China Recycling Energy Corporation Reports 2012 Second Quarter Financial Results

XI'AN, China, August 16, 2012 /PRNewswire-Asia-FirstCall/ -- China Recycling Energy Corp. (NASDAQ: CREG; "CREG" or "the Company"), a leading industrial waste-to-energy solution provider in China, today announced its financial results for the 2012 Second quarter ended June 30, 2012.

Second Quarter 2012 Financial Highlights (Comparison data, except for Cash and Cash Equivalents, is for the same period Year-over-Year)

• Net sales increased 10.1% to $403k from $366k
• Income from operations was $4.3 million, as compared to income from operations of $4.1 million.
• The net income was $1.2 million, or $0.03 per share, as compared to net income of $3.7 million, or $0.07 per diluted share
• The cash and cash equivalents was $41.6 million as of June 30 2012, an increase of 300% comparing to $14.9 million as of December 31, 2011

Summary of Financial Results:

Mr. Guohua Ku, Chairman and Chief Executive Officer of China Recycling Energy, discussed quarterly financial results, current projects and the company's' growth potential, "As expected, we do not have project completion during the second quarter hence zero systems sales for the quarter. Interest income from the sales-type leases is our other major revenue in addition to systems sales revenue. The interest income has declined marginally as we now have interest income from 11 systems compared to 12 systems in 2011. Our business model is such that we frequently experience non-linear revenue flows on a quarterly basis, which is not indicative of the long-term growth potential of the Company. We have a number of projects in the development phase - none of which are slated for completion until the end of calendar year 2012, and we have a solid pipeline of new projects backed by a strong balance sheet.

Mr. Ku continued, "In terms of projects under construction, currently we have two projects, Phase III of Erdos Power Generation Project and Shannxi Datong Coal Group Power Generation Project, under construction with a total capacity of 48 megawatts. The Company temporarily suspended construction of the Erdos Phase III due to the restructuring of products and industry by the customer. The Datong project was previously halted due to business reorganization of Shannxi Datong and a renegotiation of one of the power stations with Xi'an TCH to amend certain construction plans. The Company resumed the construction in April 2012 and we expect to complete this project by the end of 2012."

"We remain positive and optimistic on the future earnings potential for China Recycling Energy Corporation," concluded by Mr. Ku.

Financial Results for Three Months Ended June 30, 2012

Total sales, including system sales and contingent rental income, for the three months ended June 30, 2012 was $0.40 million while total sales for the comparable period of 2011 was $0.37 million, a increase of $0.03 million as a result of increases in contingent rental income. Of the total sales, sales of systems for the three months ended June 30, 2012 was $0, as compared to $0.07 million for the comparable period of 2011, a decrease of $0.07 million. During the second quarter 2012, none of the Company's power stations under construction has been completed and sold. In comparison, net sales of systems for the comparable period of 2011 were due to the change of the exchange rate. The Company received contingent rental income of $0.40 million from usage of electricity in addition to the minimum lease payments in Q2 of 2012, compared to $0.29 million for the comparable period in 2011. For the sales-type lease, sales and cost of sales ("COS") are recorded at the time of leases; interest income from the sales-type leases is our other major revenue source in addition to sales revenue.

Cost of sales for the three months ended June 30, 2012 was $28,568 while our COS for the comparable period of 2011 was $68,640, a decrease of $40,072. This decrease was mainly due to the fluctuation in cost associated with contingent rentals.

Gross profit was $0.37 million for the three months ended June 30, 2012 compared to $0.30 million for the comparable period of 2011, a gross margin of 93% and 81% for the comparable period of 2012 and 2011, respectively.

Interest income on sales-type leases for the three months ended June 30, 2012 was $4.71 million, a $0.78 million decrease from $5.49 million for the comparable period of 2011. During the second quarter of 2012, interest income was derived from 11 systems: one TRT systems, two CHPG systems, two systems with Erdos Phase I project and three systems of Erdos Phase II project, the Pucheng biomass power generation system, Shenqiu biomass power generation system and Zhongbao WHPG system. During the second quarter of 2011, the interest income was derived from 12 systems: two TRT systems, two CHPG systems, one WGPG system, two waste heat power generating systems associated with our Erdos Phase I project and three systems of Erdos Phase II project, the Pucheng biomass power generation system and Zhongbao WHPG system.

Operating expenses consisted of selling, general and administrative expenses totaling $0.81 million for the three months ended June 30, 2012 as compared to $1.68 million for the comparable period of 2011, a decrease of $0.87 million or 52%. The decrease was mainly due to $0.25 million for stock option compensation, $0.47 million for legal expense and $0.15 million for IR service, insurance and travel expense.

Our net income for the three months ended June 30, 2012 was $1.22 million compared to $3.70 million for the comparable period of 2011, a decrease of $2.48 million. This decrease in net income was mainly due to the decreased total sales, interest income, and non-operating income on sales type leases compared with the comparable period of 2011.

For the three months ended June 30, 2012, GAAP diluted EPS was $0.03 with approximately 51,379,091 shares of common stock outstanding, as compared with $0.07 in the same period of 2011 when the Company had 55,447,423 million shares of common stock outstanding.

As of June 30, 2012, the Company had cash and cash equivalents of $41.65 million, other current assets were $11.80 million and current liabilities were $35.28 million. Total shareholders' equity was $111.11 million, as compared with $108.21 million as of December 31, 2011.

Net Investment in Sales-Type Leases as of June 30, 2012

The Company, through its subsidiary, Shanghai TCH Energy Technology Co., Ltd ("Shanghai TCH"), sells and leases energy saving systems and equipment. Under sales-type leases, Shanghai TCH leased TRT systems to Zhangzhi with terms of 13 years, and leased CHPG systems to Tong Chuan Shengwei and Jin Yang Shengwei respectively for 5 years, BMPG systems to Pucheng for 15 years, BMPG systems to Shenqiu for 11 years, and 5 power generating systems from waste heat from metal refining to Erdos for 20 years.

The components of the net investment in sales-type leases as of June 30, 2012 and December 31, 2011 are as follows:

As of June 30, 2012, the future minimum rentals to be received on non-cancelable sales-type leases by years are as follows:

Non-GAAP Financial Measures

For the 2012 second quarter, Non-GAAP net income was $2.23 million, as compared with $1.73 million in the 2012 first quarter and $2.23 million in the 2011 second quarter.

The Company believes that "adjusted net income" and "adjusted earnings per share" information, when taken in conjunction with reported results, provide a useful measure of financial performance since they eliminate the impact of certain non-recurring, non-cash charges. These non-GAAP measures should not be considered in isolation or as a substitute for the most comparable GAAP measures. Additionally, the non-GAAP financial measures used by CREG may not be comparable to non-GAAP financial measures used by other companies.

10Q Filing

For more information regarding China Recycling Energy Corp.'s financial performance during the quarter ended June 30, 2012, please refer to the Quarterly Report on Form 10-Q, which was filed with the Securities and Exchange Commission on Aug 13, 2012.

About Non-GAAP Financial Measures

This press release contains non-GAAP financial measures for earnings that exclude the effect of non-cash, non-operating expenses related to the Convertible Notes issued in April 2008, and the compensation expenses for the fair value of stock options, as well as deferred income tax expenses. The Company uses non-GAAP financial measures when it internally evaluates the performance of its business and makes operating decisions, including internal budgeting and performance measurement. The Company believes that providing the non-GAAP measures is useful to investors for a number of reasons. The non-GAAP measures provide a consistent basis for investors to understand CREG's financial performance in comparison to historical periods, and it allows investors to evaluate CREG's performance using the same methodology and information as that used by the Company's management. However, investors need to be aware that non-GAAP measures are subject to inherent limitations because they do not include all of the expenses included under GAAP, and they involve the exercise of judgment of which charges are excluded from the non-GAAP financial measure.

About China Recycling Energy Corp.

China Recycling Energy Corp. (NASDAQ: 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 percent 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:

Mr. David Chong, Chief Financial Officer
China Recycling Energy Corp.
Tel: +86-1370-1813139
Email: chongscd@creg-cn.com