- Teleconference to Be Held Friday, November 7, 2008 at 8:30 a.m.
EST - XI'AN, China, Nov. 6 /Xinhua-PRNewswire-FirstCall/ -- China
Recycling Energy Corp. (OTC:CREG) (BULLETIN BOARD: CREG) ("CREG" or
"the Company"), a leading industrial waste-to-energy solution
provider in China, today announced financial results for its third
quarter and for the nine months ended September 30, 2008. Financial
Results Overview Third Quarter of 2008 During the third quarter of
2008, the Company generated revenue of $4.3 million, an increase of
65.4% from $2.6 million in the second quarter of 2008.
Third-quarter revenue consisted entirely of rental income from
operational leases of energy-saving equipment for industrial plants
in China. In the same period of last year, the Company recorded
revenue of $4.3 million from sales of energy-saving equipment
without any rental income. Gross profit rose 29.4% to $1.3 million
compared with the same period of 2007. Gross margin was 30%,
compared with 23% in the same period of 2007, reflecting higher
profitability of operational leases. Interest income from
sales-type leases rose 110% to $576,817, compared with the same
period of 2007. Interest income from sales-type leases was a major
source of proceeds in addition to the revenue from equipment sales
and rental income from operational leases. "We are excited to see
significant revenue growth on a sequential basis in the third
quarter of 2008, due to the full contribution from rental income on
two new projects which began in May 2008," said Mr. Guangyu Wu, CEO
of CREG. "Our rental income from operational leases has now
combined with our interest income from sales-type leases to prove
the viability of our business model, and we are confident we will
meet our guidance for the year 2008." Mr. Wu continued, "While
continuing our current business model, which we adopted in May
2007, we are also strengthening our efforts to collect payments and
concentrating on customers with strong balance sheets. In addition,
we are increasing our exposure to cement-manufacturing customers,
which should benefit from the $730 billion (RMB 5 trillion)
stimulus package for spending on roads and ports over the next
three to five years, according to the China Daily on November 6,
2008. We expect to finish within the next 2 months the installation
of our energy-saving equipment at Shenwei Group's cement factory in
Shaanxi, which should generate more than $5 million in revenue in
the fourth quarter of 2008. In 2009, with seven projects in place
to generate higher cash flow, we anticipate having five additional
projects in our pipeline for construction." Operating expenses were
$638,949 compared with $15,183 in the same period of 2007. The
increase was mainly due to higher expenses related to payroll,
marketing, traveling and consulting as the Company expanded its
business by adding more projects. Operating income was $1.2
million, the same as the third quarter of 2007. Total non-operating
expenses were $59,774, compared with non-operating income of $1,428
in the same period of 2007. This change was mainly because of the
accrual interest expense of $63,014 related to the $5 million
convertible note. The Company's effective tax rate was 34.5%
compared with 14.9% in the same period of 2007. The increase was
mainly because of the higher business tax rate when the Company's
operations transferred from Shanghai to Xi'an early next year. The
Company is currently applying for a partial tax exemption as an
alternative-energy high-tech enterprise. Net income was $732,512,
or $0.02 earnings per diluted share, compared with net income of
$1.1 million, or $0.06 earnings per diluted share, in the same
period of 2007. The decrease in net income was mainly because of
higher tax expenses. Excluding the interest expense of the
convertible note of $63,014 and the compensation expense of the
fair value of stock options of $95,872, pro forma net income for
the third quarter of 2008 was $891,398. Nine Months ended September
30, 2008 During the first nine months of 2008, the Company
generated revenue of $6.9 million compared with $9.1 million in the
same period of last year. For the 2008 nine-month period, the
Company recorded rental income from operational leases of two
projects without any product sales from sales-type leasing, while
in 2007 the Company had three sales-type leases of energy- saving
equipment. Gross profit was $2.1 million, same as that in the first
nine months of 2007. Gross margin was 30%, compared with 23% in the
same period of 2007, reflecting the higher profitability of
operational leases. Interest income from sales-type leasing was
$1.7 million compared with $473,075 in the same period of last
year. Interest income from sales-type leases was a major source of
proceeds in addition to the revenue from product sales and rental
income from operational leases. Operating expenses were $2.1
million compared with $358,726 in the same period of 2007. The
increase was mainly because of compensation expenses of
approximately $730,000 related to the fair value of the employee
stock options, which were cancelled in June 2008, as well as higher
expenses related to payroll, marketing, traveling and consulting as
the Company expanded its business by adding more projects.
Operating income was $1.6 million compared with $2.2 million in the
same period of 2007. Total non-operating expenses were $1.3
million, compared with non- operating income of $210,346 in the
same period of 2007. The change was primarily due to accrued
interest expense on the amortized beneficial conversion feature for
the convertible note and the compensation expense of the fair value
of stock options, which were subsequently cancelled in June 2008 as
described above. Net loss was $472,981, or $0.01 loss per diluted
share, compared with net income of $2.0 million, or $0.12 earnings
per diluted share, in the same period of 2007. This change was
mainly due to the non-operating expenses as described above.
Excluding the interest expense of $1.3 million on the amortization
of the beneficial conversion feature for the convertible note and
the compensation expense of the fair value of stock options of
$730,000, pro forma net income for the nine months of 2008 would
have been $1.5 million. Balance Sheet The Company's balance sheet
at September 30, 2008 included cash and cash equivalents of $1.7
million, compared with $1.6 million at December 31, 2007. Total
investments in sales-type leases were $8.9 million, compared to
$9.0 million at December 31, 2007. Interest receivable on
sales-type leases decreased to $87,727 from $144,262 at December
31, 2007. Other receivables increased to $86,255 from $32,902 at
December 31, 2007. Net working capital increased to $9.7 million
from $7.0 million at December 31, 2007. Total shareholders' equity
was $30.0 million, compared with $17.3 million at December 31,
2007. As of September 30, 2008, the Company has total diluted
shares of 36,425,094. Update on Recent Projects The Company is
expecting to complete the construction of the first set of
12-Megawatt pure low-temperature power generator systems for
Shaanxi Province- based cement manufacturer Shenwei Group in the
fourth quarter of 2008. The entire project will have an estimated
annual power generated capacity of 180 million KW/h when both
systems are put into operation. The Company is using the BOT
(build, operate, transfer) model to build and operate the systems.
The operational period will be five years. During the operational
period, Shenwei Group will pay to the Company a monthly electricity
fee based on the actual power generated by the systems at 0.4116
RMB (approximately $0.0603) per KW/h as agreed. On September 17,
2008, the Company won a contract to install a 7-Megawatt capacity
electricity-generation system for China Zhonggang Binhai Enterprise
Ltd. ("Zhonggang Binhai") in Cangzhou City, Hebei Province.
Zhonggang Binhai is a world-class nickel-iron manufacturing joint
venture between China Zhonggang Group and Baosteel Group. The
system will be an integral part of the facilities designed to
produce 80,000 tons of nickel-iron per year. Construction is
expected to be completed by August 2009. As of November 7, 2008,
the Company had five waste-to-energy projects in operation
servicing Chinese steel and cement factories. Full Years 2008 and
2009 Guidance The Company reaffirms revenue for the 2008 year to be
in the range of $17 million to $19 million and net income,
excluding non-cash items, in the range of $4.5 million to $5
million. The Company expects revenues for the 2009 year to be in
the range of $33 million to $36 million, with net income, excluding
non-cash items, of approximately $10 million. These targets are
based on the Company's current views on the operating and market
conditions, which are subject to change. Conference Call The
Company will host a conference call on Friday, November 7, 2008, at
8:30 a.m. Eastern Standard Time / 9:30 p.m. Beijing Time.
Interested parties may participate in the conference call by
dialing +1-877-407-8035 (North America) or +1-201-689-8035
(International) 10 minutes before the call start time. A replay of
the call will be available through Friday, November 14, 2008 at
11:59 p.m. Eastern Standard Time. Interested parties may access the
replay by dialing +1-877-660-6853 (North America) or +
1-201-612-7415 (International) and entering account number: 286 and
conference ID number: 302010. About China Recycling Energy Corp.
China Recycling Energy Corp. (OTCBB: CREG.OB) ("CREG" or "the
Company") is based in Xi'an, China and provides environmentally
friendly waste-to-energy technologies to recycle industrial
byproducts for steel mills, cement factories and coke plants in
China. Byproducts include heat, steam, pressure, and exhaust to
generate large amounts of lower-cost electricity and reduce the
need for outside electrical sources. The Chinese government has
adopted policies to encourage the use of recycling technologies to
optimize resource allocation and reduce pollution. Currently,
recycled energy represents only an estimated 1% of total energy
consumption and this renewable energy resource is viewed as a
growth market due to intensified environmental concerns and rising
energy costs as the Chinese economy continues to expand. The
management and engineering teams have over 20 years of experience
in industrial energy recovery in China. For more information about
CREG, please visit http://www.creg-cn.com/ . Safe Harbor Statement
This press release may contain certain "forward-looking statements"
relating to the business of China Recycling Energy Corp. and its
subsidiary companies. All statements, other than statements of
historical fact included herein are "forward-looking statements."
These forward-looking statements are often identified by the use of
forward-looking terminology such as "believes," "expects" or
similar expressions, involve known and unknown risks and
uncertainties. Although the Company believes that the expectations
reflected in these forward-looking statements are reasonable, they
do involve assumptions, risks and uncertainties, and these
expectations may prove to be incorrect. Investors should not place
undue reliance on these forward-looking statements, which speak
only as of the date of this press release. The Company's actual
results could differ materially from those anticipated in these
forward-looking statements as a result of a variety of factors,
including those discussed in the Company's periodic reports that
are filed with the Securities and Exchange Commission and available
on its website at http://www.sec.gov/ . All forward-looking
statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by these factors.
Other than as required under the securities laws, the Company does
not assume a duty to update these forward-looking statements. For
more information, please contact: In China: Mr. Leo Wu Investor
Relations China Recycling Energy Corp. Tel: +86-29-8765-1096 Email:
In the U.S.: Mr. Valentine Ding Investor Relations Grayling Global
Tel: +1-646-284-9412 Email: CHINA RECYCLING ENERGY CORPORATION AND
SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER AS OF
DECEMBER 31, 30, 2008 2007 (UNAUDITED) ASSETS CURRENT ASSETS Cash
& cash equivalents $1,705,940 $1,634,340 Restricted cash
843,356 -- Investment in sales type leases, net 1,201,747 1,081,981
Interest receivable on sales type lease 87,727 144,262 Prepaid
equipment rent 6,725,654 -- Other receivables 86,255 32,902
Inventory 10,560,282 9,870,315 Total current assets 21,210,962
12,763,800 NON-CURRENT ASSETS Investment in sales type leases, net
7,691,772 7,933,780 Advance for equipment 2,640,701 2,467,579
Property and equipment, net 102,320 -- Construction in progress
10,046,935 -- Intangible assets, net 3,233 6,169 Total non-current
assets 20,484,961 10,407,528 TOTAL ASSETS $41,695,923 $23,171,328
LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts
payable $1,212,226 $2,298,201 Notes payable 440,012 -- Tax payable
1,294,997 534,522 Accrued liabilities and other payables 3,585,634
2,565,726 Advance from management -- 71,508 Convertible notes, net
of discount due to 5,000,000 315,068 beneficial conversion feature
Total current liabilities 11,532,869 5,785,025 ACCRUED INTEREST ON
CONVERTIBLE NOTES 105,480 63,014 CONTINGENCIES AND COMMITMENTS
MINORITY INTEREST 16,219 15,080 STOCKHOLDERS' EQUITY Common stock,
$0.001 par value; 100,000,000 shares authorized, 36,425,094 and
25,015,089 shares issued and outstanding as of September 30, 2008
and December 31, 2007, respectively 36,425 25,015 Additional paid
in capital 30,347,469 19,070,908 Statutory reserve 1,057,854
832,467 Accumulated other comprehensive income 3,636,496 1,718,260
Accumulated deficit (5,036,889) (4,338,441) Total stockholders'
equity 30,041,355 17,308,209 TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $41,695,923 $23,171,328 CHINA RECYCLING ENERGY CORPORATION
AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS FOR THE THREE MONTHS ENDED SEPTEMBER 30, ENDED
SEPTEMBER 30, 2008 2007 2008 2007 Revenue Sales of products $ --
9,075,999 $ -- 4,294,836 Rental income 6,876,223 -- 4,259,807 --
Total revenue 6,876,223 9,075,999 4,259,807 4,294,836 Cost of sales
Cost of products -- 6,981,537 -- 3,303,719 Rental expense 4,810,011
-- 2,977,402 -- Total cost of sales 4,810,011 6,981,537 2,977,402
3,303,719 Gross profit 2,066,212 2,094,462 1,282,405 991,117
Interest income on sales- type leases 1,716,544 473,075 576,817
274,689 Total operating income 3,782,756 2,567,537 1,859,222
1,265,806 Operating expenses General and administrative expenses
2,142,728 358,726 638,949 15,183 Total operating expenses 2,142,728
358,726 638,949 15,183 Income from operations 1,640,028 2,208,811
1,220,273 1,250,623 Non-operating income (expenses) Investment
income 1,621 -- 17 -- Interest income (expense) (1,233,964) 80
(57,029) (24) Financial expense (1,991) (101) (990) (6) Other
income -- 210,367 -- 1,458 Other expense (248) -- (248) -- Exchange
loss (81,969) -- (1,524) -- Total non-operating income (expenses)
(1,316,551) 210,346 (59,774) 1,428 Income before income tax 323,477
2,419,157 1,160,499 1,252,051 Less: Income tax expense 796,458
399,049 427,960 187,456 Net income (loss) from continuing
operations (472,981) 2,020,108 732,539 1,064,595 Income from
operations of discontinued component -- 28,457 -- 5,352 Less:
minority interest 83 -- 27 -- Net income (loss) (473,064) 2,048,565
732,512 1,069,947 Other comprehensive item Foreign currency
translation gain (loss) 1,918,236 (220,092) 807,806 83,802
Comprehensive income $1,445,172 $1,828,473 $1,540,318 $1,153,749
Basic weighted average shares outstanding 30,642,187 17,147,268
36,425,094 17,147,268 Diluted weighted average shares outstanding
34,100,635 17,147,268 36,997,300 17,147,268 Basic net earnings
(loss) per share ($0.01) $0.12 $0.02 $0.06 Diluted net earnings
(loss) per share ($0.01) $0.12 $0.02 $0.06 * Basic and diluted loss
per share are the same because common stock equivalent are
anti-dilutive. * Accrued interest on convertible notes are added
back to net income for the computation of basic EPS. CHINA
RECYCLING ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2008 2007 CASH FLOWS FROM OPERATING ACTIVITIES: Net
income (loss) $ (473,064) $2,048,565 Adjustments to reconcile net
income (loss) to net cash used in operating activities:
Depreciation and amortization 10,848 -- Amortization of discount
related to conversion feature of convertible note 1,212,329 --
Stock option compensation expense 728,316 -- Accrued interest on
convertible notes 42,466 -- Minority interest 83 -- (Increase)
decrease in current assets: Account receivable -- 5,842 Investment
in sales type leases 734,692 (8,586,703) Interest receivable on
sales type lease 65,045 -- Prepaid equipment rent (6,567,350) --
Other receivables (49,847) -- Advances to suppliers -- 770,004
Increase (decrease) in current liabilities: Accounts payable
(1,217,170) 3,170,725 Unearned revenue -- (7,831) Advance from
customers -- (144,529) Tax payable 694,556 466,268 Accrued
liabilities and other payables 1,097,127 1,974,834 Net cash used in
operating activities (3,721,969) (302,825) CASH FLOWS FROM
INVESTING ACTIVITIES: Restricted cash (823,428) -- Acquisition of
property & equipment (113,906) -- Construction in progress
(9,986,879) -- Net cash used in investing activities (10,924,213)
-- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock
9,032,258 -- Convertible notes 5,000,000 -- Repayment to management
(74,699) -- Notes payable 429,615 -- Advance from shareholder --
48,015 Net cash provided by financing activities 14,387,174 48,015
EFFECT OF EXCHANGE RATE CHANGE ON CASH & CASH EQUIVALENTS
330,608 9,066 NET INCREASE (DECREASE) IN CASH & CASH
EQUIVALENTS 71,600 (245,744) CASH & CASH EQUIVALENTS, BEGINNING
OF PERIOD 1,634,340 252,125 CASH & CASH EQUIVALENTS, END OF
PERIOD $1,705,940 $6,381 Supplemental Cash flow data: Income tax
paid $152,049 $35,281 Interest paid $ -- $ -- DATASOURCE: China
Recycling Energy Corp. CONTACT: In China: Mr. Leo Wu, Investor
Relations, China Recycling Energy Corp. at +86-29-8765-1096 or ;
Or, In the U.S.: Mr. Valentine Ding, Investor Relations, Grayling
Global at +1-646-284-9412 or Web site: http://www.creg-cn.com/
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