    
    
    
    329
    
    
    
    3,137
    
    
    
    8,434
    
    
    
    8,434Deferred tax assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,166
    
    
    
    489
    
    
    
    489Amounts due from related
parties
    
    
    64
    
    
    
    
    33
    
    
    
    25
    
    
    
    13
    
    
    
    
    
    
    
    Debt issuance costs
    
    
    
    
    
    
    
    
    
    
    
    47
    
    
    
    
    
    
    
    
    
    
    
    Amounts due from an
equity investee
    
    
    
    
    
    
    
    
    
    
    
    287
    
    
    
    4,534
    
    
    
    
    
    
    
    Prepayments and other
current assets
    
    
    206
    
    
    
    
    
    
    
    
    3,269
    
    
    
    9,437
    
    
    
    4,582
    
    
    
    4,582Total current assets
    
    
    564
    
    
    
    
    51,001
    
    
    
    19,563
    
    
    
    56,980
    
    
    
    45,123
    
    
    
    45,123Debt issuance costs
    
    
    
    
    
    
    
    975
    
    
    
    
    
    
    
    Investment in an equity
investee
    
    
    
    
    
    
    
    
    
    
    
    4,721
    
    
    
    4,295
    
    
    
    
    
    
    
    Deferred IPO initial public
offering costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,032
    
    
    
    12,774
    
    
    
    Property, plant and
equipment, net
    
    
    16,752
    
    
    
    
    
    
    
    
    29,046
    
    
    
    365,190
    
    
    
    423,200
    
    
    
    423,200Intangible assets, net
    
    
    
    
    
    
    
    
    
    
    
    3,008
    
    
    
    3,666
    
    
    
    4,513
    
    
    
    4,513Goodwill
    
    
    
    
    
    
    
    
    
    
    
    2,773
    
    
    
    96,533
    
    
    
    107,824
    
    
    
    107,824Deferred tax assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,231
    
    
    
    1,231Other non-current assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    872
    
    
    
    399
    
    
    
    399Total non current assets
    
    
    16,752
    
    
    
    
    975
    
    
    
    39,548
    
    
    
    476,588
    
    
    
    549,941
    
    
    
    537,167Total assets
    
    
    17,316
    
    
    
    
    51,976
    
    
    
    59,111
    
    
    
    533,568
    
    
    
    595,064
    
    
    
    582,290Total current liabilities
    
    
    2,392
    
    
    
    
    850
    
    
    
    14,436
    
    
    
    77,285
    
    
    
    102,492
    
    
    
    102,492Long term loan
    
    
    13,831
    
    
    
    
    
    
    
    
    10,269
    
    
    
    138,133
    
    
    
    172,469
    
    
    
    172,469Deferred tax liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,415
    
    
    
    18,805
    
    
    
    18,805Other non-current
liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    568
    
    
    
    104
    
    
    
    104Long-term note
    
    
    
    
    
    
    
    50,285
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Convertible redeemable
preferred shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    299,236
    
    
    
    353,840Total China Hydroelectric
Corporation shareholders
equity(deficit)
    
    
    1,093
    
    
    
    
    841
    
    
    
    34,406
    
    
    
    4,181
    
    
    
    (53,435
    )
    
    
    287,631Noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    750
    
    
    
    789
    
    
    
    789Total liabilities and
shareholders equity
(deficit)
    
    
    17,316
    
    
    
    
    51,976
    
    
    
    59,111
    
    
    
    533,568
    
    
    
    595,064
    
    
    
    582,290
 
 Note:
    
    The unaudited pro forma balance sheet as of December 31, 2009 has been prepared based on
the assumed conversion of the convertible redeemable preferred shares. 9




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##### Table of Contents



Binglangjiang (Predecessor)
    
    
    Our company (Successor)As of and
    
    As of and
    
    
    As of andFor the Year
    
    For the Period from
    
    
    For the Period EndedEnded
    
    January 1 to
    
    
    December 31,December 31, 2006
    
    April 24, 2007
    
    
    2007
    
    2008
    
    2009Selected Operation Data(1)Installed Capacity(MW)
    
    
    21.0
    
    
    
    21.0
    
    
    
    
    58.0
    (2)
    
    
    271.0
    (2)
    
    
    376.60Electricity Sold(kWh)
    
    
    106,646,530
    
    
    
    23,495,595
    
    
    
    
    108,303,945
    (3)
    
    
    333,964,005
    (3)
    
    
    798,945,372Effective tariff
(RMB/kWh)
    
    
    0.164
    
    
    
    0.2
    
    
    
    
    0.18
    (4)
    
    
    0.33
    (4)
    
    
    0.34
    (4)
 
 (1)
    
    For Binglangjiang, operating data given are for the periods stated. For our company, operating data given are for our period of ownership of the hydroelectric power projects during the periods indicated.(2)
    
    Our aggregate installed capacity information presented includes, as of December 31, 2007 and December 31, 2008, the installed capacity of Shapulong, as of December 31, 2008, the installed capacity of Shapulong, Banzhu, and Wangkeng, and as of December 31, 2009,
the installed capacity of Wangkeng, although as of such respective date, our equity interest in Shapulong, Banzhu, and Wangkeng were 50.0%, 90.0% and 90.0% respectively. We acquired the remaining 10.0% interest in Banzhu in March 2009 and the remaining 50.0% of
Shapulong in August 2009.(3)
    
    Electricity sold and effective tariff information for the year ended December 31, 2007 does not reflect electricity sold by Shapulong. Electricity sold and effective tariff information for the year ended December 31, 2008 does not reflect electricity sold by
Shapulong and Yuanping. Our 50% equity interest in Shapulong accounted for using the equity method of accounting and our proportional share of Shapulongs net loss is included as a share of losses in equity investee, in our consolidated statement of operations for
the year ended December 31, 2007 and 2008. In the years ended December 31, 2007 and 2008, Shapulong sold 43,292,057kWh, 42,308,157kWh, respectively. We acquired the remaining 50.0% equity interest in Shapulong in August 2009. Although Yuanping commenced operations in
March 2007, and has transmitted electricity to the power grid controlled by Fujian Ningde Electric Power Bureau, that transmission was made without a fixed or pre-determined tariff per kWh until late June 2009. Therefore, cash received in exchange for the transmission
of electricity to the power grid before late June 2009 was recorded as customer deposits. Accordingly, no revenues were recorded by Yuanping in the year ended December 31, 2008. However, related cost of revenue was not deferred, and was charged to expenses as incurred.
All of the customer deposits received from the date of our acquisition of Yuanping after the per kWh tariff became fixed or determinable. In August 2009, the Ningde Pricing Bureau, the regional pricing bureau in Fujian province, approved a unit price per kWh of
RMB0.29, inclusive of value-added tax, or VAT, for electricity transmitted by Yuanping to the power grid controlled and owned by the provincial grid company prior to July 8, 2009. The unit price per kWh of RMB0.29 will continue to be in effect until the regional
pricing bureau approves a new unit price per kWh. In the year ended December 31, 2007 and 2008, Yuanping transmitted 30,071,595kWh, 28,292,478kWh of electricity, respectively.(4)
    
    see Exhibit 15.1 to this Annual Report on Form 20-F for the details of the calculation of effective tariff. Exchange Rate Information
  B. Capitalization and Indebtedness
  C. Reasons for the Offer and Use of Proceeds
  D. Risk Factors
 An investment in our securities involves significant risks. You should carefully consider the
risks described below, together with all of the other information in this annual report, including
our consolidated and other financial statements and related notes included elsewhere in this
annual report, before you decide to purchase our securities. If any of these risks actually occurs,
our
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business, prospects, financial condition or results of operations could be materially and
adversely affected, the trading price and value of our securities could decline and you could lose
all or part of your investment.
 Risks
Relating to our Company and the PRC Hydroelectric Power Industry
 We have a limited operating history which provides limited reference for you to evaluate our
ability to achieve our business objectives.
  Our business is dependent upon hydrological conditions, which may from time to time result in
conditions that are unfavorable to our business operations.
  The operation of our hydroelectric power projects and customer demand for our power may be
vulnerable to disruptions caused by natural and man-made disasters, which may materially and
adversely affect our results of operations.
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We may encounter difficulties in identifying suitable acquisition opportunities, which would
result in us being dependent upon a limited number of hydroelectric power projects and having
limited revenue growth potential.
   
    
    result in our dependence upon the performance of a limited number of operating
plants;
    
    result in our dependence upon electricity sales in limited geographical areas;
    
    subject us to increased risks associated with drought or other natural disasters in
a particular geographical area; and
    
    limit our ability to grow our revenues and to obtain the benefits of scale that we
anticipate.
  Greenfield projects and projects under construction present substantial development,
construction, start-up and partnership risks, which could materially and adversely affect our
results of operations, financial condition and growth prospects.
  
    
    delays in obtaining various regulatory approvals, licenses or permits from
different governmental authorities at different levels, including permission for the
construction and operation of the hydroelectric power project itself, the
environmental permits and permits to use the relevant land;
    
    shortages or increases in the cost of equipment, materials or labor;
    
    adverse weather conditions, which may delay the completion of hydroelectric power
projects or substations, or natural disasters, accidents or other unforeseen events;
    
    unforeseen engineering, design, environmental or geological problems;
    
    opposition of local interests;
    
    strikes and labor disputes;
    
    inability to obtain financing on satisfactory terms; and
    
    adverse changes in the PRC regulatory environment.
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We
derive our revenues solely from the sale of hydroelectric power electricity and each of our projects typically has only one customer. Any prolonged disruption to the demand for hydropower or
termination of a customer relationship may cause our revenues to decrease significantly.
  Our power purchase agreement for our Wangkeng hydroelectric power project has recently expired;
failure to renew the power purchase agreement could result in a reduction or complete loss of
revenues from the hydroelectric power project, which would have a materially adverse effect on
our revenues, results of operations and net cash used in operating activities.
  We depend on the experience of our executive officers and our business may be severely disrupted in
the event that we lose their services and are unable to find replacements with comparable
experience and expertise.
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We will need additional funding to accomplish our growth strategy and may be unable to raise
capital on terms favorable to us or at all, which could increase our financing costs, dilute your
ownership interests, affect our business operations or force us to delay, reduce or abandon our
growth strategy.
  
    
    general economic and capital market conditions;
    
    the availability of credit from banks or other lenders;
    
    investor confidence in us; and
    
    the continued performance of our hydroelectric power projects.
   Assumptions applied to our investment analyses and feasibility studies may not be accurate, and
thus our actual return on investments, operational results, and overall growth may be materially
and adversely affected.
  The operations of our hydroelectric power projects may be adversely affected by the failure of
key equipment, civil structures or transmission systems, which could result in lost revenues,
increased maintenance costs and our owing damages to our customers for lost revenues.
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Our power generating operations may be adversely affected by operational risks, which may
result in uninsured losses.
  
    
    failure of power transmission systems;
    
    unexpected maintenance or technical problems;
    
    human error;
    
    failure of our mechanical, software or monitoring systems; and
    
    industrial accidents.
  Our operations may be interrupted by realization of unexpected risks or difficulties in
integrating acquired businesses, which could interrupt our existing business and materially
and adversely affect our results of operations.
   
    
    potential construction or engineering problems which may expose us to severe
economic loss or legal liabilities and require substantial expenditure from us to
remediate;
    
    unforeseen or hidden liabilities, including exposure to legal proceedings,
associated with newly acquired companies;
    
    failure to generate sufficient revenues to offset the costs and expenses of
acquisitions;
    
    potential impairment losses and amortization expenses relating to goodwill and
intangible assets arising from any of such acquisitions, which may materially reduce
our net income or result in a net loss; and
    
    possible contravention of Chinese regulations applicable to such acquisitions.
  Our growth strategy is dependent upon our ability to manage our growth effectively which, if
unsuccessful, could result in a material adverse impact on our financial condition and results of
operations.
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
    
    expand our systems and processes effectively or efficiently or in a timely
manner;
    
    allocate our human resources optimally or reduce headcount without experiencing
community protest, strike or other social unrest;
    
    identify and hire qualified employees or retain valued employees;
    
    incorporate effectively hydroelectric power projects in various stages of development that
we may acquire;
    
    maintain good relationship with power grids; or
    
    centralize and improve the efficiency of the management and operations of the
hydroelectric power projects acquired.
  On-grid tariffs are set based on regulatory guidance, actual supply of electricity to a power grid
and regional demand for electricity, and changes in these factors may materially and adversely
affect our results of operations.
  
    
    construction costs, which vary according to the installed capacity of the
individual power projects;
    
    operating and administrative expenses;
    
    maintenance and repair costs of power projects; and
    
    interest expense on outstanding debts.
   If less than all of the electricity we generate is dispatched by the grids, our future revenues
will be reduced.
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Compliance with environmental regulations can be costly, and we may become subject to further
environmental compliance requirements in connection with our operations, which could materially
and adversely affect our results of operations and financial condition.
   Our business and business prospects rely in part on policy support from the PRC government, and
our financial condition and results of operations may be materially and adversely affected if we
lose such support.
  Competition in the PRC power industry may increase, and our results of operations and growth
prospects may be materially and adversely affected if we are unable to compete effectively.
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Our business depends on the competitiveness of hydroelectric power generation in relation to other
forms of electric power generation. Fewer hydroelectric power projects may be built and less
electricity from hydroelectric power sources may be sold if fossil fuel prices decline significantly or if
other renewable energy sources become less expensive than hydroelectric power, either of which could have a
material adverse effect on our results of operations, financial condition and growth prospects.
   Certain of our operating subsidiaries are parties to loan agreements that provide for lender
rights that may adversely affect our ability to operate our business and restrict our ability to
pay dividends and we could be materially adversely affected if our lenders accelerate our debt due to our current or future failures to comply with our loan agreements.
   Planning, construction, acquisition and operation of our hydroelectric power projects require us
to obtain and maintain a significant number of permits and approvals from PRC government agencies,
some of which we have not obtained or were not transferred to us upon project acquisition. Failure
to obtain these permits and approvals could result in significant fines and our loss of the right
to develop or operate those assets, which would materially and adversely affect our future growth
plans and results of operations.
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Our operations in China are extensively regulated by the PRC government and our costs associated
with compliance with such regulations are substantial. Our results of operations and future growth
prospects may be materially and adversely affected by future changes in government regulations and
policies.
  
    
    planning and construction of new power projects;
    
    the granting of power generation, dispatch and supply permits;
    
    the amount and timing of power generation;
    
    the setting of on-grid tariffs paid to power producers and power tariffs paid by
consumers of electricity;
    
    power grid control and power dispatch, including the setting of preferential
policies for the dispatch of renewable energy generated power;
    
    allocation of water resources and control of water flows;
    
    environmental protection and safety standards;
    
    acquisitions by foreign investors; and
    
    taxes, in particular Enterprise Income Tax and Value Added Tax.
  The transfer of state-owned assets in China is subject to approval by authorities in charge of
state-owned assets administration and supervision. Any failure by us or prior owners of our
projects to comply with PRC laws and regulations in respect of the transfer of state-owned assets
may result in the imposition of fines or forfeiture of our projects.
  Acquisition of state-owned assets involves a public bidding process and failure to win the bids
for our state-owned target companies or equity interests therein may limit our future growth and
the control of our existing projects.
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Certain of our acquisitions have not obtained approval from the local counterparts of the National
Development and Reform Commission, which could result in our being required to subsequently obtain
the approval, losing preferential tax treatments and other preferential government support, or
being ordered to cease operation of the subject hydroelectric power project.
  We have not obtained formal title certificates to some of the properties we occupy, which may
subject us to lawsuits or other actions being taken against us and may result in our loss of the
right to operate on these properties and increased operating expenses.
 2
 2
 Certain of our existing hydroelectric power projects have not passed the completion acceptance
procedure, which could result in the imposition of fines or the closure of non-permitted
hydroelectric power projects.
  Our executive officers may allocate their time to other businesses thereby causing conflicts of
interest in their determination as to how much time to devote to our business and operations,
which could materially and adversely affect our ability to manage our operations.
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Our directors and officers may in the future become affiliated with entities engaged in business
activities similar to those conducted by us and, accordingly, may have conflicts of interest in
determining to which entity a particular business opportunity should be presented, which could
limit the business growth opportunities for our company.
  If a poll is not demanded at our shareholder meetings, voting will be by a show of hands and
shares will not be proportionately represented. Shareholder resolutions may be passed without the
presence of the majority of our shareholders in person or by proxy.
 1 10
 Our independent registered public accounting firm has identified material weaknesses and control
deficiencies in our internal control over financial reporting. If we are unable to correct these
weaknesses and deficiencies, our ability to accurately and timely report our financial results or
prevent fraud may be adversely affected, and investor confidence and the market price of our
securities may be adversely affected.
   
    
    identifying and hiring additional personnel with U.S. GAAP and SEC reporting
experience;
    
    providing training to our finance personnel to improve their knowledge of U.S.
GAAP and SEC reporting requirements;
    
    holding regular meetings of the audit committee and resuming regular
communication between the committee and our independent registered public accounting
firm;
    
    establishing an internal audit function;
    
    establishing anonymous whistleblower systems for reporting violations of our
governance policies, including policies regarding internal controls;
    
    putting in place a centralized financial reporting software system in our
headquarters, management centers and operating projects; and
    
    engaging external professional consultants to assess the entity level internal
controls over financial reporting using the COSO internal control framework. We have
also begun to formulate policies relating to internal control over financial
reporting, including the preparation of a comprehensive accounting policies and
procedures manual, containing, among other things, detailed, expanded closing
checklists, to guide our financial personnel in addressing significant accounting
issues and assist them in preparing financial statements in compliance with U.S.
GAAP and SEC requirements.
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Compliance with rules and requirements applicable to public companies may cause us to incur
additional costs, and any failure by us to comply with such rules and requirements could
negatively affect investor confidence in us and cause the market price of our securities to
decline.
  Risks Relating to Doing Business in China
 Adverse changes in PRC economic and political policies could have a material adverse effect on the
overall economic growth of China, which could reduce the demand for electricity and materially and
adversely affect our business.
  
    
    the level of government involvement;
    
    the level of development;
    
    the growth rate;
    
    the level and control of capital investment;
    
    the control of foreign exchange; and
    
    the allocation of resources.
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Interpretation of PRC laws and regulations involves uncertainty.
  The new Antimonopoly Law may subject our future acquisitions to increased scrutiny, which could
affect our ability to consummate acquisitions on terms favorable to us or at all.
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A newly enacted PRC tax law could increase the enterprise income tax rate applicable to our
operating businesses in China, which could have a material adverse effect on our results of
operations.
   We may be deemed a PRC resident enterprise under the EIT Law and be subject to PRC taxation on our
worldwide income.
  Interest and dividends payable by us to our foreign investors and gain on the sale of our ADSs,
warrants or ordinary shares may become subject to withholding taxes under PRC tax laws, which may
materially and adversely affect your investment in our securities.
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We rely principally on dividends and other distributions on equity paid by our operating
businesses in China, and limitations on their ability to pay dividends to us could have a material
adverse effect on our business and results of operations.
   Fluctuations in the value of RMB will affect the amount of our non-RMB debt service in RMB terms
and affect the value of, and dividends payable on, our ADSs in foreign currency terms.
  Restrictions on currency exchange may limit our ability to receive dividends from our operating
businesses in China and their ability to obtain overseas financing.
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PRC regulation of direct investment and loans by offshore holding companies to PRC entities may
delay or limit our ability to use the proceeds of our initial public offering to make additional
capital contributions or loans to our PRC operating businesses.
   Risks Relating to Our Securities
 The trading prices of our ADSs and warrants are likely to be volatile, which could result in
substantial losses to investors.
    The sale or availability for sale of substantial amounts of our ADSs could adversely affect their
market price.
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Future issuances of ordinary shares or ADSs may depress the trading price of our ADSs.
  Our outstanding warrants may materially and adversely affect the market price of our ADSs.
  You will not be able to exercise your warrants if we do not have an effective registration
statement in place when you desire to do so.
  Your right to participate in any future rights offerings may be limited, which may cause dilution
to your holdings.
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A significant percentage of our outstanding ordinary shares are held by a small number of our
existing shareholders, and these shareholders may have significantly greater influence on us and
our corporate actions by nature of the size of their shareholdings relative to our public
shareholders.
  Anti-takeover provisions in our charter documents may discourage a third party from acquiring us,
which could limit our shareholders opportunities to sell their shares at a premium.
   We are a Cayman Islands company and, because judicial precedent regarding the rights of
shareholders is more limited under Cayman Islands law than under U.S. law and it is difficult to
enforce certain judgments, you may have less protection of your shareholder rights than you would
under U.S. law.
   
    
    to recognize or enforce judgments of United States courts obtained against us or
our directors or officers predicated upon the civil liability provisions of the
securities laws of the United States or any state in the United States; or
    
    to entertain original actions brought against us or our directors or officers
predicated upon the securities laws of the United States or any state in the United
States.
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You will have limited ability to bring an action in the Cayman Islands or in China against us or
against our directors and officers, or to enforce a judgment against us or them, because we are
incorporated in the Cayman Islands and because we conduct a majority of our operations in China.
     Your ability to protect your rights as shareholders through the U.S. federal courts may be limited
because we are incorporated under Cayman Islands law.
  The voting rights of holders of ADSs must be exercised in accordance with the terms of the deposit
agreement, the ADRs, and the procedures established by the depositary. The process of voting
through the depositary may involve delays that limit the time available to you to consider proposed
shareholders actions and also may restrict your ability to subsequently revise your voting
instructions.
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Except in limited circumstances, the depositary for our ADSs will give us a discretionary proxy to
vote our ordinary shares underlying your ADSs if you do not vote at shareholders meetings, which
could adversely affect your interests.
  
    
    we have failed to timely provide the depositary with our notice of meeting and
related voting materials;
    
    we have instructed the depositary that we do not wish a discretionary proxy to be
given;
    
    we have informed the depositary that there is substantial opposition as to a
matter to be voted on at the meeting;
    
    a matter to be voted on at the meeting would have a material adverse impact on
shareholders.
  You may not receive distributions on our shares or any value for them if it is illegal or
impractical for us to make them available to you.
   You may be subject to limitations on transfers of your ADSs.
  We may be a passive foreign investment company, or PFIC, which could lead to additional taxes for
U.S. holders of our warrants, ADSs or ordinary shares.
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ITEM 4. INFORMATION ON THE COMPANY
 A. History and Development of the Company
  
    
    in November 2006, we raised $50.0 million through the sale of convertible notes in a
private placement to institutional investors;
    
    in April 2007, we established a wholly owned subsidiary, Beijing A.B.C. Investment
Consulting Co., Ltd. in Beijing, China, which provides management and other consulting
services to our hydroelectric power projects in China;
    
    in April 2007, we acquired Yunnan Huabang Electric Power Development Co., Ltd., which
owns and operates the Binglangjiang I hydroelectric power project, with an installed
capacity of 21.0 MW, and which has the right to complete construction of, and operate, the
Binglangjiang II hydroelectric power project, with a design capacity of 20.0 MW, both in
Yingjiang County, Dehong Prefecture, Yunnan province, for a total consideration of RMB50.0
million ($6.5 million). In addition, we made a cash advance to the company of RMB125.0
million ($16.2 million) in April 2007 prior to the completion of the acquisition.
Binglangjiang is considered our predecessor company for SEC reporting purposes, as we
acquired substantially all of the business of Binglangjiang and our own operations prior to
that acquisition were insignificant compared to the operations of Binglangjiang;
    
    in May 2007, we acquired, through an asset purchase, the Liyuan hydroelectric power
project, a completed project with an installed capacity of 12.0 MW located in Cangxi
County, Guangyuan City, Sichuan province, from Cangxi County Jianghe Hydroelectric Power
Development Co., Ltd., for a purchase price of RMB77.0 million ($10.0 million) in cash. We
established at that time Sichuan Huabang Hydroelectric Development Co., Ltd. to own and
operate the plant;
    
    in December 2007, we acquired a 50.0% equity interest in Yunhe County Shapulong
Hydropower Generation Co., Ltd., which owns and operates the Shapulong hydroelectric power
project, with an installed capacity of 25.0 MW, located in Yunhe County, Lishui City,
Zhejiang province, for a purchase price of RMB33.0 million ($4.5 million) in cash. In
August 2009, we acquired a 13.0% equity interest in the company for a purchase price of
RMB8.6 million ($1.3 million) and a further 37.0% equity interest in the company for a
purchase price of RMB21.0 million ($3.1 million);
    
    in January 2008, we raised $150.0 million in a private placement of Series A convertible
redeemable preferred shares to institutional investors;
    
    in January 2008, we acquired Zhejiang Province Jingning Yingchuan Hydroelectric
Development Co., Ltd., which owns and operates the Yingchuan hydroelectric power project,
with an installed capacity of 40.0 MW, located in Jingning County, Lishui City, Zhejiang
province, for a total consideration of RMB304.0 million ($42.3 million), which was
comprised of a cash purchase price of RMB291.4 million ($40.6 million) and a payment of
RMB12.6 million ($1.8 million) to settle all of the liabilities of the company;
    
    in January 2008, we acquired Qingtian Wuliting Hydroelectric Development Co., Ltd.,
which owns and operates the Wuliting hydroelectric power project, with an installed
capacity of 42.0 MW, located in Qingtian County, Lishui City, Zhejiang province, for a
purchase price of RMB342.1 million ($47.6 million), which was comprised of a cash purchase
price of RMB206.9 million ($28.8 million) and a payment of RMB135.3 million ($18.8 million)
to settle all of the liabilities of the company;
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
    
    in January 2008, we acquired Suichang County Jiulongshan Hydroelectric Development Co.,
Ltd., which owns the Zhougongyuan hydroelectric power project, with a design capacity of
53.6 MW, located in Suichang County, Lishui City, Zhejiang province, for a purchase price
of RMB157.3 million ($21.9 million) in cash. We were obligated to make a cash injection
into the company of RMB250.0 million ($34.8 million) to complete the construction of the
project under the original agreement;
    
    in July 2008, we raised $101.0 million in a private placement of Series B convertible
redeemable preferred shares to institutional investors;
    
    in August 2008, we raised $28.0 million in a private placement of Series B convertible
redeemable preferred shares to institutional investors;
    
    in October 2008, we acquired a 90.0% equity interest in Sanming Zhongyin Banzhu
Hydroelectric Co., Ltd., which owns and operates the Banzhu hydroelectric power project,
with an installed capacity of 45.0 MW, located in Sanming City, Fujian province, for a
purchase price of RMB134.2 million ($19.6 million) in cash. We were obligated to make a
capital injection of RMB104.9 million ($15.4 million) to the company to finance its future
operations after the acquisition, of which RMB21.2 million ($3.1 million) was made in March
2009, and the remaining capital injection of RMB83.7 million ($12.3 million) will be made
in 2010. In addition, pursuant to a supplemental agreement with the shareholders at the
time, Sanming Ruifeng Hydropower Investment Co., Ltd. and Yongan Ruifeng Hydroelectric
Ltd. were entitled to receive the RMB59.2 million ($8.7 million) of current assets,
including cash and cash equivalents, accounts receivable and amounts due from related
parties of Banzhu as of the acquisition date. Subsequently, in January 2009, Sanming
Ruifeng Hydropower Investment Co., Ltd. agreed to forego RMB7.0 million ($1.0 million) of
the current assets that Sanming Ruifeng Hydropower Investment Co., Ltd. is entitled to
receive. In March 2009, we acquired the remaining 10.0% equity interest in this company for
a purchase price of RMB17.0 million ($2.5 million) in cash;
    
    in October 2008, we acquired a 90.0% equity interest in Pingnan County Wangkeng
Hydroelectric Co., Ltd., which owns and operates the Wangkeng hydroelectric power project,
with an installed capacity of 40.0 MW, located in Pingnan County, Ningde City, Fujian
province, for a purchase price of RMB220.5 million ($32.3 million) in cash;
    
    in October 2008, we acquired Pingnan County Yuanping Hydroelectric Co., Ltd., which owns
and operates the Yuanping hydroelectric power project, with an installed capacity of 16.0
MW, located in Pingnan County, Ningde City, Fujian province, for a purchase price of
RMB58.0 million ($8.5 million) in cash;
    
    in October 2008, we acquired Pingnan County Yuheng Hydropower Co., Ltd., which owns and
operates the Yuheng hydroelectric power project, with an installed capacity of 30.0 MW,
located in Pingnan County, Ningde City, Fujian province, for a purchase price of RMB121.0
million ($17.7 million) in cash;
    
    in March 2009, Pingnan County Wangkeng Hydroelectric Co., Ltd, signed a RMB150.0 million
($22.0 million) loan agreement with Industrial Bank Co., Ltd., Ningde Branch to refinance
the Wangkeng hydroelectric power project;
    
    in March 2009, Qingtian Wuliting Hydroelectric Development Co., Ltd, signed a RMB219.6
million ($32.2 million) loan agreement with Bank of China, Lishui City Dayang Sub-branch to
refinance the Wuliting hydroelectric power project;
    
    in June 2009, Sanming Zhongyin Banzhu Hydroelectric Co., Ltd, signed a RMB294.9 million
($43.2 million) loan agreement with the Bank of China, Fujian Branch to refinance the
Banzhu hydroelectric power project;
    
    in June 2009, Suichang County Jiulongshan Hydroelectric Development Co., Ltd. signed a
RMB216.0 million ($31.6 million) loan agreement and a RMB9.0 million ($1.3 million) loan
agreement with the Agricultural Bank of China, Lishui Branch to refinance the Zhougongyuan
hydroelectric power project;
    
    in July 2009, we signed a memorandum of understandings with the Bank of China, Fujian
Branch, pursuant to which the bank will provide 50.0% of financing required for the
acquisition or refinancing of any hydroelectric power projects acquired by us through an
Investment Holding Company to be established by us in Fujian province;
    
    in August 2009, we acquired Longquan Ruiyang Cascade II Hydroelectric Co., Ltd., which
owns and operates the Ruiyang hydroelectric power project, with an installed capacity of
32.0 MW, located in Xiaomei Township, Longquan City, Zhejiang province, for a purchase
price of RMB160.0 million ($23.4 million) in cash;
    
    in September 2009, we signed a non-binding framework
agreement with Sichuan Huashui Power Construction Engineering Co.,
Ltd. to jointly develop 40 small hydroelectric power projects in
Sichuan province totaling approximately 1,250.0 MW of design
installed capacity, for which Sichuan Huashui Power construction
Engineering Co., Ltd. has the development right. We have subsequently
determined not to pursue these projects.
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
    
    in October 2009, we signed a capital increase agreement with Henan Lan Tian Group Co.,
Ltd. to subscribe for a 79.0% equity interest in Henan Wuyue Storage Power Generation Co.,
Ltd., which owns the right to develop a 1,000.0 MW pumped storage project, located in
Yinpeng Township, Guangshan County, Xinyang City, Henan province, for a purchase price of
RMB162.5 million ($23.8 million) in cash. The completion of the capital increase
transaction is pending government approval;
    
    in October 2009, we raised $20.0 million in a private placement of Series C convertible
redeemable preferred shares to an institutional investor;
    
    in December 2009, we transferred one hydroelectric power project from Suichang County
Jiulongshan Hydroelectric Development Co., Ltd., to the newly established Suichang County
Zhougongyuan Hydroelectric Development Co., Ltd. Both Suichang County Jiulongshan
Hydroelectric Development Co., Ltd. and Suichang County Zhougongyuan Hydroelectric
Development Co., Ltd. are wholly owned by us; and
    
    in January 2010, we established a wholly owned subsidiary, Fujian Huabang Hydroelectric
Investment Co., Ltd.
    
    in January 2010, we completed our initial public offering and received net proceeds of
approximately $74.8 million, and our ADSs and warrants started trading on the NYSE under
the symbols CHC and CHCWS, respectively.
    
    In February 2010, we received a Loan Framework Agreement from the Bank of Chinas Fujian
Branch pursuant to which the bank approved our wholly owned subsidiary, Fujian Huabang
Hydroelectricity Investment Co., as a borrower of up to an aggregate of RMB 3 billion (
$440 million) for the acquisition of hydroelectric projects. Each acquisition loan will be
subject to individual approval by the bank and to definitive documentation (which will
include the term and interest rate thereof). The Loan Framework Agreement represents the
banks form of internal commitment for the loan facility.
    
    In March 2010, we acquired Husahe, a 18.7 MW operating project in Yunnan province in the
PRC for a purchase price of RMB106 million ($15.5 million), financed partially through cash
on hand and through the assumption or refinancing of existing non-recourse debt.
    
    In April 2010, we signed a definitive agreement to acquire
Xiaopengzu, a 44 MW operating hydroelectric project in Yunnan province in
the PRC for a purchase price of RMB240.0 million ($35.1  million).
    
    In April 2010, we signed two definitive agreements to acquire three
Minrui operating projects, totaling 55.5 MW in installed generating capacity,
for a purchase price of RMB 96.3 million ($14.1 million).
 Our Offices
  B. Business overview
   33




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Our Competitive Strengths
 Focused acquirer, operator and developer of hydroelectric power projects in a low-cost and
fast-growing renewable energy market
  Superior access to acquisition opportunities
  Experienced management team
  34




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Geographical diversification combined with regional project clustering reduces operational risk and
enhances operational efficiencies
   Ability to access and effectively deploy capital
  Business Strategy
 Maintain acquisition pace and increase project construction
   35




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##### Table of Contents



Optimize capital structure
  Continue geographic diversification and consolidation of hydropower capacity in key regions
  Increase utilization rates and revenues
   36




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##### Table of Contents



Reduce costs and streamline operations
  Our Hydropower Assets
 Overview
  
 
    
    completed projectsrefer to projects that are built and in operation;
    
    projects under constructionrefer to projects that are being built and are not yet in
operation;
    
    approved projectsrefer to projects that have received the approvals, permits and
licenses necessary for construction to commence; and
    
    greenfield projectsrefer to projects that lack one or more construction permits and
have not begun construction.
  Descriptions of the projects
     37




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##### Table of Contents



Electricity Sold (kWh)

Effective Utilization Rate 

    (%)(11)Actual orProject or

Expected



Installed













DesignExpansion and

Date in

Approved
    Tariff(1)

Capacity













UtilizationLocation

Service

(RMB/kWh)

(MW)

2007

2008

2009

2007

2008

2009

(%)

TypeCompleted ProjectsBinglangjiang I, Yunnan

January
    1988

0.22 January to May;
    0.17 June to December

21.0


112,041,197



117,278,061



95,514,582



60.9



63.6



51.9



60.0



ABinglangjiang II, Yunnan

September 2009

0.22 January to May
0.17 June to December

20.0


N/A



N/A



29,141,455



N/A



N/A



51.5



55.0



ALiyuan(2),

    Sichuan

August
    2006

0.29

12.0


19,758,343



25,098,176



23,435,555



18.8



23.8



22.3



42.0



BShapulong(3), Zhejiang

June 2001

0.535 peak hours;
    0.268 off-peak

40.0


43,292,057
(7)


42,308,157
(7)


40,630,896



20.2



19.3



18.6



23.0



CYingchuan,
    Zhejiang

April 2002

0.535 peak hours;
    0.268 off-peak

25.0


102,700,957



90,768,127



107,225,642



29.3



25.8



30.6



28.0



CWuliting, Zhejiang

October
    2007

0.535 peak hours;
    0.268 off-peak

42.0


65,423,294



70,224,000



92,554,400



17.8



19.0



25.2



33.0



BRuiyang, Zhejiang

December 2003

0.535 peak hours;
    0.268 off-peak

32.0


68,645,855



51,237,120



62,453,774



24.5



18.2



22.3



24.0



CJiulongshan, Zhejiang



0.535 peak hours0.268 off-peak

37.6


N/A



N/A



73,964,924



N/A



N/A



20.0



25.0



C/A
(10)Zhougongyuan, Zhejiang

March 2009

0.535 peak hours;
    0.268 off-peak

16.0


N/A



N/A



2,934,316



N/A



N/A



12.5



25.0



C/A
(10)Banzhu, Fujian

November
    1998

0.36

45.0
(6)

169,092,862
(8)


155,536,410
(8)


126,659,753



42.9



39.3



32.1



40.0



BWangkeng(3),

    Fujian

July 2004

0.31

40.0
(6)

118,792,231
(9)


129,217,917
(9)


108,369,852



33.9



36.8



30.9



42.0



CYuanping(4),

    Fujian

March 2007

0.29

16.0


30,071,595



38,393,478



44,316,824



21.5



27.3



31.6



39.0



AYuheng(5),

    Fujian

November
    1999

0.29

30.0


54,955,750



90,983,456



69,284,988



33.5



34.6



26.4



42.0



AHusahe, Yunnan

March 1995

0.22 January to
May; 0.17 June
to December

18.7Total:

395.3Under ConstructionWuyue, Henan

2014-2015



1,000.0Total:

1,395.3    (1)
    
    We are required to withhold VAT due
    on our power dispatched at a rate of 6.0% or 17.0% depending on
    the size and location of the plant. Approved tariffs presented
    above are gross of VAT. Peak hours are generally from 8 a.m. to
    10 p.m. For Bingliangjiang II, the effective tariff stated was
effective from January 1, 2010. In 2009, from September 4
to November 3, the effective tariff was 0.12 and from
November 4 to December 31 was 0.17.(2)
    
    2007 data for Liyuan are for the
    period from May 21 to December 31, 2007.(3)
    
    We acquired a 50.0% equity interest
    in Shapulong in December 2007. 2007 data for Shapulong are
    for the period from January 1, 2007 to December 24,
    2007. We have owned 100.0% of the equity interest in Shapulong
    since August 2009. We have owned 90.0% of the equity interest in
    Wangkeng since October 2008.(4)
    
    In August 2009, the Ningde Pricing
    Bureau, the regional pricing bureau in Fujian province, approved
    a unit price per kWh of RMB0.29, inclusive of VAT, for
    electricity transmitted by Yuanping to the power grid controlled
    and owned by the provincial grid company prior to July 8,
    2009. The unit price per kWh of RMB0.29 will continue to be in
    effect until the regional pricing bureau approves a new unit
    price per kWh.(5)
    
    Currently, Yuheng is receiving
    RMB0.29 per kWh for electricity supplied to Fujian Province
    Pingnan County Power Supply Co., Ltd., pursuant to the power
    purchase agreement entered into between Yuheng and Fujian
    Province Pingnan County Power Supply Co., Ltd. on
    December 28, 2008, which is valid until December 28,
    2009. However, pursuant to the Interim Agreement of Conformity
    of Power Purchase and Supply in Rongping Supply Area entered
    into by Yuheng, Fujian Province Pingnan County Power Supply Co.,
    Ltd., Fujian Province (Pingnan) Rongping Chemical Industry Co.,
    Ltd. and Pingnan County Hengli Hydroelectric Co., Ltd. on August 31, 2007, or the
    Interim Agreement, the tariff rate of RMB0.181 per kWh has been
    set for the supply of an aggregate volume of 300 million
    kWh of electricity by Yuheng to Fujian Province (Pingnan)
    Rongping Chemical Industry Co., Ltd. through Fujian Province
    Pingnan County Power Supply Co., Ltd. for a contractual term of
    forty-two months ending in October 2010. Therefore, for
    electricity supplied under the Interim Agreement to Fujian
    Province (Pingnan) Rongping Chemical Industry Co., Ltd., Yuheng
    is only entitled to RMB0.181 per kWh of the RMB0.29 per kWh
    revenue received from Fujian Province Pingnan County Power
    Supply Co., Ltd. and is obligated to remit the remaining
    RMB0.109 per kWh, to Fujian Province (Pingnan) Rongping Chemical
    Industry Co., Ltd. until the earlier of reaching the cumulative
    volume of 300 million kWh or October 2010. Pursuant to the
    Transfer of Yuanping Hydropower Plant and Cooperation Agreement
    entered into between Fujian Province (Pingnan) Rongping Chemical
    Industry Co., Ltd. and Fujian Province Anheng Assets Management
    Co., Ltd., Fujian Yuheng Power Group and Fujian Dachuang Hydro
    Power Co., Ltd, which were the founders of Pingnan County Yuheng
    Hydropower Co., Ltd., Yuheng provided a guarantee deposit of
    RMB30 million ($4.4 million) to Fujian Province
    (Pingnan) Rongping Chemical Industry Co., Ltd. to guarantee the
    supply of electricity of an aggregate volume of 300 million
    kWh over the contractual term, and is entitled to be refunded
    RMB0.1 of the guarantee deposit for every kWh of electricity
    supplied to Rongping Chemical through the power grid up to
    300 million kWh over the contractual term. 2007 data for
    Yuheng are for the period from May 18 to December 31,
    2007.(6)
    
    Our aggregate installed capacity
    information presented in this annual report includes, as of
    December 31, 2007, the installed capacity of Shapulong, as
    of December 31, 2008, the installed capacities of
    Shapulong, Banzhu and Wangkeng, and as of December 31,
    2009, the installed capacity of Wangkeng, although as of such
    respective dates, our equity interest in Shapulong, Banzhu and
    Wangkeng were 50.0%, 90.0% and 90.0%, respectively.(7)
    
    We held a 50.0% equity interest in
    Shapulong in 2008. On an equity interest basis, we would be
    entitled to 21,646,029 kWh and 21,154,079 kWh of
    electricity sold for 2007 and 2008, respectively, had we owned
    our equity interest in Shapulong for those periods. Effective
    utilization rates for the plant do not reflect our equity
    interest in the plant, but the operation of the plant as a
    whole. We have owned 100.0% of the equity interest in Shapulong
    since August 2009.(8)
    
    We have held a 100.0% equity
    interest in Banzhu since March 2009, but we only held a 90.0%
    equity interest in Banzhu as of December 31, 2008. On an
    equity interest basis, we would be entitled to
    152,183,576 kWh and 139,982,769 kWh of electricity
    sold for 2007 and 2008, respectively, had we owned our 90%
    equity interest in Banzhu for those periods. Effective
    utilization rates for the plant do not reflect our equity
    interest in the plant, but the operation of the plant as a whole.(9)
    
    We hold a 90.0% equity interest in
    Wangkeng. On an equity interest basis, we would be entitled to
    106,913,008 kWh, 116,296,125 kWh and 87,761,258 kWh of
    electricity sold for 2007, 2008 and for the nine months ended
    September 30, 2009, respectively, had we owned our equity
    interest in Wangkeng for those periods. Effective utilization
    rates for the plant do not reflect our equity interest in the
    plant, but the operation of the plant as a whole.(10)
    
    The Zhougongyuan project consists
    of three separate hydropower plants in series on the same river.
    The upstream hydropower plant is an impoundment dam reservoir
    hydropower plant (type C) and the other two in series
    downstream are run-of-the-river diversion dam hydropower plants
    (type A). Zhougongyuan project was split into two subsidiary
projects in December 2009: Jiulongshan project and Zhougongyuan project.(11)
    
    See Exhibit 15.1 to this annual report for
    detailed calculations of effective utilization rates. Completed Projects
 Yunnan Province
 Binglangjiang I
 2 2
 Binglangjiang II
 2 2
 Husahe . 2
  38




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##### Table of Contents



Sichuan Province
 Liyuan
 2 2
 Zhejiang Province
 Shapulong
 2 2
 Yingchuan
 39




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##### Table of Contents



2 2
 Wuliting
 2 2
 Ruiyang
 2 2
 Jiulongshan
and Zhougongyuan
 40




---



##### Table of Contents



2 2 2 2
 Fujian Province
 Banzhu
 2 2
 Wangkeng
 2 2
 Yuanping
 41




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##### Table of Contents



2 2
 Yuheng .
 2 2
 Projects under Development
 Henan Province
 Wuyue
 42




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##### Table of Contents



2 2
 Projects for which We have Signed Definitive Agreements to Acquire
 Yunnan Province
 Xiaopengzu .
 2
 Minrui .
 2
 2
 2
 Our Project Acquisition Process
   
  Opportunity Sourcing and Screening
  43




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##### Table of Contents




    
    acquisition price, and anticipated construction cost where applicable, as
compared to current and projected cash flow and the historical and projected return
on investment, taking into account historical tariff levels and tariff trends;
    
    the acquisition cost as compared to the estimated replacement value, the
appraised value and our own assessment of fair value using a number of valuation
methodologies;
    
    the status of approvals, permits and licenses required for the construction and
operation of the plant, including the legal status of the land occupied by the
plant;
    
    the hydrological condition of the plant site;
    
    the ability to retain existing or obtain new local bank financing on reasonable
terms;
    
    the operating history of the target business, including actual power production
and local supply and demand;
    
    the installed capacity and design of the hydroelectric power project operated by
the target business, including opportunities to expand or otherwise improve
generation capacity taking into consideration the current installed capacity and
design utilization;
    
    the potential to diversify the regions in which we operate or to realize
operational efficiencies from clustering multiple plants on a single water way;
    
    the competency of existing management and operational personnel of the target
project; and
    
    the local government for the project, the relationship with the customer grid and
the local tax rates.
   Sign Memorandum of Understanding or Letter of Intent
   Due Diligence
   44




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##### Table of Contents



Investment Committee Approval
  Negotiate and Sign Definitive Agreement
  45




---



##### Table of Contents



Project Construction
    Commissioning of Project
     46




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##### Table of Contents



Project Operation and Maintenance
   Sales and Marketing
 Power Sale
    47




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##### Table of Contents



On-grid Tariff
   
    
    construction costs, which vary according to the capacities of the individual
power projects;
    
    operating and administrative expenses, such as labor and fuel costs;
    
    maintenance and repair costs of power projects; and
    
    interest expenses on outstanding debts.
   48




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##### Table of Contents



Competition
    Intellectual Property Rights
   49




---



##### Table of Contents



Insurance
   Environmental Matters
     Headquarters
  Legal Proceedings
  REGULATION
   50




---



##### Table of Contents



Regulations Relating to Foreign Investment
   
    
    The Sino-foreign Equity Joint Venture Law (1979), as amended;
    
    The Regulations of Implementation of the Sino-foreign Equity Joint Venture Law
(1983), as amended;
    
    The Wholly Foreign-owned Enterprise Law (1986), as amended;
    
    The Detailed Rules of the Wholly Foreign-owned Enterprise Law (1990), as amended;
    
    The Company Law of the PRC (1993), as amended;
    
    The Provisions on Mergers and Acquisitions of Domestic Enterprises by Foreign
Investors (2009);
    
    The Interim Administrative Measures on Foreign Investment (2004); and
    
    The Circular Regarding Further Strengthening and Regulating the Administration of
Foreign Invested Projects issued by the National Development and Reform Commission
(2008).
  Regulations on Renewable Energy Resources
 The Law of Renewable Energy Resources of China
  51




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##### Table of Contents



The Medium and Long Term Development Plan of Renewable Energy Resources
  The Eleventh Five-year Plan of the Development of Renewable Energy Resources
  The Guiding Catalogue for the Development of Renewable Energy Resources Industry
  The Administrative Regulations on Power Generation of Renewable Energy Resources
  The Supervision and Administrative Measures on the Full Purchase of Electricity of Renewable Energy
Resources by Grid Enterprises
  Regulation of Power
  Regulation of On-grid Tariffs
   52




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##### Table of Contents



Regulation of Power Dispatch
   The Provisions on the Administration of Electric Power Business Permits
  Regulations Relating to Transfer of State-Owned Assets
  53




---



##### Table of Contents



Regulations on Environmental Protection in Construction Projects
    54




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##### Table of Contents



The Law of Energy Conservation of China
  Regulations on Water and Soil Conservation
  Regulations on Water Drawing
      55




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##### Table of Contents



Regulation in Relation to Land
    
    
    Land for use by government organs and for military use;
    
    Land for building urban infrastructure and for public welfare undertakings;
    
    Land for building energy, communications and water conservancy and other
infrastructure projects heavily supported by the State; and
    
    Other land as provided for by the law and administrative decrees.
      56




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##### Table of Contents



Regulations on Construction
  Regulations on Bid Invitation and Bid Tendering
     
    
    water resources construction projects involving the social and public interests
and public safety such as flood prevention, drainage, irrigation, hydraulic power
generation, diversion (supply) of water, harnessing shoals, water conservation and
protection of water resources;
    
    water resources construction projects which are, wholly or partially, invested by
the State-owned funds or funded through State financing; or
    
    water resources construction projects using loans or aid funds from international
organizations or foreign governments.
  
    
    the estimated price for any single construction contract exceeds RMB2,000,000;
    
    the estimated price for any single procurement of substantial equipments and
materials exceeds RMB1,000,000;
    
    the estimated price for any of surveying and prospecting, design or supervision
exceeds RMB500,000; or
    
    the estimated prices are lower than the above standards, but the total investment
of the projects exceeds RMB30,000,000.
 Regulations Relating to Anti-trust
  
    
    entering into monopoly agreement;
    
    abusing the dominant market position;
    
    conducting concentrations (as defined under the Antimonopoly Law) without first
obtaining approvals from relevant authorities;
 57




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
    
    abusing administrative power; or
    
    abusing intellectual property rights.
  Tax Law
 Enterprise Income Tax Law
    58




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##### Table of Contents



Value-added Tax
  59




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##### Table of Contents



Stamp duty
  Foreign Currency Exchange
   The State Administration of Foreign Exchange Regulations on Employee Stock Options
   60




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##### Table of Contents



Dividend Distribution
  
    
    The Sino-foreign Equity Joint Venture Law (1979), as amended;
    
    The Regulations of Implementation of the Sino-foreign Equity Joint Venture Law (1983),
as amended;
    
    The Wholly Foreign-owned Enterprise Law (1986), as amended;
    
    The Detailed Rules of the Wholly Foreign-owned Enterprise Law (1990), as amended;
    
    Foreign Currency Administration Rules (1996), as amended
    
    The Company Law of China (1993), as amended;
    
    The Enterprise Income Tax Law of China; and
    
    The Implementation Regulations of Enterprise Income Tax Law of China.
  Regulations Relating to Labor and Social Insurance
  61




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##### Table of Contents



Regulations Relating to Construction and Work Safety
      Regulations Relating to Resettlement of Relocated Residents
   62




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##### Table of Contents



C. Organizational Structure
 Organizational Chart
   
     D. Property, Plant and Equipment
  
 ITEM 4A. UNRESOLVED STAFF COMMENTS
  
 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 You should read the following discussion and analysis of financial condition and results of
operations in conjunction with the section entitled Selected Consolidated and Other Financial and
Operating Data and the financial statements and related notes included elsewhere in this annual
report. This discussion contains forward-looking statements that involve risks and uncertainties.
Our actual results and the timing of selected events could differ materially from those
anticipated in these forward-looking statements as a result of various factors, including those set
forth under Risk Factors and elsewhere in this annual report.
 A. Operating Results
 Overview
  63




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64




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##### Table of Contents



Our Acquisitions
  Acquisitions Completed in 2007
    Acquisitions Completed in 2008
      65




---



##### Table of Contents



Acquisitions Completed in 2009
    Other Acquisitions
  Impact of Acquisitions on our Results of Operations
  66




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##### Table of Contents



Factors Affecting Our Results of Operations
  
    
    tariffs;
    
    hydrological conditions;
    
    production efficiency of our hydroelectric power projects;
    
    expansion through strategic acquisitions;
    
    availability and cost of debt financing; and
    
    depreciation of property, plant and equipment and amortization of intangible
assets.
 General Factors Affecting Our Results of Operations
  Specific Factors Affecting Our Results of Operations
 Tariffs
  67




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##### Table of Contents




    
    maintaining a good working relationship with the grids dispatch control team,
with whom our hydroelectric power project managers communicate on a daily basis;
    
    providing technical cooperation and support to the local grid, by sharing
hydrology and operations data; and
    
    conducting thorough and accurate forecasts of our hydropower generation capacity
and management of water flows to supply power as and when required by the local
grid.
   Hydrological conditions
   68




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##### Table of Contents



Production efficiency of our hydroelectric power projects
  Expansion through strategic acquisitions, development of greenfield projects and expansion of
our existing hydroelectric power projects
  Availability and cost of debt financing
  Depreciation
  69




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##### Table of Contents



Critical accounting policies
  
    
    the reported amounts of our assets and liabilities;
    
    the disclosure of our contingent assets and liabilities at the end of each
reporting period; and
    
    the reported amounts of revenue and expenses during each reporting period.
  
    
    our selection of critical accounting policies;
    
    the judgment and other uncertainties affecting the application of such
policies; and
    
    the sensitivity of reported results to changes in conditions and assumptions.
  Fair value of financial instruments
  70




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##### Table of Contents



Revenue recognition
 Revenue Recognition: Overall
  Goodwill and intangible assets
 Intangibles-Goodwill and other: Overall
   71




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##### Table of Contents



Impairment of long-lived assets
 Property, Plant and Equipment: Overall
 Income taxes
 Income Taxes: Overall
 Accounting for Uncertainty in Income Taxes-an interpretation of FASB
statement No. 109
   Contingencies: Loss Contingencies
 72




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##### Table of Contents



Preferred shares warrant
   
    
    the expected future volatility of our ordinary share prices;
    
    the risk-free interest rate;
    
    the expected dividend yield; and
    
    the estimated fair value of our ordinary and preferred shares at the Warrant
Issue Date.
    
    
    our financial and operating results;
    
    the assumptions and basis of our financial projections;
    
    the nature of our business since our inception;
    
    the stage of development of our operations;
    
    our business plan;
    
    our business risks;
    
    the nature and prospects of the hydroelectric power industries in China;
 73




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##### Table of Contents




    
    the global economic outlook in general and the specific economic and competitive
elements affecting our business, industry and market; and
    
    the market-derived investment returns of entities engaged in the hydroelectric
power businesses.
      Share-Based Compensation
   74




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
    
    the expected future volatility of our ordinary share price;
    
    the risk-free interest rate;
    
    the expected dividend yield;
    
    the expected employee share option exercise behavior;
    
    the expected forfeiture rate; and
    
    the estimated fair value of our ordinary shares at the grant date.
    
    
    our financial and operating results;
    
    the assumptions and basis of our financial projections;
    
    the nature of our business since our inception;
    
    the stage of development of our operations;
    
    our business plan;
    
    our business risks;
    
    the nature and prospects of the hydroelectric power industries in China;
    
    the global economic outlook in general and the specific economic and competitive
elements affecting our business,
 75




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##### Table of Contents



industry and market; and
    
    the market-derived investment returns of entities engaged in the hydroelectric
power businesses.
          76




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##### Table of Contents



Significant Factors Contributing to Changes in Fair Value of Ordinary Shares
  
    
    Our increase in earning capability through continual acquisitions. Our valuation
as of March 4, 2009 included hydroelectric power projects of Binlangjiang, Liyuan,
Yingchuan, Wuliting, Zhougongyuan, Shapulong, Banzhu, Yuanping, Yuheng and
Wangkeng. Subsequently in August 2009, we completed the acquisition of Ruiyang. The
acquisition of Ruiyang increased our valuation as of December 31, 2009. In October
2009, we entered into an agreement to subscribe for a 79% equity interest in Henan
Wuyue Storage Power Generation Co., Ltd. With the proceeds from the initial public
offering in 2010, we expect to continue to acquire hydroelectric operating
companies and assets for the development of new hydropower projects in China and
for working capital and other purposes. We expect the new projects will further
strengthen our future cash flows and these cash flows have been incorporated into
our estimated public offering price, while the increase is expected to be partially
offset by an increase in debt financing and dilution effect of issued preferred
shares on our ordinary shares;
    
    Overall favorable market sentiment toward China-based publicly traded shares
based on NASDAQ China Index increased from 101 on March 4, 2009 to 178 on December
31, 2009 and further increased to 186 on April 20, 2010. Hang Seng China
Enterprises Index increased from 6,948 on March 4, 2009 to 12,794 on December 31,
2009 and was 12,437 on April 20, 2010. Also, the Shanghai Stock Exchange Composite
Index has increased from 2,198 on March 4, 2009 to 3,277 on December 31, 2009 and
was 3,033 on April 21, 2010;
    
    In October, 2009, we raised $20.0 million in a private placement of Series C
convertible redeemable preferred shares. We expect our successful listing will
allow us to have easier access to the capital markets in terms of fund raising
activities, including equity financing and bank borrowing with lower cost of
financing, and hence, increase our enterprise value; and
    
    The marketability of our ordinary shares after the initial public offering will
provide increased liquidity for our shares, leading to a higher equity value, which
we also expect to contribute to an increase in our enterprise value.
 Taxation
  Enterprise Income Tax
   77




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Dividend Withholding Tax
   Value Added Tax
  Internal Control Over Financial Reporting
    78




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##### Table of Contents




    
    identifying and hiring additional personnel with U.S. GAAP and SEC reporting
experience;
    
    providing training to our finance personnel to improve their knowledge of
U.S. GAAP and SEC reporting requirements;
    
    holding regular meetings of the audit committee and ensuring regular
communication between the committee and our independent registered public
accounting firm;
    
    establishing an internal audit function;
    
    establishing anonymous whistleblower systems for reporting violations of our
governance policies, including policies regarding internal controls;
    
    putting in place a centralized financial reporting software system in our
headquarters, management centers and operating plants; and
    
    engaging external professional consultants to assess the entity level internal
controls over financial reporting using the COSO internal control framework. We
have also begun to formulate policies relating to internal control over financial
reporting, including the preparation of a comprehensive accounting
policies and procedures manual, containing, among other things, detailed, expanded
closing checklists, to guide our financial personnel in addressing significant
accounting issues and assist them in preparing financial statements in compliance
with U.S. GAAP and SEC requirements.
  Results of Operations of Our Company
  For the Year EndedDecember 31,2007
    
    2008
    
    2009Revenues
    
    
    2,434
    
    
    
    14,715
    
    
    
    36,175Cost of revenues
    
    
    (813
    )
    
    
    (6,025
    )
    
    
    (17,183
    )Gross profit
    
    
    1,621
    
    
    
    8,690
    
    
    
    18,992Operating expensesGeneral and administrative expenses
    
    
    (2,560
    )
    
    
    (6,761
    )
    
    
    (9,099
    )Operating (loss) income
    
    
    (939
    )
    
    
    1,929
    
    
    
    9,893Interest income
    
    
    1,051
    
    
    
    1,340
    
    
    
    510Interest expenses
    
    
    (3,275
    )
    
    
    (5,847
    )
    
    
    (14,228
    )Change in fair value of derivative financial liabilities and warrant liability
    
    
    (266
    )
    
    
    420
    
    
    
    (13,793
    )
 79




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##### Table of Contents



For the Year EndedDecember 31,2007
    
    2008
    
    2009Exchange loss
    
    
    (1,095
    )
    
    
    (1,067
    )
    
    
    (23
    )Share of losses in an equity investee
    
    
    (27
    )
    
    
    (503
    )
    
    
    (70
    )Other income (loss), net
    
    
    8
    
    
    
    144
    
    
    
    (225
    )Loss before income tax expenses
    
    
    (4,543
    )
    
    
    (3,584
    )
    
    
    (17,936
    )Income tax expenses
    
    
    (17
    )
    
    
    (444
    )
    
    
    (1,492
    )Consolidated net loss
    
    
    (4,560
    )
    
    
    (4,028
    )
    
    
    (19,428
    )Net loss attributable to noncontrolling interest
    
    
    
    
    
    
    41
    
    
    
    32Net (loss) income attributable to China Hydroelectric Corporation shareholders
    
    
    (4,560
    )
    
    
    (3,987
    )
    
    
    (19,396
    )
 Revenues
   Year Ended
    
    Year Ended
    
    Year EndedDecember 31,
    
    December 31,
    
    December 31,2007
    
    2008
    
    2009% of RevenuesYunnan Dehong Electric Power Co., Ltd.
    
    
    71
    
    
    
    19
    
    
    
    8Sichuan Cangxi Electric Power Co., Ltd.
    
    
    29
    
    
    
    7
    
    
    
    3Lishui Electric Power Bureau
    
    
    
    
    
    
    65
    
    
    
    50Fujian Electric Power Co., Ltd.
    
    
    
    
    
    
    7
    
    
    
    27Pingnan Power Supply Company
    
    
    
    
    
    
    2
    
    
    
    12Total
    
    
    100
    
    
    
    100
    
    
    
    100
 Investments  Equity Method and Joint
Ventures: Overall
 80




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Cost of Revenues
  General and Administrative Expenses
  81




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##### Table of Contents



EBITDA, as adjusted
     For the Year EndedDecember 31,2007
    
    2008
    
    2009Net loss
    
    
    (4,560
    )
    
    
    (3,987
    )
    
    
    (19,396
    )Interest expense, net
    
    
    2,224
    
    
    
    4,507
    
    
    
    13,695Other non-cash charges including exchange loss
and change in fair value of derivative financial
liabilities and warrant liability
    
    
    1,361
    
    
    
    647
    
    
    
    13,816Income tax expenses
    
    
    17
    
    
    
    444
    
    
    
    1,492Depreciation of property, plant and equipment, net
    
    
    572
    
    
    
    4,755
    
    
    
    12,399Amortization of intangible assets
    
    
    66
    
    
    
    108
    
    
    
    182EBITDA, as adjusted
    
    
    (320
    )
    
    
    6,474
    
    
    
    22,188
 Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
  82




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Revenues, Cost of Revenues and Gross Profit
    83




---



##### Table of Contents



Operating Expenses
    84




---



##### Table of Contents



Operating Profit (loss)
  Other Income and Expenses
      Income Tax
  Noncontrolling Interest
  85




---



##### Table of Contents



Net Loss
  Loss Attributable to Ordinary Shareholders
     Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
    86




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Revenues, Cost of Revenues and Gross Profit
     87




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Operating Expenses
    88




---



##### Table of Contents



Operating Profit (Loss)
  Other Income and Expenses
      Income Tax
  89




---



##### Table of Contents



Minority Interest
  Net Loss
  Loss Attributable to Ordinary Shareholders
    Geographic Information
   Yunnan
    
    
    Sichuan
    
    
    Zhejiang
    
    
    FujianProvince
    
    
    Province
    
    
    Province
    
    
    Province
    
    
    Unallocated
    
    
    Eliminations
    
    
    ConsolidatedUS$
    
    
    US$
    
    
    US$
    
    
    US$
    
    
    US$
    
    
    US$
    
    
    US$Revenues
    
    
    2,966
    
    
    
    939
    
    
    
    18,164
    
    
    
    14,106
    
    
    
    
    
    
    
    
    
    
    
    36,175Cost of revenues
    
    
    (1,193
    )
    
    
    (583
    )
    
    
    (9,774
    )
    
    
    (7,341
    )
    
    
    
    
    
    
    1,708
    
    
    
    (17,183
    )General and administrative expenses
    
    
    (330
    )
    
    
    (203
    )
    
    
    (1,178
    )
    
    
    (613
    )
    
    
    (6,775
    )
    
    
    
    
    
    
    (9,099
    )Interest income
    
    
    115
    
    
    
    38
    
    
    
    57
    
    
    
    18
    
    
    
    319
    
    
    
    (37
    )
    
    
    510
 90




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##### Table of Contents



Yunnan
    
    
    Sichuan
    
    
    Zhejiang
    
    
    FujianProvince
    
    
    Province
    
    
    Province
    
    
    Province
    
    
    Unallocated
    
    
    Eliminations
    
    
    ConsolidatedUS$
    
    
    US$
    
    
    US$
    
    
    US$
    
    
    US$
    
    
    US$
    
    
    US$Interest expenses
    
    
    (303
    )
    
    
    
    
    
    
    (7,020
    )
    
    
    (6,554
    )
    
    
    (388
    )
    
    
    37
    
    
    
    (14,228
    )Change in fair value of derivative
financial liabilities and warrant
liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,793
    )
    
    
    
    
    
    
    (13,793
    )Exchange loss
    
    
    
    
    
    
    (1
    )
    
    
    (5
    )
    
    
    (7
    )
    
    
    (10
    )
    
    
    
    
    
    
    (23
    )Share of losses in an equity investee
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (70
    )
    
    
    
    
    
    
    (70
    )Other (loss) income, net
    
    
    (2
    )
    
    
    (1
    )
    
    
    (9
    )
    
    
    (265
    )
    
    
    1,760
    
    
    
    (1,708
    )
    
    
    (225
    )Income tax expenses
    
    
    (166
    )
    
    
    (51
    )
    
    
    (403
    )
    
    
    (739
    )
    
    
    (133
    )
    
    
    
    
    
    
    (1,492
    )Consolidated net income (loss)
    
    
    1,087
    
    
    
    138
    
    
    
    (168
    )
    
    
    (1,395
    )
    
    
    (19,090
    )
    
    
    
    
    
    
    (19,428
    )Net loss attributable to
noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    32Net income (loss) attributable to
China Hydroelectric Corporation
shareholders
    
    
    1,087
    
    
    
    138
    
    
    
    (168
    )
    
    
    (1,363
    )
    
    
    (19,090
    )
    
    
    
    
    
    
    (19,396
    )Total assets
    
    
    42,770
    
    
    
    14,649
    
    
    
    311,779
    
    
    
    205,445
    
    
    
    337,511
    
    
    
    (317,090
    )
    
    
    595,064Total liabilities
    
    
    (15,494
    )
    
    
    (556
    )
    
    
    (152,991
    )
    
    
    (113,080
    )
    
    
    (34,545
    )
    
    
    22,796
    
    
    
    (293,870
    )Capital expenditures
    
    
    7,661
    
    
    
    1,616
    
    
    
    1,826
    
    
    
    1,732
    
    
    
    141
    
    
    
    
    
    
    
    12,976Depreciation & amortization expenses
    
    
    845
    
    
    
    338
    
    
    
    6,887
    
    
    
    4,432
    
    
    
    78
    
    
    
    
    
    
    
    12,580
   Yunnan
    
    
    Sichuan
    
    
    Zhejiang
    
    
    FujianProvince
    
    
    Province
    
    
    Province
    
    
    Province
    
    
    Unallocated
    
    
    Eliminations
    
    
    ConsolidatedUS$
    
    
    US$
    
    
    US$
    
    
    US$
    
    
    US$
    
    
    US$
    
    
    US$Revenues
    
    
    2,746
    
    
    
    971
    
    
    
    9,635
    
    
    
    1,363
    
    
    
    
    
    
    
    
    
    
    
    14,715Cost of revenues
    
    
    (1,120
    )
    
    
    (478
    )
    
    
    (4,598
    )
    
    
    (1,025
    )
    
    
    
    
    
    
    1,196
    
    
    
    (6,025
    )General and administrative expenses
    
    
    (245
    )
    
    
    (223
    )
    
    
    (567
    )
    
    
    (210
    )
    
    
    (5,516
    )
    
    
    
    
    
    
    (6,761
    )Interest income
    
    
    359
    
    
    
    84
    
    
    
    18
    
    
    
    5
    
    
    
    877
    
    
    
    (3
    )
    
    
    1,340Interest expenses
    
    
    (361
    )
    
    
    
    
    
    
    (3,519
    )
    
    
    (1,514
    )
    
    
    (456
    )
    
    
    3
    
    
    
    (5,847
    )Change in fair value of derivative
financial liabilities and warrant
liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    420
    
    
    
    
    
    
    
    420Exchange (loss) gain
    
    
    (269
    )
    
    
    172
    
    
    
    (165
    )
    
    
    (2
    )
    
    
    (803
    )
    
    
    
    
    
    
    (1,067
    )Share of losses in an equity investee
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (503
    )
    
    
    
    
    
    
    (503
    )Other (loss) income, net
    
    
    (3
    )
    
    
    1
    
    
    
    (6
    )
    
    
    (5
    )
    
    
    1,353
    
    
    
    (1,196
    )
    
    
    144Income tax (expenses) benefits
    
    
    (171
    )
    
    
    9
    
    
    
    (447
    )
    
    
    165
    
    
    
    
    
    
    
    
    
    
    

    (444
    )Consolidated net income (loss)
    
    
    936
    
    
    
    536
    
    
    
    351
    
    
    
    (1,223
    )
    
    
    (4,628
    )
    
    
    
    
    
    
    (4,028
    )Net loss attributable to
noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    41Net income (loss) attributable to
China Hydroelectric Corporation
shareholders
    
    
    936
    
    
    
    536
    
    
    
    351
    
    
    
    (1,182
    )
    
    
    (4,628
    )
    
    
    
    
    
    
    (3,987
    )Total assets
    
    
    40,997
    
    
    
    13,919
    
    
    
    242,057
    
    
    
    212,801
    
    
    
    337,115
    
    
    
    (313,321
    )
    
    
    533,568Total liabilities
    
    
    (14,569
    )
    
    
    (32
    )
    
    
    (93,358
    )
    
    
    (119,423
    )
    
    
    (23,249
    )
    
    
    21,230
    
    
    
    (229,401
    )Capital expenditures
    
    
    4,589
    
    
    
    21
    
    
    
    33,789
    
    
    
    12
    
    
    
    342
    
    
    
    
    
    
    
    38,753Depreciation & amortization expenses
    
    
    696
    
    
    
    305
    
    
    
    3,113
    
    
    
    718
    
    
    
    31
    
    
    
    
    
    
    
    4,863
  91




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##### Table of Contents



Yunnan
    
    
    SichuanProvince
    
    
    Province
    
    
    Unallocated
    
    
    Eliminations
    
    
    ConsolidatedUS$
    
    
    US$
    
    
    US$
    
    
    US$
    
    
    US$Revenues
    
    
    1,719
    
    
    
    715
    
    
    
    
    
    
    
    
    
    
    
    2,434Cost of revenues
    
    
    (500
    )
    
    
    (288
    )
    
    
    (25
    )
    
    
    
    
    
    
    (813
    )General and
administrative
expenses
    
    
    (159
    )
    
    
    (110
    )
    
    
    (2,291
    )
    
    
    
    
    
    
    (2,560
    )Interest income
    
    
    147
    
    
    
    50
    
    
    
    854
    
    
    
    
    
    
    
    1,051Interest expenses
    
    
    (684
    )
    
    
    
    
    
    
    (2,591
    )
    
    
    
    
    
    
    (3,275
    )Change in fair
value of derivative
financial
liabilities
    
    
    
    
    
    
    
    
    
    
    (266
    )
    
    
    
    
    
    
    (266
    )Exchange loss
    
    
    (714
    )
    
    
    (359
    )
    
    
    (22
    )
    
    
    
    
    
    
    (1,095
    )Share of losses in
an equity investee
    
    
    
    
    
    
    
    
    
    
    (27
    )
    
    
    
    
    
    
    (27
    )Other income
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8Income tax expenses
    
    
    
    
    
    
    (8
    )
    
    
    (9
    )
    
    
    
    
    
    
    (17
    )Net loss
    
    
    (183
    )
    
    
    
    
    
    
    (4,377
    )
    
    
    
    
    
    
    (4,560
    )Total assets
    
    
    37,596
    
    
    
    16,896
    
    
    
    46,607
    
    
    
    (41,988
    )
    
    
    59,111Total liabilities
    
    
    (13,773
    )
    
    
    (208
    )
    
    
    (11,646
    )
    
    
    922
    
    
    
    (24,705
    )Capital expenditures
    
    
    316
    
    
    
    58
    
    
    
    161
    
    
    
    
    
    
    
    535Depreciation &
amortization
expenses
    
    
    433
    
    
    
    200
    
    
    
    5
    
    
    
    
    
    
    
    638
 Holding Company Structure
   Recently Issued Accounting Standards
  92




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##### Table of Contents



Amendments to FASB Interpretation No. 46(R)
 Accounting for Own-Share
Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing
 Improving Disclosures About
Fair Value Measurements
 B. Liquidity and Capital Resources
   Our Consolidated Cash Flow
   93




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##### Table of Contents



For the Year EndedDecember 31,2007
    
    2008
    
    2009Net cash (used in) provided by operating activities
    
    
    (4,263
    )
    
    
    2,370
    
    
    
    1,213Net cash (used in) provided by investing activities
    
    
    26,540
    
    
    
    (221,408
    )
    
    
    (48,706
    )Net cash (used in) provided by financing activities
    
    
    (7,426
    )
    
    
    242,341
    
    
    
    40,453Effect of changes in exchange rate on cash
    
    
    127
    
    
    
    (216
    )
    
    
    (35
    )Net increase (decrease) in cash and cash equivalents
    
    
    14,978
    
    
    
    23,087
    
    
    
    (7,075
    )
 Operating Activities
   94




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##### Table of Contents



Investing Activities
    Financing Activities
     95




---



##### Table of Contents



Capital Expenditures
   C. Research and Development
  D. Trend Information
  E. Off-balance sheet Arrangements
  96




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##### Table of Contents



F. Tabular Disclosure of Contractual Obligations
  Payment Due by PeriodWithin
    
    1-3
    
    3-5
    
    More thanTotal
    
    1 Year
    
    Years
    
    Years
    
    5 Years(unaudited)(US$ in thousands)Short-term borrowings(1)
    
    
    8,781
    
    
    
    8,781
    
    
    
    
    
    
    
    
    
    
    
    Interest on short-term borrowings(1)
    
    
    248
    
    
    
    248
    
    
    
    
    
    
    
    
    
    
    
    Long-term borrowings (including current portion of long-term borrowings)(1)
    
    
    167,170
    
    
    
    29,037
    
    
    
    51,441
    
    
    
    36,883
    
    
    
    49,809Interest on long-term borrowings (including interest on current portion of long-term
borrowings)(1)
    
    
    49,398
    
    
    
    12,363
    
    
    
    18,467
    
    
    
    11,337
    
    
    
    7,231Operating lease commitments
    
    
    805
    
    
    
    403
    
    
    
    402
    
    
    
    
    
    
    
    Purchase obligations(2)
    
    
    7,899
    
    
    
    7,888
    
    
    
    11
    
    
    
    
    
    
    
    Total
    
    
    234,301
    
    
    
    58,720
    
    
    
    70,321
    
    
    
    48,220
    
    
    
    57,040
 
 (1)
    
    See Note 13 to our audited consolidated financial statements,
which are included elsewhere in this annual report for a
discussion of our short-term and long-term borrowings.(2)
    
    This represents contracted but unpaid amounts for construction
projects for the Binglangjiang II and the Zhougongyuan
hydroelectric power projects that were currently under
construction as of December 31, 2008.  Payment Due by PeriodWithin
    
    1-3
    
    3-5
    
    More thanTotal
    
    1 Year
    
    Years
    
    Years
    
    5 Years(unaudited)(US$ in thousands)Short-term borrowings(1)
    
    
    7,098
    
    
    
    7,098
    
    
    
    
    
    
    
    
    
    
    
    Interest on short-term borrowings(1)
    
    
    96
    
    
    
    96
    
    
    
    
    
    
    
    
    
    
    
    Long-term borrowings (including current
portion of long-term borrowings)(1)
    
    
    229,278
    
    
    
    56,809
    
    
    
    48,270
    
    
    
    50,877
    
    
    
    73,322Interest on long-term borrowings (including
interest on current portion of long-term
borrowings)(1)
    
    
    53,076
    
    
    
    13,422
    
    
    
    18,503
    
    
    
    12,356
    
    
    
    8,795Operating lease commitments
    
    
    528
    
    
    
    451
    
    
    
    75
    
    
    
    2
    
    
    
    Purchase obligations(2)
    
    
    157
    
    
    
    157
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    290,233
    
    
    
    78,033
    
    
    
    66,848
    
    
    
    63,235
    
    
    
    82,117
 
 (1)
    
    See Note 13 to our audited consolidated financial statements,
which are included elsewhere in this annual report, for a
discussion of our short-term and long-term borrowings.(2)
    
    This represents contracted but unpaid amounts for
construction projects of Binglangjiang and Liyuan that are in
progress and for the purchase of property, plan and equipment of Yuheng. 
 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 A. Directors and Senior Management
  97




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##### Table of Contents



Name
    
    Age
    
    Position/TitleJohn D. Kuhns
    
    
    59
    
    
    Chairman, Chief Executive OfficerDr. Yong Cao
    
    
    55
    
    
    DirectorAnthony H. Dixon
    
    
    48
    
    
    DirectorRichard H. Hochman
    
    
    64
    
    
    DirectorDr. You-Su Lin
    
    
    56
    
    
    Director, Chairman of Beijing A.B.C. InvestmentShadron Lee Stastney
    
    
    40
    
    
    DirectorStephen Outerbridge
    
    
    59
    
    
    DirectorJames Tie Li
    
    
    41
    
    
    Chief Financial Officer and Executive Vice PresidentMary E. Fellows
    
    
    47
    
    
    Executive Vice President and Corporate SecretaryWu Gan
    
    
    53
    
    
    President and General Manager of Beijing A.B.C. InvestmentXinchun Lian
    
    
    51
    
    
    Chief Operating Officer of Beijing A.B.C. InvestmentFang Chen
    
    
    37
    
    
    Vice President and Controller of Beijing A.B.C. InvestmentGang Meng
    
    
    37
    
    
    Internal Controller of Beijing A.B.C. InvestmentShu Zhang
    
    
    34
    
    
    Finance Manager of Beijing A.B.C. Investment
   Directors
 Mr. John D. Kuhns
 Dr. Yong Cao
 Mr. Anthony H. Dixon
 98




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Mr. Richard H. Hochman
 Dr. You-Su Lin
 Mr. Shadron Lee Stastney
 Mr. Stephen Outerbridge
 Officers
 Mr.James Tie Li
 Ms. Mary E. Fellows
 99




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Mr. Wu Gan
 Mr. Xinchun Lian
 Ms. Fang Chen
 Mr. Gang Meng
 Ms. Shu Zhang
 100




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##### Table of Contents



Director Disclosure
 Mr. John D. Kuhns
    Mr. Richard H. Hochman
  Our Key Consultant
 Mr. Michael H. Best
 B. Compensation
 Compensation of Directors and Executive Officers
  101




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2008 Share Incentive Plan
    Share Options.
 Share Appreciation Rights.
 Share Awards.
 Phantom Shares.
 Amendment and Termination.
  102




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Ordinary
    
    
    
    
    
    
    
    
    
    OrdinaryShares
    
    
    
    
    
    
    
    
    
    SharesUnderlying
    
    Exercise
    
    
    
    
    
    Underlying
    
    ExerciseOutstanding
    
    Price
    
    
    
    Expiration
    
    Outstanding
    
    Price
    
    
    
    ExpirationName
    
    Options
    
    ($/Share)
    
    Grant Date
    
    Date
    
    Options
    
    ($/Share)
    
    Grant Date
    
    DateJohn D. Kuhns
    
    
    1,095,000
    
    
    
    7.70
    
    
    August 18, 2008
    
    August 18, 2013
    
    
    2,500,000
    
    
    
    4.93
    
    
    December 3, 2009
    
    December 3, 2014James Tie Li
    
    
    500,000
    
    
    
    7.70
    
    
    August 18, 2008
    
    August 18, 2013
    
    
    1,050,000
    
    
    
    4.93
    
    
    December 3, 2009
    
    December 3, 2014Mary E. Fellows
    
    
    500,000
    
    
    
    7.70
    
    
    August 18, 2008
    
    August 18, 2013
    
    
    1,050,000
    
    
    
    4.93
    
    
    December 3, 2009
    
    December 3, 2014Dr. You-Su Lin
    
    
    805,000
    
    
    
    7.70
    
    
    August 18, 2008
    
    August 18, 2013
    
    
    1,660,000
    
    
    
    4.93
    
    
    December 3, 2009
    
    December 3, 2014Richard H. Hochman
    
    
    10,000
    
    
    
    7.70
    
    
    August 18, 2008
    
    August 18, 2013
    
    
    
    
    
    
    
    
    
    
    
    Shadron Lee Stastney
    
    
    10,000
    
    
    
    7.70
    
    
    August 18, 2008
    
    August 18, 2013
    
    
    
    
    
    
    
    
    
    
    
    Other former
directors,
employees and
consultants as a
group
    
    
    972,000
    
    
    
    7.70
    
    
    August 18, 2008
    
    August 18, 2013
    
    
    
    
    
    
    
    
    
    
    
    Other employees
and consultants as
a group
    
    
    35,000
    
    
    
    7.70
    
    
    January 20, 2009
    
    January 20, 2014
    
    
    740,000
    
    
    
    4.93
    
    
    December 3, 2009
    
    December 3, 2014Total
    
    
    3,927,000
    
    
    
    
    
    
    
    
    
    
    
    7,000,000
 Compensation  Stock
Compensation: Overall
  Employment Agreements with Executive Officers
   103




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C. Board Practices
  Terms of Directors and Executive Officers
  104




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Committees of the Board of Directors
  Audit Committee
  
    
    selecting the independent auditors and pre-approving all auditing and
non-auditing services permitted to be performed by the independent auditors;
    
    reviewing with the independent auditors any audit problems or difficulties and
managements response;
    
    reviewing and approving all proposed related party transactions, which term
refers to transactions that would be required to be disclosed pursuant to Item 7B
of Form 20-F, regardless of the dollar amount involved in such transactions;
    
    discussing the annual audited financial statements with management and the
independent auditors;
    
    reviewing major issues as to the adequacy of our internal controls and any
special audit steps adopted in light of material control deficiencies;
    
    annually reviewing and reassessing the adequacy of our audit committee charter;
and
    
    meeting separately and periodically with management and the independent
auditors.
 Compensation Committee
  
    
    reviewing and approving the total compensation package for our three most senior
executives;
    
    reviewing and recommending to the board of directors with respect to the
compensation of our directors; and
    
    reviewing periodically and approving any long-term incentive compensation or
equity plans, programs or similar arrangements, annual bonuses, employee pension
and welfare benefit plans.
 Corporate Governance and Nominating Committee
  105




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
    
    identifying and recommending qualified candidates as director nominees for
selection of directors, nominees for election to the board of directors, or for
appointment to fill any vacancy;
    
    reviewing annually with the board of directors the current composition of the
board of directors with regards to characteristics such as independence, age,
skills, experience and availability of service to us;
    
    monitoring compliance with our code of business conduct and ethics, including
reviewing the adequacy and effectiveness of our procedures to ensure proper
compliance.
 Duties of Directors
   
    
    convening shareholders annual general meetings and reporting its work to
shareholders at such meetings;
    
    declaring dividends and distributions;
    
    appointing officers and determining the term of office of officers;
    
    exercising the borrowing powers of our company and mortgaging the property of
our company; and
    
    approving the transfer of shares of our company, including the registering of
such shares in our share register.
 Interested Transactions
  Remuneration
  Power to Obligate our Company
  Qualification
  Indemnification Agreements
   106




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Corporate Governance
  D. Employees
  Number ofEmployees
    
    (%)Management
    
    
    32
    
    
    
    9.4Finance
    
    
    29
    
    
    
    8.5Project Construction, Operations and Management
    
    
    233
    
    
    
    68.5Administrative and Human Resources
    
    
    30
    
    
    
    8.9Others
    
    
    16
    
    
    
    4.7Total:
    
    
    340
    
    
    
    100.0
     E. Share Ownership
  
    
    each of our directors and executive officers; and
    
    each person known to us to own beneficially more than 5% of our ordinary shares.
 107




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##### Table of Contents



Ordinary SharesBeneficially OwnedName
    
    Number
    
    PercentDirectors and Executive OfficersJohn D. Kuhns(1)
    
    
    9,823,333
    
    
    
    6.4Dr. Yong Cao
    
    
    *
    
    
    
    *Anthony H. Dixon
    
    
    *
    
    
    
    *Richard H.
Hochman(1)
    
    
    9,461,666
    
    
    
    6.2Dr. You-Su Lin(1)
    
    
    *
    
    
    
    *Shadron Lee Stastney
    
    
    *
    
    
    
    *Stephen Outerbridge
    
    
    *
    
    
    
    *James Tie Li(1)
    
    
    *
    
    
    
    *Mary E. Fellows(1)
    
    
    *
    
    
    
    *Wu Gan
    
    
    *
    
    
    
    *Xinchun Lian
    
    
    *
    
    
    
    *Fang Chen
    
    
    *
    
    
    
    *Gang Meng
    
    
    *
    
    
    
    *Shu Zhang
    
    
    *
    
    
    
    *All Directors and Executive Officers as a Group(2)
    
    
    10,680,666
    
    
    
    7.0Principal Shareholders:China Hydro, LLC(1)
    
    
    9,458,373
    
    
    
    6.2CPI Ballpark Investments Ltd.(3)
    
    
    30,858,964
    
    
    
    20.1Jennison Utility Fund(4)
    
    
    18,909,650
    
    
    
    12.3Vicis Capital Master Fund(5)
    
    
    48,882,716
    
    
    
    31.9Morgan Joseph & Co. Inc.(6)
    
    
    8,144,233
    
    
    
    5.3Swiss Re Financial Products Corporation(7)
    
    
    10,114,508
    
    
    
    6.6Blue Ridge Investments, LLC(8)
    
    
    7,885,431
    
    
    
    5.1China Environment Fund III, LP(9)
    
    
    7,838,595
    
    
    
    5.1Prudential
Financial,
Inc.(10)
    
    
    18,909,648
    
    
    
    12.3
 
 *
    
    Upon exercise of all options and warrants exercisble within 60
days after April 30, 2010, would beneficially own less than 1.0%
of our outstanding ordinary shares.(1)
    
    Pursuant to the Amended and Restated Limited Liability Company
Agreement of China Hydro, LLC dated as of November 6, 2006, John
D. Kuhns and Richard H. Hochman have the power to direct the
voting of ordinary shares of our company held by China Hydro, LLC.
All of the members, including but not limited to, John D. Kuhns,
James Tie Li, Mary E. Fellows, Dr. You-Su Lin and Richard H.
Hochman, have a right to receive certain number of our shares in
proportion to their pro rata interest in China Hydro, LLC. We
expect that the shares of our company held by China Hydro, LLC
will be distributed to its members and then John D. Kuhns will
actually receive 1,722,470 shares, Richard H. Hochman will receive
988,553 shares, James Tie Li will receive 532,967 shares, Mary
E. Fellows will receive 416,667 shares, and You-Su Lin will
receive 949,634 shares. The shares held by China Hydro, LLC
consist of 8,708,333 ordinary shares and 750,000 ordinary shares
issuable upon the exercise of a warrant granted to China Hydro,
LLC that is exercisable within 60 days after April 30, 2010.(2)
    
    Includes ordinary shares held by all of our directors and
executive officers as a group and ordinary shares issuable upon
the exercise of all of the options and warrants that are
exercisable within 60 days after April 30, 2010 held by all of our
directors and executive officers.(3)
    
    CPI Ballpark Investments Ltd. is a limited liability company
organized under the laws of Mauritius. The mailing address of CPI
Ballpark Investments Ltd. is 4th Floor, IBL House, Caudan, Port
Louis, Republic of Mauritius. CPI Ballpark Investments Ltd. is
wholly owned by Indopark Holdings Ltd., which is registered in the
Republic of Mauritius. The mailing address of Indopark Holdings
Limited is 4th Floor, IBL House, Caudan, Port Louis, Republic of
Mauritius. The sole shareholder of Indopark Holdings Limited is
Merrill Lynch L.P. Holdings Inc., a company incorporated in the
State of Delaware, USA. Merrill Lynch L.P. Holdings 108




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Inc. is wholly
owned by Merrill Lynch Group, Inc., a company incorporated in the
State of Delaware, USA. Merrill Lynch Group, Inc. is wholly owned
by Merrill Lynch & Co., Inc., a non-bank subsidiary of Bank of
America Corporation, a public company listed on the NYSE. Bank of
America Corporation, through its subsidiaries, beneficially owns
25.2% of our ordinary shares.(4)
    
    Jennison Utility Fund, a series of Jennison Sector Funds, Inc.,
is an affiliate of Pruco Securities, LLC, Prudential Equity
Group, LLC, Prudential Investment Management Services LLC,
American Skandia marketing, Incorporated, Prudential Bache
Securities, LLC and Prudential Bache Commodities, LLC, each a
broker-dealer registered under Section 15 of the Securities
Exchange Act of 1934, as amended. Jennison Associates LLC is the
sub-advisor to Jennison Utility Fund, a series of Jennison Sector
Funds, Inc., an investment company registered under the
Investment Company Act of 1940. Shaun Hong, a portfolio manager
of Jennison Utility Fund and a Managing Director of Jennison
Associates LLC has the authority to vote the shares owned by the
Jennison Utility Fund. The address of Jennison Utility Funds,
Inc. is c/o Jennison Associates, LLC, 466 Lexington Avenue, New
York, New York 10017.(5)
    
    Includes 30,216,050 ordinary shares and 18,666,666 ordinary
shares upon the exercise of a warrant granted to Vicis Capital
Master Fund that is exercisable within 60 days after April 30,
2010. Vicis Capital Master Fund is a sub-trust of the Vicis
Capital Master Series Trust, a unit trust organized under the
laws of the Cayman Islands. The address of Vicis Capital Master
Fund is Tower 56, Suit 700, 126 E. 56th Street, 7th Floor, New
York, NY 10022. The address of Capital Master Series Trust is P.
O. Box 1043GT, Caledonian House, First Floor, 69 Dr Roys Dr,
George Town, Grand Cayman, Cayman Islands, BWI. Vicis Capital,
LLC is the investment adviser to Vicis Capital Master Fund. John
Succo, Shadron Lee Stastney and Sky Lucas have voting and
investment control over the securities beneficially owned by
Vicis Capital Master Fund and Victus Capital, LP. Shadron Lee
Stastney in his capacity as the managing director of Vicis
Capital Master Fund and Vicis Capital, LP has the voting and
investment power over the shares listed. Victus Capital, LP is
affiliated with a broker-dealer.(6)
    
    Includes 8,134,233 ordinary shares to be issued upon the exercise
of warrants granted to Morgan Joseph & Co. Inc. and 10,000
ordinary shares to be issued upon the exercise of options granted
to Dennis Galgano that are exercisable within 60 days after April
30, 2010. Morgan Joseph & Co. Inc. is a wholly owned subsidiary
of Morgan Joseph Holdings Inc. Morgan Joseph Holdings Inc. is in
turn owned by the employees, former employees and investors in
Morgan Joseph Holdings Inc. The Board of Directors of Morgan
Joseph Holdings Inc. has the power to direct the voting and
disposition of our shares held by Morgan Joseph & Co. Inc. The
board consists of Mary Lou Malanoski, John Sorte, Roger
T. Briggs, John A. Morgan, Steven D. Blecher, and Edmund
A. Hajim. The address of Morgan Joseph & Co. Inc. is 600 Fifth
Avenue, 19th Floor, New York, New York 10020.(7)
    
    Swiss Re Financial Products Corporation is a limited liability
company organized under the laws of Delaware. The mailing address
of Swiss Re Financial Products Corporation is 55 East 52nd
Street, New York, New York 10055. Swiss Re Financial Products
Corporation is an indirect, wholly owned subsidiary of Swiss
Reinsurance Company, a limited liability company organized under
the laws of Switzerland. The mailing address of Swiss Reinsurance
Company is Mythenquai 50/60, CH-8022, Zurich, Switzerland. Swiss
Reinsurance Company is a publicly registered company that trades
on the SIX Swiss Exchange.(8)
    
    Blue Ridge Investments, LLC is a limited liability company
organized under the laws of Delaware. Blue Ridge Investments, LLC
is wholly owned by BANA Holding Corporation, a company
incorporated in the State of Delaware, USA. BANA Holding
Corporation is wholly owned by BAC North America Holding Company,
a company incorporated in the State of Delaware, USA. BAC North
America Holding Company is wholly owned by NB Holdings
Corporation, a non-bank subsidiary of Bank of America
Corporation, a public company listed on the NYSE. The mailing
address of Blue Ridge Investments, LLC is c/o Bank of America
Securities, 1633 Broadway, 27th Floor, New York, New York 10019.
Bank of America Corporation, through its subsidiaries,
beneficially owns 25.2% of our ordinary shares.(9)
    
    China Environment Fund III, LP is a fund registered in the Cayman
Islands. China Environment Fund III, LP was formed by Tsing
Capital Co., Ltd. and Tsing Capital Co., Ltd. is the manager of
the fund. Donald Ye exercises sole voting and dispositive power
over the shares of our Company held by this shareholder. The
mailing address of Tsing Capital Co., Ltd. is A2302, SP Tower,
Tsinghua Science Park, Beijing 100084, PRC. Tsing Capital Co.,
Ltd. is the exclusive cleantech venture capital arm of Tsinghua
Holdings. Tsinghua Holdings is wholly owned by Tsinghua
University.(10)
    
    Based on Schedule 13G filed by Prudential Financial, Inc.
(Prudential) on February 9, 2010. Prudential may be
deemed the beneficial owner and may have direct or indirect voting
and/or investment discretion over 6,303,216 ADSs (representing
18,909,648 ordinary shares) of the Company which are held for
Prudentials own benefit or for the benefit of its clients by
its separate accounts, externally managed accounts, registered
investment companies, subsidiaries and/or other affiliates.
Prudential is a New Jersey Corporation having its principal business
office at 751 Broad Street, Newark, New Jersey 07102-3777.   
 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 A. Major Shareholders
  109




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B. Related Party Transactions
  Transactions with China Hydro, LLC
   Transactions with Kuhns Brothers, Inc.
     Transactions with China Carbon Investment Consulting Ltd. and China Silicon Zhuo-Xin
Investment Consulting Ltd.
  Transactions with Sanming City Chenyang Hydroelectric Co., Ltd.
  110




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Transactions with Bank of America Corporation
  Legal Services Provided by Zhongsheng Law Firm
  Consulting Services Provided by Anthony H. Dixon
  Consulting Services Provided by Fang Chen
  Private Placements
         111




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Shareholders Agreement
   112




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##### Table of Contents



2008 Share Incentive Plan
  C. Interests of Experts and Counsel
  
 ITEM 8. FINANCIAL INFORMATION
 A. Consolidated statements and other financial information.
  Legal Proceedings
  Dividend Policy
   113




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##### Table of Contents



B. Significant Changes
  
 ITEM 9. THE OFFER AND LISTING.
 A. Offering and listing details.
 Price Range of Our ADSs
  High
    
    Low2010January
    
    $
    14.03
    
    
    $
    12.28February
    
    
    12.66
    
    
    
    8.58March
    
    
    10.49
    
    
    
    8.51April
    
    
    9.54
    
    
    
    8.26May (through May 17, 2010)
    
    
    9.85
    
    
    
    8.87
   High
    
    Low2010
    
    $
    1.77
    
    
    $
    1.37January
    
    
    1.55
    
    

0.95February
    
    
    1.33
    
    
    
    0.76March
    
    
    1.10
    
    
    
    0.37April
    
    
    1.19
    
    
  
  0.81May (through
May 18, 2010)
  B. Plan of Distribution
  C. Markets
  114




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##### Table of Contents



D. Selling Shareholders
  E. Dilution
  F. Expenses of the Issue
  
 ITEM 10. ADDITIONAL INFORMATION.
 A. Share capital
  B. Memorandum and Articles of Association
  C. Material Contracts
  D. Exchange Controls
  E. Taxation
 The following summary of the material Cayman Islands, PRC and U.S. federal income tax
consequences of an investment in our securities is based upon laws and relevant interpretations
thereof in effect as of the date of this annual report, all of which are subject to change. This
summary does not deal with all possible tax consequences relating to an investment in our
securities, such as the tax consequences under state, local, non-U.S., non-PRC and non-Cayman
Islands tax laws.
 Cayman Islands Taxation
   Peoples Republic of China Taxation
  115




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de facto de facto
    U.S. Federal Income Taxation
 Introduction
  116




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Tax Consequences to U.S. Holders of Ordinary Shares and Warrants
 Exercise of a Warrant
  117




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##### Table of Contents



Sale, Taxable Exchange, Redemption or Expiration of a Warrant
   Dividends
   118




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Sale or Other Disposition of Ordinary Shares or ADSs
  Controlled Foreign Corporation
  Passive Foreign Investment Company
  119




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120




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##### Table of Contents



Tax Consequences to Non-U.S. Holders of Ordinary Shares and Warrants
     Backup Withholding and Information Reporting
     F. Dividends and Paying Agents
  G. Statement by Experts.
  H. Documents on Display
   121




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##### Table of Contents



http://www.sec.gov
 I. Subsidiaries Information
  
 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 Quantitative and Qualitative Disclosures about Market Risk
  Interest rate risk
  Foreign currency risk
  122




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##### Table of Contents



Inflation
  
 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.
  
 PART II.
 
 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.
  
 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.
  
 ITEM 15. CONTROLS AND PROCEDURES.
 Evaluation of Disclosure Controls and Procedures
  Internal Control over Financial Reporting
   Changes in Internal Control over Financial Reporting
  123




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##### Table of Contents



ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT.
  
 ITEM 16B. CODE OF ETHICS.
  
 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
  For the YearEnded December 31,2008
    
    2009(In US $ thousands)Audit fees(1)
    
    
    2,595
    
    
    
    3,153Audit-related fees(2)
    
    
    
    
    
    
    86Tax fees
    
    
    
    
    
    
    Other fees
    
    
    
    
    
    
    
 
 (1)
    
    Audit fees consist of fees associated with the annual audit, the reviews of our
interim financial statements and statutory audits, the audit and report on the
financial statements of the entities acquired by the Company. They also include
the audit and review of financial statements and other assurance services rendered
in connection with our initial public offering on January 25, 2010. Fees billed for
those services that are normally provided by the independent auditors in
connection with statutory and regulatory filings are also included.(2)
    
    Audit related fees represents aggregate fees billed for professional services
rendered by our independent auditors for the assurance and related services that
are reasonably related to the performance of the audit or review of our financial
statements and are not reported under Audit fees. 
 ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.
  
 ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.
  
 ITEM 16F. CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT.
  
 ITEM 16G. CORPORATE GOVERNANCE.
 Differences Between the Our Current Corporate Governance Practices and the NYSE Corporate
Governance Requirements Applicable to Domestic US Companies
  124




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PART III.
 
 ITEM 17. FINANCIAL STATEMENTS.
  
 ITEM 18. FINANCIAL STATEMENTS.
  
 ITEM 19. EXHIBITS.
 1 .1
    
    Amended and Restated Memorandum and Articles of Association of the Registrant (incorporated by reference to Exhibit 3.2 to our Registration Statement on Form F-1 (file
no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)2 .1
    
    Form of Ordinary Share Certificate (incorporated by reference to Exhibit 4.1 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially
filed with the SEC on December 8, 2009)2 .2
    
    Form of Deposit Agreement between the Registrant and the Bank of New York Mellon as depositary (incorporated by reference to Exhibit 4.2 to our Registration Statement
on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)2 .3
    
    Form of American depositary receipt evidencing American depositary shares (included in Exhibit 2.2)2 .4
    
    Amended and Restated Shareholders Agreement, dated October 27, 2009, amongst the Registrant and its shareholders (incorporated by reference to Exhibit 4.4 to our
Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)2 .5
    
    Amended and Restated Right of First Offer and Co-Sale Agreement, dated October 27, 2009, amongst the Registrant and its shareholders (incorporated by reference to
Exhibit 4.5 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)2 .6
    
    Form of Unit Certificate (incorporated by reference to Exhibit 4.6 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the
SEC on December 8, 2009)3 .1
    
    Amended and Restated Limited Liability Company Agreement of China Hydro, LLC, adopted as of November 6, 2006 (incorporated by reference to Exhibit 9.1 to our
Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)4 .1
    
    Warrant to Purchase Common Shares of the Registrant by China Hydro, LLC, dated November 10, 2006 (incorporated by reference to Exhibit 10.1 to our Registration
Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)4 .2
    
    2008 Share Incentive Plan of the Registrant and form of Option Agreement (incorporated by reference to Exhibit 10.2 to our Registration Statement on Form F-1 (file no.
333-163558), as amended, initially filed with the SEC on December 8, 2009)4 .3
    
    Form of Indemnification Agreement between the Registrant and its directors (incorporated by reference to Exhibit 10.3 to our Registration Statement on Form F-1 (file
no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)4 .4
    
    Sino-Foreign Equity Joint Venture Contract entered into by the Registrant, Zhejiang Water Resources and Hydroelectric Investment Group Co., Ltd. and Zhejiang Guangning
Hydroelectric Development Co., Ltd. on November 6, 2007 (incorporated by reference to Exhibit 10.4 to our Registration Statement on Form F-1 (file no. 333-163558), as
amended, initially filed with the SEC on December 8, 2009)4 .5
    
    Contract for Transfer of Fifty Percent of the Equity Interests of Yunhe County Shapulong Hydropower Generation Co., Ltd. entered into by Yunhe County Yunhe State-Owned
Assets Management Co., Ltd. and the Registrant on October 12, 2007 (incorporated by reference to Exhibit 10.5 to our Registration Statement on Form F-1 (file no.
333-163558), as amended, initially filed with the SEC on December 8, 2009)4 .6
    
    (Intentionally left blank)4 .7
    
    Share Transfer and Capital Increase Contract entered into by the Registrant, and Ye Jian Hua, Zhou Jian Bin and Zhejiang Dahua Construction Group Co., Ltd. on March 15,
2007 (incorporated by reference to Exhibit 10.7 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8,
2009)
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4 .8
    
    Supplemental Agreement entered into by the Registrant, Ye Jian Hua, Zhou Jian Bin and Zhejiang Dahua Construction Group Co., Ltd. on March 27, 2007 (incorporated by
reference to Exhibit 10.8 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)4 .9
    
    Share Transfer Agreement for Pingnan County Wangkeng Hydroelectric Co., Ltd. entered into by Sanming City Chenyang Hydroelectric Co., Ltd., Sanming City Fufeng
Industrial Co., Ltd, Beijing Xunjing Interactive Technology Co., Ltd., Huang Shao Jian, Yu Rong Ji, Zhang Rong Bin, Sun Xiao Dong, Xie Fang Wu, Ye Chang He and the
Registrant on August 9, 2008 (incorporated by reference to Exhibit 10.9 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed
with the SEC on December 8, 2009)4 .10
    
    Equity Joint Venture Contract for the establishment of Pingnan County Wangkeng Hydroelectric Co., Ltd. entered into by the Registrant and Sanming City Chenyang
Hydroelectric Co., Ltd. on August 10, 2008 (incorporated by reference to Exhibit 10.10 to our Registration Statement on Form F-1 (file no. 333-163558), as amended,
initially filed with the SEC on December 8, 2009)4 .11
    
    Equity Interest Transfer Contract entered into by Guangsha Construction Group Co., Ltd., Lu Chunliang and the Registrant regarding Qingtian Wuliting Hydropower
Development Co., Ltd. on December 13, 2007 (incorporated by reference to Exhibit 10.11 to our Registration Statement on Form F-1 (file no. 333-163558), as amended,
initially filed with the SEC on December 8, 2009)4 .12
    
    Equity Interest Transfer Contract entered into by Zhejiang Guangsha Stock Co., Ltd., Zhejiang Guangsha Hydropower Investment Co., Ltd. and the Registrant regarding
Zhejiang Province Jingning Yingchuan Hydropower Development Co., Ltd. on December 13, 2007 (incorporated by reference to Exhibit 10.12 to our Registration Statement on
Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)4 .13
    
    Equity Interest Transfer Contract entered into by Guangsha Construction Group Co., Ltd., Lu Chunliang and the Registrant regarding Suichang County Jiulongshan
Hydropower Development Co., Ltd. on December 13, 2007 (incorporated by reference to Exhibit 10.13 to our Registration Statement on Form F-1 (file no. 333-163558), as
amended, initially filed with the SEC on December 8, 2009)4 .14
    
    Agreement relating to the Sale and Purchase of the equity of Sunpower Asia Limited entered into by the Registrant and Sanming Ruifeng Hydropower Investment Co., Ltd. on
July 11, 2008 (incorporated by reference to Exhibit 10.14 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on
December 8, 2009)4 .15
    
    Equity Interest Transfer Contract entered into by the Registrant, Sanming Ruifeng Hydropower Investment Co., Ltd. and Yongan Ruifeng Hydroelectric Ltd. on July 11,
2008 (incorporated by reference to Exhibit 10.15 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December
8, 2009)4 .16
    
    Contract on Transfer of Ten Percent Equity Interests of Sanming Zhongyin Banzhu Hydroelectric Co., Ltd. entered into by China Hydroelectric Corporation (Hong Kong)
Limited and Sanming Ruifeng Economic Technological Development Ltd. on January 30, 2009 (incorporated by reference to Exhibit 10.16 to our Registration Statement on
Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)4 .17
    
    Supplemental Agreement of the Contract on Transfer of Ten Percent Equity Interests of Sanming Zhongyin Banzhu Hydroelectric Co., Ltd. entered into by Sanming Ruifeng
Economic Technological Development Ltd., China Hydroelectric Corporation (Hong Kong) Limited, Sanming Ruifeng Hydropower Investment Co., Ltd. and the Registrant on
January 30, 2009 (incorporated by reference to Exhibit 10.17 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC
on December 8, 2009)4 .18
    
    Joint Venture Contract Among Foreign Investors for Sanming Zhongyin Banzhu Hydroelectric Co., Ltd. entered into by the Registrant, China Hydroelectric Corporation (Hong
Kong) Limited and Sunpower Asia Limited in February 2009 (incorporated by reference to Exhibit 10.18 to our Registration Statement on Form F-1 (file no. 333-163558), as
amended, initially filed with the SEC on December 8, 2009)4 .19
    
    Share Transfer Agreement for Pingnan County Yuheng Hydropower Co., Ltd. entered into by the Registrant and Fujian Province Anheng Assets Management Co., Ltd., Shanghai
Yufeng Hotel Management Co., Ltd., Chen Can Ling, Wang Jiang, Zhang Rong Bin and Zhou Jian Biao on August 15, 2008 (incorporated by reference to Exhibit 10.19 to our
Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)4 .20
    
    Share Transfer Agreement for Pingnan County Yuanping Hydroelectric Co., Ltd. entered into by the Registrant and Lin Yun, Wu Ting Li, Zhang Yao Fang and Zhou Jian on
August 15, 2008 (incorporated by reference to Exhibit 10.20 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on
December 8, 2009)4 .21
    
    Consulting Agreement with Michael H. Best entered into on August 1, 2009 (incorporated by reference to Exhibit 10.21 to our Registration Statement on Form F-1 (file
no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)4 .22
    
    Power Purchase Contract entered into by Yunnan Huabang Electric Power Development Co., Ltd. and Yunnan Dehong Electric Power Co., Ltd. on June 19, 2009 (incorporated by
reference to Exhibit 10.22 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
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4 .23
    
    Supplemental Agreement to Power Purchase and Sale Contract entered into by Yunnan Huabang Electric Power Development Co., Ltd. and Yunnan Dehong Electric Power Co.,
Ltd. on June 19, 2009 (incorporated by reference to Exhibit 10.23 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the
SEC on December 8, 2009)4 .24
    
    Grid Connection and Dispatching Agreement entered into by Yunnan Dehong Electric Power Co., Ltd. and Yingjiang County Huafa Electric Power Development Co., Ltd.
(formerly Yunnan Huabang Electric Power Development Co., Ltd.) on January 15, 2004 (incorporated by reference to Exhibit 10.24 to our Registration Statement on Form F-1
(file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)4 .25
    
    Grid Connection and Dispatching Agreement entered into by Sichuan Cangxi Electric Power Co., Ltd. and Sichuan Huabang Hydroelectric Development Co., Ltd. on May 17,
2009 (incorporated by reference to Exhibit 10.25 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December
8, 2009)4 .26
    
    Power Purchase and Sale Contract entered into by Sichuan Cangxi Electric Power Co., Ltd. and Sichuan Huabang Hydroelectric Development Co., Ltd. on May 16, 2009
(incorporated by reference to Exhibit 10.26 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8,
2009)4 .27
    
    Grid Connection Economic Agreement entered into by Lishui Electric Power Bureau and Yunhe County Shapulong Hydropower Generation Co., Ltd. in October 2008 (incorporated
by reference to Exhibit 10.27 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)4 .28
    
    Grid Connection and Dispatching Agreement for Wangkeng Hydropower Station entered into by Fujian Province Ningde Electric Power Industry Bureau and Pingnan County
Wangkeng Hydroelectric Co., Ltd. on July 21, 2008 (incorporated by reference to Exhibit 10.28 to our Registration Statement on Form F-1 (file no. 333-163558), as
amended, initially filed with the SEC on December 8, 2009)4 .29
    
    Power Purchase and Sales Contract for Wangkeng Hydropower Station entered into by Fujian Province Electric Power Co., Ltd. and Pingnan County Fushun Hydroelectric Co.,
Ltd. on October 28, 2004 (incorporated by reference to Exhibit 10.29 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with
the SEC on December 8, 2009)4 .30
    
    Grid Connection and Dispatching Agreement for Wuliting Hydropower Station entered into by Lishui Electric Power Bureau and Qingtian Wuliting Hydroelectric Development
Co., Ltd. on November 20, 2008 (incorporated by reference to Exhibit 10.30 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed
with the SEC on December 8, 2009)4 .31
    
    Grid Connection Economic Agreement entered into by Lishui Electric Power Bureau and Qingtian Wuliting
Hydroelectric Development Co., Ltd. in November, 2007 (incorporated by reference to Exhibit 10.31to our
Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December
8, 2009)4 .32
    
    Grid Connection and Dispatching Agreement for Jingning Yingchuan Hydropower Station entered into by Lishui
Electric Power Bureau and Zhejiang Province Jingning Yingchuan Hydroelectric Development Co., Ltd. on
November 20, 2008 (incorporated by reference to Exhibit 10.32to our Registration Statement on Form F-1 (file no.
333-163558), as amended, initially filed with the SEC on December 8, 2009)4 .33
    
    Grid Connection Economic Agreement entered into by Lishui Electric Power Bureau and Zhejiang Province Jingning
Yingchuan Hydroelectric Development Co., Ltd. in November 2007 (incorporated by reference to Exhibit 10.3 to our
Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December
8, 2009)4 .34
    
    Intent Agreement of Conformity of Power Purchase and Supply in Rongping Supply Area entered into by Fujian
Province Pingnan County Power Supply Co., Ltd., Fujian Province (Pingnan) Rongping Chemical Industry Co., Ltd.,
Pingnan County Hengli Hydroelectric Co., Ltd. and Pingnan County Yuheng Hydropower Co., Ltd. on August 31, 2007
(incorporated by reference to Exhibit 10.34 to our Registration Statement on Form F-1 (file no. 333-163558), as
amended, initially filed with the SEC on December 8, 2009)4 .35
    
    Grid Connection and Dispatching Agreement for Pingnan Yuanping Hydropower Station of Fujian Province entered
into by Fujian Province Pingnan County Power Supply Co., Ltd. and Pingnan County Yuheng Hydropower Co., Ltd. on
December 26, 2008 (incorporated by reference to Exhibit 10.35 to our Registration Statement on Form F-1 (file
no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)4 .36
    
    Power Purchase and Sale Contract for old Yuanping Hydropower Station entered into by Fujian Province Pingnan
County Power Supply Co., Ltd. and Pingnan County Yuheng Hydropower Co., Ltd. in December 2008 (incorporated by
reference to Exhibit 10.36 to our Registration Statement on Form F-1 (file no. 333-163558), as amended,
initially filed with the SEC on December 8, 2009)4 .37
    
    Grid Connection and Dispatching Agreement for Yuanping Technological Upgrading Hydropower Station of Fujian
Province entered into by Fujian Province Pingnan County Power Supply Co., Ltd. and Pingnan County Yuanping
Hydroelectric Co., Ltd. on December 26, 2008 (incorporated by reference to Exhibit 10.37 to our Registration
Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
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4 .38
    
    Power Purchase and Sale Contract for Technological Upgrading Project of Yuanping Hydropower Station entered into
by Fujian Province Pingnan County Power Supply Co., Ltd. and Pingnan County Yuanping Hydroelectric Co., Ltd. in
December 2008 (incorporated by reference to Exhibit 10.38 to our Registration Statement on Form F-1 (file no.
333-163558), as amended, initially filed with the SEC on December 8, 2009)4 .39
    
    Grid Connection and Dispatching Agreement for Sanming Zhongyin Banzhu Hydroelectric Co., Ltd. entered by Fujian
Province Sanming Power Industry Bureau and Sanming Zhongyin Banzhu Hydroelectric Co., Ltd. on September 22, 2006
(incorporated by reference to Exhibit 10.39 to our Registration Statement on Form F-1 (file no. 333-163558), as
amended, initially filed with the SEC on December 8, 2009)4 .40
    
    Grid Connection and Power Purchase Agreement entered into by Fujian Province Sanming Power Industry Bureau and
Sanming Zhongyin Banzhu Hydroelectric Co., Ltd. on April 30, 1997 (incorporated by reference to Exhibit 10.40 to
our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on
December 8, 2009)4 .41
    
    Share Transfer Contract for Longquan Ruiyang Cascade II Hydroelectric Co., Ltd. entered into by Zhejiang
Province Jingning Yingchuan Hydroelectric Development Co., Ltd., Guangdong Qingneng Power Generation Group Co.,
Ltd. and Yao Lin Fu on August 11, 2009 (incorporated by reference to Exhibit 10.41 to our Registration Statement
on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)4 .42
    
    Share Transfer Contract for Thirteen Percent of the Equity Interests of Yunhe County Shapulong Hydropower
Generation Co., Ltd. entered into by Zhejiang Province Water Resources and Hydroelectric Investment Group Co.,
Ltd. and the Zhejiang Province Jingning Yingchuan Hydroelectric Development Co., Ltd. on June 29, 2009
(incorporated by reference to Exhibit 10.42 to our Registration Statement on Form F-1 (file no. 333-163558), as
amended, initially filed with the SEC on December 8, 2009)4 .43
    
    Share Transfer Contract for Yunhe County Shapulong Hydropower Generation Co., Ltd. entered into by Zhejiang
Guangning Hydroelectric Development Co., Ltd. and the Zhejiang Province Jingning Yingchuan Hydroelectric
Development Co., Ltd. on July 22, 2009 (incorporated by reference to Exhibit 10.43 to our Registration Statement
on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)4 .44
    
    Grid Connection Economic Agreement entered into by Longquan Ruiyang Cascade II Hydroelectric Co., Ltd. and
Lishui Power Industry Bureau in April 2007 (incorporated by reference to Exhibit 10.44 to our Registration
Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)4 .45
    
    Grid Connection and Dispatching Agreement entered into by Longquan Ruiyang Cascade II Hydroelectric Co., Ltd.
and Lishui Power Industry Bureau, Dispatching and Communication Center, on October 18, 2003 (incorporated by
reference to Exhibit 10.45 to our Registration Statement on Form F-1 (file no. 333-163558), as amended,
initially filed with the SEC on December 8, 2009)4 .46
    
    Renminbi Loan Agreement (Long/Medium Term) entered into by Qingtian Wuliting Hydroelectric Development Co., Ltd.
and Bank of China Limited, Lishui City Dayang Sub-branch, on March 19, 2009 (incorporated by reference to
Exhibit 10.46 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with
the SEC on December 8, 2009)4 .47
    
    Medium/Long-Term Renminbi Loan Contract entered into by Pingnan County Wangkeng Hydroelectric Co., Ltd. and
Industrial Bank Co., Ltd., Ningde Branch, on March 24, 2009 (incorporated by reference to Exhibit 10.47 to our
Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December
8, 2009)4 .48
    
    Renminbi Loan Contract (Medium/Long Term) entered into by Sanming Zhongyin Banzhu Hydroelectric Co., Ltd. and
Bank of China Limited, Fujian Province Branch, on June 16, 2009 (incorporated by reference to Exhibit 10.48 to
our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on
December 8, 2009)4 .49
    
    Loan Contract entered into by Suichang County Jiulongshan Hydroelectric Development Co., Ltd. and Agricultural
Bank of China, Lishui City Branch, on June 19, 2009 (RMB9.0 million) (incorporated by reference to Exhibit 10.49
to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on
December 8, 2009)4 .50
    
    Loan Contract entered into by Suichang County Jiulongshan Hydroelectric Development Co., Ltd. and Agricultural
Bank of China, Lishui City Branch, on June 19, 2009 (RMB216.0 million) (incorporated by reference to Exhibit
10.50 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC
on December 8, 2009)4 .51
    
    Memorandum of Understandings entered into by Bank of China, Fujian Branch, and China Hydroelectric Corporation
in July 2009 (incorporated by reference to Exhibit 10.51 to our Registration Statement on Form F-1 (file no.
333-163558), as amended, initially filed with the SEC on December 8, 2009)
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4 .52
    
    Employment Agreement entered into by Beijing A.B.C. Investment Consulting Co., Ltd. and Fang Chen on July 1,
2008 (incorporated by reference to Exhibit 10.52 to our Registration Statement on Form F-1 (file no.
333-163558), as amended, initially filed with the SEC on December 8, 2009)4 .53
    
    Employment Agreement entered into by Beijing A.B.C. Investment Consulting Co., Ltd. and You-Su Lin on July 1,
2008 (incorporated by reference to Exhibit 10.53 to our Registration Statement on Form F-1 (file no.
333-163558), as amended, initially filed with the SEC on December 8, 2009)4 .54
    
    Employment Agreement entered into by Beijing A.B.C. Investment Consulting Co., Ltd. and Gan Wu on July 1, 2008
(incorporated by reference to Exhibit 10.54 to our Registration Statement on Form F-1 (file no. 333-163558), as
amended, initially filed with the SEC on December 8, 2009)4 .55
    
    Employment Agreement entered into by China Hydroelectric Corporation and Mary E. Fellows on January 1, 2009
(incorporated by reference to Exhibit 10.55 to our Registration Statement on Form F-1 (file no. 333-163558), as
amended, initially filed with the SEC on December 8, 2009)4 .56
    
    Employment Agreement entered into by China Hydroelectric Corporation and James Tie Li on January 1, 2009
(incorporated by reference to Exhibit 10.56 to our Registration Statement on Form F-1 (file no. 333-163558), as
amended, initially filed with the SEC on December 8, 2009)4 .57
    
    Employment Agreement entered into by China Hydroelectric Corporation and John D. Kuhns on January 1, 2009
(incorporated by reference to Exhibit 10.57 to our Registration Statement on Form F-1 (file no. 333-163558), as
amended, initially filed with the SEC on December 8, 2009)4 .58
    
    Employment Agreement entered into by Beijing A.B.C. Investment Consulting Co., Ltd. and Xinchun Lian on
October 1, 2008, as amended on January 13, 2009 (incorporated by reference to Exhibit 10.58 to our Registration
Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)4 .59
    
    Labor Contract entered into by Beijing A.B.C. Investment Consulting Co., Ltd. and Shu Zhang on May 12, 2009
(incorporated by reference to Exhibit 10.59 to our Registration Statement on Form F-1 (file no. 333-163558), as
amended, initially filed with the SEC on December 8, 2009)4 .60
    
    Labor Contract entered into by Beijing A.B.C. Investment Consulting Co., Ltd. and Gang Meng on April 7, 2008, as
amended on November 1, 2008 (incorporated by reference to Exhibit 10.60 to our Registration Statement on Form
F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)4 .61
    
    Capital Increase Agreement for Henan Wuyue Storage Power Generation Co., Ltd. entered into by China
Hydroelectric Corporation and Henan Lan Tian Group Co., Ltd. on October 22, 2009 (incorporated by reference to
Exhibit 10.61 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with
the SEC on December 8, 2009)4 .62
    
    Form of Warrant to Purchase Ordinary Shares of the Registrant by Broadband Capital Management LLC to be dated
the closing of the initial public offering (incorporated by reference to Exhibit 10.62 to our Registration
Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)4 .63
    
    Warrant to Purchase Units Consisting of Ordinary Shares and Warrants to Purchase Ordinary Shares of the
Registrant by Morgan Joseph & Co. Inc. dated November 10, 2006 (283,333 Units) (incorporated by reference to
Exhibit 10.63 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with
the SEC on December 8, 2009)4 .64
    
    Warrant to Purchase Units Consisting of Ordinary Shares and Warrants to Purchase Ordinary Shares of the
Registrant by Morgan Joseph & Co. Inc. dated November 10, 2006 (550,000 Units) (incorporated by reference to
Exhibit 10.64 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with
the SEC on December 8, 2009)4 .65
    
    Warrant to Purchase Common Shares of the Registrant by JMG Capital Partners, L.P. dated September 28, 2007
(incorporated by reference to Exhibit 10.65 to our Registration Statement on Form F-1 (file no. 333-163558), as
amended, initially filed with the SEC on December 8, 2009)4 .66
    
    Warrant to Purchase Common Shares of the Registrant by JMG Triton Offshore Fund, Ltd. dated September 28, 2007
(incorporated by reference to Exhibit 10.66 to our Registration Statement on Form F-1 (file no. 333-163558), as
amended, initially filed with the SEC on December 8, 2009)4 .67
    
    Warrant to Purchase Preferred Shares or Ordinary Shares, as Applicable, of the Registrant by Morgan Joseph & Co.
Inc. dated January 28, 2008 (incorporated by reference to Exhibit 10.67 to our Registration Statement on Form
F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)4 .68
    
    Letter Agreement between the Registrant and Vicis Capital Master Fund dated April 11, 2007 (incorporated by
reference to Exhibit 10.68 to our Registration Statement on Form F-1 (file no. 333-163558), as amended,
initially filed with the SEC on December 8, 2009)4 .69
    
    Form of warrant agreement (incorporated by reference to Exhibit 10.69 to our Registration Statement on Form F-1
(file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009)
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4 .70
    
    Share Transfer Contract for Yingjiang County Qingrui Husahe Power Co., Ltd. dated as of March 2, 2010 between
Dehong Qinrui (Group) Power Investment and Development Co., Ltd. and Yunnan Huabang Electric Power Development
Co., Ltd.4 .71
    
    Share Transfer Contract for Fugong County Hengda Hydropower Generation Co., Ltd. (Aluhe Hydropower Station and
Zilenghe Hydropower Station) dated as of April 14, 2010 between Yunnan Minfa Hydroelectric Development Group
Co., Ltd., Xiamen Minrui Investment Co., Ltd. and Fujian Huabang Hydroelectric Investment Co., Ltd.4 .72
    
    Share Transfer Contract for Fugong Xineng Power Development Co., Ltd. (Latudihe Hydropower Station) dated as of
April 14, 2010 between Yunnan Minhe Hydroelectric Investment Co., Ltd. and Fujian Huabang Hydroelectric
Investment Co., Ltd.4 .73
    
    Supplemental Agreement on the Power Purchase and Sale Contract for the Year of 2010 (Contract Number: De Dian Si
2010-011) for Binglangjiang Power Station and Binglangjiang Expanded Power Station dated as of March 31, 2010
between Yunnan Huabang Electric Power Development Co., Ltd. and Dehong Power Supply Co., Ltd.4 .74
    
    Supplemental Agreement on the Power Purchase and Sale Contract for the Year of 2010 (Contract Number: 2010-009)
for Husahe Cascade III & VI Power Station and Mangxian Power Station4 .75
    
    Power Purchase Agreement (contract
Number: De Dian Si 2009-079) (Binglangjiang expanded Power Station)
dated as of November 4, 2009 between Dehong Power Supply Co.,
Ltd. and Yunnan Huabang Electric Power development Co.4 .76
    
    Supplemental Agreement on the Power
Purchase and Sale Contract for the Year of 2009 (Contract Number: De
Dian Si 2009-079) (Binglangjiang expanded Power Station) dated as of
November 4, 2009 between Dehong Power Supply Co., Ltd and Yunnan
Huabang Electric Power Development Co.4 .77
    
    Grid Connection Agreement (Serial
Number: De Dian Ru Wang No. 2009-003) dated as of July 16, 2009
between Yunnan Dehong Electric Power Co., Ltd. and Yunnan Huabang
Electric Power Development Co., Ltd.4
..78
    
    Share Transfer Contract for Luquan
Xiaopengzu Power Generation Co., Ltd. dated as of April 23, 2010
among Fujian Huabang Hydroelectric Investment Co., Ltd. and various
individual parties thereto8 .1
    
    Subsidiaries of the Registrant11 .1
    
    Code of Business Conduct and Ethics of the Registrant (incorporated by reference to Exhibit 99.1 to our
Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December
8, 2009)12 .1
    
    CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200212 .2
    
    CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200213 .1
    
    CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 200213 .2
    
    CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 200215 .1
    
    Calculation of Effective Tariff Rate, Effective Utilization Rate and Weighted Average Effective Utilization Rate
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SIGNATURE
   CHINA HYDROELECTRIC CORPORATION/s/ James Tie LiName:
    
    James Tie LiTitle:
    
    Executive Vice President and
Chief Financial Officer
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##### Table of Contents



Index to Consolidated Financial Statements
 China Hydroelectric Corporation
 PAGEReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of December 31, 2008 and 2009
    
    
    F-3Consolidated Statements of Operations for the Years Ended
December 31, 2007, 2008 and 2009
    
    
    F-5Consolidated Statements of Cash Flows for the Years Ended
December 31, 2007, 2008 and 2009
    
    
    F-6Consolidated Statements of Changes in Shareholders Equity for the Years Ended
December 31, 2007, 2008 and 2009
    
    
    F-8Notes to Consolidated Financial Statements
    
    
    F-10
 F-1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
    
 F-2




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##### Table of Contents



China Hydroelectric Corporation
 
 Consolidated Balance Sheets

as of December 31, 2008 and 2009
 (Amounts in thousands of U.S. dollars (US$), except for number of shares and per share data)
 Pro-FormaBalanceSheet atDecember 31,
    
    
    December 31,Notes
    
    
    2008
    
    
    2009
    
    
    2009(Unaudited)Note 2(b)ASSETSCurrent assets:Cash and cash equivalents
    
    
    
    
    
    
    38,693
    
    
    
    31,618
    
    
    
    31,618Accounts receivable (net of allowance
for doubtful accounts of US$nil as
of December 31, 2008 and 2009)
    
    
    4
    
    
    
    3,137
    
    
    
    8,434
    
    
    
    8,434Deferred tax assets
    
    
    12
    
    
    
    1,166
    
    
    
    489
    
    
    
    489Amounts due from related parties
    
    
    26
    
    
    
    13
    
    
    
    
    
    
    
    Amounts due from an equity investee
    
    
    2(h)
    
    
    
    4,534
    
    
    
    
    
    
    
    Prepayments and other current assets
    
    
    5
    
    
    
    9,437
    
    
    
    4,582
    
    
    
    4,582Total current assets
    
    
    
    
    
    
    56,980
    
    
    
    45,123
    
    
    
    45,123Non-current assets:Investment in an equity investee
    
    
    2(h)
    
    
    
    4,295
    
    
    
    
    
    
    
    Deferred initial public offering costs
    
    
    6
    
    
    
    6,032
    
    
    
    12,774
    
    
    
    Property, plant and equipment, net
    
    
    7
    
    
    
    365,190
    
    
    
    423,200
    
    
    
    423,200Intangible assets, net
    
    
    8
    
    
    
    3,666
    
    
    
    4,513
    
    
    
    4,513Goodwill
    
    
    9
    
    
    
    96,533
    
    
    
    107,824
    
    
    
    107,824Deferred tax assets
    
    
    
    
    
    
    
    
    
    
    1,231
    
    
    
    1,231Other non-current assets
    
    
    
    
    
    
    872
    
    
    
    399
    
    
    
    399Total non-current assets
    
    
    
    
    
    
    476,588
    
    
    
    549,941
    
    
    
    537,167TOTAL ASSETS
    
    
    
    
    
    
    533,568
    
    
    
    595,064
    
    
    
    582,290LIABILITIES AND SHAREHOLDERS EQUITY
(DEFICIT)Current liabilities:Accounts payable
    
    
    
    
    
    
    6,259
    
    
    
    1,305
    
    
    
    1,305Short-term loans
    
    
    13
    
    
    
    8,781
    
    
    
    7,098
    
    
    
    7,098Current portion of long-term loans
    
    
    13
    
    
    
    29,037
    
    
    
    56,809
    
    
    
    56,809Warrant liability
    
    
    17
    
    
    
    540
    
    
    
    14,333
    
    
    
    14,333Amounts due to related parties
    
    
    26
    
    
    
    242
    
    
    
    242
    
    
    
    242Amounts due to an equity investee
    
    
    2(h)
    
    
    
    2
    
    
    
    
    
    
    
    Deferred tax liabilities
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Accrued expenses and other current
liabilities
    
    
    10
    
    
    
    32,424
    
    
    
    22,704
    
    
    
    22,704Total current liabilities
    
    
    
    
    
    
    77,285
    
    
    
    102,492
    
    
    
    102,492Non-current liabilities:Long-term loans
    
    
    13
    
    
    
    138,133
    
    
    
    172,469
    
    
    
    172,469Deferred tax liabilities
    
    
    12
    
    
    
    13,415
    
    
    
    18,805
    
    
    
    18,805Other non-current liabilities
    
    
    14
    
    
    
    568
    
    
    
    104
    
    
    
    104Total non-current liabilities
    
    
    
    
    
    
    152,116
    
    
    
    191,378
    
    
    
    191,378Total liabilities
    
    
    
    
    
    
    229,401
    
    
    
    293,870
    
    
    
    293,870Commitments and contingencies
    
    
    22
 F-3




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##### Table of Contents



China Hydroelectric Corporation
Consolidated Balance Sheets as of December 31, 2008 and 2009-(Continued)
(Amounts in thousands of U.S. dollars (US$), except for number of shares and per share data)
 Pro-FormaBalance SheetatDecember 31,
    
    
    December 31,Notes
    
    
    2008
    
    
    2009
    
    
    2009(Unaudited)Convertible redeemable preferred sharesSeries A (par value US$0.001 per
share; 2,500,000 shares authorized;
152,193 shares issued and outstanding
as of December 31, 2008 and 2009)
    
    
    16
    
    
    
    164,705
    
    
    
    184,541
    
    
    
    Series B (par value US$0.001 per
share; 2,500,000 shares authorized;
129,000 shares issued and outstanding
as of December 31, 2008 and 2009)
    
    
    16
    
    
    
    134,531
    
    
    
    148,943
    
    
    
    Series C (par value US$0.001 per
share; 1,000,000 shares authorized;
nil and 20,000 shares issued and
outstanding as of December 31, 2008
and 2009)
    
    
    16
    
    
    
    
    
    
    
    20,356
    
    
    
    Shareholders equityChina Hydroelectric Corporation
shareholders equity (deficit):Ordinary shares (par value US$0.001
per share, 130,000,000 shares
authorized; 15,541,666 shares issued
and outstanding as of December 31,
2008 and 2009)
    
    
    18
    
    
    
    16
    
    
    
    16
    
    
    
    134Additional paid-in capital
    
    
    
    
    
    
    38,241
    
    
    
    36,251
    
    
    
    377,199Accumulated other comprehensive income
    
    
    
    
    
    
    10,819
    
    
    
    11,065
    
    
    
    11,065Accumulated deficit
    
    
    
    
    
    
    (44,895
    )
    
    
    (100,767
    )
    
    
    (100,767
    )Total China Hydroelectric Corporation
shareholders equity (deficit)
    
    
    
    
    
    
    4,181
    
    
    
    (53,435
    )
    
    
    287,631Noncontrolling interests
    
    
    
    
    
    
    750
    
    
    
    789
    
    
    
    789Total shareholders equity (deficit)
    
    
    
    
    
    
    4,931
    
    
    
    (52,646
    )
    
    
    288,420TOTAL LIABILITIES AND SHAREHOLDERS
EQUITY (DEFICIT)
    
    
    
    
    
    
    533,568
    
    
    
    595,064
    
    
    
    582,290
  F-4




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##### Table of Contents



China Hydroelectric Corporation
 
 Consolidated Statements of Operations

for the Years Ended December 31, 2007, 2008 and 2009
 (Amounts in thousands of U.S. dollars (US$), except for number of shares and per share data)
 Notes
    
    
    For the Years Ended December 31,2007
    
    
    2008
    
    
    2009Revenues
    
    
    
    
    
    
    2,434
    
    
    
    14,715
    
    
    
    36,175Cost of revenues
    
    
    
    
    
    
    (813
    )
    
    
    (6,025
    )
    
    
    (17,183
    )Gross profit
    
    
    
    
    
    
    1,621
    
    
    
    8,690
    
    
    
    18,992Operating expenses:General and administrative expenses
    
    
    
    
    
    
    (2,560
    )
    
    
    (6,761
    )
    
    
    (9,099
    )Total operating expenses
    
    
    
    
    
    
    (2,560
    )
    
    
    (6,761
    )
    
    
    (9,099
    )Operating (loss) income
    
    
    
    
    
    
    (939
    )
    
    
    1,929
    
    
    
    9,893Interest income
    
    
    
    
    
    
    1,051
    
    
    
    1,340
    
    
    
    510Interest expenses
    
    
    21
    
    
    
    (3,275
    )
    
    
    (5,847
    )
    
    
    (14,228
    )Change in fair value of derivative
financial liabilities and warrant
liability
    
    
    15, 17
    
    
    
    (266
    )
    
    
    420
    
    
    
    (13,793
    )Exchange loss
    
    
    
    
    
    
    (1,095
    )
    
    
    (1,067
    )
    
    
    (23
    )Share of losses in an equity investee
    
    
    
    
    
    
    (27
    )
    
    
    (503
    )
    
    
    (70
    )Other income (loss), net
    
    
    23
    
    
    
    8
    
    
    
    144
    
    
    
    (225
    )Loss before income tax expenses
    
    
    
    
    
    
    (4,543
    )
    
    
    (3,584
    )
    
    
    (17,936
    )Income tax expenses
    
    
    11
    
    
    
    (17
    )
    
    
    (444
    )
    
    
    (1,492
    )Consolidated net loss
    
    
    
    
    
    
    (4,560
    )
    
    
    (4,028
    )
    
    
    (19,428
    )Less:Net loss attributable to noncontrolling
interests
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    32Net loss attributable to China
Hydroelectric Corporation shareholders
    
    
    
    
    
    
    (4,560
    )
    
    
    (3,987
    )
    
    
    (19,396
    )Less:Cumulative dividends on Series A
convertible redeemable preferred shares
    
    
    
    
    
    
    
    
    
    
    (14,680
    )
    
    
    (19,836
    )Cumulative dividends on Series B
convertible redeemable preferred shares
    
    
    
    
    
    
    
    
    
    
    (5,531
    )
    
    
    (14,412
    )Cumulative dividends on Series C
convertible redeemable preferred shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (356
    )Changes in redemption value of Series A
convertible redeemable preferred shares
    
    
    
    
    
    
    
    
    
    
    (10,569
    )
    
    
    Changes in redemption value of Series B
convertible redeemable preferred shares
    
    
    
    
    
    
    
    
    
    
    (4,134
    )
    
    
    Changes in redemption value of Series C
convertible redeemable preferred shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,872
    )Loss attributable to ordinary shareholders
    
    
    
    
    
    
    (4,560
    )
    
    
    (38,901
    )
    
    
    (55,872
    )Basic and diluted net loss attributable
to ordinary shareholders per share
    
    
    19
    
    
    
    (0.33
    )
    
    
    (2.50
    )
    
    
    (3.59
    )Weighted average ordinary shares used in
basic and diluted net loss attributable
to ordinary shareholders per share
computation
    
    
    19
    
    
    
    13,817,466
    
    
    
    15,554,416
    
    
    
    15,541,666Pro forma basic and diluted net loss
attributable to ordinary shareholders per
share on an as converted basis
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    (0.16
    )Shares used in pro forma basic and
diluted net loss attributable to ordinary
shareholders per share computation
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    122,427,137
  F-5




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##### Table of Contents



China Hydroelectric Corporation
 
 Consolidated Statements of Cash Flows

for the Years Ended December 31, 2007, 2008 and 2009
 (Amounts in thousands of U.S. dollars (US$), except for number of shares and per share data)
 For the Years Ended December 31,2007
    
    
    2008
    
    
    2009Cash flows from operating activities:Consolidated net loss
    
    
    (4,560
    )
    
    
    (4,028
    )
    
    
    (19,428
    )Adjustments to reconcile consolidated net loss to net
cash (used in) provided by operating activities:Depreciation of property, plant and equipment
    
    
    572
    
    
    
    4,755
    
    
    
    12,399Amortization of intangible assets
    
    
    66
    
    
    
    108
    
    
    
    182Deferred income taxes
    
    
    
    
    
    
    46
    
    
    
    795Share of losses in an equity investee
    
    
    27
    
    
    
    503
    
    
    
    70Amortization of long-term notes discounts
    
    
    833
    
    
    
    139
    
    
    
    Change in fair value of derivative financial liabilities and warrant liability
    
    
    266
    
    
    
    (420
    )
    
    
    13,793Amortization of debt issuance costs
    
    
    293
    
    
    
    47
    
    
    
    23Accretion of guarantee fee payable
    
    
    
    
    
    
    105
    
    
    
    10Accretion of guarantee deposit
    
    
    
    
    
    
    
    
    
    
    45Amortization of unfavorable contract obligations
    
    
    
    
    
    
    (3
    )
    
    
    (660
    )Amortization of government grant
    
    
    
    
    
    
    (11
    )
    
    
    Share-based compensation expenses
    
    
    
    
    
    
    
    
    
    
    571Loss from disposal of property, plant and equipment
    
    
    
    
    
    
    
    
    
    
    276Remeasurement gain on pre-existing interest in an
equity investee at acquisition-date fair value
(Note 3)
    
    
    
    
    
    
    
    
    
    
    (105
    )Exchange loss
    
    
    1,095
    
    
    
    1,067
    
    
    
    23Changes in operating assets and liabilities:Accounts receivable
    
    
    (172
    )
    
    
    (8
    )
    
    
    (3,674
    )Amounts due from an equity investee
    
    
    
    
    
    
    (1,560
    )
    
    
    (125
    )Amounts due from related parties
    
    
    
    
    
    
    28
    
    
    
    13Prepayments and other current assets
    
    
    (1,537
    )
    
    
    2,166
    
    
    
    304Other non-current assets
    
    
    
    
    
    
    42
    
    
    
    969Accounts payable
    
    
    (552
    )
    
    
    (2,068
    )
    
    
    (1
    )Amounts due to related parties
    
    
    
    
    
    
    88
    
    
    
    (2
    )Accrued expenses and other current liabilities
    
    
    (594
    )
    
    
    1,374
    
    
    
    (4,265
    )Net cash (used in) provided by operating activities
    
    
    (4,263
    )
    
    
    2,370
    
    
    
    1,213Cash flows from investing activities:Acquisition of subsidiaries, net of cash acquired
    
    
    (466
    )
    
    
    (183,268
    )
    
    
    (32,283
    )Acquisition of an equity investee
    
    
    (4,612
    )
    
    
    
    
    
    
    Acquisition of an intangible asset
    
    
    
    
    
    
    
    
    
    
    (1,025
    )Cash advancement to an acquired business
prior to the acquisition date
    
    
    (16,182
    )
    
    
    
    
    
    
    Acquisition of property, plant and equipment
    
    
    (535
    )
    
    
    (32,944
    )
    
    
    (1,757
    )Proceeds from disposal of property, plant and
equipment
    
    
    
    
    
    
    
    
    
    
    190Payment to contractors for construction projects
    
    
    (2,005
    )
    
    
    (2,394
    )
    
    
    (13,380
    )Loans to an equity investee
    
    
    
    
    
    
    (2,802
    )
    
    
    (3,937
    )Repayment of loans by an equity investee
    
    
    
    
    
    
    
    
    
    
    3,486Restricted cash
    
    
    50,340
    
    
    
    
    
    
    
    Net cash provided by (used in) investing activities
    
    
    26,540
    
    
    
    (221,408
    )
    
    
    (48,706
    )
 F-6




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##### Table of Contents



China Hydroelectric Corporation
Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2008 and 2009
(Amounts in thousands of U.S. dollars (US$), except for number of shares and per share data)
 For the Years Ended December 31,2007
    
    
    2008
    
    
    2009Cash flows from financing activities:Purchase of subsidiary shares from noncontrolling
interests
    
    
    
    
    
    
    
    
    
    
    (2,490
    )Proceeds from issuance of convertible redeemable
preferred shares
    
    
    
    
    
    
    279,025
    
    
    
    20,000Proceeds from short-term loans
    
    
    
    
    
    
    
    
    
    
    4,391Proceeds from long-term loans
    
    
    
    
    
    
    4,280
    
    
    
    129,234Proceeds from government grant
    
    
    
    
    
    
    115
    
    
    
    Payment of deferred initial public offering costs
    
    
    
    
    
    
    (4,224
    )
    
    
    (7,142
    )Payment of convertible redeemable preferred shares
issuance costs
    
    
    
    
    
    
    (13,804
    )
    
    
    (1,872
    )Payment of debt issuance costs
    
    
    (2,460
    )
    
    
    (307
    )
    
    
    (299
    )Payment of equity issuance costs
    
    
    
    
    
    
    (46
    )
    
    
    Payment of Business Combination Payment (Note 15)
    
    
    (2,500
    )
    
    
    
    
    
    
    Repayment of short-term loans
    
    
    
    
    
    
    (606
    )
    
    
    (6,082
    )Repayment of long-term loans
    
    
    (2,466
    )
    
    
    (12,185
    )
    
    
    (95,287
    )Repayment of long-term notes
    
    
    
    
    
    
    (9,907
    )
    
    
    Net cash (used in) provided by financing activities
    
    
    (7,426
    )
    
    
    242,341
    
    
    
    40,453Net increase (decrease) in cash and cash equivalents
    
    
    14,851
    
    
    
    23,303
    
    
    
    (7,040
    )Effect of changes in exchange rate on cash and cash
equivalents
    
    
    127
    
    
    
    (216
    )
    
    
    (35
    )Cash and cash equivalents at the beginning of the period
    
    
    628
    
    
    
    15,606
    
    
    
    38,693Cash and cash equivalents at the end of the period
    
    
    15,606
    
    
    
    38,693
    
    
    
    31,618Supplementary disclosure of cash flow informationInterest paid
    
    
    2,552
    
    
    
    9,134
    
    
    
    14,051Income taxes paid
    
    
    
    
    
    
    171
    
    
    
    1,015Non-cash activities:Conversion of long-term notes into ordinary shares
    
    
    39,124
    
    
    
    
    
    
    
    Transfer of unamortized debt issuance costs to
equity upon conversion of long-term notes into
ordinary shares
    
    
    3,096
    
    
    
    
    
    
    
    Non-cash portion of equity issuance costs incurred
from conversion of long-term notes into ordinary
shares
    
    
    46
    
    
    
    
    
    
    
    Non-cash portion of deferred initial public
offering costs
    
    
    
    
    
    
    1,808
    
    
    
    1,640Convertible redeemable preferred shares issued as
dividends
    
    
    
    
    
    
    20,211
    
    
    
    34,604Non-cash portion of acquisition of subsidiaries
    
    
    
    
    
    
    4,143
    
    
    
    720Non-cash portion of acquisition of property, plant
and equipment
    
    
    
    
    
    
    5,809
    
    
    
    1,072Warrants issued in exchange for advisory services
    
    
    
    
    
    
    899
    
    
    
    
  F-7




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##### Table of Contents



China Hydroelectric Corporation
 
 Consolidated Statements of Changes in Shareholders Equity for the Years Ended December 31, 2007, 2008 and 2009
 (Amounts in thousands of U.S. dollars (US$), except for number of shares and per share data)
 China Hydroelectric Corporation shareholdersAccumulatedNumber of
    
    
    
    
    
    
    Additional
    
    
    other
    
    
    
    
    
    
    
    
    
    
    Totalordinary
    
    
    Ordinary
    
    
    paid-in
    
    
    comprehensive
    
    
    Accumulated
    
    
    Noncontrolling
    
    
    shareholders
    
    
    Comprehensiveshares
    
    
    shares
    
    
    capital
    
    
    income
    
    
    deficit
    
    
    interests
    
    
    equity (deficit)
    
    
    income (loss)Balance at
December 31, 2006
    
    
    8,875,000
    
    
    
    9
    
    
    
    2,266
    
    
    
    
    
    
    
    (1,434
    )
    
    
    
    
    
    
    841
    
    
    
    Issuance of ordinary shares
upon conversion of
long-term convertible notes
    
    
    6,833,333
    
    
    
    7
    
    
    
    35,975
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,982
    
    
    
    Issuance of warrants (Note
17)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,143
    
    
    
    
    
    
    
    
    
    
    
    2,143
    
    
    
    2,143Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,560
    )
    
    
    
    
    
    
    (4,560
    )
    
    
    (4,560
    )Balance at December 31, 2007
    
    
    15,708,333
    
    
    
    16
    
    
    
    38,241
    
    
    
    2,143
    
    
    
    (5,994
    )
    
    
    
    
    
    
    34,406
    
    
    
    (2,417
    )Repurchase of ordinary shares
    
    
    (166,667
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cumulative dividends on
Series A convertible
redeemable preferred shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,680
    )
    
    
    
    
    
    
    (14,680
    )
    
    
    Cumulative dividends on
Series B convertible
redeemable preferred shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,531
    )
    
    
    
    
    
    
    (5,531
    )
    
    
    Changes in redemption value
of Series A convertible
redeemable preferred shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,569
    )
    
    
    
    
    
    
    (10,569
    )
    
    
    Changes in redemption value
of Series B convertible
redeemable preferred shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,134
    )
    
    
    
    
    
    
    (4,134
    )
    
    
    Noncontrolling interest in
an acquired subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    791
    
    
    
    791
    
    
    
    Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,676
    
    
    
    
    
    
    
    
    
    
    
    8,676
    
    
    
    8,676Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,987
    )
    
    
    (41
    )
    
    
    (4,028
    )
    
    
    (4,028
    )Balance at December 31, 2008
    
    
    15,541,666
    
    
    
    16
    
    
    
    38,241
    
    
    
    10,819
    
    
    
    (44,895
    )
    
    
    750
    
    
    
    4,931
    
    
    
    4,648
  F-8




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##### Table of Contents



China Hydroelectric Corporation
Consolidated Statements of Changes in Shareholders Equity
for the Years Ended December 31, 2007, 2008 and 2009 (Continued)
(Amounts in thousands of U.S. dollars (US$), except for number of shares and per share data)
 China Hydroelectric Corporation shareholdersAccumulatedNumber of
    
    
    
    
    
    
    Additional
    
    
    other
    
    
    
    
    
    
    
    
    
    
    Totalordinary
    
    
    Ordinary
    
    
    paid-in
    
    
    comprehensive
    
    
    Accumulated
    
    
    Noncontrolling
    
    
    shareholders
    
    
    Comprehensiveshares
    
    
    shares
    
    
    capital
    
    
    income
    
    
    deficit
    
    
    interests
    
    
    equity (deficit)
    
    
    income (loss)Cumulative
dividends on Series
A convertible
redeemable
preferred shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,836
    )
    
    
    
    
    
    
    (19,836
    )
    
    
    Cumulative
dividends on Series
B convertible
redeemable
preferred shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,412
    )
    
    
    
    
    
    
    (14,412
    )
    
    
    Cumulative
dividends on Series
C convertible
redeemable
preferred shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (356
    )
    
    
    
    
    
    
    (356
    )
    
    
    Changes in
redemption value of
Series C
convertible
redeemable
preferred shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,872
    )
    
    
    
    
    
    
    (1,872
    )
    
    
    Purchase of
subsidiary shares
from noncontrolling
interests
    
    
    
    
    
    
    
    
    
    
    (2,561
    )
    
    
    
    
    
    
    
    
    
    
    71
    
    
    
    (2,490
    )
    
    
    Share-based
compensation
expenses
    
    
    
    
    
    
    
    
    
    
    571
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    571
    
    
    
    Foreign currency
translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    246
    
    
    
    
    
    
    
    
    
    
    
    246
    
    
    
    246Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,396
    )
    
    
    (32
    )
    
    
    (19,428
    )
    
    
    (19,428
    )Balance at December
31, 2009
    
    
    15,541,666
    
    
    
    16
    
    
    
    36,251
    
    
    
    11,065
    
    
    
    (100,767
    )
    
    
    789
    
    
    
    (52,646
    )
    
    
    (19,182
    )
  
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##### Table of Contents



China Hydroelectric Corporation
 
 Notes to the Consolidated Financial Statements
 (Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and
 per share data)
 1.
    
    ORGANIZATION AND PRINCIPAL ACTIVITIES
 China Hydroelectric Corporation (the Company) was incorporated on July 10, 2006 under the
laws of the Cayman Islands to serve as a vehicle for the acquisition of equity interest in
companies with hydroelectric assets in the Peoples Republic of
China (the PRC or
China). The Company and its subsidiaries (the Group) are principally engaged in the
operation and development of hydroelectric assets and the generation of hydroelectric power
in the PRC.
 The Company does not conduct any substantive operation of its own and conducts its primary
business operations through its subsidiaries. During the years ended December 31, 2007, 2008
and 2009, the Company made three, seven and three acquisitions of hydroelectric entities,
respectively. Details of each acquisition are disclosed in Note 3.
 In December 2009, the Company transferred one hydroelectric power project from Suichang
County Jiulongshan Hydroelectric Development Co., Ltd. to the newly established Suichang
County Zhougongyuan Hydroelectric Development Co., Ltd. Both entities are wholly owned by the
Company.
 As of December 31, 2009, the Companys subsidiaries included the following entities:
 Place of
    
    Date of Establishment/
    
    Percentage of
    
    PrincipalIncorporation
    
    Acquisition
    
    Ownership
    
    ActivitiesSubsidiariesBeijing A.B.C.
Investment
Consulting Co., Ltd.
(ABC)
    
    PRC
    
    April 19, 2007
    
    
    100
    %
    
    Provision of general
and administrative
services to group
companiesYunnan Huabang
Electric Power
Development Co.,
Ltd.
(Binglangjiang)
    
    PRC
    
    April 25, 2007
    
    
    100
    %
    
    Operation and
development of
hydroelectric assetsSichuan Huabang
Hydroelectric
Development Co.,
Ltd. (Liyuan)
    
    PRC
    
    May 21, 2007
    
    
    100
    %
    
    Operation and
development of
hydroelectric assetsZhejiang Province
Jingning Yingchuan
Hydroelectric
Development Co.,
Ltd. (Yingchuan)
    
    PRC
    
    January 31, 2008
    
    
    100
    %
    
    Operation and
development of
hydroelectric assetsQingtian Wuliting
Hydroelectric
Development Co.,
Ltd. (Wuliting)
    
    PRC
    
    January 31, 2008
    
    
    100
    %
    
    Operation and
development of
hydroelectric assets
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share
data)
 1.
    
    ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)
 Place of
    
    Date of Establishment/
    
    Percentage of
    
    PrincipalIncorporation
    
    Acquisition
    
    Ownership
    
    ActivitiesSubsidiariesSuichang County
Jiulongshan
Hydroelectric
Development Co.,
Ltd.
(Jiulongshan)
    
    PRC
    
    January 31, 2008
    
    
    100
    %
    
    Operation and
development of
hydroelectric assetsChina
Hydroelectric
Corporation (Hong
Kong) Limited
(CHC HK)
    
    HK
    
    June 25,2008
    
    
    100
    %
    
    Investment holding
companyPingnan County
Yuheng Hydropower
Co., Ltd.
(Yuheng)
    
    PRC
    
    October 21, 2008
    
    
    100
    %
    
    Operation and
development of
hydroelectric assetsPingnan County
Wangkeng
Hydroelectric Co.,
Ltd. (Wangkeng)
    
    PRC
    
    October 21, 2008
    
    
    90
    %
    
    Operation and
development of
hydroelectric assetsPingnan County
Yuanping
Hydroelectric Co.,
Ltd. (Yuanping)
    
    PRC
    
    October 22, 2008
    
    
    100
    %
    
    Operation and
development of
hydroelectric assetsSanming Zhongyin
Banzhu
Hydroelectric Co.,
Ltd. (Banzhu)
    
    PRC
    
    October 22, 2008
    
    
    100
    %
    
    Operation and
development of
hydroelectric assetsSun Power Asia
Limited
(Sunpower)
    
    HK
    
    November 14,2008
    
    
    100
    %
    
    Investment holding
companyYunhe County
Shapulong
Hydropower
Generation Co.,
Ltd. (Shapulong)
    
    PRC
    
    August 3, 2009
    
    
    100
    %
    
    Operation and
development of
hydroelectric assetsZhejiang Longquan
Ruiyang Cascaded
II Hydropower
Plant Co., Ltd.
(Ruiyang)
    
    PRC
    
    August 20, 2009
    
    
    100
    %
    
    Operation and
development of
hydroelectric assetsSuichang County
Zhougongyuan
Hydroelectric
Development Co.,
Ltd.
(Zhougongyuan)
    
    PRC
    
    December 3, 2009
    
    
    100
    %
    
    Operation and
development of
hydroelectric assets
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share
data)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 (a)
    
    Basis of presentation
 The consolidated financial statements have been prepared in accordance with United States
generally accepted accounting principles (US GAAP). Minority interests have been
re-captioned to non-controlling interests and have been presented in accordance with
Accounting Standards Codification (ASC) sub-topic 810-10 (ASC 810-10), Consolidation:
Overall.
 (b)
    
    Principles of consolidation
 The consolidated financial statements include the financial statements of the Company and its
subsidiaries. The results of subsidiaries are consolidated from the date of acquisition,
being the date on which the Group obtained control and continued to be consolidated until the
date that such control ceases.
 Investments in entities that the Company does not control, but has the ability to exercise
significant influence over operating and financial policies, are accounted for under the
equity method. Investments in entities in which the Company does not have the ability to
exercise significant influence are accounted for under the cost method. All significant
intercompany transactions and balances have been eliminated upon consolidation.
 The Group accounted for business combinations prior to January 1, 2009 using the acquisition
method of accounting. For business combinations with the acquisition date on or after January
1, 2009, the Group accounted for the transactions in accordance with ASC sub-topic 805-10
(ASC 805-10), Business Combinations: Overall. ASC 805-10 requires the acquiring entity in a
business combination to recognize all assets acquired and liabilities assumed in the
transaction, establishes the acquisition date fair value as the measurement objective for all
assets acquired and liabilities assumed, and requires the acquirer to disclose to investors
and other users all of the information they need to evaluate and understand the nature and
financial effect of the business combination.
 If a qualified public offering as defined in the preferred shares agreements is completed,
all of the convertible redeemable preferred shares (Note 16) outstanding will automatically
convert into 118,558,909 ordinary shares, based on the shares of convertible redeemable
preferred shares outstanding at December 31, 2009. Unaudited pro forma shareholders equity
as of December 31, 2009, as adjusted for the assumed conversion of the convertible redeemable
preferred shares, is set forth in the consolidated balance sheet. Unaudited pro forma net
loss attributable to shareholders of the Company per share for the year ended December 31,
2009, as adjusted for the assumed conversion of the convertible redeemable preferred shares
as of January 1, 2009, is set forth in the consolidated statements of operations and Note 31.
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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share
data)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 (c)
    
    Use of estimates
 The preparation of financial statements in conformity with US GAAP requires management to
make estimates and assumptions that affect the reported amount of assets and liabilities, the
disclosure of contingent assets and liabilities at the balance sheet dates and the reported
amounts of revenues and expenses during the reporting periods. Actual results could differ
from those estimates.
 (d)
    
    Fair value of financial instruments
 Financial instruments include cash and cash equivalents, accounts receivable, certain other
current assets, accounts payable, certain other liabilities, short-term loans, long-term
loans, convertible redeemable preferred shares, derivative financial liabilities, and
warrants. The carrying values of these financial instruments, other than long-term loans,
convertible redeemable preferred shares, and warrants approximate their fair values due to
their short-term maturities. The warrants issued in connection with the long-term notes were
recorded in equity at the fair value as determined on the day of issuance (Note 17). The
convertible redeemable preferred shares were initially recorded at issue price net of
issuance costs. The Company recognizes changes in the redemption value immediately as they
occur and adjusts the carrying value of the convertible redeemable preferred shares to equal
the redemption value at the end of each reporting period (Note 16). The warrants issued in
connection with the convertible redeemable preferred shares were recorded as a liability at
fair value as determined on the day of issuance and subsequently adjusted to the fair value
at each reporting date (Note 17). The Group, with the assistance of American Appraisal China
Limited (AA), an independent third party valuation firm, determined the fair values of the
long-term notes and related derivative financial liability, convertible redeemable preferred
shares and warrants.
 The carrying values of long-term loans approximate their fair values due to the fact that the
interest rates on these loans are reset each year based on prevailing market interest rates.
 The Group adopted the provisions of ASC sub-topic 820-10 (ASC 820-10), Fair Value
Measurements and Disclosures: Overall, on January 1, 2008. ASC 820-10 defines fair value,
establishes a framework for measuring fair value and expands disclosures about fair value
measurements. The adoption of ASC 820-10 did not impact the Groups financial condition,
results of operations, or cash flow.
 ASC 820-10 establishes a three-tier value hierarchy, which prioritizes the inputs used in the
valuation methodologies in measuring fair value:
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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share
data)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)(d)
    
    Fair value of financial instruments (continued)Level 1Observable inputs that reflect quoted prices (unadjusted) for identical
assets or liabilities in active markets.Level 2Include other inputs that are directly or indirectly observable in the marketplace.Level 3Unobservable inputs which are supported by little or no market activity.The fair value hierarchy also requires an entity to maximize the use of observable inputs
and minimize the use of unobservable inputs when measuring fair value.ASC 820-10 describes three main approaches to measure the fair value of assets and
liabilities: (1) market approach; (2) income approach and (3) cost approach. The market
approach uses prices and other relevant information generated from market transactions
involving identical or comparable assets or liabilities. The income approach uses valuation
techniques to convert future amounts to a single present value amount. The measurement is
based on the value indicated by current market expectations about those future amounts. The
cost approach is based on the amount that would currently be required to replace an asset.In accordance with ASC 820-10, the Group measures the fair value of money market funds
included in cash equivalents using the market approach based on quoted market prices. The
preferred shares warrants are valued using the income approach based on inputs that are
unobservable in the market.Assets and liabilities measured at fair value on a recurring basis as of December 31, 2009
are summarized below:
 Quoted price in
    
    
    Significantactive market for
    
    
    other
    
    
    Significantidentical assets
    
    
    observable
    
    
    unobservable(Level 1)
    
    
    inputs (Level 2)
    
    
    inputs(Level 3)US$
    
    
    US$
    
    
    US$Money market funds in cash equivalent
    
    
    17,136
    
    
    
    
    
    
    
    Morgan Joseph Preferred Shares
Warrant (Note 17)
    
    
    
    
    
    
    
    
    
    
    14,333Total
    
    
    17,136
    
    
    
    
    
    
    
    14,333
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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share
data)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)(d)
    
Fair value of financial instruments (continued)The following table presents a reconciliation of all assets and liabilities measured at fair
value on a recurring basis using significant unobservable inputs (Level 3) for the year
ended December 31, 2009:
 Preferred SharesWarrants (Note 17)
    
    
    TotalUS$
    
    
    US$Balance as of December 31, 2008
    
    
    540
    
    
    
    540Realized or unrealized loss
    
    
    13,793
    
    
    
    13,793Balance as of December 31, 2009
    
    
    14,333
    
    
    
    14,333
 Realized and unrealized loss of US$13,793 for the year ended December 31, 2009 was recorded
in Changes in fair value of derivative financial liabilities and warrant liability in the
consolidated statements of operations.ASC sub-topic 825-10 (ASC 825-10), Financial Instruments: Overall, became effective for
the Group at the beginning of 2008. ASC 825-10 permits entities to choose to measure many
financial instruments and certain other items at fair value that are not currently required
to be measured at fair value. The Group did not elect to utilize voluntary fair value
measurements as permitted by ASC 825-10.(e)
    
    Foreign currencyThe Company determined its functional currency to be the US$ while its subsidiaries
determine their functional currency to be their respective local currency based on the
criteria of ASC sub-topic 830-10 (ASC 830-10), Foreign Currency Matters: Overall. All of
the Companys subsidiaries are located in the PRC and determined their functional currency
to be the RMB. The Company uses the US$ as its reporting currency.Each entity in the Group maintains its financial records in its own functional currency.
Transactions denominated in foreign currencies are measured at the exchange rates prevailing
on the transaction dates. Monetary assets and liabilities denominated in foreign currencies
are remeasured at the exchange rates prevailing at the balance sheet date. Exchange gains
and losses are included in the consolidated statements of operations. Non-monetary items
that are measured in terms of historical cost in a foreign currency are remeasured using the
exchange rates at the dates of the initial transactions.The assets and liabilities of the Companys subsidiaries are translated into the reporting
currency of the Company at the exchange rates prevailing at the balance sheet date. The
statements of operations of the Companys subsidiaries are translated into the reporting
currency of the Company at the weighted average exchange rates for the year. The resulting
translation gains (losses) are recorded in accumulated other comprehensive income as a
component of shareholders equity.
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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share
data)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 (e)
    
    Foreign currency (continued)
 For the purpose of the consolidated statements of cash flows, cash flows of the PRC
subsidiaries are translated into US$ at the exchange rates prevailing on the dates of the
cash flows. Frequently recurring cash flows of the PRC subsidiaries which arise throughout
the year are translated into US$ at the weighted average exchange rates for the year.
 (f)
    
    Cash and cash equivalents
 Cash and cash equivalents include cash on hand and short-term deposits with original
maturity of three months or less at the date of purchase. None of the Groups cash and
cash equivalents is restricted as to withdrawal and use.
 (g)
    
    Accounts receivable
 Accounts receivables are carried at net realizable value. In evaluating the collectability of
receivable balances, the Group considers many factors, including the aging of the balance,
the customers payment history, its current credit-worthiness and current economic trends. An
estimate for doubtful accounts is made when collection of the full amount is no longer
probable. Accounts receivable are written off after all collective efforts have ceased.
 (h)
    
    Investment in equity investee
 Investments in entities in which the Company can exercise significant influence but does not
own a majority equity interest or control are accounted for using the equity method of
accounting under ASC sub-topic 323-10, (ASC 323-10), InvestmentsEquity Method
and Joint Ventures: Overall, and included as investment in equity investees in the balance
sheets. Under the equity method, the Companys proportionate share of each equity investees
net income or loss is included as share of income (losses) in equity investees in the
statements of operations.
 The difference between the cost of the equity investee and the amount of the underlying
equity in the net assets of the equity investee is recognized as equity method goodwill and
included as part of the Companys investment in equity investees in the balance sheets. The
Company evaluated the investment in equity investee for impairment under ASC 323-10. An
impairment loss on the investment in equity investee is recognized in the statements of
operations when the decline in value is determined to be other-than-temporary.
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share
data)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)(h)
    
    Investment in equity investee (continued)Shapulong became a wholly-owned subsidiary of the Company on August 3, 2009 (Note 3). Prior
to August 3, 2009, the Company accounted for Shapulong using the equity method of accounting.
The following table presents summarized financial information in conformity with U.S. GAAP
for Shapulong as of December 31, 2008, and for the period from December 25, 2007 (date of
acquisition) to December 31, 2007, for the year ended December 31, 2008 and for the period
from January 1, 2009 to August 2, 2009.
 December 31, 2008US$Current assets
    
    
    447Non-current assets
    
    
    20,004Current liabilities
    
    
    7,265Non-current liabilities
    
    
    11,280
 For the Period from
    
    
    
    
    
    
    For the Period fromDecember 25, 2007 to
    
    
    For the Year ended
    
    
    January 1, 2009 toDecember 31, 2007
    
    
    December 31, 2008
    
    
    August 2, 2009US$
    
    
    US$
    
    
    US$Revenues
    
    
    3
    
    
    
    2,507
    
    
    
    1,420Gross profit
    
    
    (24
    )
    
    
    756
    
    
    
    703Net loss
    
    
    (54
    )
    
    
    (1,006
    )
    
    
    (140
    )
 The Company had the following transactions with its equity investee, Shapulong, for the period
from December 25, 2007 to December 31, 2007, for the year ended December 31, 2008 and for the
period from January 1, 2009 to August 2, 2009:
 For the Period fromDecember 25, 2007
    
    
    For the Year
    
    
    For the Period fromto December 31,
    
    
    Ended December 31,
    
    
    January 1, 2009 to August 2,2007
    
    
    2008
    
    
    2009US$
    
    
    US$
    
    
    US$Fees for supporting
services provided
to Shapulong
    
    
    
    
    
    
    229
    
    
    
    32Short-term loans
provided to
Shapulong
    
    
    287
    
    
    
    4,251
    
    
    
    3,937
 In 2007, Liyuan provided a loan of RMB2,100 (US$287) to Shapulong with an annual interest
rate of 9.072%. The loan was unsecured and repayable on demand. As of August 2, 2009,
RMB1,700 (US$249) was outstanding.
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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share
data)
 2.
    
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)(h)
    
Investment in equity investee (continued)
 As of December 31, 2008 there were two entrusted loans from Binglangjiang to Shapulong
amounted to RMB20,000 (US$2,926). The entrusted loans are financing arrangements to provide
Shapulong with working capital. In an entrusted loan arrangement, the lender makes deposits
into a trust account of a bank and authorizes the bank to release the funds to the borrower.
The bank collects interest and principal payments from the borrower and remits to the lender
as they become due. On January 22, 2008, Binglangjiang provided an entrusted loan of
RMB12,500 (US$1,829) to Shapulong through China Construction Bank. The loan has an interest
rate of 15% per annum and is due on January 21, 2009. On June 23, 2008, Binglangjiang
provided another entrusted loan of RMB7,500 (US$1,097) to Shapulong through Agricultural Bank
of China. The loan has an interest rate of 9.711% per annum and was due on June 22, 2009.
The banks charge an annual management fee ranging from 0.24% to 0.3% of the loan principal
amount. Both amounts were repaid in full by Shapulong as of August 2, 2009.
 In November and December of 2008, Yingchuan and Wuliting provided short-term loans of
US$1,134 and US$57, respectively, to Shapulong. During the period from January 1, 2009 to
August 2, 2009, Wuliting and Yingchuan provided short-term loans of RMB26,899 (US$3,937) to
Shapulong. The loans were unsecured, interest-free and repayable on demand. As of August 2,
2009, Shapulong has repaid US$990 to Yingchuan.
 The Company had the following balances with Shapulong as of December 31, 2007, 2008 and August
2, 2009:
 December 31,
    
    
    December 31,
    
    
    August 2,2007
    
    
    2008
    
    
    2009US$
    
    
    US$
    
    
    US$Amounts due from Shapulong
    
    
    287
    
    
    
    4,534
    
    
    
    5,115Amounts due to Shapulong
    
    
    
    
    
    
    2
    
    
    
    2
 The balance due to Shapulong is unsecured, interest-free and repayable on demand.
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share
data)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 (i)
    
    Debt issuance costs
 Debt issuance costs represent the issuance costs of the convertible notes, which are
stated at cost less accumulated amortization, and is classified as a non-current asset
on the balance sheets. These costs were deferred and amortized rateably using the
effective interest method from the debt issuance date to the debt maturity date. If the
long-term convertible notes are converted prior to the debt maturity date, the
unamortized debt issuance costs will be transferred to equity immediately upon
occurrence of such events.
 The Company incurred US$3,534 in total debt issuance costs which were deferred and
amortized over the life of the convertible notes using the effective interest method.
Upon conversion of a portion of the convertible notes in April 2007, unamortized debt
issuance cost of US$3,096 was reversed through a debit to additional paid-in capital.
Upon settlement of the remaining portion of the convertible notes in February 2008,
unamortized debt insurance cost of US$33 was reversed through a debit to interest
expense.
 (j)
    
    Property, plant and equipment
 Property, plant and equipment are recorded at cost less accumulated depreciation.
 Depreciation is recorded on a straight-line basis over the following estimated useful lives:
 Dams and reservoirs
    
    30-49 yearsBuildings
    
    8-50 yearsMachinery
    
    1-30 yearsTransportation equipment
    
    1-11 yearsElectronic equipment and others
    
    1-15 yearsLand use right
    
    44-50 years
 For property, plant and equipment acquired through a business combination,
depreciation is recorded on a straight-line basis over their respective remaining
estimated useful lives. All direct and indirect costs that are related to the
construction of property, plant and equipment and incurred before the assets are ready
for their intended use are capitalized as construction in progress. Construction in
progress is transferred to specific property, plant and equipment accounts and commences
depreciation when these assets are ready for their intended use.
 Interest costs are capitalized if they are incurred during the acquisition, construction or
production of a qualifying asset and such costs could have been avoided if expenditures for
the assets have not been made. Capitalization of interest costs commences when the activities
to prepare the asset are in progress and expenditures and borrowing costs are being incurred.
Interest costs are capitalized until the assets are ready for their intended use. Interest
costs of US$3,467 and US$1,426 were capitalized for the years ended December 31, 2008 and
2009, respectively.
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share
data)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)(j)
    
    Property, plant and equipment (continued)
 Repair and maintenance costs are charged to expense when incurred, whereas the cost of
renewals and betterment that extend the useful life of fixed assets are capitalized as
additions to the related assets. Retirement, sale and disposals of assets are recorded by
removing the cost and accumulated depreciation, with any resulting gain or loss reflected in
the consolidated statements of operations.
 (k)
    
    Goodwill and intangible assets
 Goodwill represents the excess of the purchase price over the amounts assigned to the fair
value of the assets acquired and the liabilities assumed of acquired businesses. ASC
sub-topic 350-10 (ASC 350-10), Intangibles-Goodwill and Other: Overall, requires that
goodwill be tested for impairment annually or more frequently if events or changes in
circumstances indicate that it might be impaired. The Group assigns and assesses goodwill for
impairment at the reporting unit level. The Group determines that each reporting unit is
identified at the component level, which is one level below the operating segment.
 The performance of the impairment test involves a two-step process. The first step of the
impairment test involves comparing the fair value of the reporting unit with its carrying
amount, including goodwill. Fair value is primarily determined by computing the future
discounted cash flows expected to be generated by the reporting unit. If the carrying value
exceeds the fair value, goodwill may be impaired. If this occurs, the Group performs the
second step of the goodwill impairment test to determine the amount of impairment loss. The
fair value of the reporting unit is allocated to its assets and liabilities in a manner
similar to a purchase price allocation in order to determine the implied fair value of the
reporting unit goodwill. This implied fair value is then compared with the carrying amount of
the reporting unit goodwill, and if it is less, the Group would then recognize an impairment
loss.
 Intangible assets are carried at cost less accumulated amortization. Intangible assets
acquired in a business combination are recognized initially at fair value at the date of
acquisition. Intangible assets with a finite useful life are amortized using the
straight-line method over the estimated economic life of the intangible assets. The estimated
useful life for the intangible assets as of December 31, 2009 is as follows:
 Development right of Binglangjiang Phase II
    
    30 yearsDam water use right of Yuanping
    
    40 yearsDam water use right of Yuheng
    
    30 years
 The Group reviews and adjusts the carrying value of the intangible assets if the facts and
circumstances suggest the intangible assets may be impaired (Note 2(m)). The Group assessed
and concluded that there was no impairment for goodwill and intangible asset in any of the
years presented.
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share
data)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 (l)
    
    Asset retirement obligations
 ASC sub-topic 410-20 (ASC 410-20), Asset Retirement Obligations, requires companies to
record the present value of obligations associated with the retirement of tangible long-lived
assets in the period in which it is incurred. The value of the liability is capitalized as
part of the carrying amount of the related long-lived asset. Over time, accretion of the
liability is recognized as an operating expense and the capitalized cost is depreciated over
the expected useful life of the related asset. The Groups asset retirement obligations
relate primarily to the restoration of leased lands under land use rights granted by the
local government to their original condition. Asset retirement obligations as of December 31,
2008 and 2009 were insignificant.
 (m)
    
    Impairment of long-lived assets
 The Group evaluates its long-lived assets, including property, plant and equipment and
intangible assets with finite lives, for impairment whenever events or changes in
circumstances (such as a significant adverse change to market conditions that will impact the
future use of the assets) indicate that the carrying amount of an asset may not be
recoverable in accordance with ASC sub-topic 360-10 (ASC 360-10), Property, Plant, and
Equipment: Overall. When these events occur, the Group assesses the recoverability of
long-lived assets by comparing the carrying amount of the assets to the expected future
undiscounted cash flows resulting from the use of the assets and their eventual disposition.
If the sum of the expected undiscounted cash flow is less than the carrying amount of the
assets, the Group recognizes an impairment loss based on the excess of the carrying amount of
the assets over their fair value. Fair value is generally determined by discounting the cash
flows expected to be generated by the assets, when the market prices are not readily
available. No impairment of long-lived assets was recognized for any of the years presented.
 (n)
    
    Derivative instruments
 ASC sub-topic 815-10 (ASC 815-10), Derivatives and Hedging: Overall, requires all
contracts which meet the definition of a derivative to be recognized in the consolidated
financial statements as either assets or liabilities and recorded at fair value. Changes in
the fair value of derivative financial instruments are either recognized periodically in
income/loss or in shareholders equity as a component of other comprehensive income depending
on the use of the derivative and whether it qualifies for hedge accounting. Changes in fair
values of derivatives not qualified as hedges are reported in the consolidated statements of
operations. The estimated fair values of derivative instruments are determined at discrete
points in time based on the relevant market information. These estimates are calculated with
reference to the market rates using industry standard valuation techniques.
 (o)
    
    Comprehensive income (loss)
 Comprehensive income is defined as the change in shareholders equity of the Group during a
period from transactions and other events and circumstances excluding transactions resulting
from investments by owners and distributions to owners. Comprehensive income (loss) is
reported in the consolidated statements of changes in shareholders equity. Accumulated other
comprehensive income (loss) of the Group includes the cumulative foreign currency translation
adjustments.
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share
data)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 (p)
    
    Revenue recognition
 The Groups revenue is derived from the sale of electricity. Revenues are recognized when
the following four criteria are met as prescribed by ASC Sub-topic 605-10 (ASC 605-10),
Revenue Recognition: Overall: (i) persuasive evidence of an arrangement exists, (ii) delivery
has occurred or services have been rendered, (iii) the sellers price to the buyer is fixed
or determinable, and (iv) collectability is reasonably assured. The Group considers the terms
of each arrangement to determine the appropriate accounting treatment. Revenue is generally
earned and recognized upon transmission of electricity to the power grid controlled and owned
by the respective regional or provincial grid companies. For transactions in which
electricity has been transmitted to the power grid without a fixed or determinable unit price
per kWh while the tariff is pending approval of the regional or provincial pricing bureau,
cash received in exchange for the transmission of electricity to the power grid controlled by
the respective regional or provincial grid companies has been recorded as customer deposits
until such time the price becomes fixed and determinable. When the price becomes fixed and
determinable, all or a portion of the customer deposits will be recognized as revenue. The
Group does not defer the related cost of revenues, which is charged to expense as incurred.
Customer deposits of US$56 included in Accrued expenses and other current liabilities as of
December 31, 2008 were recognized as revenues in the year ended December 31, 2009 as the unit
price per kWh became fixed or determinable based on an approved tariff obtained from the
regional pricing bureau on August 17, 2009. No customer deposits were recognized as of
December 31, 2009. The Group has not offered any discounts or rebates to its customers nor
does it provide for refunds in its sales contracts with customers except for Yuheng (Note14).
 The Companys subsidiaries are subject to withholding value-added tax (VAT) on the revenues
earned in the PRC. The applicable rate of VAT is 6% for small hydroelectric power projects
with a total installed capacity of 50 megawatts or less and 17% for large hydroelectric power
projects with a total installed capacity of over 50 megawatts. For the year ended December
31, 2007, the lower VAT rate of 6% was applied to the hydroelectric power projects of
Binglangjiang and Liyuan. For the year ended December 31, 2008, the lower VAT rate of 6% was
applied to the hydroelectric power projects of Binglangjiang, Liyuan, Yingchuan, Wuliting,
Jiulongshan, Yuheng and Yuanping and the VAT rate of 17% was applied to the hydroelectric
power projects of Banzhu and Wangkeng. For the year ended December 31, 2009, the lower VAT
rate of 6% was applied to the hydroelectric power projects of Binglangjiang, Liyuan,
Yingchuan, Wuliting, Yuheng and Yuanping and the VAT rate of 17% was applied to the
hydroelectric power projects of Banzhu, Wangkeng, Jiulongshan and Zhougongyuan. VAT on
revenues earned from the sale of electricity by the Group to its customers for the years
ended December 31, 2007, 2008 and 2009 were US$146, US$1,001 and
US$3,742, respectively. The
Group has recognized revenues net of VAT in the consolidated statements of operations.
 (q)
    
    Cost of revenues
 Cost of revenues consists primarily of depreciation expense of hydroelectric power projects
and related operating costs and overhead expenses directly attributable to the production of
electricity.
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share
data)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 (r)
    
    Leases
 In accordance with ASC sub-topic 840-10 (ASC 840-10), Lease: Overall, leases are classified
at the inception date as either a capital lease or an operating lease. For the lessee, a
lease is a capital lease if any of the following conditions exist: (i) ownership is
transferred to the lessee by the end of the lease term , (ii) there is a bargain purchase
option, (iii) the lease term is at least 75% of the propertys estimated remaining economic
life or (iv) the present value of the minimum lease payments at the beginning of the lease
term is 90% or more of the fair value of the leased property to the lessor at the inception
date. A capital lease is accounted for as if there was an acquisition of an asset and
incurrence of an obligation at the inception of the lease. All other leases are accounted for
as operating leases wherein rental payments are expensed on a straight-line basis over the
lease periods.
 The Group has no capital leases for any of the years presented.
 (s)
    
    Income taxes
 The Group follows the liability method of accounting for income taxes in accordance with ASC
sub-topic 740-10 (ASC 740-10), Income Taxes: Overall. Under this method, deferred tax
assets and liabilities are determined based on the difference between the financial reporting
and tax bases of assets and liabilities, net operating loss carry forwards and credits, using
enacted tax rates that will be in effect for the period in which the differences are expected
to reverse. The Group records a valuation allowance against the amount of deferred tax assets
if based on the weight of available evidence, it is more likely than not that some portion,
or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a
change in tax rate is recognized in the consolidated statements of operations in the period
that includes the enactment date.
 On January 1, 2007, the Company adopted the accounting for uncertainty in income taxes in ASC
740-10. There was no cumulative effect of the adoption of the accounting for uncertainty in
income taxes in ASC 740-10 to beginning retained earnings. Interests and penalties arising
from underpayment of income taxes are computed in accordance with the related PRC tax law.
The amount of interest expenses is computed by applying the applicable statutory rate of
interest to the difference between the tax position recognized and the amount previously
taken or expected to be taken in a tax return. Interest recognized from the accounting for
uncertainty in income taxes is classified in the financial statements as interest expenses,
while penalties recognized from the accounting for uncertainty in income taxes are classified
in the financial statements as other expenses. During the years ended December 31, 2007, 2008
and 2009, the Group recognized US$nil, US$99 and US$183 interest or penalties, respectively.
The Group paid no interest or penalties relating to uncertain tax positions for the years
ended December 31, 2007, 2008 and 2009.
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share
data)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 (s)
    
    Income taxes (continued)
 The Group recognizes in its financial statements the impact of a tax position if a tax return
position or future tax position is more likely than not to prevail, which is defined as a
likelihood of more than fifty percent of being sustained upon audit, based on the technical
merits of the tax position. Tax positions that meet the more likely than not threshold are
measured, using a probability weighted approach, at the largest amount of tax benefit that
has a greater than fifty percent likelihood of being realized upon settlement.
 The Groups estimated liability for unrecognized tax benefits is periodically assessed for
adequacy and may be affected by changing interpretation of laws, rulings by tax authorities,
certain changes and/or developments with respect to audits, and expiration of the statute of
limitations. The outcome for a particular audit cannot be determined with certainty prior to
the conclusion of the audit and, in some cases, appeal or litigation process. The actual
benefits ultimately realized may differ from the Groups estimates. As each audit is
concluded, adjustments, if any, are appropriately recorded in the Groups financial
statements. Additionally, in future periods, change in facts, circumstances, and new
information may require the Group to adjust the recognition and measurement estimates with
regard to individual tax positions. Changes in recognition and measurement estimates are
recognized in the period in which the change occurs.
 Prior to the adoption of the accounting for uncertainty in income taxes in ASC 740-10, the
Group applied ASC sub-topic 450-10 (ASC 450-10), Contingencies: Overall, to assess and
provide for potential income tax exposures. In accordance with ASC 450-10, the Company
maintained reserves for tax contingencies based on reasonable estimates of the tax liability,
interest and penalties that may result from such audits.
 (t)
    
    Net (loss) income per share
 In accordance with ASC sub-topic 260-10 (ASC 260-10), Earnings Per Share: Overall, basic
(loss) income per share is computed by dividing net (loss) income attributable to ordinary
shareholders by the weighted average number of ordinary shares outstanding during the year.
Diluted (loss) income per share is calculated by dividing net (loss) income attributable to
ordinary shareholders as adjusted for the effect of dilutive ordinary equivalent shares, if
any, by the weighted average number of ordinary and dilutive ordinary share equivalents
outstanding during the period. Ordinary share equivalents consist of the ordinary shares
issuable upon the Groups convertible redeemable preferred shares (Note 16), using the
if-converted method, and ordinary shares issuable upon the conversion of the warrants (Note
17) and share options (Note 25), using the treasury stock method.
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share
data)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 (u)
    
    Segment reporting
 The Group follows ASC sub-topic 280-10 (ASC 280-10), Segment Reporting: Overall. The
Groups chief operating decision maker, who has been identified as the chief executive
officer (CEO), relies upon financial information by provinces in the PRC when making
decisions about allocating resources and assessing the performance of the Group. As a result,
the Group operates and manages its business as four operating and reportable segments, namely
the Yunnan Province segment, the Sichuan Province segment, the Zhejiang Province segment and
the Fujian Province segment. As the Groups long-term assets are substantially all located in
and derived from the PRC, no geographical segments are presented.
 (v)
    
    Government grant
 Government grants are recognized where there is reasonable assurance that the attaching
conditions will be complied with. When the grant relates to an expense item, it is recognized
as income over the period necessary to match the grant on a systematic basis to the related
costs. Where the grant relates to an asset acquisition, it is recognized as deferred
government grant and recognized as income in proportion to depreciation of the related
assets. Grant income is recognized on a net basis as a reduction to cost of revenues in the
accompanying consolidated statements of operations.
 (w)
    
    Share-based payment
 The Company accounts for share awards issued to employees in accordance with ASC sub-topic
718-10 (ASC 718-10), Compensation-Stock Compensation: Overall. In accordance with the fair
value recognition provision of ASC 718-10, share-based compensation cost is measured at the
grant date based on the fair value of the award and is recognized as an expense, net of
estimated forfeitures, over the requisite service period, which is generally the vesting
period. The Company has elected to recognize share-based compensation expense for share
awards granted to employees using the straight-line method. The Company uses a binomial
option pricing valuations model in determining the fair value of the options granted.
 The Company accounts for share awards issued to non-employees in accordance with the
provisions of ASC 718-10 and ASC sub-topic 505-50 (ASC 505-50), Equity: Equity-Based
Payment to Non-employees. The Companys share awards issued to non-employees are subject to
graded vesting provisions. The Group recognizes share-based compensation expense for share
awards granted to non-employees using the accelerated recognition method over the requisite
service period of the award. In accordance with ASC 718-10 and ASC 505-50, the Company uses
the binomial option pricing valuations model to measure the value of options granted to
non-employees at each vesting date to determine the appropriate charge to share-based
compensation.
 ASC 718-10 requires forfeitures to be estimated at the time of grant and revised, if
necessary, in the subsequent period if actual forfeitures differ from initial estimates.
Share-based compensation expense was recorded net of estimated forfeitures such that expense
was recorded only for those share-based awards that are expected to vest. Forfeiture rate is
estimated based on historical and future expectation of employee turnover rate and are
adjusted to reflect future change in circumstances and facts, if any.
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share
data)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 (x)
    
    Recently issued accounting standards
 In June 2009, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 167
(SFAS 167), (subsequently codified by Accounting Standards Update (ASU) No. 2009-17 (ASU
2009-17) in December 2009), Amendments to FASB Interpretation No. 46(R), which amends
guidance regarding consolidation of variable interest entities to address the elimination of
the concept of a qualifying special purpose entity. SFAS 167 also replaces the
quantitative-based risks and rewards calculation for determining which enterprise has a
controlling financial interest in a variable interest entity with an approach focused on
identifying which enterprise has the power to direct the activities of the variable interest
entity, and the obligation to absorb losses of the entity or the right to receive benefits
from the entity. Additionally, SFAS 167 requires any enterprise that holds a variable
interest in a variable interest entity to provide enhanced disclosures that will provide
users of financial statements with more transparent information about an enterprises
involvement in a variable interest entity. SFAS 167 is effective for interim and annual
reporting periods beginning after November 30, 2009. The Company does not expect the adoption
of SFAS 167 will have a material impact on its consolidated financial statements.In October 2009, the FASB issued ASU No. 2009-15 (ASU 2009-15), Accounting for Own-Share
Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing. ASU
2009-15 amends ASC sub-topic 470-20, Debt: Debt with Conversion and Other Options, to include
the accounting for own-share lending arrangements in contemplation of convertible debt
issuance or other financing. ASU 2009-15 is effective for fiscal years beginning on or after
December 15, 2009 and shall be applied retrospectively for all arrangements outstanding as of
the beginning of fiscal years beginning on or after December 15, 2009 and for arrangements
entered into on or after the beginning of the first reporting period that begins on or after
June 15, 2009. Early adoption is not permitted. The Company does not expect the adoption of
ASU 2009-15 will have a material impact on its consolidated financial statements.
 In January 2010, the FASB issued ASU No. 2010-06 (ASU 2010-06), Improving Disclosures About
Fair Value Measurements, which requires reporting entities to make new disclosures about
recurring or nonrecurring fair-value measurements including significant transfers into and
out of Level 1 and Level 2 fair-value measurements and information on purchases, sales,
issuances, and settlements on a gross basis in the reconciliation of Level 3 fair-value
measurements. ASU 2010-6 is effective for annual reporting periods beginning after December
15, 2009, except for Level 3 reconciliation disclosures which are effective for annual
periods beginning after December 15, 2010. The Company does not expect that the adoption of
ASU 2010-06 will have a material impact on its consolidated financial statements.
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share
data)
 3.
    
    ACQUISITIONS
 During the year ended December 31, 2007, the Company completed the acquisitions of 100%
ownership interest of (i) Binglangjiang located in the Yunnan Province of the PRC and (ii)
the Liyuan hydroelectric power project (Liyuan) located in the Sichuan Province of the PRC.
In addition, the Company completed the acquisition of 50% equity interest in Shapulong.
During the year ended December 31, 2008, the Company completed the acquisitions of 100%
ownership interest of (i) Yingchuan, (ii) Wuliting,
(iii) Jiulongshan, (iv) Yuheng and (v)
Yuanping, as well as 90% ownership interest of (vi) Wangkeng and (vii) Banzhu. Yingchuan,
Wuliting and Jiulongshan are located in the Zhejiang Province of the PRC while Yuheng,
Yuanping, Wangkeng and Banzhu are located in the Fujian Province of the PRC. During the year
ended December 31, 2009, the Company completed the acquisitions of (i) the 10% noncontrolling
interest of Banzhu, (ii) the remaining 50% equity interest of Shapulong and (iii) the 100%
ownership interest of Ruiyang. Ruiyang is located in the Zhejiang Province of the PRC. As a
result of these acquisitions, the Company is expected to further expand its hydroelectric
power generation capacity in the PRC.
 (a)
    
    Binglangjiang
 On March 15, 2007, the Company signed an agreement to acquire 100% equity interest in
Binglangjiang for an aggregate purchase price of RMB50,000 (US$6,473) cash on the date of
acquisition. The transaction was completed on April 25, 2007. Prior to the acquisition
completion date, the Company advanced RMB125,000 (US$16,182) cash as a capital injection to
Binglangjiang on April 17, 2007. The capital injection is to fund the future operations of
Binglangjiang. The Company concluded that the capital injection transferred to Binglangjiang
represents an advance to a subsidiary prior to the consummation of its acquisition rather
than a cost directly related to its acquisition. Since the capital injection is not a
liability incurred by the Company to former owners of Binglangjiang, the payment does not
form part of the total purchase consideration. Total investment in the subsidiary by the
Company on a non-consolidated basis was RMB175,000 (US$22,656) at the acquisition date. The
acquisition of Binglangjiang meets the definition of a business acquisition and the results
of operations of the acquired business have been included in the Companys consolidated
financial statements since April 25, 2007.
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share
data)
 3.
    
    ACQUISITIONS (CONTINUED)(a)
    
    Binglangjiang (continued)
 The following table summarizes the estimated fair values of the assets acquired and
liabilities assumed at the date of acquisition on April 25, 2007.
 US$Purchase price
    
    
    6,473Direct acquisition costs
    
    
    50Total purchase consideration
    
    
    6,523Cash
    
    
    16,182Property, plant and equipment, net
    
    
    17,215Intangible asset
    
    
    2,909Goodwill
    
    
    2,623Other non-current assets
    
    
    162Total assets acquired
    
    
    39,091Short-term loans
    
    
    (803
    )Current portion of long-term loan
    
    
    (4,272
    )Long-term loan
    
    
    (9,710
    )Other current liabilities
    
    
    (17,783
    )Total liabilities assumed
    
    
    (32,568
    )Net assets acquired
    
    
    6,523
 The US$2,623 goodwill from the acquisition of Binglangjiang was assigned to the Yunnan
Province segment.
 (b)
    
    Liyuan
 On March 17, 2007, the Company signed an agreement to acquire Liyuan for an aggregate purchase
price of RMB77,000 (US$10,028) cash. The transaction was completed on May 21, 2007. The
acquisition of Liyuan meets the definition of a business acquisition and the results of
operations of the acquired business have been included in the Companys consolidated financial
statements since May 21, 2007.
 The following table summarizes the estimated fair values of the assets acquired and
liabilities assumed at the date of acquisition on May 21, 2007.
 US$Cash consideration
    
    
    10,028Direct acquisition costs
    
    
    341Total purchase consideration
    
    
    10,369Property, plant and equipment, net
    
    
    10,369Net assets acquired
    
    
    10,369
 Negative goodwill of US$826 resulted from the acquisition was allocated to reduce the amount
of property, plant and equipment.
 Liyuan Hydroelectric power project is currently operated by Liyuan, a wholly owned subsidiary
of the Company established on April 19, 2007.
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share
data)
 3.
    
    ACQUISITIONS (CONTINUED)
 (c)
    
    Shapulong
 On October 12, 2007, the Company signed an agreement to acquire 50% equity interest in
Shapulong for an aggregate purchase price of RMB33,000 (US$4,545) cash. The Company incurred
direct acquisition costs of US$203. The transaction was completed on December 25, 2007. As the
Company has significant influence over Shapulong, Shapulong has been accounted for as an
equity method investment from December 25, 2007 to the date Shapulong became a wholly-owned
subsidiary on August 3, 2009.
 The following table summarizes the cost of the investment in Shapulong and the amount of the
underlying equity in the net assets of Shapulong at the date of acquisition on December 25,
2007.
 US$Cash consideration
    
    
    4,545Direct acquisition costs
    
    
    203Total purchase consideration
    
    
    4,748Equity in net assets
    
    
    2,846Equity method goodwill
    
    
    1,902Cost of investment
    
    
    4,748
 On June 29, 2009, Yingchuan, a wholly-owned subsidiary of the Company, entered into an
agreement with Zhejiang Water Conservancy & Hydropower Investment Corporation Group to acquire
the 13% state-owned equity interest of Shapulong for an aggregate purchase price of RMB8,580
(US$1,256) cash. On July 22, 2009, Yingchuan entered into an agreement with Guangning
Hydropower Development Co., Ltd. (Guangning) to purchase the remaining 37% equity interest
of Shapulong for an aggregate purchase price of RMB21,000 (US$3,074) cash. Both acquisitions
were completed and the Company took effective control of Shapulong on August 3, 2009. The
results of operations of Shapulong have been included in the Companys consolidated financial
statements since August 3, 2009.
 Upon obtaining control in Shapulong on August 3, 2009, the Company remeasured the pre-existing
50% equity interest at fair value of RMB29,580 (US$4,331) and recognized a gain of US$105 from
the remeasurement in Other income, net in the consolidated statements of operations. The
acquisition-date fair value of the pre-existing 50% equity interest in Shapulong is included
in the measurement of the consideration transferred.
 The following table summarizes the estimated fair values of the assets acquired and
liabilities assumed at the date of acquisition on August 3, 2009.
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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share
data)
 3.
    
    ACQUISITIONS (CONTINUED)
 (c)
    
    Shapulong (continued)
 US$Previously held 50% equity interest remeasured at acquisition-date fair value
    
    
    
    
    4,331Cash purchase price (13% equity interest)
    
    
    
    
    
    
    1,256Cash purchase price (37% equity interest)
    
    
    
    
    
    
    3,074Total purchase consideration
    
    
    
    
    
    
    8,661Cash
    
    
    
    
    
    
    14Property, plant and equipment, net
    
    
    
    
    
    
    27,431Other assets
    
    
    
    
    
    
    751Goodwill
    
    
    
    
    
    
    1,053Total assets acquired
    
    
    
    
    
    
    29,249Current portion of long-term loans
    
    
    
    
    
    
    (1,625
    )Other liabilities
    
    
    
    
    
    
    (6,481
    )Long-term loans
    
    
    
    
    
    
    (10,540
    )Deferred tax liabilities  non-current
    
    
    
    
    
    
    (1,942
    )Total liabilities assumed
    
    
    
    
    
    
    (20,588
    )Net assets acquired
    
    
    
    
    
    
    8,661
 The US$1,053 goodwill from the acquisition of Shapulong was assigned to the Zhejiang Province
segment. The goodwill recognized is primarily attributable to expected synergies and the
assembled workforce of Shapulong. None of the goodwill is expected to be deductible for tax
purposes. As of December 31, 2009, there were no changes in the recognized amounts of
goodwill resulting from the acquisition of Shapulong.
 The Company recognized US$13 of acquisition-related costs that were expensed in the year ended
December 31, 2009. These costs are included in General and administrative expenses in the
consolidated statements of operations.
 The amounts of revenue and earnings of Shapulong included in the Companys consolidated
statement of operations from August 3, 2009, the acquisition date, to December 31, 2009 are as
follows:
 US$Revenue
    
    
    1,110Net profit
    
    
    170
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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share
data)
 3.
    
    ACQUISITIONS (CONTINUED)
 (d)
    
    Yingchuan
 On December 13, 2007, the Company entered into an equity transfer purchase agreement with
Zhejiang Guangsha Stock Co., Ltd. and Zhejiang Guangsha Hydropower Investment Co., Ltd. to
acquire 100% of the equity interest of Yingchuan. The total purchase price for the acquisition
is RMB304,030 (US$42,313), which comprises a cash purchase price of RMB291,437 (US$40,560) and
a payment of RMB12,593 (US$1,753) to the seller for assuming all of the liabilities of
Yingchuan upon consummation of the acquisition. The hydroelectric station is located in
Jingning County, Zhejiang Province, and has been in operation since 2002. The acquisition was
completed and the Company took effective control of Yingchuan on January 31, 2008. The
acquisition of Yingchuan meets the definition of a business acquisition and the results of
operations of the acquired business have been included in the Companys consolidated financial
statements since January 31, 2008.
 The following table summarizes the estimated fair values of the assets acquired and
liabilities assumed at the date of acquisition on January 31, 2008.
 US$Purchase price
    
    
    42,313Guarantee fee relating to the acquisition (Note 22(d))
    
    
    124Direct acquisition costs
    
    
    142Total purchase consideration
    
    
    42,579Property, plant and equipment, net
    
    
    44,681Goodwill
    
    
    10,592Total assets acquired
    
    
    55,273Current portion of long-term loans
    
    
    (4,175
    )Other current liabilities
    
    
    (326
    )Long-term loans
    
    
    (6,263
    )Deferred tax liabilities
    
    
    (1,930
    )Total liabilities assumed
    
    
    (12,694
    )Net assets acquired
    
    
    42,579
 The US$10,592 goodwill from the acquisition of Yingchuan was assigned to the Zhejiang Province
segment.
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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share
data)
 3.
    
    ACQUISITIONS (CONTINUED)
 (e)
    
    Wuliting
 On December 13, 2007, the Company entered into an equity transfer purchase agreement with
Guangsha Construction Group Co., Ltd. and Mr. Lu Chunliang to acquire 100% of the equity
interest of Wuliting. The total purchase price for the acquisition is RMB342,140 (US$47,617),
which comprises a cash purchase price of RMB206,880 (US$28,792) and a payment of RMB135,260
(US$18,825) to the seller for assuming all of the liabilities of Wuliting upon consummation of
the acquisition. The hydroelectric station is located in Qingtian County, Zhejiang Province,
and has been in operation since 2007. The acquisition was completed and the Company took
effective control of Wuliting on January 31, 2008. The acquisition of Wuliting meets the
definition of a business acquisition and the results of operations of the acquired business
have been included in the Companys consolidated financial statements since January 31, 2008.
 The following table summarizes the estimated fair values of the assets acquired and
liabilities assumed at the date of acquisition on January 31, 2008.
 US$Purchase price
    
    
    47,617Guarantee fee relating to the acquisition (Note 22(d))
    
    
    620Direct acquisition costs
    
    
    150Total purchase consideration
    
    
    48,387Guarantee asset (Note 22(d))
    
    
    221Property, plant and equipment, net
    
    
    65,689Goodwill
    
    
    16,686Total assets acquired
    
    
    82,596Current portion of long-term loans
    
    
    (3,062
    )Guarantee liability (Note 22(d))
    
    
    (221
    )Other current liabilities
    
    
    (2,017
    )Long-term loans
    
    
    (27,695
    )Deferred tax liabilities
    
    
    (1,214
    )Total liabilities assumed
    
    
    (34,209
    )Net assets acquired
    
    
    48,387
 The US$16,686 goodwill from the acquisition of Wuliting was assigned to the Zhejiang Province
segment.
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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share
data)
 3.
    
    ACQUISITIONS (CONTINUED)
 (f)
    
    Jiulongshan
 The acquisition of Jiulongshan does not meet the definition of a business acquisition and is
accounted for as an asset acquisition.
 On December 13, 2007, the Company entered into an equity transfer purchase agreement with
Guangsha Construction Group Co., Ltd. and Lu Chunliang to acquire 100% of the equity interest
of Jiulongshan for an aggregate purchase price of RMB157,330 (US$21,896) cash. Pursuant to the
equity transfer purchase agreement, the Company is obligated to transfer RMB250,000
(US$34,793) cash into Jiulongshan as a capital injection to fund the construction of the
hydroelectric power project. The capital injection is not subject to any repayment terms and
the Company has control over the injected fund subsequent to the consummation of the
acquisition as the sole shareholder of Jiulongshan. The Company concluded that the capital
injection to Jiulongshan represents an advance to a subsidiary subsequent to the consummation
of its acquisition rather than a cost directly related to its acquisition. Since the capital
injection is not a liability incurred by the Company to former owners of Jiulongshan, the
payment does not form part of the total purchase consideration. The hydroelectric station is
located in Suichang County, Zhejiang Province, and is under development. The acquisition was
completed and the Company took effective control of Jiulongshan on January 31, 2008.
 The following table summarizes the estimated fair values of the assets acquired and
liabilities assumed. In accordance with ASC 350-10, acquisitions of asset groups that
individually or collectively do not meet the definition of a business are accounted for by
allocating the cost of the acquisition to individual assets and assumed liabilities comprising
the net asset group based on their relative fair values, excluding financial assets, assets to
be disposed of by sale, deferred tax assets, prepaid assets related to pension or other
postretirement benefit plans, and other current assets. The only qualifying asset for the
relative fair value allocation in the Jiulongshan acquisition was construction in progress.
Therefore, total consideration in excess of fair value of net assets acquired amounted to
RMB92,093 (US$12,817) was allocated to construction in progress.
 US$Purchase price
    
    
    21,896Guarantee fee relating to the acquisition (Note 22(d))
    
    
    641Direct acquisition costs
    
    
    146Total purchase consideration
    
    
    22,683Guarantee asset (Note 22(d))
    
    
    257Current assets
    
    
    92Construction in progress
    
    
    56,509Total assets acquired
    
    
    56,858Current portion of long-term loans
    
    
    (418
    )Guarantee liability (Note 22(d))
    
    
    (257
    )Other current liabilities
    
    
    (961
    )Long-term loans
    
    
    (29,505
    )Deferred tax liabilities
    
    
    (3,034
    )Total liabilities assumed
    
    
    (34,175
    )Net assets acquired
    
    
    22,683
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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share
data)
 3.
    
    ACQUISITIONS (CONTINUED)
 (g)
    
    Yuheng
 On August 15, 2008, the Company entered into an equity transfer purchase agreement with Fujian
Province Anheng Asset Management Co., Ltd., Shanghai Yufeng Hotel Management Co., Ltd., and
several individuals to acquire 100% of the equity interest of Yuheng. The total purchase price
for the acquisition is RMB121,000 (US$17,721). The hydroelectric station is located in
Pingnan County, Fujian Province and has been in operation since 1999. The acquisition was
completed and the Company took effective control of Yuheng on October 21, 2008. The
acquisition of Yuheng meets the definition of a business acquisition and the results of
operations of the acquired business have been included in the Companys consolidated financial
statements since October 21, 2008.
 Pursuant to the equity transfer purchase agreement, the original shareholders of Yuheng
continue to provide guarantee on the bank loans of Yuheng subsequent to the acquisition by the
Company. In addition, pursuant to a supplemental agreement, the original shareholders are
entitled to the working capital of RMB892 (US$131) as of the acquisition date. Prior to the
acquisition by the Company, Yuanping and Yuheng entered into an arrangement in which Yuanping
was granted a right to use water from the dam and reservoir of Yuheng free of charge. An
unfavorable contract obligation for the water use right was recorded as a liability assumed in
the purchase price allocation of Yuheng. The balance has been eliminated at the consolidation
level.
 The following table summarizes the estimated fair values of the assets acquired and
liabilities assumed at the date of acquisition on October 21, 2008.
 US$Purchase price
    
    
    17,721Direct acquisition costs
    
    
    92Total purchase consideration
    
    
    17,813Cash
    
    
    205Property, plant and equipment, net
    
    
    20,374Other assets
    
    
    4,767Goodwill
    
    
    21,630Total assets acquired
    
    
    46,976Short-term loan
    
    
    (2,928
    )Current portion of long-term loans
    
    
    (586
    )Deferred tax liabilities  current
    
    
    (11
    )Other liabilities
    
    
    (2,281
    )Long-term loans
    
    
    (22,402
    )Deferred tax liabilities  non-current
    
    
    (955
    )Total liabilities assumed
    
    
    (29,163
    )Net assets acquired
    
    
    17,813
 The US$21,630 goodwill from the acquisition of Yuheng was assigned to the Fujian Province
segment. The Company finalized the purchase price allocation of this acquisition in 2009 and
did not recognize any adjustment to goodwill.
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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share
data)
 3.
    
    ACQUISITIONS (CONTINUED)
 (h)
    
    Wangkeng
 On August 9, 2008, the Company entered into an equity transfer purchase agreement with Sanming
City Chenyang Hydropower Co., Ltd., Sanming City Fufeng Industrial Co., Ltd., Beijing Xunjing
Interactive Technology Co., Ltd. and other minority shareholders to acquire 90% of the equity
interest of Wangkeng. The total purchase price for the acquisition is RMB220,500 (US$32,294).
The hydroelectric station is located in Pingnan County, Fujian Province, and has been in
operation since 2004. The acquisition was completed and the Company took effective control of
Wangkeng on October 21, 2008. The acquisition of Wangkeng meets the definition of a business
acquisition and the results of operations of the acquired business have been included in the
Companys consolidated financial statements since October 21, 2008.
 Pursuant to the equity transfer purchase agreement, the original shareholders of Wangkeng
continue to provide guarantee on the bank loans of Wangkeng subsequent to the acquisition by
the Company. In addition, pursuant to a supplemental agreement, the original shareholders are
entitled to the working capital of RMB223 (US$33) as of the acquisition date.
 The following table summarizes the estimated fair values of the assets acquired and
liabilities assumed at the date of acquisition on October 21, 2008.
 US$Purchase price
    
    
    32,294Direct acquisition costs
    
    
    100Total purchase consideration
    
    
    32,394Cash
    
    
    15Other assets
    
    
    1,596Deferred tax assets  current
    
    
    12Property, plant and equipment, net
    
    
    36,396Goodwill
    
    
    20,261Total assets acquired
    
    
    58,280Short-term loan
    
    
    (2,635
    )Current portion of long-term loans
    
    
    (2,928
    )Other liabilities
    
    
    (2,298
    )Long-term loans
    
    
    (15,079
    )Deferred tax liabilities  non-current
    
    
    (2,155
    )Total liabilities assumed
    
    
    (25,095
    )Noncontrolling interest
    
    
    (791
    )Net assets acquired
    
    
    32,394
 The US$20,261 goodwill from the acquisition of Wangkeng was assigned to the Fujian Province
segment. The Company finalized the purchase price allocation of this acquisition in 2009 and
recognized an adjustment to goodwill of US$118 (Note 9).
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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share
data)
 3.
    
    ACQUISITIONS (CONTINUED)
 (i)
    
    Yuanping
 On August 15, 2008, the Company entered into an equity transfer purchase agreement with
several individuals to acquire 100% of the equity interest of Yuanping. The total purchase
price for the acquisition is RMB58,000 (US$8,490). The hydroelectric station is located at
Pingnan County, Fujian Province and has been in operation since 2007. The acquisition was
completed and the Company took effective control of Yuanping on October 22, 2008. The
acquisition of Yuanping meets the definition of a business acquisition and the results of
operations of the acquired business have been included in the Companys consolidated financial
statements since October 22, 2008.
 Pursuant to the equity transfer purchase agreement, the original shareholders of Yuanping
continue to provide guarantee on the bank loans of Yuanping subsequent to the acquisition by
the Company. In addition, pursuant to a supplemental agreement, the original shareholders
assume the negative working capital of RMB3,288 (US$481) as of October 17, 2008. Prior to the
acquisition by the Company, Yuanping and Yuheng entered into an arrangement in which Yuanping
was granted a right to use water from the dam and reservoir of Yuheng free of charge. An
intangible asset for the water use right was recorded as an asset acquired in the purchase
price allocation of Yuanping. The balance has been eliminated at the consolidation level.
 The following table summarizes the estimated fair values of the assets acquired and
liabilities assumed at the date of acquisition on October 22, 2008.
 US$Purchase price
    
    
    8,490Direct acquisition costs
    
    
    88Total purchase consideration
    
    
    8,578Cash
    
    
    115Other assets
    
    
    1,586Property, plant and equipment, net
    
    
    17,687Intangible asset (Note 8)
    
    
    597Goodwill
    
    
    2,529Total assets acquired
    
    
    22,514Short-term loan
    
    
    (901
    )Current portion of long-term loans
    
    
    (439
    )Other liabilities
    
    
    (476
    )Long-term loans
    
    
    (11,560
    )Deferred tax liabilities  non-current
    
    
    (560
    )Total liabilities assumed
    
    
    (13,936
    )Net assets acquired
    
    
    8,578
 The US$2,529 goodwill from the acquisition of Yuanping was assigned to the Fujian Province
segment. The Company finalized the purchase price allocation of this acquisition in 2009 and
recognized an adjustment to goodwill of US$214 (Note 9).
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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share
data)
 3.
    
    ACQUISITIONS (CONTINUED)
 (j)
    
    Banzhu
 On July 11, 2008, the Company entered into an equity transfer purchase agreement with Sanming
Ruifeng Hydropower Investment Co., Ltd. (Sanming Ruifeng) and Yongan Ruifeng Hydroelectric
Ltd. (Yongan Ruifeng) to acquire 65% of the equity interest of Banzhu. On the same day, the
Company entered into a separate equity transfer purchase agreement with Sanming Ruifeng to
acquire 25% of the equity interest of Banzhu through the acquisition of 100% of the equity
interest of Sunpower Asia Limited, a wholly-owned subsidiary of Sanming Ruifeng. The total
purchase price for the acquisition is RMB134,203 (US$19,638). Pursuant to the equity transfer
purchase agreement, the Company transferred RMB21,193 (US$3,100) cash into Banzhu as a capital
injection on March 5, 2009, and will transfer an additional RMB83,724 (US$12,300) cash into
Banzhu as a capital injection in 2010 to finance its future operations after the acquisition
by the Company. The capital injection is not subject to any repayment terms and the Company
has control over the injected fund subsequent to the consummation of the acquisition as the
majority shareholder of Banzhu. The Company concluded that the capital injection to Banzhu
represents an advance to a subsidiary subsequent to the consummation of its acquisition rather
than a cost directly related to its acquisition. Since the capital injection is not a
liability incurred by the Company to former owners of Banzhu, the payment does not form part
of the total purchase consideration. Pursuant to a supplemental agreement, Sanming Ruifeng and
Yongan Ruifeng are entitled to receive the RMB59,158 (US$8,656) current assets, including
cash and cash equivalent, accounts receivable and amounts due from related parties, of Banzhu
as of the acquisition date from the Company. The acquisition was completed and the Company
took effective control of Banzhu on October 22, 2008. On January 30, 2009, Sanming Ruifeng
agreed to forego RMB7,000 (US$1,024) of the current assets that Sanming Ruifeng is entitled to
receive from the Company.
 Pursuant to the equity transfer purchase agreement, the original shareholders of Banzhu
continue to provide guarantee on the bank loans of Banzhu subsequent to the acquisition by the
Company.
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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share
data)
 3.
    
    ACQUISITIONS (CONTINUED)
 (j)
    
    Banzhu (continued)
 The following table summarizes the estimated fair values of the assets acquired and
liabilities assumed at the date of acquisition on October 22, 2008. As the losses applicable
to the noncontrolling interest in Banzhu exceeded the noncontrolling interest in the equity
capital of Banzhu, the amount of noncontrolling interest has been reduced to zero as of the
date of acquisition.
 US$Purchase price
    
    
    19,638Direct acquisition costs
    
    
    91Total purchase consideration
    
    
    19,729Cash
    
    
    499Other assets
    
    
    799Property, plant and equipment, net
    
    
    49,370Deferred tax assets  current
    
    
    1,114Goodwill
    
    
    20,587Total assets acquired
    
    
    72,369Short-term loans
    
    
    (2,927
    )Guarantee liability (Note 22(d))
    
    
    Current portion of long-term loans
    
    
    (7,076
    )Long-term loans
    
    
    (27,266
    )Deferred tax liabilities
    
    
    (3,239
    )Other liabilities
    
    
    (12,132
    )Total liabilities assumed
    
    
    (52,640
    )Net assets acquired
    
    
    19,729
 The US$20,587 goodwill from the acquisition of Banzhu was assigned to the Fujian Province
segment. The Company finalized the purchase price allocation of this acquisition in 2009.
 On January 30, 2009, CHC HK, a wholly-owned subsidiary of the Company located in Hong Kong,
entered into an equity transfer purchase agreement with Sanming Ruifeng Economic Technological
Development Ltd., the noncontrolling interest holder, to acquire the remaining 10% equity
interest of Banzhu. The purchase price for the acquisition is RMB17,000 (US$2,490). CHC HK
completed the acquisition on March 17, 2009. The Company accounted for the purchase of
subsidiary shares from the noncontrolling interest as an equity transaction in accordance with
ASC 810-10. The debit balance of the noncontrolling interest of US$71 was adjusted to zero to
reflect the noncontrolling interest holders reduced ownership interest in Banzhus net
assets. The difference between the consideration paid by the Company to the noncontrolling
interest holder and the adjustment to the carrying amount of the noncontrolling interest in
Banzhu was recognized in additional paid-in capital.
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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share
data)
 3.
    
    ACQUISITIONS (CONTINUED)
 (j)
    
    Banzhu (continued)
 The following table shows the effects of changes in the Companys ownership interest in Banzhu
on the equity attributable to the Company:
 For the years EndedDecember 31,2008
    
    
    2009US$
    
    
    US$Net loss attributable to the Company
    
    
    (3,987
    )
    
    
    (19,396
    )Decrease in the Companys paid-in
capital for purchase of 10% of equity
interest in Banzhu
    
    
    
    
    
    
    (2,561
    )Net transfers to noncontrolling interest
    
    
    
    
    
    
    (2,561
    )Change from net loss attributable to
the Company and transfers to
noncontrolling interest
    
    
    (3,987
    )
    
    
    (21,957
    )
 (k)
    
    Ruiyang
 On August 11, 2009, Yingchuan entered into an agreement with Guangdong Qing Neng Power
Generation Group Co., Ltd. and Mr. Yao Linfu, to acquire the 100% equity interest of Ruiyang
for an aggregate purchase price of RMB160,000 (US$23,420) cash. The acquisition was completed
and the Company took effective control of Ruiyang on August 20, 2009. The acquisition of
Ruiyang meets the definition of a business acquisition and the results of operations of the
acquired business have been included in the Companys consolidated financial statements since
August 20, 2009.
 The following table summarizes the estimated fair values of the assets acquired and
liabilities assumed at the date of acquisition on August 20, 2009.
 US$Purchase price
    
    
    23,420Total purchase consideration
    
    
    23,420Cash
    
    
    1,094Property, plant and equipment, net
    
    
    32,503Other assets
    
    
    1,196Goodwill
    
    
    10,178Total assets acquired
    
    
    44,971Current portion of long-term loan
    
    
    (1,756
    )Other liabilities
    
    
    (2,631
    )Long-term loan
    
    
    (14,052
    )Deferred tax liabilities  non-current
    
    
    (3,112
    )Total liabilities assumed
    
    
    (21,551
    )Net assets acquired
    
    
    23,420
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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share
data)
 3.
    
    ACQUISITIONS (CONTINUED)
 (k)
    
    Ruiyang (continued)
 The US$10,178 goodwill from the acquisition of Ruiyang was assigned to the Zhejiang Province
segment. The goodwill recognized is primarily attributable to expected synergies and the
assembled workforce of Ruiyang. None of the goodwill is expected to be deductible for tax
purposes.
 The Company recognized US$59 of acquisition-related costs that were expensed in the year
ended December 31, 2009. These costs are included in General and administrative expenses in
the consolidated statements of operations.
 The amounts of revenue and earnings of Ruiyang included in the Companys consolidated income
statement from August 11, 2009, the acquisition date, to December 31, 2009 are as follows:
 US$Revenue
    
    
    455Net loss
    
    
    (329
    )
 (l)
    
     Unaudited pro forma consolidated financial information
 The following unaudited pro forma consolidated financial information reflects the results of
the operations of the Group for the years ended December 31, 2007 and 2008, as if the
acquisitions in 2007 and 2008 described above had been completed at the beginning of the
years presented. These pro forma results have been prepared for comparative purposes only and
do not purport to be indicative of what operating results would have been had the
acquisitions actually taken place on the dates indicated and may not be indicative of future
operating results. The pro forma adjustments are based upon available information and certain
assumptions that management believes are reasonable.
 For the Years Ended December 31,2007
    
    
    2008US$
    
    
    US$Revenues
    
    
    25,123
    
    
    
    28,218Loss before income taxes
    
    
    (6,065
    )
    
    
    (7,555
    )Net loss attributable to ordinary shareholders
    
    
    (6,142
    )
    
    
    (42,643
    )Basic and diluted loss per share
    
    
    (0.44
    )
    
    
    (2.74
    )
 The following unaudited pro forma consolidated financial information reflects the results of
the operations of the Group for the years ended December 31, 2008 and 2009, as if the
acquisitions in 2008 and 2009 described above had been completed at the beginning of the
years presented. These pro forma results have been prepared for comparative purposes only and
do not purport to be indicative of what operating results would have been had the
acquisitions actually taken place on the dates indicated and may not be indicative of future
operating results. The pro forma adjustments are based upon available information and certain
assumptions that management believes are reasonable.
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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share
data)
 3.
    
    ACQUISITIONS (CONTINUED)(l)
    
    Unaudited pro forma consolidated financial information (Continued)
 For the Years Ended December 31,2008
    
    
    2009US$
    
    
    US$Revenues
    
    
    33,959
    
    
    
    40,855Loss before income taxes
    
    
    (9,913
    )
    
    
    (17,226
    )Net loss attributable to ordinary shareholders
    
    
    (44,920
    )
    
    
    (55,249
    )Basic and diluted loss per share
    
    
    (2.89
    )
    
    
    (3.55
    )
 4.
    
    ACCOUNTS RECEIVABLE
 The Groups trading terms with its customers are mainly on credit. The credit terms are
generally within 30 days after the delivery of electricity. The Group does not offer extended
payment terms and all accounts receivable balances are non-interest-bearing.
 As of December 31, 2009, substantially all of the accounts receivable balances were within
credit terms except for a receivable of US$570 from Fujian Province (Pingnan) Rongping
Chemical Industry Co., Ltd. (Rongping Chemical) which the Company acquired as part of the
purchase business combination of Yuheng in October 2008, a receivable of US$4,853 from
Lishui Electric Bureau, the local power grid for Jiulongshan electricity sales and a
receivable of US$220 from Guangyuan Electric Bureau, the local power grid for Liyuan
electricity sales.
 The US$570 receivable balance from Rongping Chemical is aged over two years but its
collectability is guaranteed by the original shareholders of Yuheng in accordance with a debt
settlement agreement signed in October 2008. The US$4,853 receivable balance from Lishui
Electric Bureau and the US$220 receivable balance from Guangyuan Electric Bureau, which are
less than one year overdue, are collectible as the electricity bureaus are PRC state-owned
enterprises. As a result, an allowance for doubtful accounts was not provided on the
receivable balances from Rongping Chemical, Lishui Electric Bureau and Guangyuan Electric
Bureau as of December 31, 2009.
 5.
    
    PREPAYMENTS AND OTHER CURRENT ASSETS
 Prepayments and other current assets consist of the following:
 December 31, 2008
    
    
    December 31, 2009US$
    
    
    US$Prepayments
    
    
    4,665
    
    
    
    135Guarantee deposit-current portion
    
    
    2,560
    
    
    
    2,297Amounts due from original
shareholders of acquired
subsidiaries
    
    
    481
    
    
    
    273Guarantee assets
    
    
    42
    
    
    
    Others
    
    
    1,689
    
    
    
    1,877Total
    
    
    9,437
    
    
    
    4,582
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share
data)
 5.
    
    PREPAYMENTS AND OTHER CURRENT ASSETS (CONTINUED)
 Prepayments as of December 31, 2008 and 2009 mainly represent advances to contractors for
construction projects.
 Guarantee deposit as of December 31, 2008 and 2009 represents an interest free amount paid by
Yuheng to Rongping Chemical as part of an electricity supply arrangement amongst Yuheng,
Rongping Chemical and the power grid from 2007 (Note 10), which the Company assumed as part
of the Yuheng acquisition. Pursuant to the electricity supply agreement, Yuheng is obligated
to supply an agreed volume of 300 million kilowatt hour (kWh) of electricity to the power
grid which in turn transmits such electricity to Rongping Chemical for a contractual term of
3.5 years. Yuheng provided a guarantee deposit of RMB30,000 (US$4,389) to Rongping Chemical
to guarantee the supply of electricity over the contractual term. Rongping Chemical is
required to refund the guarantee deposit to Yuheng for every kWh of electricity supplied to
Rongping Chemical through the power grid up to 300 million kWh over 3.5 years. The guarantee
deposit is recognized at its fair value on the date of acquisition of Yuheng and accreted to
its face value of RMB30,000 (US$4,389) over the remainder of the contractual term of 3.5
years based on the volume of electricity supplied. The Company did not recognize any interest
income from accretion of the guarantee deposit in the statement of operations from the date
of acquisition of Yuheng to December 31, 2008 as the power grid did not transmit any
electricity to Rongping Chemical during that period. The Company recognized an interest
income of US$45 for the year ended December 31, 2009. Rongping Chemical refunded RMB7,705
(US$1,128) guarantee deposit to Yuheng for 77,054,538 kWh of electricity transmitted during
the year ended December 31, 2009.
 Amounts due from original shareholders of acquired subsidiaries as of December 31, 2008
represent an amount receivable from the original shareholders of Yuanping for assuming the
net working capital deficit of Yuanping immediately prior to the consummation of the
acquisition on October 22, 2008 in accordance with the supplemental agreement. Amounts due
from original shareholders of acquired subsidiaries as of December 31, 2009 represent the
remaining balance of US$60 receivable from the original shareholders
of Yuanping and US$213
receivable from the original shareholders of Banzhu for arable land occupation tax and social
insurance which should be borne by the original shareholders in accordance with the equity
purchase agreement.
 Guarantee assets as of December 31, 2008 represent the unamortized amount of the guarantee
provided by the original shareholders of Wuliting and Jiulongshan on the bank loans of these
subsidiaries subsequent to the acquisition by the Company in January 2008. The amount was
fully amortized in the year ended December 31, 2009.
 6.
    
    DEFERRED INITIAL PUBLIC OFFERING COSTS
 Direct costs incurred by the Company attributable to a proposed initial public offering of
the Companys ordinary shares in the United States have been deferred and will be charged
against the gross proceeds from such offering.
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 7.
    
    PROPERTY, PLANT AND EQUIPMENT
 Property, plant and equipment and its related accumulated depreciation as of December 31,
2008 and 2009 are as follows:
 December 31, 2008
    
    
    December 31, 2009US$
    
    
    US$Dams and reservoirs
    
    
    114,084
    
    
    
    207,176Buildings
    
    
    60,180
    
    
    
    81,713Machinery
    
    
    66,184
    
    
    
    109,001Transportation equipment
    
    
    563
    
    
    
    951Electronic equipment and others
    
    
    370
    
    
    
    477Land use right
    
    
    31,372
    
    
    
    40,147Less: Accumulated depreciation
    
    
    (5,482
    )
    
    
    (17,881
    )267,271
    
    
    
    421,584Construction in progress
    
    
    97,919
    
    
    
    1,616Total
    
    
    365,190
    
    
    
    423,200
 Construction in progress as of December 31, 2008 and 2009 is as follows:
 Jiulongshan
    
    
    Liyuan
    
    
    Wuliting
    
    
    Binglangjiang
    
    
    TotalUS$
    
    
    US$
    
    
    US$
    
    
    US$
    
    
    US$Balance as of
December 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    222
    
    
    
    222Acquisition during
the year
    
    
    56,509
    
    
    
    
    
    
    
    3,831
    
    
    
    
    
    
    
    60,340Addition to
construction in
progress
    
    
    32,751
    
    
    
    
    
    
    
    818
    
    
    
    4,496
    
    
    
    38,065Transfer to
property, plant and
equipment
    
    
    
    
    
    
    
    
    
    
    (4,714
    )
    
    
    
    
    
    
    (4,714
    )Foreign currency
translation
adjustment
    
    
    3,740
    
    
    
    
    
    
    
    96
    
    
    
    170
    
    
    
    4,006Balance as of
December 31, 2008
    
    
    93,000
    
    
    
    
    
    
    
    31
    
    
    
    4,888
    
    
    
    97,919Acquisition during
the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Addition to
construction in
progress
    
    
    930
    
    
    
    1,615
    
    
    
    36
    
    
    
    7,632
    
    
    
    10,213Transfer to
property, plant and
equipment
    
    
    (93,974
    )
    
    
    
    
    
    
    (67
    )
    
    
    (12,522
    )
    
    
    (106,563
    )Foreign currency
translation
adjustment
    
    
    44
    
    
    
    1
    
    
    
    
    
    
    
    2
    
    
    
    47Balance as of
December 31, 2009
    
    
    
    
    
    
    1,616
    
    
    
    
    
    
    
    
    
    
    
    1,616
 Interest costs qualifying for capitalization in the years ended December 31, 2007,
2008 and 2009 were US$nil, US$3,467 and US$1,426, respectively.
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 
 7.
    
    PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
 Depreciation expenses for the years ended December 31, 2007, 2008 and 2009 were US$572,
US$4,755 and US$12,399, respectively. Accumulated depreciation as of December 31, 2008 and
2009 included foreign currency translation adjustment of US$155 and US$166, respectively.
Depreciation expenses have been reported in the following accounts:
 December 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2008
    
    
    2009US$
    
    
    US$
    
    
    US$Cost of revenues
    
    
    (561
    )
    
    
    (4,709
    )
    
    
    (12,261
    )General and
administrative
expenses
    
    
    (11
    )
    
    
    (46
    )
    
    
    (138
    )Total
    
    
    (572
    )
    
    
    (4,755
    )
    
    
    (12,399
    )
 8.
    
    INTANGIBLE ASSETS
 In connection with the acquisition of Binglangjiang in 2007, the Company acquired a legal
right to develop and operate Phase II of Binglangjiangs hydroelectric power project. The
development right allows the Company to expand the power generation capacity of
Binglangjiang by utilizing the existing water dam of Binglangjiang, which has a useful life
of 30 years. The Company recognized the fair value of US$2,909 of the development right as
a separate intangible asset apart from goodwill in accordance with ASC 805-10. The
estimated useful life of the development right is 30 years.
 In connection with the acquisition of Yuanping in 2008, the Company acquired a contractual
right to use water from the dam and reservoir of the Jinzaoqiao station, which has a useful
life of 40 years. The Company recognized the fair value of US$563 of the water use right as
a separate intangible asset apart from goodwill in accordance with ASC 805-10. The
estimated useful life of the water use right is 40 years.
 On August 12, 2009, Yuheng acquired a contractual right to use water from the dam and
reservoir of Wanquan Power Generation Co., Ltd. for a purchase price of US$1,025
(RMB7,000). The term of the water use right is 30 years.
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 8.
    
    INTANGIBLE ASSETS (CONTINUED)
 Intangible assets and their related accumulated amortization as of December 31, 2008 and
2009 are as follows:
 December 31, 2008ForeignGross
    
    
    
    
    
    
    Currency
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Translation
    
    
    CarryingValue
    
    
    Amortization
    
    
    Adjustment
    
    
    ValueDevelopment right of Binglangjiang
Phase II
    
    
    2,909
    
    
    
    (172
    )
    
    
    368
    
    
    
    3,105Water use right of Jinzaoqiao station
    
    
    563
    
    
    
    (2
    )
    
    
    
    
    
    
    561Total
    
    
    3,472
    
    
    
    (174
    )
    
    
    368
    
    
    
    3,666
 December 31, 2009ForeignGross
    
    
    
    
    
    
    Currency
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Translation
    
    
    CarryingValue
    
    
    Amortization
    
    
    Adjustment
    
    
    ValueDevelopment right of Binglangjiang
Phase II
    
    
    2,909
    
    
    
    (282
    )
    
    
    372
    
    
    
    2,999Water use right of Wanquan Power
Generation Co., Ltd.
    
    
    1,025
    
    
    
    (58
    )
    
    
    
    
    
    
    967Water use right of Jinzaoqiao station
    
    
    563
    
    
    
    (16
    )
    
    
    
    
    
    
    547Total
    
    
    4,497
    
    
    
    (356
    )
    
    
    372
    
    
    
    4,513
 Amortization expenses for the years ended December 31, 2007, 2008 and 2009 were US$66,
US$108 and US$182, respectively. Amortization expenses have been reported in the following
accounts:
 December 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2008
    
    
    2009US$
    
    
    US$
    
    
    US$Cost of revenues
    
    
    (
    )
    
    
    (2
    )
    
    
    (72
    )General and
administrative
expenses
    
    
    (66
    )
    
    
    (106
    )
    
    
    (110
    )Total
    
    
    (66
    )
    
    
    (108
    )
    
    
    (182
    )
 The estimated annual amortization expenses for each of the five succeeding fiscal years are
as follows:
 US$2010
    
    
    1602011
    
    
    1602012
    
    
    1602013
    
    
    1602014
    
    
    160
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 9.
    
    GOODWILL
 Goodwill of US$107,824 as of December 31, 2009 represents the excess of the purchase price
over the estimated fair value of the net tangible and identifiable intangible assets
acquired relating to the acquisition of Binglangjiang during 2007, the acquisitions of
Yingchuan, Wuliting, Yuheng, Wangkeng, Yuanping and Banzhu during 2008 and the acquisition
of Shapulong and Ruiyang during 2009 (Note 3), net of foreign currency translation
adjustment. Goodwill is not deductible for tax purposes. In accordance with ASC 350-10,
goodwill is not amortized but is tested for impairment at least annually.
 The changes in the carrying amount of goodwill for the years ended December 31, 2008 and
2009 are as follows:
 Yunnan
    
    
    Sichuan
    
    
    Fujian
    
    
    ZhejiangProvince
    
    
    Province
    
    
    Province
    
    
    Province
    
    
    TotalUS$
    
    
    US$
    
    
    US$
    
    
    US$
    
    
    US$Balance as of December 31, 2007
    
    
    2,773
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,773Goodwill acquired during the year
    
    
    
    
    
    
    
    
    
    
    65,007
    
    
    
    27,278
    
    
    
    92,285Subsequent realization of tax
benefit from acquired subsidiaries
    
    
    (86
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (86
    )Foreign currency translation
adjustment
    
    
    191
    
    
    
    
    
    
    
    (30
    )
    
    
    1,400
    
    
    
    1,561Balance as of December 31, 2008
    
    
    2,878
    
    
    
    
    
    
    
    64,977
    
    
    
    28,678
    
    
    
    96,533Goodwill acquired during the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,232
    
    
    
    11,232Adjustments during allocation period
    
    
    
    
    
    
    
    
    
    
    (36
    )
    
    
    
    
    
    
    (36
    )Foreign currency translation
adjustment
    
    
    3
    
    
    
    
    
    
    
    60
    
    
    
    32
    
    
    
    95Balance as of December 31, 2009
    
    
    2,881
    
    
    
    
    
    
    
    65,001
    
    
    
    39,942
    
    
    
    107,824
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 9.
    
    GOODWILL (CONTINUED)
 On January 30, 2009, Sanming Ruifeng, one of the original shareholders of Banzhu, agreed to
forego RMB7,000 (US$1,024) of the current assets that Sanming Ruifeng is entitled to
receive from the Company as part of the acquisition of 90% equity interest in Banzhu in
October 2008. On June 18, 2009, the Company settled all outstanding balances associated
with the acquisition of Banzhu and incurred additional restructuring costs related to
involuntary employee termination and other liabilities of US$295 and US$141, respectively.
On August 17, 2009, upon obtaining the approved unit price of RMB0.29 per kWh (inclusive of
VAT) from the regional pricing bureau in the Fujian Province for electricity transmitted by
Yuanping to the provincial power grid prior to July 8, 2009, the Company determined that
US$648 is payable to the original shareholders of Yuanping for electricity sold by Yuanping
prior to its acquisition by the Company in October 2008 pursuant to an agreement entered
into between the Company and the original shareholders. In October, 2009, the Company
settled all outstanding balances associated with the acquisition of Yuanping and Wangkeng
with their original shareholders in accordance with the equity transfer purchase agreement
and determined that an additional US$214 is receivable from and an additional US$118 is
payable to the original shareholders of Yuanping and Wangkeng, respectively. As a result,
the Company recorded a net decrease in goodwill of US$36 during the year ended December 31,
2009.
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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 10.
    
    ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
 Accrued expenses and other current liabilities consist of the following:
 December
    
    
    December31, 2008
    
    
    31, 2009US$
    
    
    US$Accrued payroll expenses
    
    
    1,784
    
    
    
    2,297Retainage due to contractors
    
    
    4,371
    
    
    
    2,408Purchase consideration payable
    
    
    4,143
    
    
    
    2,701Employee termination costs
    
    
    4,387
    
    
    
    Guarantee deposits from original shareholders of
acquired subsidiaries
    
    
    4,806
    
    
    
    4,316Taxes payable
    
    
    1,092
    
    
    
    1,844Guarantee liabilities
    
    
    42
    
    
    
    Amounts due to original shareholders of acquired
subsidiaries
    
    
    5,622
    
    
    
    881Customer deposits
    
    
    56
    
    
    
    Unrecognized tax benefits (Note 11)
    
    
    1,362
    
    
    
    2,329Accrued water resource fee
    
    
    323
    
    
    
    823Current portion of unfavorable contract obligation
(Note 14)
    
    
    846
    
    
    
    579Other liabilities
    
    
    3,590
    
    
    
    4,526Total
    
    
    32,424
    
    
    
    22,704
 Retainage due to contractors represents the portion of the payment due to contractors that
is withheld until final inspection and acceptance of the construction projects.
 Purchase consideration payable as of December 31, 2009 represents the US$2,684 and US$17
outstanding unpaid portion of the purchase consideration for the acquisitions of Wuliting
and Ruiyang, respectively.
 Guarantee deposits from original shareholders of acquired subsidiaries as of December 31,
2009 represent security deposits received by the Company from original shareholders of
Wuliting, Yingchuan and Wangkeng which will be returned by the Company within ten days when
the original shareholders of the acquired subsidiaries furnish the Company with final
documentation relating to the acquired hydroelectric power projects and dams and
reservoirs. Pursuant to the equity transfer purchase agreements of Wuliting, Yingchuan and
Wangkeng, the original shareholders are required to provide such documentation within one
year from the respective date of acquisition. The final documentation has not been
provided as of December 31, 2009 and the Company will retain the guarantee deposit until
receipt of such documentation.
 Employee termination costs as of December 31, 2008 represent involuntary employee
termination benefits assumed by the Company as part of the Banzhu acquisition. The
liability was included in the allocation of the acquisition cost of Banzhu. The liability
was settled in full during the year ended December 31, 2009.
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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 10.
    
    ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (CONTINUED)
 Amounts due to original shareholders of acquired subsidiaries as of December 31, 2009
represent amounts payable to the original shareholders of Wangkeng and Banzhu for their
entitlement to the net working capital surplus of Wangkeng and to the current assets of
Banzhu immediately prior to the consummation of the acquisitions in accordance with the
supplemental equity transfer purchase agreements. The Company paid US$4,726 to the original
shareholders of Banzhu during the year ended December 31, 2009.
 11.
    
    INCOME TAX EXPENSE
 Cayman Islands
 Under the current laws of the Cayman Islands, the Company is not subject to tax on income
or capital gain. In addition, upon payments of dividends by the Company to its
shareholders, no Cayman Islands withholding tax will be imposed.PRC
 Pursuant to the PRC Enterprise Income Tax Laws and relevant regulations that were
applicable before January 1, 2008, the Companys subsidiaries are generally subject to
enterprise income taxes (EIT) at a statutory rate of 33%, which comprises 30% national
income tax and 3% local income tax with the exception of two of the Companys subsidiaries,
namely Binglangjiang and Liyuan. Binglangjiang and Liyuan are wholly-owned foreign
enterprises (WOFEs) located in the Western Development area and are subject to a
preferential tax rate. Binglangjiang is entitled to a lower tax rate of 15% as its
corporate income tax rate from 2007 to 2010 while Liyuan is entitled to tax exemption in
years 2007 and 2008 and a tax rate of 7.5% from 2009 to 2010.
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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 11.
    
    INCOME TAX EXPENSE (CONTINUED)
 During the 5th section of the 10th National Peoples Congress, which was conducted on March
16, 2007, the PRC Corporate Income Tax Law (the New CIT Law) was approved and has become
effective on January 1, 2008. On November 28, 2007, the regulation on the implementation of
the New CIT Law was approved at the 197th Executive Meeting of the States Council. The New
CIT Law and the Implementation regulation introduce a wide range of changes which include,
but are not limited to the unification of the income tax law for domestic-invested and
foreign invested enterprise at 25%. The New CIT Law provided a transition period for
enterprises, whether foreign-invested or domestic, that received certain preferential tax
treatments granted by relevant tax authorities. Under the transition rule, an enterprise
subject to an enterprise income tax rate lower than 25% prior to January 1, 2008 is eligible
to continue enjoying the lower rate and gradually transition to 25% within five years after
the effective date of the New CIT Law. Accordingly, Binglangjiang and Liyuan will continue to
be subject to a lower tax rate until 2010 as grandfathered by the New CIT law. All of the
Companys remaining subsidiaries located in the PRC are subject to the statutory tax rate of
25% beginning in 2008. Banzhu is entitled to tax exemption in 2008 and 2009 and a tax rate of
12.5% from 2010 to 2012 based on the tax preferential treatment granted by the PRC government
on May 15, 2009.
 Moreover, the New EIT Law treats enterprises established outside of China with effective
management and control located in China as PRC resident enterprises for tax purposes. The
term effective management and control is generally defined as exercising overall management
and control over the business, personnel, accounting, properties, etc. of and enterprise. The
Company, if considered a PRC resident enterprise for tax purposes, would be subject to the
PRC Enterprise Income at the rate of 25% on its worldwide income for the period after January
1, 2008. As of December 31, 2009, the Company has not accrued for PRC tax on such basis. The
Company will continue to monitor its tax status.
 The Group had minimal operations in jurisdictions other than the PRC.
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 11.
    
    INCOME TAX EXPENSE (CONTINUED)
 (Loss) income before income taxes consists of:
 For the Year
    
    
    For the Year
    
    
    For the YearEnded December 31,
    
    
    Ended December 31,
    
    
    Ended December 31,2007
    
    
    2008
    
    
    2009US$
    
    
    US$
    
    
    US$Cayman Islands
    
    
    (3,873
    )
    
    
    (4,353
    )
    
    
    (18,648
    )PRC
    
    
    (670
    )
    
    
    769
    
    
    
    712(4,543
    )
    
    
    (3,584
    )
    
    
    (17,936
    )
 Income tax expenses consist of:
 For the Year
    
    
    For the Year
    
    
    For the YearEnded December 31,
    
    
    Ended December 31,
    
    
    Ended December 31,2007
    
    
    2008
    
    
    2009US$
    
    
    US$
    
    
    US$Current income tax
expenses
    
    
    17
    
    
    
    398
    
    
    
    697Deferred income tax
expenses
    
    
    
    
    
    
    46
    
    
    
    795Income tax expenses
    
    
    17
    
    
    
    444
    
    
    
    1,492
 A reconciliation of the effective income tax provisions to the amount computed by
applying the statutory tax rate to (loss) income before income taxes in the consolidated
statements of operations is as follows:
 For the Year
    
    
    For the Year
    
    
    For the YearEnded December 31,
    
    
    Ended December 31,
    
    
    Ended December 31,2007
    
    
    2008
    
    
    2009US$
    
    
    US$
    
    
    US$Taxation at PRC EIT statutory rate
(33% for the year ended December
31, 2007 and 25% for the years ended
December 31, 2008 and 2009)
    
    
    (1,499
    )
    
    
    (896
    )
    
    
    (4,483
    )Impact of tax rate differences
    
    
    1,278
    
    
    
    1,089
    
    
    
    4,663Impact from statutory tax rate change
    
    
    184
    
    
    
    
    
    
    
    Effect of tax holidays in the PRC
    
    
    21
    
    
    
    (286
    )
    
    
    336Deemed interest income
    
    
    
    
    
    
    103
    
    
    
    510Non-deductible expenses
    
    
    10
    
    
    
    95
    
    
    
    211Change in valuation allowance
    
    
    23
    
    
    
    339
    
    
    
    255Income tax provision
    
    
    17
    
    
    
    444
    
    
    
    1,492Effective Tax Rate (%)
    
    
    (0.4%
    )
    
    
    (12.4%
    )
    
    
    (8.3%
    )
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 11.
    
    INCOME TAX EXPENSE (CONTINUED)
 In accordance with the provision of ASC 740-10, the Group recognizes in its financial
statements the impact of a tax position if a tax return position or future tax position is
more likely than not to prevail, which is defined as a likelihood of more than fifty percent
of being sustained upon audit, based on the technical merits of the tax position. Tax
positions that meet the more likely than not threshold are measured at the largest amount of
tax benefit that has a greater than fifty percent likelihood of being realized upon settlement
using a probability weighted approach. The Group has adopted an income tax return preparation
method principally based on tax invoices issued and received. In accordance with current PRC
income tax laws and regulations, an income tax return should be prepared based on accounting
income after adjusting for certain tax adjustments. As of December 31, 2009, in accordance
with ASC 740-10, the Group has recognized additional income tax provisions of US$1,430 for
unrecognized tax benefits which represent the estimated income tax expense the Group would pay
for the year ended December 31, 2009. The Group also recognized a decrease of unrecognized tax
benefits of US$246 related primarily to the reversal of income tax expense of Banzhu due to a
preferential tax rate granted in 2009, with retroactive effect to 2008 and US$220 related to
the settlement with the tax authority of Yinchuan, Ruiyang, and Wangkeng in 2009. The Company
has US$1,362 cumulative unrecognized tax benefits as of January 1, 2009.
 A reconciliation of accrued unrecognized tax benefits is as follows:
 US$Balance as of January 1, 2009
    
    
    1,362Increase for tax position taken in the current year
    
    
    95Increase for tax positions of prior years
    
    
    1,335Decrease for tax positions of prior years
    
    
    (466
    )Foreign currency translation
    
    
    3Balance as of December 31, 2009
    
    
    2,329
 As of December 31, 2009, the Group has recognized a provision of US$2,329 of unrecognized tax
benefits that, if recognized, would impact the effective tax rate. However, based on the
Groups current valuation allowance position, US$1,175 of the unrecognized tax benefit, if
recognized, would not impact the effective tax rate.
 It is possible that the amount of unrecognized tax benefits will change in the next 12 months,
pending factors such as changes in PRC tax law or administrative practices and precedents, or
tax authority inquiries. An estimate of the change cannot be made at this time.
 The Group recognizes interest accrued related to unrecognized tax benefits in interest
expenses. During the year ended December 31, 2009, the Group recognized US$183 in interest
expense.
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 12.
    
    DEFERRED TAX ASSETS / DEFERRED TAX LIABILITIESDeferred tax assets and deferred tax liabilities reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of deferred tax
assets and deferred tax liabilities are as follows:
 December 31,
    
    
    December 31,2008
    
    
    2009US$
    
    
    US$Deferred tax assets  currentAllowance for uncollectible other receivables
    
    
    7
    
    
    
    7Accrued water resource fee
    
    
    131
    
    
    
    254Guarantee deposit
    
    
    51
    
    
    
    96Accrued maintenance fund
    
    
    
    
    
    
    19Disposal of fixed assets
    
    
    
    
    
    
    10Other payable
    
    
    1,097
    
    
    
    377Total deferred tax assets  current
    
    
    1,286
    
    
    
    763Deferred tax liabilities  currentUnfavorable contract obligation  electricity
supply contract
    
    
    (95
    )
    
    
    (132
    )Total deferred tax liabilities  current
    
    
    (95
    )
    
    
    (132
    )Valuation allowance
    
    
    (25
    )
    
    
    (142
    )Net deferred tax assets  current
    
    
    1,166
    
    
    
    489Deferred tax assets  non-currentNet operating loss carry-forwards
    
    
    670
    
    
    
    1,154Investment tax credit carry-forwards
    
    
    470
    
    
    
    470Depreciation of property, plant and equipment
    
    
    1,339
    
    
    
    1,280Pre-operation expenses
    
    
    49
    
    
    
    26Guarantee deposit
    
    
    34
    
    
    
    Unfavorable contract obligation  water use right
    
    
    9
    
    
    
    426Government grant
    
    
    26
    
    
    
    26Other
    
    
    16
    
    
    
    1Total deferred tax assets  non-current
    
    
    2,613
    
    
    
    3,383Deferred tax liabilities  non-currentFair value step-up of property, plant and equipment
    
    
    (13,359
    )
    
    
    (18,836
    )Unfavorable contract obligation  electricity
supply contract
    
    
    (136
    )
    
    
    8Amortization of acquired intangible assets
    
    
    (755
    )
    
    
    (737
    )Total deferred tax liabilities  non-current
    
    
    (14,250
    )
    
    
    (19,565
    )Valuation allowance
    
    
    (1,778
    )
    
    
    (2,623
    )Net deferred tax liabilities  non-current
    
    
    (13,415
    )
    
    
    (18,805
    )
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 12.
    
    DEFERRED TAX ASSETS / DEFERRED TAX LIABILITIES (CONTINUED)
 Deferred tax assets of US$1,126 and deferred tax liabilities of US$12,253, were recognized as
a result of the acquisition of Yingchuan, Wuliting, Jiulongshan, Banzhu, Wangkeng, Yuheng and
Yuanping during the year ended December 31, 2008. The Group recognized a full valuation
allowance of US$420 and US$425 on the deferred tax asset of Wuliting and Yuanping at the
acquisition date as it is more likely than not that the benefit in future earnings will not
be realized. Deferred tax assets of US$847 and deferred tax liabilities of US$5,053 were
recognized as a result of the acquisition of Shapulong, Yuanping, and Ruiyang during the year
ended December 31, 2009. The group recognized a full valuation allowance of US$187,
US$83,and US$434 on the deferred tax asset of Shapulong, Ruiyang and Yuanping at the
acquisition date as it is more likely than not that the benefit in the future earning will
not be realized. The Group records a valuation allowance on its deferred tax assets that is
sufficient to reduce the deferred tax assets to an amount that is more likely than not to be
realized. Future reversal of the valuation allowance will be recognized either when the
benefit is realized or when it has been determined that it is more likely than not that the
benefit in future earnings will be realized. The Group recognized a change in valuation
allowance of US$23, US$339 and US$255 during the years ended December 31, 2007, 2008 and
2009, respectively. A foreign currency translation adjustment of US$52 and US$3 on deferred
tax asset and the related valuation allowance was recognized in accumulated other
comprehensive income as of December 31, 2008 and 2009, respectively.
 Net operating loss carry-forwards of US$2,873 as of December 31, 2009 will expire in years
2012 to 2014. Investment tax credit carry-forwards of US$470 as of December 31, 2009 will
expire in year 2011.
 Deferred tax liabilities have not been provided on undistributed earnings of the Companys
foreign subsidiaries during 2009, as the Company intends to indefinitely reinvest such
earnings into its foreign subsidiaries. The parent company currently has no need to use the
cash.
 The benefit of tax holiday on basic and diluted loss per share is as follows:
 For the Year Ended
    
    
    For the Year EndedDecember 31, 2008
    
    
    December 31, 2009US$
    
    
    US$Basic and diluted
    
    
    0.02
    
    
    
    0.02
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 13.
    
    BORROWINGS
 Total borrowings as of December 31, 2008 and 2009 consist of:
 December 31, 2008
    
    
    December 31, 2009US$
    
    
    US$Short-term:Secured
    
    
    5,560
    
    
    
    4,394Unsecured
    
    
    3,221
    
    
    
    2,704Long-term:Current portion, secured
    
    
    29,037
    
    
    
    56,809Non-current, secured
    
    
    138,133
    
    
    
    172,469Total borrowings
    
    
    175,951
    
    
    
    236,376
 The short-term loans outstanding as of December 31, 2009 related to RMB denominated loans of
US$2,116, US$588, and US$4,394 of Yuheng, Yuanping and Jiulongshan, respectively. The
short-term loan of Yuheng was obtained from the original shareholders and is unsecured,
interest-free and has no fixed term of repayment. The short-term loan of Yuanping was obtained
from Fujian Dachuang Hydroelectric Group, Ltd. (Dachuang Group), the original entrusted
management of Yuanping, and is unsecured, interest-free and has no fixed term of repayment.
The short-term loan of Jiulongshan was obtained from Agricultural Bank of China with an annual
interest of 5.84% and is due in June 2010. The short-term loan is secured by the pledge of
future electricity sales of Jiulongshan and the pledge of property, plant and equipment of
Jiulongshan and Zhougongyuan of US$92,520.
 The long-term loans outstanding as of December 31, 2009 of US$229,278 related to RMB
denominated bank loans obtained by Binglangjiang, Yingchuan, Wuliting, Jiulongshan, Yuheng,
Wangkeng, Yuanping , Banzhu and Ruiyang from financial institutions. As of December 31, 2009,
Wuliting and Yingchuan were in violation of certain debt covenant provisions relating to the
use of funds. As a result, the banks have the right to call the entire outstanding loan
balances at any time. Accordingly, the Company recorded loan balances of Wuliting and
Yingchuan in the amount of US$29,671 and US$2,929, respectively, as current portion of
long-term loans in the consolidated balance sheets as of December 31, 2009.
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 13.
    
    BORROWINGS (CONTINUED)
 The interest rates on these long-term loans are variable based on the market rate published by
the Peoples Bank of China each year. The interest rates on these long-term loans are variable
based on the market rate published by the Peoples Bank of China each year. The average
interest rate on the long-term loans for the year ended December 31, 2009 was 6.16%. The
long-term loans are due from 2010 to 2020 and are secured by the following:
 (a)
    
    Corporate guarantee by third parties
 Long-term loans amounted to US$24,750 as of December 31, 2009 were guaranteed by the following
third parties:
 December 31, 2009US$Guaranteed byGuangsha Construction Group Co., Ltd.
    
    
    13,181Sanming Ruifeng Hydropower Investment Co., Ltd.
    
    
    Fujian Province Anheng Assets Management Co., Ltd. and
Fujian Yuneng Power Group Ltd.
    
    
    8,494Dachuang Group and original shareholders of Yuanping
    
    
    1,757Huang Shaojian (original shareholder of Wangkeng)
    
    
    Pingnan County Minfeng Electric Power Co., Ltd.
    
    
    1,31824,750
 (b)
    
    Pledge of property, plant and equipment
 As of December 31, 2009, certain long-term loans were secured by the pledge of property,
plant and equipment of US$385,665 of Binglangjiang, Yingchuan, Wuliting, Yuheng, Wangkeng,
Yuanping, Banzhu, Ruiyang, Jiulongshan and Zhougongyuan.(c)
    
    Pledge of proceeds from future electricity salesLong-term loans amounted to US$76,008 as of December 31, 2009 were
secured by the proceeds from future electricity sales of Yuanping,
Wangkeng and Banzhu.Maturities of long-term loans for the five years succeeding December 31, 2009 are as follows:
 US$2010
    
    
    56,8092011
    
    
    24,6622012
    
    
    23,6082013
    
    
    24,9552014
    
    
    25,922Thereafter
    
    
    73,322229,278
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 14.
    
    OTHER NON-CURRENT LIABILITIES
 Other non-current liabilities as of December 31, 2009 represent deferred government grant of
US$104 relating to Banzhu.
 The government grant is recognized as income over the periods necessary to match it on a
systematic basis with the related costs which it is intended to compensate. From the
acquisition date to December 31, 2008, US$11 has been recognized as a reduction to cost of
revenues. During the year ended December 31, 2009, US$nil has been recognized.
 An unfavorable contract obligation was assumed by the Company as part of the Yuheng
acquisition on October 22, 2008. The unfavorable contract obligation arose from an
electricity supply contract amongst Yuheng, Rongping Chemical and the power grid from 2007 in
which the contractual rate at which Yuheng would sell its electricity output is not at market.
Pursuant to the electricity supply agreement, a price of RMB0.181 per kWh (inclusive of VAT),
which was not an approved price then, has been set for the supply of an agreed volume of 300
million kWh of electricity from Yuheng to the power grid which in turn transmits such
electricity to Rongping Chemical for a contractual term of 3.5 years. An approved price of
RMB0.29 per kWh (inclusive of VAT) has been subsequently approved by the provincial pricing
bureau for Yuhengs electricity supply starting from October 28, 2008. Pursuant to the
electricity supply agreement, Yuheng is only entitled to RMB0.181 per kWh (inclusive of VAT)
of the RMB0.29 per kWh revenue received from the power grid and is obligated to remit the
portion of revenue above RMB0.181 per kWh, or RMB0.109 per kWh, to Rongping Chemical for
electricity volume transmitted under the supply agreement. The unfavorable contract obligation
is amortized and recognized as revenue over the remaining contractual period based on the
actual supply volume. For electricity transmitted from Yuheng to Rongping Chemical through
the power grid, the Company recognized revenue based on the contractual price of RMB0.181 per
kWh, net of VAT, and a deemed revenue of RMB0.065 per kWh from the amortization of the
unfavorable contract obligation until the earlier of reaching the cumulative volume of 300
million kWh or October 2010. The Company recognized revenue based on the approved price of
RMB0.29 per kWh, net of VAT, and did not recognize any deemed revenue from the amortization of
the unfavorable contract obligation from the acquisition date to December 31, 2008 as the
power grid did not transmit any electricity to Rongping Chemical during that period. During
the year ended December 31, 2009, US$734 has been recognized as deemed revenue. As of December
31, 2009, the remaining unfavorable contract obligations balance is included in Accrued
expenses and other current liabilities in the consolidated balance sheets as the arrangement
will expire in October 2010.
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 15.
    
    LONG-TERM NOTES
 On November 10, 2006, the Company issued secured convertible notes (the Notes) to Vicis
Capital Master Fund (Vicis), JMG Capital Partners, L.P. and JMG Triton Offshore Fund,
Limited (JMG), (collectively, the Holders), for an aggregate principal amount of
US$50,000. The Notes had a maturity date of May 10, 2008. On April 11, 2007, all of the
Holders approved the consummation of a business combination by the Company. Vicis elected to
convert its US$41,000 Notes and received 6,833,333 ordinary shares and 18,666,666 warrants
each to purchase one ordinary share at US$5.00 per share (Note 17). JMG elected not to convert
its US$9,000 Notes and received 666,666 warrants each to purchase one ordinary share at
US$5.00 per share (Note 17). The Company classified the remaining US$9,000 Notes as long-term
notes in the balance sheet.
 On February 8, 2008, the Company paid JMG US$10,012 cash to fully redeem the principal amount
of the US$9,000 Notes and to settle accrued and unpaid interest of US$174 and a contingent
payment of US$838. The unamortized debt issuance costs of US$33 and unamortized discount of
US$98 were immediately recognized as interest expense in the consolidated statements of
operations upon redemption of the US$9,000 Notes. The changes in fair value of the bifurcated
embedded derivative liability relating to the US$9,000 Notes were recognized in the
consolidated statements of operations until the US$9,000 Notes were redeemed by the Company. A
gain of US$61 resulted from the change in fair value of the derivative liabilities was
recognized in the statements of operations for the year ended December 31, 2008.
 16.
    
    CONVERTIBLE REDEEMABLE PREFERRED SHARES
 On January 23, 2008, the Company issued 150,025 Series A convertible redeemable preferred
shares (Series A Preferred Shares) for an aggregate purchase price of US$150,025 or US$1,000
per share.
 On July 24, 2008, the Company issued the first batch of 101,000 Series B convertible
redeemable preferred shares (Series B Preferred Shares) for an aggregate purchase price of
US$101,000 or US$1,000 per share. On August 15, 2008, the Company issued the second batch of
28,000 Series B Preferred Shares for an aggregate purchase price of US$28,000, or US$1,000 per
share.
 On October 27, 2009, the Company issued 20,000 Series C convertible redeemable preferred
shares (Series C Preferred Shares) for an aggregate purchase price of US$20,000 or US$1,000
per share.
 The Company intends to use the proceeds of the Series A, Series B and Series C Preferred
Shares to fund the Companys future acquisition of hydroelectric power generating assets and
expansion of the Companys existing hydroelectric power projects in the PRC, to repay all the
amounts due and for the Companys working capital purposes. The significant terms of the
Series A, Series B and Series C Preferred Shares are summarized below.
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 16.
    
    CONVERTIBLE REDEEMABLE PREFERRED SHARES (CONTINUED)
 Dividends
 Pursuant to the Series A, Series B and Series C Preferred Shares agreements, the holders of
the Series A, Series B and Series C Preferred Shares are entitled to receive cash dividends on
each share at the rate of 10% per annum of the issuance price when and if declared by the
board of directors of the Company. To the extent dividends are not paid in cash, dividends
shall be paid in kind by the Company by issuing to each holder additional Series A, Series B
and Series C Preferred Shares. Dividends shall accrue at 10% per annum and accumulate
quarterly on the fifteenth of March, June, September and December.
 If a qualified public offering, as defined in the Series A, Series B and Series C Preferred
Shares agreements, has not occurred on or before April 28, 2009, September 30, 2009 and
December 31, 2010, respectively, the dividend rate shall increase by 1% per annum and shall
further increase by 1% per annum as of each subsequent dividend accrual date, provided that
under no circumstances the dividend rate exceeds 15% per annum.
 Ranking
 Pursuant to the Series A Preferred Shares agreement, the Series A Preferred Shares rank, as to
dividends and upon liquidation, senior and prior to the ordinary shares and to all other
classes or series of shares issued by the Company.
 Upon issuance of the first batch of the Series B Preferred Shares in July 2008, pursuant to
the Series B Preferred Shares agreement, the ranking of Series A Preferred Shares to dividends
and upon liquidation was modified such that Series A Preferred Shares rank senior and prior to
the ordinary shares and to all other classes or series of shares issued by the Company but
shall rank the same as Series B Preferred Shares.
 Upon issuance of the Series C Preferred Shares in October 2009, the ranking of Series A and
Series B Preferred Shares to dividends and upon liquidation was modified such that the Series
A and Series B Preferred Shares shall rank senior and prior to the ordinary shares and to all
other classes or series of shares issued by the Company but shall rank the same as Series C
preferred Shares.
 Voting Rights
 Each holder of the Series A, Series B and Series C Preferred Shares is entitled to the number
of votes equal to the number of shares of ordinary shares into which such holders Series A,
Series B and Series C Preferred Shares could be converted and having voting rights and powers
equal to the voting rights and powers of the ordinary shares.
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 16.
    
    CONVERTIBLE REDEEMABLE PREFERRED SHARES (CONTINUED)
 Liquidation preference
 In the event of any liquidation, dissolution or winding up of the Company or any deemed
liquidation event as defined in the Series A, Series B and Series C Preferred Shares
agreements, each holder of Series A, Series B and Series C Shares is entitled to receive,
prior to and in preference to holders of ordinary shares, an amount equal to the original
issuance price plus any declared and unpaid dividends. If at the time of any liquidation
event, the liquidation proceeds are greater than the entire assets and funds of the Company
legally available for distribution amongst the holders of Series A and Series B Preferred
Shares and holders of ordinary shares, the assets and funds of the Company shall be
distributed ratably amongst the holders of Series A, Series B and Series C Preferred Shares
first. After distribution in full to the holders of Series A, Series B and Series C Preferred
Shares, the remaining assets and funds of the Company available for distribution shall be
distributed ratably amongst the holders of ordinary shares.
 Conversion rights
 The holders of the Series A, Series B and Series C Preferred Shares shall have conversion
rights as follows:
 Each Series A, Series B and Series C Preferred Share plus any declared but unpaid
dividends shall be convertible at the option of the holder, at any time after the date of
issuance of such share, into ordinary shares as determined by dividing the par value plus
any accrued dividends by the lesser of (i) the applicable conversion price and (ii) in
the event of a qualified public offering, the issue price per ordinary share multiplied
by an applicable percentage. For Series A Preferred Shares, the applicable percentage is
70% if the qualified public offering is consummated before April 28, 2009, 60% if the
qualified public offering is consummated after April 28, 2009 and before January 28,
2010, and 50% if the qualified public offering is consummated after January 28, 2010. For
Series B Preferred Shares, the applicable percentage is 70% if the qualified public
offering is consummated before December 31, 2009, 60% if the qualified public offering is
consummated after December 31, 2009 and before June 30, 2010, and 50% if the qualified
public offering is consummated after June 30, 2010. For Series C Preferred Shares, the
applicable percentage is 70% if the qualified public offering is consummated on or before
December 31, 2010, 60% if the qualified public offering is consummated after December 31,
2010 and on or before September 30, 2011, and 50% if the qualified public offering is
consummated after September 30, 2011. The initial conversion price of the Series A and
Series B Preferred Shares is US$7.00 and the initial conversion price of the Series C
Preferred Shares is US$8.00.All of the Series A, Series B and Series C Preferred Shares shall automatically be
converted into ordinary shares at the then-effective conversion price upon the closing of
a qualified public offering, as defined in the Series A, Series B and Series C Preferred
Shares agreements.
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 16.
    
    CONVERTIBLE REDEEMABLE PREFERRED SHARES (CONTINUED)RedemptionPursuant to the Series A, Series B and Series C Preferred Shares agreements, Series A, Series
B and Series C Preferred Shares are subject to redemption as follows:
 If the Company fails to consummate certain specified acquisitions of hydroelectric
assets in the Zhejiang Province in order for the proceeds of the Series A Preferred
Shares to be released from an escrow account to the Company by March 30, 2008, the
Company is obligated to redeem all of the Series A Preferred Shares at a redemption price
equal to the Series A Preferred Shares issue price plus any interest earned in the escrow
account.If a qualified public offering has not occurred prior to January 28, 2011, upon
written election by the holders of the Series A, Series B and Series C Preferred
Shares, the Company is obligated to redeem such holders Series A and Series B Preferred
Shares by paying a redemption price equal to the Series A and Series B Preferred Shares
issue price plus any accrued but unpaid dividends.If a qualified public offering has not occurred prior to January 28, 2013, the Company
may elect to redeem all of the Series A, Series B and Series C Preferred Shares at a
redemption price equal to the Series A, Series B and Series C Preferred Shares issue
price plus any accrued but unpaid dividends.Prior to the consummation of a change in control event, if requested by holders of a
majority of the Series A, Series B and Series C Preferred Shares and the Company has
sufficient legally available funds or assets to redeem in full all of the Series A,
Series B and Series C Preferred Shares, the Company is obligated to redeem all of the
Series A, Series B and Series C Preferred Shares at a redemption price equal to the
Series A, Series B and Series C Preferred Shares issue price plus any accrued but unpaid
dividends.
 Accounting for Series A, Series B and Series C Preferred SharesThe Series A, Series B and Series C Preferred Shares have been classified as mezzanine equity
as these preferred shares can be redeemed at the option of the holders on or after an agreed
upon date.The initial carrying amount of the Series A Preferred Shares is the issue price at the date of
issuance of US$150,025 net of issuance costs (including the Morgan Joseph Preferred Shares
Warrant (Note 17)) of US$10,569. The initial carrying amount of the Series B Preferred Shares
is the issue price at the date of issuance of US$129,000 net of issuance costs of US$4,134.
The initial carrying amount of the Series C Preferred Shares is the issue price at the date of
issuance of US$20,000 net of issuance costs of US$1,872.
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements

 (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 16.
    
    CONVERTIBLE REDEEMABLE PREFERRED SHARES

(CONTINUED)
 Accounting for Series A, Series B and Series C Preferred Shares (Continued)
 The holders of Series A, Series B and Series C Preferred Shares have the ability to convert
the instrument into the Companys ordinary shares. The Company evaluated the embedded
conversion option in the Series A, Series B and Series C Preferred Shares to determine if
there were any embedded derivatives requiring bifurcation and to determine if there were any
beneficial conversion features. The conversion option of the preferred shares does not qualify
for bifurcation accounting because the conversion option is clearly and closely related to the
host instrument and the underlying ordinary shares are not publicly traded nor readily
convertible into cash.
 Beneficial conversion features exist when the conversion price of the convertible redeemable
preferred shares is lower than the fair value of the ordinary shares at the commitment date.
When a beneficial conversion feature exists as of the commitment date, its intrinsic value is
bifurcated from the carrying value of the preferred shares as a contribution to additional
paid-in capital. The resulting discount to the convertible redeemable preferred shares is then
amortized as a deemed dividend through retained earnings from the date of issuance to the
earliest conversion date in the absence of a stated redemption date. The Company determined
the fair value of ordinary shares with the assistance of AA.
 On January 23, 2008, the most favorable conversion price used to measure the beneficial
conversion feature of the Series A Preferred Shares was US$7.00. No beneficial conversion
feature was recognized for the Series A Preferred Shares as the fair value per ordinary share
at the commitment date was US$2.56, which was less than the most favorable conversion price.
 On July 24 and August 15, 2008, the most favorable conversion price used to measure the
beneficial conversion feature of the Series B Preferred Shares was US$7.00 and no beneficial
conversion feature was recognized for the Series B Preferred Shares as the fair value per
ordinary share at both commitment dates was US$2.97, which was less than the most favorable
conversion price.
 On October 27, 2009, the most favorable conversion price used to measure the beneficial
conversion feature of the Series C Preferred Shares was US$8.00 and no beneficial conversion
feature was recognized for the Series C Preferred Shares as the fair value per ordinary share
at the commitment date was US$2.95, which was less than the most favorable conversion price.
 The Company concluded that the Series A, Series B and Series C Preferred Shares are not
redeemable currently, but it is probable that the Series A, Series B and Series C Preferred
Shares will become redeemable. The Company chose to recognize changes in the redemption value
immediately as they occur and adjust the carrying value of the Series A, Series B and Series C
Preferred Shares to equal the redemption value at the end of each reporting period. An
accretion charge of US$10,569 and US$4,134 related to
Series A and Series B Preferred Shares, respectively, was recorded as a reduction of income
available to ordinary shareholders for the year ended December 31, 2008. An accretion charge
of US$1,872 related to Series C Preferred Shares was recorded as a reduction of income
available to ordinary shareholders for the years ended December 31, 2009.
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 16.
    
    CONVERTIBLE REDEEMABLE PREFERRED SHARES (CONTINUED)
 As of December 31, 2008 and 2009, no cash dividends were declared by the Company on the Series
A, Series B and Series C Preferred Shares. A cumulative dividend of US$14,680 and US$5,531 for
Series A and Series B Preferred Shares, respectively, was accrued and recorded as a reduction
of income available to ordinary shareholders for the year ended December 31, 2008. A
cumulative dividend of US$19,836, US$14,412 and US$356 for Series A, Series B and Series C
Preferred Shares, respectively, was accrued and recorded as a reduction of income available to
ordinary shareholders for the year ended December 31, 2009.
 The carrying value of the Series A, Series B and Series C Preferred Shares as of December 31,
2008 and 2009 is as follows:
 Series A
    
    
    Series B
    
    
    Series C
    
    
    TotalUS$
    
    
    US$
    
    
    US$
    
    
    US$Balance as of December 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of preferred shares
    
    
    150,025
    
    
    
    129,000
    
    
    
    
    
    
    
    279,025Issuance costs (including
Morgan Joseph Preferred Shares
Warrant (Note 17) for Series A
Preferred Shares)
    
    
    (10,569
    )
    
    
    (4,134
    )
    
    
    
    
    
    
    (14,703
    )Changes in redemption value
    
    
    10,569
    
    
    
    4,134
    
    
    
    
    
    
    
    14,703Cumulative dividends
    
    
    14,680
    
    
    
    5,531
    
    
    
    
    
    
    
    20,211Balance as of December 31, 2008
    
    
    164,705
    
    
    
    134,531
    
    
    
    
    
    
    
    299,236Issuance of preferred shares
    
    
    
    
    
    
    
    
    
    
    20,000
    
    
    
    20,000Issuance costs
    
    
    
    
    
    
    
    
    
    
    (1,872
    )
    
    
    (1,872
    )Changes in redemption value
    
    
    
    
    
    
    
    
    
    
    1,872
    
    
    
    1,872Cumulative dividends
    
    
    19,836
    
    
    
    14,412
    
    
    
    356
    
    
    
    34,604Balance as of December 31, 2009
    
    
    184,541
    
    
    
    148,943
    
    
    
    20,356
    
    
    
    353,840
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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 17.
    
    WARRANTS
 On November 10, 2006, the Founding Shareholders of the Company purchased 375,000 units of
securities issued by the Company through China Hydro LLC, a limited liability company formed
under the laws of the State of Delaware which holds the equity interest in the Company for the
founding shareholders. Each unit consists of one ordinary share and two warrants each to
purchase one ordinary share of the Company at US$5.00 per share (Founders Warrants). The
exercise period of the Founders Warrants commences on the date of issuance and expires on the
earlier of November 10, 2011 or the redemption of the warrants by the Company. The Founders
Warrants can be redeemed at the option of the Company at any time during the exercise period
at US$0.001 per warrant, provided that the last independent bid price of the ordinary share
exceeds US$8.50 per share.
 On November 10, 2006, the Company also issued two warrants to Morgan Joseph, as part of the
payment for services rendered by Morgan Joseph on the issuance of the Notes (Note 15). One
warrant allows Morgan Joseph to purchase 550,000 units of securities (each unit consists of
one ordinary share and two warrants each to purchase one ordinary share of the Company at
US$5.00 per share) and the other warrant allows Morgan Joseph to purchase 283,333 units of
securities (each unit consists of one ordinary share and four warrants each to purchase one
ordinary share of the Company at US$5.00 per share) issued by the Company at US$6.60 per unit
(Morgan Joseph Warrants). The exercise period of the Morgan Joseph Warrants commences on
the date of issuance and expires on November 10, 2011. The Morgan Joseph Warrants provide for
a cashless exercise option.
 On April 11, 2007, all of the Holders of the Notes approved the consummation of a business
combination by the Company (Note 15). Vicis converted its US$41,000 Notes into 6,833,333
ordinary shares and 18,666,666 warrants each to purchase one ordinary share at US$5.00 per
share while JMG elected not to convert its US$9,000 Notes and received 666,666 warrants each
to purchase one ordinary share at US$5.00 per share. The warrants issued to Vicis and JMG
(collectively, the Holders Warrants) have terms identical to the Founders Warrants in that
the Company has an option to redeem at any time at US$0.001 per warrant, provided that the
last independent bid price of the ordinary share exceeds US$8.50 per share, and that the
exercise period commences on the date of issuance and expires on the earlier of November 10,
2011 or the redemption of the warrants by the Company.
 Under ASC sub-topic 815-40 (ASC 815-40), Derivatives and Hedging: Contracts in Entitys Own
Equity,if a contract could potentially be cash settled, and such settlement is not within the
control of the issuer, the derivative is accounted for as an asset or liability, and changes
in fair value are recognized in the consolidated statements of operations.
 Upon issuance of the Founders Warrants, Morgan Joseph Warrants and Holders Warrants and as
of December 31, 2008 and 2009, the Company evaluated ASC 815-40-25-7 to ASC 815-40-25-35 and
concluded that the warrants could only be physical settled or net-share settled but not
net-cash settled. Therefore, the Founders Warrants, Morgan Joseph Warrants and Holders
Warrants have been classified as equity since their respective issuance date. Fair value of
the Founders Warrants, Morgan Joseph Warrants and Holders Warrants at their
respective commitment date was determined to be minimal by management with the assistance of
AA.
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 17.
    
    WARRANTS (CONTINUED)
 The Founders Warrants, Morgan Joseph Warrants and Holders Warrants will continue to be
reported as equity until such time as the warrants are exercised, expire, or become
cash-settleable. In the event of a reclassification from equity to liability, the warrants
will be measured at a new fair value as of the reclassification date with the change from the
existing carrying value to the new fair value as an adjustment to shareholders equity.
 On January 28, 2008, the Company issued another warrant to Morgan Joseph, as part of the
payment for services rendered by Morgan Joseph on the issuance of the Series A Preferred
Shares (Note 16). The warrant allows Morgan Joseph to purchase (i) up to 15,000 Series A
Preferred Shares at US$1,100 per share prior to the closing of a qualified public offering or
(ii) up to such number of ordinary shares automatically converted into from 15,000 Series A
Preferred Shares upon the closing of a qualified public offering at 110% of the then-effective
conversion price per Series A Preferred Share (Morgan Joseph Preferred Shares Warrant). The
exercise period of the Morgan Joseph Preferred Shares Warrant commences on the date of
issuance and expires on January 28, 2013. The Morgan Joseph Preferred Shares Warrant provides
for a cashless exercise option.
 The Morgan Joseph Preferred Shares Warrant has been classified as a liability since the
issuance date under ASC sub-topic 480-10 (ASC 480-10), Distinguishing Liabilities from
Equity: Overall, as Morgan Joseph is entitled to a cashless exercise into Series A Preferred
Shares, which are contingently redeemable for cash. The fair value of the Morgan Joseph
Preferred Shares Warrant was US$899, US$540 and US$14,333 at the time of issuance and as of
December 31, 2008 and 2009, respectively. An income of US$359 and a loss of US$13,793 from
the change in fair market value of the Morgan Joseph Preferred Shares Warrant was recognized
in the statements of operations during the years ended December 31, 2008 and 2009
respectively. The fair value of the Morgan Joseph Preferred Shares Warrant was determined with
the assistance of AA.
 The fair values of the Founders Warrants, Morgan Joseph Warrants and Holders Warrants, which
are classified as equity, and the fair value of Morgan Joseph
 Preferred Shares Warrant, which is classified as a liability, were estimated at their
commitment date or December 31, 2009 using the following assumptions:
 Morgan
    
    
    
    
    
    Morgan JosephFounders
    
    Joseph
    
    Holders
    
    Preferred SharesWarrants
    
    Warrants
    
    Warrants
    
    WarrantNovember
    
    November
    
    November
    
    DecemberCommitment date/year-end date
    
    10, 2006
    
    10, 2006
    
    10, 2006
    
    31, 2009Average risk-free rate of return
    
    
    5.11
    %
    
    
    5.11
    %
    
    
    5.11
    %
    
    
    2.39
    %Expected term/life
    
    5 years
    
    5 years
    
    5 years
    
    3.08 yearVolatility rate
    
    
    33.70
    %
    
    
    33.70
    %
    
    
    33.70
    %
    
    
    66.00
    %Expected dividend yield
    

    

    
    
    
    Fair value of ordinary share
    
    0.11
    
0.11
    
0.11
    
    4.93Estimated forfeiture rate
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 17.
    
    WARRANTS (CONTINUED)
 The aggregate intrinsic value is calculated as the difference between the exercise price of
the underlying warrants and the fair value of the Companys ordinary or preferred shares as of
December 31, 2009, for those warrants that have an exercise price currently below the fair
value of the Companys ordinary or preferred shares. As of December 31, 2009, the Company has
warrants outstanding to purchase an aggregate of 23,149,997 ordinary shares and 15,000 Series
A Preferred Shares. None of these warrants has an exercise price below the fair value of the
Companys ordinary shares and Series A Preferred Shares, resulting in an aggregate intrinsic
value of US$nil.
 All warrants were vested as of the date they were issued. No warrants were forfeited,
cancelled or exercised for the years ended December 31, 2008 and 2009.
 18.
    
    SHARE CAPITAL
 The Companys authorized ordinary share capital was 130,000,000 shares at par value of
US$0.001 per share as of December 31, 2008 and 2009. On January 28, 2008, 166,667 ordinary
 shares of the Company issued at US$0.001 per share to China Hydro LLC were repurchased for a
total consideration of US$1.00. The repurchased shares were considered cancelled under Cayman
Islands law and the difference between the original issuance price and the repurchase price
was charged to accumulated deficit. There were 15,541,666 ordinary shares issued and
outstanding as of December 31, 2008 and 2009.
 The Companys authorized preferred shares capital was 5,000,000 and 6,000,000 shares at par
value of US$0.001 per share as of December 31, 2008 and 2009, respectively. There were 281,193
and 301,193 preferred shares issued and outstanding as of December 31, 2008 and 2009,
respectively.
 The Group has not paid or declared any dividends on ordinary shares to date. The payment of
dividends in the future will be contingent upon the Groups revenues and earnings, if any,
capital requirements and general financial condition subsequent to the completion of a
business combination. The payment of dividends will be subject to the discretion of the
Groups board of directors and subject to the requirements of Cayman Islands laws.
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 19.
    
    BASIC AND DILUTED LOSS PER SHARE
 Basic and diluted loss per share for the years ended December 31, 2007, 2008 and 2009 are
calculated as follows:
 For the year
    
    
    For the year
    
    
    For the yearEnded
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2008
    
    
    2009US$
    
    
    US$
    
    
    US$Numerator for basic loss per share:Loss attributable to ordinary shareholders
    
    
    (4,560
    )
    
    
    (38,901
    )
    
    
    (55,872
    )Cumulative dividends on Series A
convertible redeemable preferred shares
    
    
    
    
    
    
    
    
    
    
    Cumulative dividends on Series B
convertible redeemable preferred shares
    
    
    
    
    
    
    
    
    
    
    Cumulative dividends on Series C
convertible redeemable preferred shares
    
    
    
    
    
    
    
    
    
    
    Changes in redemption value of Series A
convertible redeemable preferred shares
    
    
    
    
    
    
    Changes in redemption value of Series B
convertible redeemable preferred shares
    
    
    
    
    
    
    Changes in redemption value of Series C
convertible redeemable preferred shares
    
    
    
    
    
    
    
    
    
    
    Numerator for diluted loss per share
    
    
    (4,560
    )
    
    
    (38,901
    )
    
    
    (55,872
    )Denominator:Weighted average number of ordinary
shares outstanding  basic
    
    
    13,817,466
    
    
    
    15,554,416
    
    
    
    15,541,666Dilutive effect of convertible securities:Warrants
    
    
    
    
    
    
    
    
    
    
    Convertible redeemable preferred shares
    
    
    
    
    
    
    
    
    
    
    Convertible notes
    
    
    
    
    
    
    
    
    
    
    Share options
    
    
    
    
    
    
    
    
    
    
    Weighted average number of ordinary
shares outstanding  diluted
    
    
    13,817,466
    
    
    
    15,554,416
    
    
    
    15,541,666Loss per share  basic and diluted
    
    
    (0.33
    )
    
    
    (2.50
    )
    
    
    (3.59
    )
 The Group had securities outstanding which could potentially dilute basic loss per share
in the future, but these securities were excluded from the computation of diluted loss per
share in the years ended December 31, 2007, 2008 and 2009, as their effects would have been
anti-dilutive. Such outstanding securities consist of convertible notes in 2007, warrants in
2007, 2008 and 2009, convertible redeemable preferred shares in 2008 and 2009 and share options
in 2009.
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 20.
    
    EMPLOYEE DEFINED CONTRIBUTION PLAN
 The Groups full time employees in the PRC participate in a government-mandated multi-employer
defined contribution plan pursuant to which certain medical care unemployment insurance,
employee housing fund and other welfare benefits are provided to employees. PRC labour
regulations require the Group to accrue for these benefits based on 35.0% to 44.1% of the
employees salaries, subject to a certain cap limit, depending on the location of employment.
The total contribution for such employee benefits, which was expensed as incurred, was US$22,
US$392 and US$605 for the years ended December 31, 2007, 2008 and 2009, respectively. The Group
has no additional legal obligation or liabilities for the benefits beyond the paid and accrued
amounts.
 21.
    
    INTEREST EXPENSES
 Interest expenses for the years ended December 31, 2007, 2008 and 2009 consist of:
 For the year
    
    
    For the year
    
    
    For the yearEnded
    
    
    Ended
    
    
    endedDecember 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2008
    
    
    2009US$
    
    
    US$
    
    
    US$Accrued interest on long-term bank loans
    
    
    693
    
    
    
    5,293
    
    
    
    13,013Accrued or paid interest on convertible notes
    
    
    1,456
    
    
    
    164
    
    
    
    Accrued interest on unrecognized tax
benefits (Note 11)
    
    
    
    
    
    
    99
    
    
    
    183Amortization of debt issuance costs
    
    
    293
    
    
    
    47
    
    
    
    23Accretion of guarantee fee payable
    
    
    
    
    
    
    105
    
    
    
    10Interest penalty to original shareholders of
an acquired subsidiary
    
    
    
    
    
    
    
    
    
    
    401Accrued interest on loans from unrelated
parties
    
    
    
    
    
    
    
    
    
    
    133Other charges from bank
    
    
    
    
    
    
    
    
    
    
    409Others
    
    
    
    
    
    
    
    
    
    
    56Amortization of discount on convertible notes
    
    
    833
    
    
    
    139
    
    
    
    3,275
    
    
    
    5,847
    
    
    
    14,228
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 22.
    
    COMMITMENTS AND CONTINGENCIES
 (a)
    
    Operating lease commitments
 The Group has entered into certain operating leasing arrangements relating to the lease of the
Groups office premises. Payments made under operating leases are expensed on a straight-line
basis over the term of the lease. Rental expenses under operating leases for the years ended
December 31, 2007, 2008 and 2009 were US$180, US$574 and US$691, respectively.
 Future minimum lease payments for non-cancellable operating leases as of December 31, 2009 are
as follows:
 US$2010
    
    
    4512011
    
    
    612012
    
    
    142013 and thereafter
    
    
    2Total
    
    
    528
 (b)
    
    Capital commitments
 Capital commitments as of December 31, 2009 were approximately US$157 (RMB1,072), representing
contracted but unpaid amounts for construction projects of Binglangjiang and Liyuan that are in
progress and for the purchase of property, plant and equipment of Yuheng.
 (c)
    
    Other commitments
 The Company committed to provide continuous financial support to its subsidiaries to ensure
that these entities will continue as a going concern.
 On October 22, 2009, the Group signed a capital increase agreement with Henan Lan Tian Group
Co., Ltd. to subscribe for 79% of the equity interest of Henan Wuyue Storage Power Generation
Co., Ltd. (Wuyue), which owns the right to develop a pumped storage hydroelectric power
project in the Henan Province, for RMB162,500 (US$23,798). The Group
paid RMB32,250 (US$4,771) subsequent to the year ended
December 31, 2009.
 There were no significant contingencies as of December 31, 2008 and 2009.
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China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 22.
    
    COMMITMENTS AND CONTINGENCIES (CONTINUED)
 (d)
    
    Loan guarantee commitments
 Pursuant to the equity transfer purchase agreements of Yingchuan, Wuliting and Jiulongshan
(collectively the Zhejiang Entities), Guangsha Construction Group Co., Ltd. (Guangsha), the
original shareholder of these acquired subsidiaries, continues to provide guarantee on the bank
loans of the Zhejiang Entities subsequent to the acquisition by the Company. The outstanding
loan balances guaranteed by Guangsha were RMB50,000, RMB224,000 and RMB215,000 for Yingchuan,
Wuliting and Jiulongshan, respectively. In connection with the loan guarantees provided by
Guangsha, the Company signed an agreement with Guangsha to provide a counter guarantee on
Guangshas guarantee obligations. Pursuant to the counter guarantee agreement, the Company is
obligated to reimburse Guangsha for all bank loans, interests, penalties and all other related
costs Guangsha guaranteed in the event that the Zhejiang Entities are not able to fulfill their
loan payments when become due. The Company recognized a guarantee asset with a corresponding
guarantee liability amounted to US$221 and US$257 in the purchase price allocation of Wuliting
and Jiulongshan, respectively (Note 3). The guarantee asset and the corresponding guarantee
liability for Yingchuan was insignificant. The changes in value of the guarantee assets and
guarantee liabilities are recognized through the statements of operations. A gain and a
corresponding loss of US$449 resulted from the changes in value of the guarantee liabilities
and guarantee assets, respectively, were recognized for the year ended December 31, 2008. A
gain and a corresponding loss of US$42 resulted from the changes in value of the guarantee
liabilities and guarantee assets, respectively, were recognized for the year ended December 31,
2009. Such gain and loss are included in Other income, net in the statements of operations.
 In addition, pursuant to the counter guarantee agreement, the Company should pay Guangsha an
annual guarantee fee based on the prevailing market interest rate of the outstanding loan
balances of the Zhejiang Entities at their respective acquisition dates. Since a counter
guarantee was given by the Company to Guangsha in return for the guarantee of Guangsha to the
Zhejiang Entities, the guarantee fee did not form part of the guarantee liability in the
purchase price allocation of the Zhejiang Entities. Accordingly, the present value of the
guarantee fee of US$124, US$620 and US$641 was treated as part of the purchase consideration of
Yingchuan, Wuliting and Jiulongshan, respectively (Note 3).
 Pursuant to the equity transfer purchase agreement, Banzhu continues to guarantee a RMB4,500
loan arrangement of Sanming Ruifeng Economic Technological Development Ltd., a related party of
Sanming Ruifeng, and RMB6,800 credit facility arrangements of Yongan Ruifeng subsequent to the
acquisition by the Company. The guarantee obligations expired upon maturity of the loan and
credit facility arrangements in January and March 2009. The fair value of the guarantee
obligations as of the date of acquisition of Banzhu was insignificant.
 F-70




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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 23.
    
    OTHER INCOME (LOSS), NET
 Other income (loss), net for the years ended December 31, 2007, 2008 and 2009 consists of:
 For the year
    
    
    For the year
    
    
    For the yearended
    
    
    ended
    
    
    endedDecember 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2008
    
    
    2009US$
    
    
    US$
    
    
    US$Change in value of guarantee assets
    
    
    
    
    
    
    (449
    )
    
    
    (42
    )Change in value of guarantee liabilities
    
    
    
    
    
    
    449
    
    
    
    42Fees for supporting service provided to
an equity investee
    
    
    
    
    
    
    229
    
    
    
    32Remeasurement gain on pre-existing
interest in an equity investee at
acquisition date fair value (Note 3)
    
    
    
    
    
    
    
    
    
    
    105Loss on disposal of property, plant and
equipment
    
    
    
    
    
    
    
    
    
    
    (276
    )Others
    
    
    8
    
    
    
    (85
    )
    
    
    (86
    )Other income (loss), net
    
    
    8
    
    
    
    144
    
    
    
    (225
    )
 24.
    
    SEGMENT AND GEOGRAPHIC INFORMATION
 The Group follows ASC 280-10 for disclosure of segment information. The Groups chief
operating decision maker, who has been identified as the CEO, relies upon financial
information by provinces in the PRC when making decisions about allocating resources and
assessing the performance of the Group. For the year ended December 31, 2007, the Group
operated and managed its business as two operating and reportable segments, namely the Yunnan
Province segment and the Sichuan Province segment. For the years ended December 31, 2008 and
December 31, 2009, the Group operated and managed its business as four operating and
reportable segments, namely the Yunnan Province segment, the Sichuan Province segment, the
Zhejiang Province segment and the Fujian Province segment. As the Groups long-lived assets
and revenues are substantially all located in and derived from the PRC, no geographical
segments are presented.
 F-71




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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 24.
    
    SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
 The Groups segment information as of and for the year ended December 31, 2007 is as follows:
 Yunnan
    
    
    SichuanProvince
    
    
    Province
    
    
    Unallocated
    
    
    Eliminations
    
    
    ConsolidatedUS$
    
    
    US$
    
    
    US$
    
    
    US$
    
    
    US$Revenues
    
    
    1,719
    
    
    
    715
    
    
    
    
    
    
    
    
    
    
    
    2,434Cost of revenues
    
    
    (500
    )
    
    
    (288
    )
    
    
    (25
    )
    
    
    
    
    
    
    (813
    )General and
administrative
expenses
    
    
    (159
    )
    
    
    (110
    )
    
    
    (2,291
    )
    
    
    
    
    
    
    (2,560
    )Interest income
    
    
    147
    
    
    
    50
    
    
    
    854
    
    
    
    
    
    
    
    1,051Interest expenses
    
    
    (684
    )
    
    
    
    
    
    
    (2,591
    )
    
    
    
    
    
    
    (3,275
    )Change in fair
value of derivative
financial
liabilities
    
    
    
    
    
    
    
    
    
    
    (266
    )
    
    
    
    
    
    
    (266
    )Exchange loss
    
    
    (714
    )
    
    
    (359
    )
    
    
    (22
    )
    
    
    
    
    
    
    (1,095
    )Share of losses in
an equity investee
    
    
    
    
    
    
    
    
    
    
    (27
    )
    
    
    
    
    
    
    (27
    )Other income
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8Income tax expenses
    
    
    
    
    
    
    (8
    )
    
    
    (9
    )
    
    
    
    
    
    
    (17
    )Net loss
    
    
    (183
    )
    
    
    
    
    
    
    (4,377
    )
    
    
    
    
    
    
    (4,560
    )Total assets
    
    
    37,596
    
    
    
    16,896
    
    
    
    46,607
    
    
    
    (41,988
    )
    
    
    59,111Total liabilities
    
    
    (13,773
    )
    
    
    (208
    )
    
    
    (11,646
    )
    
    
    922
    
    
    
    (24,705
    )Capital expenditures
    
    
    316
    
    
    
    58
    
    
    
    161
    
    
    
    
    
    
    
    535Depreciation &
amortization
expenses
    
    
    433
    
    
    
    200
    
    
    
    5
    
    
    
    
    
    
    
    638
 F-72




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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements 
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 24.
    
    SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
 The Groups segment information as of and for the year ended December 31, 2008 is as follows:
 Yunnan
    
    
    Sichuan
    
    
    Zhejiang
    
    
    FujianProvince
    
    
    Province
    
    
    Province
    
    
    Province
    
    
    Unallocated
    
    
    Eliminations
    
    
    ConsolidatedUS$
    
    
    US$
    
    
    US$
    
    
    US$
    
    
    US$
    
    
    US$
    
    
    US$Revenues
    
    
    2,746
    
    
    
    971
    
    
    
    9,635
    
    
    
    1,363
    
    
    
    
    
    
    
    
    
    
    
    14,715Cost of revenues
    
    
    (1,120
    )
    
    
    (478
    )
    
    
    (4,598
    )
    
    
    (1,025
    )
    
    
    
    
    
    
    1,196
    
    
    
    (6,025
    )General and administrative expenses
    
    
    (245
    )
    
    
    (223
    )
    
    
    (567
    )
    
    
    (210
    )
    
    
    (5,516
    )
    
    
    
    
    
    
    (6,761
    )Interest income
    
    
    359
    
    
    
    84
    
    
    
    18
    
    
    
    5
    
    
    
    877
    
    
    
    (3
    )
    
    
    1,340Interest expenses
    
    
    (361
    )
    
    
    
    
    
    
    (3,519
    )
    
    
    (1,514
    )
    
    
    (456
    )
    
    
    3
    
    
    
    (5,847
    )Change in fair value of derivative
financial liabilities and warrant
liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    420
    
    
    
    
    
    
    
    420Exchange (loss) gain
    
    
    (269
    )
    
    
    172
    
    
    
    (165
    )
    
    
    (2
    )
    
    
    (803
    )
    
    
    
    
    
    
    (1,067
    )Share of losses in an equity investee
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (503
    )
    
    
    
    
    
    
    (503
    )Other (loss) income, net
    
    
    (3
    )
    
    
    1
    
    
    
    (6
    )
    
    
    (5
    )
    
    
    1,353
    
    
    
    (1,196
    )
    
    
    144Income tax (expenses) benefits
    
    
    (171
    )
    
    
    9
    
    
    
    (447
    )
    
    
    165
    
    
    
    
    
    
    
    
    
    
    
    (444
    )Consolidated net income (loss)
    
    
    936
    
    
    
    536
    
    
    
    351
    
    
    
    (1,223
    )
    
    
    (4,628
    )
    
    
    
    
    
    
    (4,028
    )Net loss attributable to
noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    41Net income (loss) attributable to
China Hydroelectric Corporation
shareholders
    
    
    936
    
    
    
    536
    
    
    
    351
    
    
    
    (1,182
    )
    
    
    (4,628
    )
    
    
    
    
    
    
    (3,987
    )Total assets
    
    
    40,997
    
    
    
    13,919
    
    
    
    242,057
    
    
    
    212,801
    
    
    
    337,115
    
    
    
    (313,321
    )
    
    
    533,568Total liabilities
    
    
    (14,569
    )
    
    
    (32
    )
    
    
    (93,358
    )
    
    
    (119,423
    )
    
    
    (23,249
    )
    
    
    21,230
    
    
    
    (229,401
    )Capital expenditures
    
    
    4,589
    
    
    
    21
    
    
    
    33,789
    
    
    
    12
    
    
    
    342
    
    
    
    
    
    
    
    38,753Depreciation & amortization expenses
    
    
    696
    
    
    
    305
    
    
    
    3,113
    
    
    
    718
    
    
    
    31
    
    
    
    
    
    
    
    4,863
 F-73




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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 24.
    
    SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
 The Groups segment information as of and for the year ended December 31, 2009 is as follows:
 Yunnan
    
    
    Sichuan
    
    
    Zhejiang
    
    
    FujianProvince
    
    
    Province
    
    
    Province
    
    
    Province
    
    
    Unallocated
    
    
    Eliminations
    
    
    ConsolidatedUS$
    
    
    US$
    
    
    US$
    
    
    US$
    
    
    US$
    
    
    US$
    
    
    US$Revenues
    
    
    2,966
    
    
    
    939
    
    
    
    18,164
    
    
    
    14,106
    
    
    
    
    
    
    
    
    
    
    
    36,175Cost of revenues
    
    
    (1,193
    )
    
    
    (583
    )
    
    
    (9,774
    )
    
    
    (7,341
    )
    
    
    
    
    
    
    1,708
    
    
    
    (17,183
    )General and administrative
expenses
    
    
    (330
    )
    
    
    (203
    )
    
    
    (1,178
    )
    
    
    (613
    )
    
    
    (6,775
    )
    
    
    
    
    
    
    (9,099
    )Interest income
    
    
    115
    
    
    
    38
    
    
    
    57
    
    
    
    18
    
    
    
    319
    
    
    
    (37
    )
    
    
    510Interest expenses
    
    
    (303
    )
    
    
    
    
    
    
    (7,020
    )
    
    
    (6,554
    )
    
    
    (388
    )
    
    
    37
    
    
    
    (14,228
    )Change in fair value of
derivative financial
liabilities and warrant
liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,793
    )
    
    
    
    
    
    
    (13,793
    )Exchange loss
    
    
    
    
    
    
    (1
    )
    
    
    (5
    )
    
    
    (7
    )
    
    
    (10
    )
    
    
    
    
    
    
    (23
    )Share of losses in an equity
investee
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (70
    )
    
    
    
    
    
    
    (70
    )Other (loss) income, net
    
    
    (2
    )
    
    
    (1
    )
    
    
    (9
    )
    
    
    (265
    )
    
    
    1,760
    
    
    
    (1,708
    )
    
    
    (225
    )Income tax expenses
    
    
    (166
    )
    
    
    (51
    )
    
    
    (403
    )
    
    
    (739
    )
    
    
    (133
    )
    
    
    
    
    
    
    (1,492
    )Consolidated net income (loss)
    
    
    1,087
    
    
    
    138
    
    
    
    (168
    )
    
    
    (1,395
    )
    
    
    (19,090
    )
    
    
    
    
    
    
    (19,428
    )Net loss attributable to
noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    32Net income (loss)
attributable to China
Hydroelectric Corporation
shareholders
    
    
    1,087
    
    
    
    138
    
    
    
    (168
    )
    
    
    (1,363
    )
    
    
    (19,090
    )
    
    
    
    
    
    
    (19,396
    )Total assets
    
    
    42,770
    
    
    
    14,649
    
    
    
    311,779
    
    
    
    205,445
    
    
    
    337,511
    
    
    
    (317,090
    )
    
    
    595,064Total liabilities
    
    
    (15,494
    )
    
    
    (556
    )
    
    
    (152,991
    )
    
    
    (113,080
    )
    
    
    (34,545
    )
    
    
    22,796
    
    
    
    (293,870
    )Capital expenditures
    
    
    7,661
    
    
    
    1,616
    
    
    
    1,826
    
    
    
    1,732
    
    
    
    141
    
    
    
    
    
    
    
    12,976Depreciation & amortization
expenses
    
    
    845
    
    
    
    338
    
    
    
    6,887
    
    
    
    4,432
    
    
    
    78
    
    
    
    
    
    
    
    12,580
 F-74




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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 25.
    
    SHARE-BASED PAYMENT
 On August 18, 2008, the board of directors (the Board) of the Company adopted the
China Hydroelectric Corporation 2008 Share Incentive Plan (the 2008 Plan) that provides
for the issuance of share-based awards to purchase up to 12,000,000 ordinary shares. The
effectiveness of the 2008 Plan is subject to the approval of the Companys shareholders
within twelve months from the date on which the 2008 Plan is adopted by the Board. Under
the 2008 Plan, the Company may grant share options including incentive stock options and
non-qualified stock options, equity appreciation rights, restricted ordinary shares,
restricted ordinary share units, performance-based grants of ordinary shares, performance
units and other equity-based or cash-based awards to employees of the Group, consultants
and other individuals who provide services to the Group, including the Companys
directors. The administrator, which may be the Board or its authorized designee, has
full power and authority to administer, construe and interpret the 2008 Plan. Under the
terms of the 2008 Plan, options intended to qualify as incentive shares options must have
an exercise price at least equal to the fair market value as of the date of grant, but
all other share options can be granted with an exercise price less than the fair market
value.
 On August 18, 2008, the Board approved the grant of 40,000 options, 260,000 options and
3,597,000 non-qualified stock options to certain directors, consultants and employees of the
Group, respectively. Options granted to employees and consultants have a contractual life of
five years, an exercise price of $7.70 and a vesting period of three years. Options granted
to directors have a contractual life of five years, an exercise price of $7.70 and a vesting
period of one year. The vesting of the unvested options granted to a director will be
accelerated upon the directors resignation from the Board. On January 20, 2009, the Board
approved another grant of 35,000 non-qualified stock options to certain employees of the
Group. These options have a contractual life of five years, an exercise price of $7.70 and a
vesting period of three years. The exercise prices of options granted to employees, directors
and consultants are denominated in US$7.70. On March 4, 2009, the Board passed a resolution
to modify the 2008 Plan for it to be effective without approval by the shareholders of the
Company. In accordance with ASC 718-10, the grant date for the share-based awards issued on
August 18, 2008 and January 20, 2009 was March 4, 2009.
 On December 3, 2009, the Board of Directors approved the grant of 7,000,000 share
options to the directors, officer, employees and a consultant of the Group at an exercise
price equal to the price at which the ordinary shares underlying the American Depositary
Shares are sold in the initial public offering of the Company; provided that the options
shall expire in the event that the Company does not consummate its initial public offering
within six months of the approval date. Since the exercise price was not known until the
initial public offering was successfully completed on January 25 2010, the accounting grant
date for the share-based awards issued on December 3, 2009 was not established as of December
31, 2009. Accordingly, no compensation expense related to the December 3, 2009 grant was
recognized for the year ended December 31, 2009.
 F-75




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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 25.
    
    SHARE-BASED PAYMENT (CONTINUED)
 The fair value of the options granted was estimated using a binomial option pricing model.
The binomial model requires the input of highly subjective assumptions, including the
expected stock price volatility, the expected price multiple at which the holder is likely to
exercise stock options and the expected employee forfeiture rate. The Company uses historical
data and future expectations to estimate forfeiture rate. For expected volatility, the
Company has made reference to historical volatilities of several comparable companies. The
risk-free rate for periods within the contractual life of the option is based on U.S.
Treasury zero-coupon yield in effect at the grant date. The dividend yield is based on the
expected pay-out ratio. The Company determined the fair value of the ordinary shares at the
measurement date with the assistance of AA using a generally accepted valuation methodology,
which incorporates certain assumptions including the financial results and growth trends of
the Group, to derive the total equity value of the Group. The valuation model allocated the
equity value between the ordinary shares and the preferred shares and determined the fair
value of ordinary shares based on the following assumptions: (i) preferred shares were
treated as if they had converted into ordinary shares where conversion into ordinary shares
would result in a higher economic value and (ii) preferred shares that have a value higher
than their conversion price were assigned a value that took into consideration their
liquidation value. The expected share option life was estimated based on the resulting
output of the binomial option pricing model. The option awards are not transferable and the
grantees have a limited amount of time subsequent to their termination of employment or
service to exercise the options. These post-vesting restrictions are considered in the
binomial option pricing model as a suboptimal exercise factor.
 Options granted to directors
 The following table summarizes the share options granted to directors as of and for year
ended December 31, 2009:
 Weighted-AverageWeighted-
    
    
    RemainingAverage
    
    
    Contractual
    
    
    AggregateNumber of
    
    
    Exercise
    
    
    Life
    
    
    IntrinsicOptions
    
    
    Price (US$)
    
    
    (Years)
    
    
    Value (US$)Outstanding at January 1, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Granted
    
    
    40,000
    
    
    
    7.70
    
    
    
    3.63
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited or cancelled
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at December 31, 2009
    
    
    40,000
    
    
    
    7.70
    
    
    
    3.63
    
    
    
    Vested and expected to vest at December 31, 2009
    
    
    40,000
    
    
    
    7.70
    
    
    
    3.63
    
    
    
    Exercisable at December 31, 2009
    
    
    40,000
    
    
    
    7.70
    
    
    
    3.63
    
    
    
    
 The explicit service condition of the options granted to directors is considered
nonsubstantive since the vesting of share-based payments accelerates in full upon a
directors resignation from the Board. As a result, share-based compensation cost of
US$12 for the 40,000 options granted to directors was immediately recognized on the
grant date of March 4, 2009.
 F-76




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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 25.
    
    SHARE-BASED PAYMENT (CONTINUED)
 Options granted to directors (continued)
 Two of the directors resigned from the Board and their 20,000 share options became
exercisable immediately upon their resignation.
 The aggregate intrinsic value is calculated as the difference between the exercise
price of the underlying awards and the fair value of the Companys shares as of December
31, 2009, for those awards that have an exercise price currently below the fair value of
the Companys shares. As of December 31, 2009, all of the options granted to directors
have an exercise price above the fair value of the Companys shares, resulting in an
aggregate intrinsic value of US$nil.
 The weighted-average grant-date fair value of options granted to directors of the
Group during the year ended December 31, 2009 was US$0.30.
 The grant-date fair value of the options granted to directors during the year ended
December 31, 2009 was estimated using the following assumptions:
 Suboptimal exercise factor
    
    
    1.5Risk-free interest rate
    
    
    3.67%Expected volatility rate
    
    
    59%Expected dividend yield
    
    
    0%Expected share option life
    

4.46 yearsEstimated forfeiture rate
    
    
    0%Fair value of ordinary share
    
    
    US$2.08
 Options granted to consultants
 The following table summarizes the share options granted to consultants as of and for
the year ended December 31, 2009:
 Weighted-Weighted-
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Exercise
    
    
    Contractual
    
    
    IntrinsicOptions
    
    
    price (US$)
    
    
    Life(Years)
    
    
    Value (US$)Outstanding at January 1, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Granted
    
    
    260,000
    
    
    
    7.7
    
    
    
    3.63
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited or cancelled
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at December 31, 2009
    
    
    255,000
    
    
    
    7.7
    
    
    
    3.63
    
    
    
    Vested and expected to vest at
December 31, 2009
    
    
    255,000
    
    
    
    7.7
    
    
    
    3.63
    
    
    
    Exercisable at December 31, 2009
    
    
    85,000
    
    
    
    7.7
    
    
    
    3.63
    
    
    
    
 As of December 31, 2009, all of the options granted to consultants have an exercise
price above the fair value of the Companys shares, resulting in an aggregate intrinsic
value of US$nil.
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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 25.
    
    SHARE-BASED PAYMENT (CONTINUED)
 Options granted to consultants (continued)
 The weighted-average fair value of options granted to consultants of the Group during the
year ended December 31, 2009 was US$0.31 and US$1.23 at March 4, 2009 and December 31, 2009,
respectively. During the year ended December 31, 2009, the total fair value of options
vested based on the year-end fair value was US$105.
 One of the consultants terminated his contractual relationship with the Company and his 5,000
share options were forfeited immediately upon termination.
 As of December 31, 2009, there was US$123 of unrecognized share-based compensation cost
related to options granted to consultants, which will be recognized over a weighted-average
vesting period of 1.63 years. To the extent the actual forfeiture rate is different from the
original estimate or the assumptions used in estimating the fair value of options are
changed, actual share-based compensation related to these awards granted to consultants may
be different from the expectation.
 The fair value of the options granted to consultants during the year ended December 31, 2009
was estimated using the following average assumptions:
 Suboptimal exercise factor
    
    
    1.5Risk-free interest rate
    
    
    2.68%Expected volatility rate
    
    
    64%Expected dividend yield
    
    
    0%Expected share option life
    

3.63 yearsEstimated forfeiture rate
    
    
    0%Fair value of ordinary share
    
    
    US$4.93
 Options granted to employees
 The following table summarizes the share options granted to employees as of and for
the year ended December 31, 2009:
 Weighted-Weighted-
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Exercise
    
    
    Contractual
    
    
    IntrinsicOptions
    
    
    Price (US$)
    
    
    Life(Years)
    
    
    Value (US$)Outstanding at January 1, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Granted
    
    
    3,627,000
    
    
    
    7.70
    
    
    
    3.63
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited or cancelled
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at December 31, 2009
    
    
    3,627,000
    
    
    
    7.70
    
    
    
    3.63
    
    
    
    Vested and expected to vest at
December 31, 2009
    
    
    3,619,925
    
    
    
    7.70
    
    
    
    3.63
    
    
    
    Exercisable at December 31, 2009
    
    
    1,209,000
    
    
    
    7.70
    
    
    
    3.63
    
    
    
    
 As of December 31, 2009, all of the options granted to employees have an exercise price
above the fair value of the Companys shares, resulting in an aggregate intrinsic value
of US$nil.
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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 25.
    
    SHARE-BASED PAYMENT (CONTINUED)
 Options granted to employees (continued)
 The weighted-average grant-date fair value of options granted to employees of the
Group during the year ended December 31, 2009 was US$0.30. During the year ended
December 31, 2009, the total fair value of options vested based on the grant date fair
value was US$363.
 As of December 31, 2009, there was US$720 of unrecognized share-based compensation
cost related to options granted to employees which will be recognized over a
weighted-average vesting period of 1.63 years. To the extent the actual forfeiture rate
is different from the original estimate, actual share-based compensation related to
these awards may be different from the expectation.
 The grant-date fair value of the options granted to employees during the year ended
December 31, 2009 was estimated using the following assumptions:
 Suboptimal exercise factor
    
    
    1.5Risk-free interest rate
    
    
    3.67%-3.8%Expected volatility rate
    
    
    57%-59%Expected dividend yield
    
    
    0%Expected share option life
    
    
    4.46-4.88 yearsEstimated forfeiture rateFounders
    
    
    0%Senior management
    
    
    0.8%Employees
    
    
    2.4%Fair value of ordinary shares
    
    
    US $2.08
 Total compensation cost recognized for share options granted to directors, consultants
and employees for the year ended December 31, 2009:
 US$Cost of revenues
    
    
    General and administrative expenses
    
    
    571571
 26.
    
    RELATED PARTY TRANSACTIONS
 The principal related parties with which the Group had transactions during the years presented
are as follows:
 Name of related parties
    
    Relationship with the GroupChina Hydro LLC
    
    A shareholder of the CompanyKuhns Brothers, Inc.
    
    A company owned by the CEOChina Carbon Investment Consulting, Ltd.
    
    A company controlled by the CEOChina Silicon Zhuo-Xin Investment Consulting, Ltd.
    
    A company controlled by the CEOSanming City Chenyang Hydropower Co., Ltd.
    
    Noncontrolling interest in Wangkeng
 F-79




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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 26.
    
    RELATED PARTY TRANSACTIONS (CONTINUED)
 (a)
    
    The Company had the following related party transactions during the years presented:
 For the Year
    
    
    For the Year
    
    
    For the YearEnded
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2008
    
    
    2009US$
    
    
    US$
    
    
    US$Expenses paid on behalf by related parties:Kuhns Brothers, Inc.
    
    
    247
    
    
    
    
    
    
    
    247
    
    
    
    
    
    
    
    Expense paid on behalf of related parties:China Carbon Investment Consulting, Ltd.
    
    
    
    
    
    
    81
    
    
    
    China Silicon Zhuo-Xin Investment
Consulting, Ltd.
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    113
    
    
    
    
 During the year ended December 31, 2007, Kuhns Brothers, Inc. paid for certain office
administrative services on a reimbursement basis for the Group. The related general and
administrative expenses for the year ended December 31, 2007 were US$247. These amounts were
settled in full by the Company as of December 31, 2007.
 During the year ended December 31, 2008, the Company paid US$81 and US$32 of miscellaneous
expenses on behalf of China Carbon Investment Consulting Ltd. and China Silicon Zhuo-Xin
Investment Consulting Ltd., respectively. The amounts were fully repaid to the Company as of
December 31, 2009.
 For the Year
    
    
    For the Year
    
    
    For the YearEnded
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2008
    
    
    2009US$
    
    
    US$
    
    
    US$Rental for office space provided by:Kuhns Brothers, Inc.
    
    
    154
    
    
    
    257
    
    
    
    288154
    
    
    
    257
    
    
    
    288Fees for financial advisory
services provided by:Kuhns Brothers, Inc.
    
    
    
    
    
    
    
    
    
    
    200
    
    
    
    
    
    
    
    200
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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 26.
    
    RELATED PARTY TRANSACTIONS (CONTINUED)
 During the years ended December 31, 2007, 2008 and 2009, the Company rented office space from
the Kuhns Brothers, Inc. and incurred rental expenses of US$154, US$257 and US$288,
respectively.
 During the year ended December 31, 2009, the Company paid US$200 to Kuhns Brothers, Inc. as
consideration for its financial advisory services in connection with Series C convertible
redeemable preferred shares offering.
 For the Year
    
    
    For the Year
    
    
    For the YearEnded
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2008
    
    
    2009US$
    
    
    US$
    
    
    US$Short-term loans from related parties:China Hydro LLC
    
    
    23
    
    
    
    
    
    
    
    Kuhns Brothers, Inc.
    
    
    60
    
    
    
    
    
    
    
    83
    
    
    
    
    
    
    
    
 The short-term loan from China Hydro LLC was unsecured, interest-free and had a term of
repayment of three months. The loan was fully repaid on February 4, 2008. The short-term loan
from Kuhns Brothers, Inc. was unsecured at an interest rate of 8% and had a term of repayment
of one month. The loan was fully settled on December 13, 2007.
 For the Year
    
    
    For the Year
    
    
    For the YearEnded
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2008
    
    
    2009US$
    
    
    US$
    
    
    US$Guarantee deposits
received from related
parties:Sanming City Chenyang
Hydropower Co., Ltd.
    
    
    
    
    
    
    241
    
    
    
    
    
    
    
    241
    
    
    
    
 Deposit of US$241 as of December 31, 2008 represents guarantee received by the Company from
Sanming City Chenyang Hydropower Co., Ltd., which will be returned by the Company within ten
days when the original shareholders of Wangkeng furnish the Company with final documentation
relating to the acquired hydroelectric power project and dams and reservoir.
 F-81




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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB (RMB), except for number of shares and per share data)
 26.
    
    RELATED PARTY TRANSACTIONS (CONTINUED)
 (b)
    
    The Company had the following related party balances as of December 31, 2008 and 2009:
 December 31, 2008
    
    
    December 31, 2009US$
    
    
    US$Amounts due from related parties:China Hydro LLC
    
    
    
    
    
    
    China Silicon Zhuo-Xin Investment
Consulting, Ltd.
    
    
    13
    
    
    
    13
    
    
    
    Amounts due to related parties:China Hydro LLC
    
    
    
    
    
    
    China Carbon Investment Consulting Ltd.
    
    
    1
    
    
    
    1Sanming City Chenyang Hydropower Co.,
Ltd.
    
    
    241
    
    
    
    241242
    
    
    
    242
 All balances with related parties are unsecured, interest-free and repayable on demand, except
for the US$241 amount due to Sanming City Chenyang Hydropower Co., Ltd., which will be
returned by the Company within ten days when the original shareholders of Wangkeng furnish the
Company with final documentation relating to the acquired hydroelectric power project and dam
and reservoir. Pursuant to the equity transfer purchase agreements of Wangkeng, the original
shareholder is required to provide such documentation within one year from the date of
acquisition. The US$241 balance remained unsettled as of December 31, 2009.
 F-82




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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB
(RMB), except for number of shares and per share
data)
 27.
    
    STATUTORY RESERVES
    F-83




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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB
(RMB), except for number of shares and per share
data)
 28.
    
    CONCENTRATION OF RISKS
 Concentration of credit risk
    December 31,

    
    December 31,
    

    December 31,Segment
    
    2007

    
    2008
    

    2009Yunnan Dehong
Electric Power Co.,
Ltd.
    
    Yunnan Province
    
    
    71
    %
    
    
    19
    %
    
    
    8
    %Sichuan Cangxi
Electric Power Co.,
Ltd.
    
    Sichuan Province
    
    
    29
    %
    
    
    7
    %
    
    
    3
    %Lishui Electric
Power Bureau
    
    Zhejiang Province
    
    
    

    
    
    65
    %
    
    
    50
    %Fujian Electric
Power Co., Ltd.
    
    Fujian Province
    
    
    

    
    
    7
    %
    
    
    27
    %Pingnan Power
Supply Company
    
    Fujian Province
    
    
    

    
    
    2
    %
    
    
    12
    %100
    %
    
    
    100
    %
    
    
    100
    %
 Currency convertibility risk
  F-84




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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB
(RMB), except for number of shares and per share
data)
 28.
    
    CONCENTRATION OF RISKS (CONTINUED)
 Foreign currency exchange rate risk
   Current vulnerability due to certain other concentrations
  29.
    
    SUBSEQUENT EVENTS
   F-85




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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB
(RMB), except for number of shares and per share
data)
 29.
    
    SUBSEQUENT EVENTS (CONTINUED)
     F-86




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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB
(RMB), except for number of shares and per share
data)
 30.
    
    CONDENSED FINANCIAL INFORMATION OF THE COMPANY
  Balance sheets
 December 31,
    
    
    December 31,2008
    
    
    2009US$
    
    
    US$ASSETSCurrent assetsCash and cash equivalents
    
    
    32,473
    
    
    
    18,328Prepayments and other current assets
    
    
    8
    
    
    
    127Total current assets
    
    
    32,481
    
    
    
    18,455Non-current assetsDeferred initial public offering costs
    
    
    6,032
    
    
    
    12,774Property, plant and equipment, net
    
    
    14
    
    
    
    14Investment in subsidiaries
    
    
    282,940
    
    
    
    305,609Investment in an equity investee
    
    
    4,295
    
    
    
    Other non-current assets
    
    
    230
    
    
    
    177Total non-current assets
    
    
    293,511
    
    
    
    318,574TOTAL ASSETS
    
    
    325,992
    
    
    
    337,029LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesAmounts due to an equity investee
    
    
    2
    
    
    
    Amounts due to subsidiaries
    
    
    17,349
    
    
    
    16,710Accrued expense and other current
liabilities
    
    
    4,684
    
    
    
    3,020Warrant liability
    
    
    540
    
    
    
    14,333Total current liabilities
    
    
    22,575
    
    
    
    34,063Total liabilities
    
    
    22,575
    
    
    
    34,063
 F-87




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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB
(RMB), except for number of shares and per share
data)
 30.
    
    CONDENSED FINANCIAL INFORMATION OF THE COMPANY (CONTINUED)
 Balance sheets
 December 31,
    
    
    December 31,2008
    
    
    2009US$
    
    
    US$Convertible redeemable preferred sharesSeries A (par value US$0.001 per
share; 2,500,000 shares authorized;
152,193 shares issued and outstanding
as of December 31, 2008 and 2009)
    
    
    164,705
    
    
    
    184,541Series B (par value US$0.001 per
share; 2,500,000 shares authorized;
129,000 shares issued and outstanding
as of December 31, 2008 and 2009)
    
    
    134,531
    
    
    
    148,943Series C (par value US$0.001 per
share; 1,000,000 shares authorized;
nil and 20,000 shares issued and
outstanding as of December 31, 2008
and 2009)
    
    
    
    
    
    
    20,356Shareholders equityOrdinary shares (par value US$0.001
per share, 130,000,000 shares
authorized; 15,541,666 shares issued
and outstanding as of December 31,
2008 and 2009)
    
    
    16
    
    
    
    16Additional paid-in capital
    
    
    38,241
    
    
    
    38,812Accumulated other comprehensive income
    
    
    10,819
    
    
    
    11,065Accumulated deficit
    
    
    (44,895
    )
    
    
    (100,767
    )Total shareholders equity
    
    
    4,181
    
    
    
    (50,874
    )TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    
    325,992
    
    
    
    337,029
 F-88




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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB
(RMB), except for number of shares and per share
data)
 30.
    
    CONDENSED FINANCIAL INFORMATION OF THE COMPANY (CONTINUED)
 Statements of operations
 For the Year
    
    
    For the Year
    
    
    For the YearEnded
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2008
    
    
    2009US$
    
    
    US$
    
    
    US$Revenues
    
    
    
    
    
    
    
    
    
    
    Cost of revenues
    
    
    
    
    
    
    
    
    
    
    Gross profit
    
    
    
    
    
    
    
    
    
    
    Operating expenses:General and administrative
expenses
    
    
    (1,839
    )
    
    
    (3,890
    )
    
    
    (4,785
    )Total operating expenses
    
    
    (1,839
    )
    
    
    (3,890
    )
    
    
    (4,785
    )Operating loss
    
    
    (1,839
    )
    
    
    (3,890
    )
    
    
    (4,785
    )Equity in (losses) profits
of subsidiaries
    
    
    (687
    )
    
    
    366
    
    
    
    (747
    )Share of losses in an equity
investee
    
    
    (27
    )
    
    
    (503
    )
    
    
    (70
    )Interest income
    
    
    850
    
    
    
    873
    
    
    
    319Interest expenses
    
    
    (2,591
    )
    
    
    (455
    )
    
    
    (419
    )Change in fair value of
derivatives and warrant
liability
    
    
    (266
    )
    
    
    420
    
    
    
    (13,793
    )Exchange loss
    
    
    
    
    
    
    (798
    )
    
    
    (6
    )Other income, net
    
    
    
    
    
    
    
    
    
    
    105Loss before income tax expenses
    
    
    (4,560
    )
    
    
    (3,987
    )
    
    
    (19,396
    )Income tax expenses
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    (4,560
    )
    
    
    (3,987
    )
    
    
    (19,396
    )
 F-89




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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB
(RMB), except for number of shares and per share
data)
 30.
    
    CONDENSED FINANCIAL INFORMATION OF THE COMPANY (CONTINUED)
 Statements of cash flows
 For the Year
    
    
    For the Year
    
    
    For the YearEnded
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2008
    
    
    2009US$
    
    
    US$
    
    
    US$Cash flows used in
operating activities
    
    
    (2,277
    )
    
    
    (2,055
    )
    
    
    (3,289
    )Cash flows used in
investing activities
    
    
    6,667
    
    
    
    (216,265
    )
    
    
    (21,643
    )Cash flows provided by
financing activities
    
    
    (4,960
    )
    
    
    250,735
    
    
    
    10,787Net increase (decrease)
in cash and cash
equivalents
    
    
    (570
    )
    
    
    32,415
    
    
    
    (14,145
    )Cash and cash
equivalents at the
beginning of the year
    
    
    628
    
    
    
    58
    
    
    
    32,473Cash and cash
equivalents at the end
of the year
    
    
    58
    
    
    
    32,473
    
    
    
    18,328
 (a)
    
    Basis of presentation
     (b)
    
    Commitments
  F-90




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##### Table of Contents



China Hydroelectric Corporation
Notes to the Consolidated Financial Statements

(Continued)
(Amounts in thousands of U.S. dollars (US$) or RMB
(RMB), except for number of shares and per share
data)
 31.
    
    PRO FORMA LOSS PER SHARE 
(UNAUDITED)
  For the year endedDecember 31, 2009US$Numerator:Loss attributable to ordinary shareholders
    
    
    (55,872
    )Cumulative dividends on Series A convertible redeemable
preferred shares
    
    
    19,836Cumulative dividends on Series B convertible redeemable
preferred shares
    
    
    14,412Cumulative dividends on Series C convertible redeemable
preferred shares
    
    
    356Changes in redemption value of Series C convertible
redeemable preferred shares
    
    
    1,872Numerator for pro forma basic and diluted loss per share
    
    
    (19,396
    )Denominator:Number of shares outstanding, opening
    
    
    15,541,666Conversion of convertible redeemable preferred shares to
ordinary shares
    
    
    106,885,471Denominator for pro forma basic and diluted loss per share
    
    
    122,427,137Pro forma basic and diluted loss per share
    
    
    (0.16
    )
 F-91