-- Teleconference to Be Held Thursday, August 21, 2008 at 8:30 a.m. EDT
XI’AN, China, Aug. 21 /Xinhua-PRNewswire/ -- China Recycling Energy Corp. (OTC Bulletin Board: CREG) (“CREG” or “the Company”), a leading industrial waste-to-energy solution provider in China, today announced its second quarter 2008 financial results for the three months ended June 30, 2008.
Financial Results Overview
During the second quarter of 2008, the Company generated sales of US$2.6 million, all of which came from leasing of energy-saving equipment in China. The Company had no sales in the same period of 2007 due to changing of its business type in the first quarter of 2007.
Gross profit for the second quarter of 2008 was US$783,807, compared with zero in the same period of 2007. Gross margin was 30.0%, compared with zero in the same period of 2007.
Interest income from sales-type leases for energy-saving equipment was US$574,775, compared with US$148,150 in the same period of 2007.
"The results of the second quarter prove to us our sales-type leasing business model is working and our revenue is expanding," said Mr. Guangyu Wu, CEO of CREG. "The two new projects that came into operation in April and May have started to generate rental income, albeit in small amounts as the second-quarter results only reflect less than two months of their revenue contribution. They are expected to join our three existing top-gas recovery turbine (“TRT”) projects in full contribution starting in the third quarter. In addition, we expect to launch one more TRT and two cement heat power generation projects by October this year.”
Mr. Wu continued, “With the continued policy emphasis in China on energy efficiency and environmental consciousness, we reaffirm our 2008 and 2009 guidance.”
General and administrative expenses were US$855,169 for the second quarter ended June 30, 2008, compared with US$86,501 in the same period of 2007. The increase was mainly attributable to changing of business type and accrued compensation expense of approximately $307,289 for stock options to employees in the second quarter. Effective June 25, 2008, the Company cancelled all vested shares and accepted Optionees’ forfeiture of any unvested shares underlying the currently outstanding options. Therefore, expenses related to stock options will no longer be recorded after June 25, 2008.
Operating income was US$503,413 in the second quarter of 2008, compared with US$61,649 in the same period of 2007.
Total non-operating expenses were US$503,469 in the second quarter of 2008, compared with non-operating income of US$208,968 in the same period of 2007. This increase was mainly due to accrued interest expense of US$589,041 on amortized beneficiary conversion feature for the convertible note in the second quarter prior to the rescission date of June 26, 2008. This non-cash charge is one-time and will no longer occur in the future.
Net loss for the second quarter of 2008 was US$317,636, or US$0.01 loss per diluted share, compared with net income of US$219,181, or US$0.01 earnings per diluted share, in the same period of 2007. The decrease in net income (loss) was mainly due to income tax expenses of US$317,551, compared with US$51,436 in the same period of 2007.
Excluding the stock-based compensation expense of US$307,289 and the amortization of beneficiary conversion feature for the cancelled convertible note of US$ 589,041, pro forma net income for the quarter was US$578,723.
Balance Sheet
The Company’s balance sheet at June 30, 2008 included cash and cash equivalents of US$7.0 million, compared with US$1.6 million at December 31, 2007. Total investments in sales-type leases were US$9.1 million, compared to US$9.0 million at December 31, 2007. Net working capital increased to US$12.8 million from US$7.0 million at December 31, 2007. Total shareholders’ equity was US$29.0 million, compared with US$17.3 million at December 31, 2007.
Update on Recent Projects
The Company is expecting to complete by October 2008 the construction of a 1,080-cubic-meter blast furnace for the third phase of Zhangzhi Steel Co., Ltd.’s top-gas recovery turbine project in Shanxi Province. The total contract value is approximately US$4.4 million. This project is expected to produce 45-million KW/h annual energy output upon completion.
In addition, the Company is expecting to complete by October 2008 the construction of two sets of 12MW pure low-temperature power generator systems for Shaanxi Province-based cement manufacturer Shenwei Group. The project will have an estimated annual power generated capacity of 180-million KW/h once the two systems are put into operation. The Company is using the BOT (build, operate, transfer) model to build and operate the systems. The operation period will be five years. During the operation period, Shenwei Group will pay the Company monthly electricity fee based on the actual power generated by the systems at RMB 0.4116 per KW/h as agreed.
As of August 15, 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 expects revenues for the 2008 year to be in the range of US$17 million to US$19 million and net income, excluding non-cash items, in the range of US$4.5 million to US$5 million.
The Company expects revenues for the 2009 year to be in the range of US$33 million and US$36 million, with net income, excluding non-cash items, of approximately US$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 Thursday, August 21, 2008, at 8:30 a.m. Eastern Daylight Time / 8:30 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 Thursday, August 28, 2008 at 11:59 p.m. Eastern Daylight 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: 294872.
About China Recycling Energy Corp.
China Recycling Energy Corp. (OTC Bulletin Board: CREG) ("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.
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.
CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF AS OF
JUNE 30, DECEMBER 31,
2008 2007
(UNAUDITED) (AUDITED)
ASSETS
CURRENT ASSETS
Cash & cash equivalents $7,001,594 $1,634,340
Accounts receivable 867,473 --
Investment in sales type leases,
net 1,247,448 1,081,981
Interest receivable -- 144,262
Prepaid equipment rent 9,479,730 --
Other receivables 57,828 32,902
Inventory 10,497,157 9,870,315
Total current assets 29,151,230 12,763,800
NON-CURRENT ASSETS
Investment in sales type leases,
net 7,918,642 7,933,780
Advance for equipment 2,624,930 2,467,579
Property and equipment, net 83,133 --
Construction in progress 5,613,063 --
Intangible assets, net -- 6,169
Total non-current assets 16,239,768 10,407,528
TOTAL ASSETS 45,390,998 23,171,328
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES
Accounts payable 6,963,837 2,298,201
Tax payable 855,615 534,522
Accrued liabilities and other
payables 3,521,508 2,565,726
Advance from management -- 71,508
Convertible notes, net of discount
due to beneficial conversion
feature 5,000,000 315,068
Total current liabilities 16,340,960 5,785,025
ACCRUED INTEREST ON CONVERTIBLE
NOTES 42,466 63,014
CONTINGENCIES AND COMMITMENTS
MINORITY INTEREST 16,095 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 June 30, 2008 and
December 31, 2007,respectively 36,425 25,015
Additional paid in capital 30,251,407 19,070,908
Statutory reserve 926,328 832,467
Accumulated other comprehensive
income 2,828,735 1,718,260
Accumulated deficit (5,051,418) (4,338,441)
Total stockholders' equity 28,991,477 17,308,209
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY 45,390,998 23,171,328
CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE SIX MONTHS
ENDED JUNE 30,
2008 2007
Revenue
Sales of products $ -- $ 4,781,163
Rental income 2,616,416 --
Total revenue 2,616,416 4,781,163
Cost of sales
Cost of products -- 3,677,818
Rental expense 1,832,609 --
Total cost of sales 1,832,609 3,677,818
Gross profit 783,807 1,103,345
Interest income on sales-type leases 1,139,727 198,386
Total operating income 1,923,534 1,301,731
Operating expenses
General and administrative expenses 1,503,779 343,543
Total operating expenses 1,503,779 343,543
Income from operations 419,755 958,188
Non-operating income (expenses)
Investment income 1,604 --
Interest income 14,846 104
Interest expense (1,191,781) --
Other income -- 208,909
Financial expense (1,001) (95)
Exchange loss (80,445) --
Total non-operating income (expenses) (1,256,777) 208,918
Income (loss) before income tax (837,022) 1,167,106
Income tax expense 368,498 211,593
Net income (loss) from continuing
operations (1,205,520) 955,513
Income from operations of
discontinued component -- 23,105
Less: minority interest 56 --
Net income (loss) (1,205,576) 978,618
Other comprehensive item
Foreign currency translation 1,110,475 (303,894)
Comprehensive Income (loss) (95,101) 674,724
Basic weighted average shares
outstanding 27,718,959 17,147,268
Diluted weighted average shares
outstanding 32,639,681 17,147,268
Basic net earnings (loss) per share (0.04) 0.06
Diluted net earnings (loss) per share (0.04) 0.06
CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS
ENDED JUNE 30
2008 2007
Revenue
Sales of products $ -- $ --
Rental income 2,616,416 --
Total revenue 2,616,416 --
Cost of sales
Cost of products -- --
Rental expense 1,832,609 --
Total cost of sales 1,832,609 --
Gross profit 783,807 --
Interest income on sales-type leases 574,775 148,150
Total operating income 1,358,582 148,150
Operating expenses
General and administrative expenses 855,169 86,501
Total operating expenses 855,169 86,501
Income from operations 503,413 61,649
Non-operating income (expenses)
Investment income 1,604 --
Interest income 758,124 59
Interest expense (1,191,781) --
Other income (1,581) 208,909
Financial expense (579) --
Exchange loss (69,256) --
Total non-operating income (expenses) (503,469) 208,968
Income (loss) before income tax (56) 270,617
Income tax expense 317,551 51,436
Net income (loss) from continuing
operations (317,607) 219,181
Income from operations of
discontinued component -- --
Less: minority interest 29 --
Net income (loss) (317,636) 219,181
Other comprehensive item
Foreign currency translation 1,035,750 40,098
Comprehensive Income (loss) 718,114 259,279
Basic weighted average shares
outstanding 30,422,829 17,147,268
Diluted weighted average shares
outstanding 34,602,018 17,147,268
Basic net earnings (loss) per share (0.01) 0.01
Diluted net earnings (loss) per share (0.01) 0.01
CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS
ENDED JUNE 30,
2008 2007
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net (loss) income $(1,205,576) $978,618
Adjustments to reconcile
net (loss) income to
net cash provided by
(used in) operating
activities:
Depreciation and
amortization 5,000 --
Amortization of discount
related to conversion
feature of convertible
note 1,212,329 --
Stock option
compensation expense 632,444 --
Accrued interest on
convertible notes (20,548) --
Minority interest 56 --
(Increase) decrease in
current assets:
Account receivable (843,015) 6,361
Gross investment on
sales type leases 559,436 --
Advances to suppliers -- 688,311
Prepaid equipment rent (9,213,073)
Other receivables (22,193) --
Inventory -- (1,309,002)
Increase (decrease) in
current liabilities:
Accounts payable 4,392,250 2,278,701
Unearned revenue -- (7,776)
Advance from customers -- (143,527)
Tax payable 267,704 254,109
Accrued liabilities and
other payables 1,041,821 1,432,657
Net cash (used in)
provided by operating
activities (3,193,365) 4,178,452
CASH FLOWS FROM
INVESTING ACTIVITIES:
Investment in sales-type
leases -- (4,471,351)
Acquisition of property
& equipment (85,789) (3,751)
Construction in progress (5,613,063) --
Net cash used in
investing activities (5,698,852) (4,475,102)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Issuance of common stock 9,032,258 --
Convertible notes 5,000,000 --
Repayment to management (73,906) --
Advance from shareholder -- 36,137
Net cash provided by
financing activities 13,958,352 36,137
EFFECT OF EXCHANGE RATE
CHANGE ON CASH & CASH
EQUIVALENTS 301,119 11,981
NET INCREASE (DECREASE)
IN CASH & CASH
EQUIVALENTS 5,367,254 (248,532)
CASH & CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,634,340 252,125
CASH & CASH EQUIVALENTS,
END OF PERIOD 7,001,594 3,593
Supplemental Cash flow
data:
Income tax paid 105,433 35,281
Interest paid -- --
