China Recycling Energy Corp. Reports Unaudited Financial Results for Second Quarter 2009

XI'AN, China, Aug. 21 /PRNewswire-Asia-FirstCall/ -- China Recycling Energy Corp. (OTC:CREG) (BULLETIN BOARD: CREG)  ("CREG" or "the Company"), a leading industrial waste-to-energy solution provider in China, on August 19, 2009 announced unaudited financial results for the second quarter of 2009 ended June 30, 2009.

  Highlights

  For Three months ended June 30, 2009

  -- Revenue was $11.1 million compared to $4.3 million in the first quarter
     of 2009 and $2.6 million in the second quarter of 2008.
  -- Income from operations was $3.3 million, compared to $1.7 million in
     the first quarter of 2009 and $503,413 in the second quarter of 2008.
  -- General Administrative Expenses were $560,303, compared to $796,438 in
     the first quarter of 2009 and $855,169 in the second quarter of 2008.
  -- Net income was $3.2 million with a Diluted EPS of $0.07 versus net
     income of $1.1 million and a diluted EPS of $0.02 in the first quarter
     of 2009 and a net loss of $3.8 million and a diluted EPS of $(0.12) in
     the second quarter of 2008 (restated).
  -- Non-GAAP Net Income and Non-GAAP Diluted EPS, as defined below, was
     $3.3 million and $0.08 in the second quarter of 2009, compared to
     $1.5 million and $0.03 in the first quarter of 2009 and approximately
     $578,000 and $0.02 in the second quarter of 2008.

  For Six months ended June 30, 2009

  -- Revenue was $15.5 million, compared to $2.6 million in the same period
     of 2008.
  -- Interest income from sales-type leases was $2.3 million versus $1.1
     million in the same period of 2008.
  -- Income from operations was $5 million versus $419,755 in the same
     period of 2008.
  -- Net income was $4.3 million with a Diluted EPS of $0.10, compared to a
     net loss of $3.6 million and a Diluted EPS of $(0.17) in the same
     period of 2008 (restated).
  -- Non-GAAP Net Income from Operations, as defined below, was $5.4 million,
     compared with $1.1 million in the same period of 2008.
  -- Non-GAAP Net Income was $4.8 million with Non-GAAP Diluted EPS of $0.11,
     compared with approximately $639,000 and $0.02 in the same period of
     2008.
  -- Net cash flow provided by operations was $9 million, compared with net
     cash used in operations of $3.8 million in the same period of 2008.
  -- Cash on hand at June 30, 2009 was $14.7 million versus $7.3 million at
     year-end 2008.




"I am pleased with our results for the second quarter, which were driven by sales of our energy recycling systems to our customers," Mr. Guohua Ku, Chairman and CEO of CREG, said. "With one more system put into operation, we have achieved a significant move forward to build up a strong fleet of waste-to-energy systems, which not only creates additional clean energy for our customers but also generates steady cash revenue streams for us in the future. During the past six months, we had two major projects delivered to our customers. Compared with last year, we are in better financial position and have more confidence in our engineering prowess and performance capabilities. Now we are more confident and more ready to pursue the large-scale, clustered power system projects that we have engaged with some industrial giants in China. We are building up a brand that customers can trust."

  Summary of Financial Results

  (In '000s of U.S. Dollars,        SIX MONTHS ENDED     THREE MONTHS ENDED
   except for per share data)           JUNE 30                JUNE 30
                                              2008                   2008
                                      2009 (RESTATED)        2009 (RESTATED)
  Revenue                            15,460  2,616          11,137   2,616
  Gross profit                        3,994    784           2,692     784
  Income from Operations              4,971    420           3,267     503
  Net income                          4,310 (4,678)          3,235  (3,790)
  Diluted EPS                          0.10  (0.17)           0.07   (0.12)
  Add:
    Compensation expenses for
     stock options                      442    632              53     307
    Amortization of discount on
     conversion feature of
     convertible notes                       4,685                   4,061
  Non-GAAP Income from
   operations(1)                      5,413  1,052           3,320     810
  Non-GAAP net income(1)              4,752    639           3,288     578
  Non-GAAP diluted EPS(1)              0.11   0.02            0.08    0.02


  (1) CREG provides income from operations, net income and earnings per
      share on a non-GAAP basis that excludes non-cash, share-based
      compensation expense and non-cash interest expense on the amortization
      of the beneficial conversion feature for our convertible notes, as
      described below, to enable investors to better assess the Company's
      operating performance. The non-GAAP measures are described below and
      reconciled to the corresponding GAAP measure in the section below
      titled "About Non-GAAP Financial Measures."


  For Three Months Ended June 30, 2009 Financial Results


For the second quarter of 2009, CREG generated revenue of $11.1 million, a 158.1% increase from $4.3 million in the first quarter of 2008 and a 325.6% growth from $2.6 million in the second quarter of 2008. CREG sold one energy recycling system in the second quarter. In the second quarter, product sales accounted for 85% of revenue while rental income from operational leases of industrial plants contributed the other 15%. CREG recorded only rental income revenue in the first quarter of 2009 and the second quarter of 2008.

Gross profit was $2.7 million in the second quarter of 2009, compared with $1.3 million in the first quarter of 2009 and $783,807 in the second quarter of 2008. Gross margin was 24.2%, compared to 30% both in the first quarter of 2009 and the second quarter of 2008. The change in gross margin was primarily because of the higher profitability of the operational rental business compared with straight product sales. CREG did not record any product sales in the first quarter of 2009 or the second quarter of 2008.

Interest income from sales-type leases in the second quarter of 2009 was $1.13 million, almost the same as $1.20 million in the first quarter of 2009 but 97.5% higher than $574,775 in the second quarter of 2008. The growth for last year was primarily due to the inception of one sales-type lease in December 2008 that began generating steady interest income this year.

General and administrative expenses were $560,303 in the second quarter of 2009, down 29.6% from $795,438 in the first quarter of 2009 and 34.5% less than $855,169 in the second quarter of 2008. The decrease was primarily due to management's efficient control on employee compensation and marketing and our responsibility for the daily maintenance and repair of the energy saving system expenses.

Non-GAAP Income from Operations, as defined below, was $3.3 million in the second quarter of 2009, compared with $2.10 million in the first quarter of 2009 and approximately $810,000 in the second quarter of 2008. GAAP income from operations in the second quarter of 2009 was $3.3 million compared with $1.7 million in the first quarter of 2009 and $503,413 in the second quarter of 2008.

Non-GAAP net income in the second quarter of 2009 was $3.3 million, compared with $1.5 million in the first quarter of 2009 and approximately $578,000 in the second quarter of 2008. Non-GAAP diluted EPS in the second quarter of 2009 was $0.08 compared with $0.03 in the first quarter of 2009 and $0.02 in the second quarter of 2008. GAAP net income was $3.2 million in the second quarter of 2009, compared with $1.1 million in the first quarter of 2009 and a net loss of $3.8 million in the second quarter of 2008. GAAP diluted EPS was $0.07 in the second quarter of 2009, compared with $0.02 in the first quarter of 2009 and a diluted loss per share of $0.12 in the second quarter of 2008.

For Six Months Ended June 30, 2009 Financial Results

For the six months ended June 30, 2009, CREG had total revenue of $15.5 million, 490.9% more than the $2.6 million in revenue in the same period of 2008. Of the total revenue, product sales revenue was $9.5 million and rental income from operational leases was $6 million. In the same period of 2008, CREG had rental income of $2.6 million.

Gross profit for the six months ended June 30, 2009 was $4 million, 409.5% higher than the $783,807 in the same period of 2008. Gross margin was 25.82% for the six months ended June 30, 2009 versus 30% in the same quarters of 2008. The change in gross margin was primarily because of higher profitability of operational rental business compared with straight product sales.

For the six months ended June 30, 2009, interest income from sales-type leases was $2.3 million, a 104.7% increase from $1.1 million in the same period of 2008. The growth was primarily due to the inception of one sales-type lease in December 2008 that began generating steady interest income this year.

General and administrative expenses were $1.4 million for the six months ended June 30, 2009, approximately 10% less than the $1.5 million over the same period of last year. The decrease was primarily due to management's efficient control of employee compensation and marketing and our responsibility for the daily maintenance and repair of the energy saving system expenses.

For the six months ended June 30, 2009, Non-GAAP Income from Operations was $5.4 million compared with $1.1 million in the same period of 2008. GAAP operating income for the six months ended June 30, 2009 was $5 million compared with $0.42 million in the same period of 2008.

For the six months ended June 30, 2009, Non-GAAP net income was $4.8 million, compared with $0.64 million in the same period of 2008. Non-GAAP diluted EPS for the six months ended June 30, 2009 was $0.11 compared with $0.02 in the same period of 2008. GAAP net income for the six months ended June 30, 2009 was $4.3 million compared with a net loss of $4.7 million in the same period of 2008. For the six months ended June 30, 2009, GAAP diluted EPS was $0.10, compared with a diluted loss per share of $0.17 in the same period of 2008.

As of June 30, 2009, cash and cash equivalents were $14.7 million, compared with $7.3 million at year-end 2008. Total investments in sales-type leases were $25.4 million, compared with $16.8 million as of the end of 2008. Net working capital increased to $14 million, from $12.1 million at December 31, 2008. Total shareholders' equity was $39.1 million, compared with $32.4 million at December 31, 2008.

Net cash provided by operating activities was $9 million in the six months of 2009, compared with net cash outflow from operations of $3.8 million in the same period of 2008.

Business Outlook

CREG reaffirms its expectations for 2009 revenue to be in the range of $33 million to $36 million, with net income, excluding non-cash charges, of approximately $8 million. These targets are based on the Company's current views on the operating and market conditions, which are subject to change.

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 November 2007 and April 2008, respectively, as well as the compensation expenses for the fair value of stock options. CREG uses non-GAAP financial measures when it internally evaluates the performance of 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 for which charges are excluded from the non-GAAP financial measure.

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.

                        FINANCIAL TABLES TO FOLLOW



           CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED BALANCE SHEETS

                                           AS OF                 AS OF
                                       JUNE 30, 2009       DECEMBER 31, 2008
                                        (UNAUDITED)            (RESTATED)
  ASSETS
  CURRENT ASSETS

    Cash & cash equivalents             $14,662,204             $7,267,344
    Investment in sales type
     leases, net                          3,296,294              1,970,591
    Interest receivable on sales
     type leases                            230,078                 82,406
    Prepaid expenses                         20,451              3,849,087
    Other receivables                       112,178                102,850
    Inventory                            13,408,481             10,534,633

      Total current assets               31,729,686             23,806,911

  NON-CURRENT ASSETS
    Investment in sales type
     leases, net                         22,131,128             14,837,879
    Advance for equipment                        --              2,642,889
    Property and equipment, net              88,577                 95,359
    Construction in progress              4,499,480              3,731,016
    Intangible assets, net                    9,583                  3,482

      Total non-current assets           26,728,768             21,310,625


  TOTAL ASSETS                          $58,458,454            $45,117,536

  LIABILITIES AND STOCKHOLDERS'
   EQUITY
  CURRENT LIABILITIES

    Accounts payable                     $3,243,403             $1,186,902
    Bank loan payable                     2,927,443                     --
    Unearned revenues                       658,675                658,415
    Taxes payable                           273,087              1,313,949
    Accrued liabilities and
     other payables                       2,623,401              3,528,527
    Convertible notes                     8,000,000              5,000,000

      Total current liabilities          17,726,009             11,687,793

  DEFERRED TAX LIABILITY                    946,845                823,407

  ACCRUED INTEREST ON CONVERTIBLE
   NOTES                                    335,836                168,494

  CONTINGENCIES AND COMMITMENTS

  STOCKHOLDERS' EQUITY
    Common stock, $0.001 par value;
     100,000,000 shares authorized,
     38,778,035 and 36,425,094 shares
     issued and outstanding as of
     June 30, 2009 and December 31,
     2008, respectively                      38,778                 36,425
    Additional paid in capital           36,387,842             33,947,963
    Statutory reserve                     1,883,400              1,319,286
    Accumulated other
     comprehensive income                 3,581,495              3,582,587
    Accumulated deficit                  (2,718,249)            (6,464,598)

      Total Company
       stockholders' equity              39,173,266             32,421,663

      Noncontrolling interest               276,498                 16,179

      Total equity                       39,449,764             32,437,842

  TOTAL LIABILITIES AND EQUITY          $58,458,454            $45,117,536



             CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (UNAUDITED)

                                SIX MONTHS ENDED       THREE MONTHS ENDED
                                    JUNE 30,                JUNE 30,
                                2009        2008        2009        2008
                                         (RESTATED)              (RESTATED)
  Revenue
    Sales of products       $9,513,077          $--  $9,513,077         $--
    Rental income            5,946,892    2,616,416   1,623,999   2,616,416

  Total revenue             15,459,969    2,616,416  11,137,076   2,616,416
  Cost of sales
    Cost of products         7,317,751           --   7,317,751          --
    Rental expense           4,148,572    1,832,609   1,126,899   1,832,609
  Total cost of sales       11,466,323    1,832,609   8,444,650   1,832,609
  Gross profit               3,993,646      783,807   2,692,426     783,807
  Interest income on
   sales-type leases         2,333,472    1,139,727   1,134,941     574,775
    Total operating income   6,327,118    1,923,534   3,827,367   1,358,582

  Operating expenses
    General and
     administrative expenses 1,355,741    1,503,779     560,303     855,169
    Total operating expenses 1,355,741    1,503,779     560,303     855,169
  Income from operations     4,971,377      419,755   3,267,064     503,413
  Non-operating income
   (expenses)
    Interest income                 --       14,846          --      14,846
    Interest expense          (433,768)  (4,664,384)   (375,549) (3,921,106)
    Financial expense           (2,764)      (1,001)       (670)       (579)
    Other income                    --        1,604          --          23
    Exchange loss               (2,389)     (80,445)     (2,389)    (69,256)
    Total non-operating
     expenses                 (438,921)  (4,729,380)   (378,608) (3,976,072)
  Income (loss) before
   income tax                4,532,456   (4,309,625)  2,888,456  (3,472,659)

  Income tax expense           225,151      368,498    (342,960)    317,551
  Net income (loss) from
   operations                4,307,305   (4,678,123)  3,231,416  (3,790,210)
  Less: Net income
   attributable to
   noncontrolling interest      (3,158)          56      (3,198)         29

  Net income (loss)          4,310,463   (4,678,179)  3,234,614  (3,790,239)
  Other comprehensive item
    Foreign currency
     translation gain (loss)    (1,092)   1,110,475      28,803   1,035,750

  Comprehensive
   income (loss)            $4,309,371  $(3,567,704) $3,263,417 $(2,754,489)
  Basic weighted average
   shares outstanding       37,348,071   27,718,959  38,260,905  30,422,829

  Diluted weighted average
   shares outstanding       43,511,301   32,639,681  44,600,370  34,602,018

  Basic net earnings
   per share                     $0.12       $(0.17)      $0.08      $(0.12)
  Diluted net earnings
   per share                     $0.10       $(0.17)      $0.07      $(0.12)


  *  Interest expense on convertible notes are added back to net income for
     the computation of diluted EPS
  *  Diluted weighted average shares outstanding includes shares estimated
     to be converted from the Second Note issued on April 29, 2008 with
     conversion price contingent upon future net profits.
  *  Basic and diluted loss per share is the same due to anti-dilutive
     feature of the securities.



             CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (UNAUDITED)

                                                  SIX MONTHS ENDED JUNE 30,
                                                      2009         2008
                                                                (RESTATED)
  CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income (loss) including
     noncontrolling interest                       $4,307,305   (4,678,123)
    Adjustments to reconcile net income
     (loss) including noncontrolling
     interest to net cash provided by
     (used in) operating activities:
    Depreciation and amortization                      15,018        5,000
    Amortization of discount related to
     conversion feature of convertible note                --    4,684,932
    Stock option compensation expense                 442,191      632,444
    Accrued interest on convertible notes             167,342      (20,548)
    Changes in deferred tax                           123,438           --
      (Increase) decrease in current assets:
        Accounts receivable                                --     (843,015)
        Interest receivable on sales type leases      230,051           --
        Prepaid expenses                            3,899,203   (9,213,073)
        Other receivables                              (1,708)     (22,193)
        Inventory                                    (299,355)          --
      Increase (decrease) in current liabilities:
        Accounts payable                            2,055,791    4,392,250
        Taxes payable                              (1,041,599)     267,704
        Accrued liabilities and other payables       (906,267)   1,041,821
    Net cash provided by (used in)
     operating activities                           8,991,410   (3,752,801)

  CASH FLOWS FROM INVESTING ACTIVITIES:
        Investment in sales type leases            (8,988,974)     559,436
        Acquisition of property & equipment           (14,297)     (85,789)
        Construction in progress                     (766,900)  (5,613,063)
    Net cash used in investing activities          (9,770,171)  (5,139,416)

  CASH FLOWS FROM FINANCING ACTIVITIES:
        Issuance of common stock                    2,000,000    9,032,258
        Issuance of convertible notes               3,000,000    5,000,000
        Bank loan payable                           2,927,101           --
        Cash contribution from
         noncontrolling interest                      263,439           --
        Due from management                            (3,440)     (73,906)
    Net cash provided by financing activities       8,187,100   13,958,352
  EFFECT OF EXCHANGE RATE CHANGE ON CASH &
   CASH EQUIVALENTS                                   (13,479)     301,119
  NET INCREASE IN CASH & CASH EQUIVALENTS           7,394,860    5,367,254
  CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD      7,267,344    1,634,340
  CASH & CASH EQUIVALENTS, END OF PERIOD          $14,662,204   $7,001,594

  Supplemental Cash flow data:
     Income tax paid                               $1,074,560     $105,433
     Interest paid                                   $261,858          $--


DATASOURCE: China Recycling Energy Corp.



CONTACT: In China: In China, Mr. Leo Wu, Investor Relations of China

Recycling Energy Corp., [phone],  



Web site: http://www.creg-cn.com/ 

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