China Recycling Energy Corporation Reports Second Quarter 2014 Financial Results

Net Income Increased by 76%; Sales of Systems increased by 39%

XI’AN, China, August 15, 2014 /PRNewswire-FirstCall/ — China Recycling Energy Corp. (NASDAQ: CREG; “CREG” or “the Company”), a leading industrial waste-to-energy solution provider in China, today announced its unaudited financial results for the second quarter ended June 30, 2014.

Second Quarter 2014 Financial Highlights

  • Sales of systems increased by 39.1% to US$18.95 million.
  • Interest income on sales-type leases increased by 29.3% to US$6.12 million.
  • Total sales were US$19.16 million, increased by 37.7%.
  • Net income was US$6.59 million, increased by 76.5%.
  • Basic and fully diluted earnings per share (EPS) was US$0.11.

Summary of Financial Results:

(US$ in thousands, except for per share data)

Three Months Ended June 30

2014

2013

Total Sales (1) + (2)

19,157

13,913

(1) Sales of Systems

18,946

13,623

(2) Contingent Rental Income

211

290

Gross Profit

4,562

3,411

Interest Income on Sales-Type Leases

6,115

4,729

Total Operating Income

10,677

8,139

Net Income

6,589

3,733

Basic EPS

0.11

0.07

Diluted EPS

0.11

0.07

Mr. Guohua Ku, Chairman and CEO of CREG commented, “We are very happy to report strong growth in our top and bottom lines for the second quarter of 2014. We are particularly pleased with the substantial growth in net income and our progress in systems sales. During the quarter, we sold a 15 MW coke oven gas power generation station through a sales-type lease to Qitaihe City Boli Yida Coal Selection Co., Ltd. (“Qitaihe Yida”), which has been converted from a 15 MW coal gangue power generation station. It has brought us a one-time sales of systems revenue of about US$19 million and will generate recurring interest income on sales-type lease during the leasing period of 15 years. It’s important to note that system sales revenue on the project is recognized at the point of system delivery and monthly lease payments, based on our off-take agreements with the customer, beginning immediately thereafter.”

“While we see substantial opportunities ahead of us, the extent to which we grow our business, especially energy saving and recycling projects, depends on our ability to raise capital on economically attractive terms. We have recently entered into a Standby Equity Distribution Agreement with YA Global Master SPV Ltd. (“YA Global”). Under the terms of the agreement, YA Global is committed to purchase up to US$50 million of our common stock over a period of 2 years. This should help us expand our business more rapidly. However, we have absolute discretion to determine the timing of the capital raise at the right price.”

“Looking ahead, we expect that our interest income on sales-type leases will remain strong through the rest of 2014. In addition, we currently have six projects under construction and we expect two projects to be completed in 2014 and three projects to be completed in 2015. In addition, we have two contracts for CDQ waste heat power generation systems and several framework agreements for CDQ waste heat power generation systems signed recently. With such a strong backlog, we believe we are well positioned to capitalize on the increasing demand in China’s energy saving and recycling markets as long as we can continue to obtain appropriate funding.”

Second Quarter 2014 Financial Results

SALES. Total sales, including sales of systems and contingent rental income, were US$19.16 million for the second quarter of 2014, as compared with US$13.91 million for the same period of 2013, an increase of US$5.24 million, or 37.7%, as a result of an increase in the sales of systems in the second quarter of 2014.

Sales of systems for the second quarter of 2014 were US$18.95 million, increased by 39.1% as compared with US$13.62 million for the same period of 2013. For the three months ended June 30, 2014, Yida project – a 15MW WGPG power generation system was sold. In comparison, in the same period of 2013, Shanxi Datong Phase I project – two 3MW BPRT power generation systems were completed and sold. For the three months ended June 30, 2014, the Company received contingent rental income of US$0.21 million from the usage of electricity in addition to the minimum lease payments, compared to US$0.29 million for the comparable period in 2013. For sales-type leases, sales and cost of sales are recorded at the time of the lease commencement; in addition to systems sales revenue, CREG’s other major source of revenues is interest income from sales-type leases.

COST OF SALES. Cost of sales for the second quarter of 2014 was US$14.59 million, an increase of 39.0% as compared with US$10.50 million in the same period of 2013. This increase was mainly due to the sale of the Yida project.

GROSS PROFIT and GROSS MARGIN. Gross profit was US$4.56 million for the second quarter of 2014, an increase of 33.8% compared with US$3.41 million for the same period of 2013. Blended gross margin for the second quarter of 2014 was 24%, compared with 25% for the same period of 2013. The decreased profit margin for the second quarter of 2014 was mainly attributable to less contingent rental income received in the quarter.

INTEREST INCOME ON SALES TYPE LEASES. Interest income on sales-type leases, which is a major and consistent regular revenue for the Company, was US$6.12 million for the second quarter of 2014, an increase of 29.3% from US$4.73 million for the same period of 2013. During the second quarter of 2014, interest income was derived from fifteen sales-type leases, including TRT system to Zhangzhi (13 year term), CHPG systems to Jing Yang Shengwei (5 year term), BMPG systems to Pucheng Phase I and II (15 year and 11.9 year, respectively), BMPG systems to Shenqiu Phase I (11 year term) and Shenqiu Phase II (9.5 year term), WHPG system of Zhongbao (9 year term), WHPG systems of Jitie (24 year term), two BPRT systems to Datong (30 year term), and five power and steam generating systems to Erdos (20 year term). In comparison, during the same period of 2013, interest income was derived from twelve systems.

OPERATING EXPENSES. Operating expenses totaled US$0.76 million for the second quarter of 2014, an increase of 11.6% as compared with US$0.68 million in the same period of 2013. The increase was mainly due to an increase of US$0.14 million consulting expense, but offset with certain office expenses.

NON-OPERATING INCOME (EXPENSES). Non-operating expenses consisted of non-sales-type lease interest income, interest expenses, bank charges and miscellaneous expenses. For the second quarter of 2014, net non-operating expenses were US$1.35 million, compared with US$1.23 million for the same period of 2013.

INCOME TAX EXPENSE. Income tax expense was US$2.00 million for the three months ended June 30, 2014, decreased by 15.4% compared with US$2.37 million for the same period of 2013. The decrease in income tax expense was mainly due to a decrease in consolidated effective income tax rate, which was 23.4% for the three months ended June 30, 2014, compared with 38.0% for the same period of 2013. This is mainly due to the 15% preferential income tax rate of the Company’s wholly owned subsidiary Xi’an TCH in 2014, and income tax rate of Xi’an TCH for the second quarter of 2013 was 25%. In July 2013, Xi’an TCH was re-approved for high-tech enterprise status and enjoyed 15% preferential income tax rate effective on January 1, 2013.

NET INCOME. Net income for the second quarter of 2014 was US$6.59 million, an increase of US$2.86 million, or 76.5% compared with US$3.73 million for the same period of 2013. This increase in net income was mainly due to the increased sales, interest income on sales-type leases, and decreased income tax expenses compared with the same period of 2013.

For the second quarter of 2014, basic and fully diluted EPS was US$0.11, compared with US$0.07 in the same period of 2013.

Financial Position as of June 30, 2014

As of June 30, 2014, the Company had cash and cash equivalents of US$6.62 million. Other current assets were US$18.71 million and current liabilities were US$52.04 million. Total shareholders’ equity was US$162.91 million, as compared with US$154.68 million as of December 31, 2013.The net tangible asset per share was US$2.67 as of June 30, 2014.

Net Investment in Sales-Type Leases as of June 30, 2014

The components of the net investment in sales-type leases as of June 30, 2014 and December 31, 2013 are as follows:

(US$)

June 30, 2014

December 31, 2013

Total future minimum lease payments receivable

611,006,335

560,187,391

Less: executory cost

(128,947,539)

(134,447,605)

Less: unearned interest income

(285,665,316)

(241,234,839)

Net investment in sales – type leases

196,393,480

184,504,947

Current portion

7,772,144

9,063,386

Noncurrent portion

188,621,336

175,441,561

As of June 30, 2014, the future minimum rentals to be received on non-cancelable sales-type leases by years were as follows:

2014

45,950,886

2015

44,636,372

2016

44,636,372

2017

44,636,372

2018

44,452,417

Thereafter

386,693,916

Total

US$611,006,335

Recent Business Development

By the end of June, 2014, the Company leased a new 15MW WGPG system to Qitaihe City Boli Yida Coal Selection Co., Ltd. A CHPG system leased by Jing Yang Shengwei expired on June 30, 2014 and the Company has transferred the system to the customer according to the agreement

On July 8, 2014, the Company entered into a Standby Equity Distribution Agreement with YA Global Master SPV Ltd. (“YA Global”). Under the terms of the agreement, YA Global is committed to purchasing up to US$50 million of the Company’s common stock over a period of 2 years.

Systems under Sales-Type Leases

The Company currently have 15 sales-type leases for energy saving and recycling systems with a total capacity of 141 MW. These 15 systems are summarized in the table below.

System Type

Project Name

Project Period

Capacity (MW)

Investment

(US$ in Millions)*

Minimum Annual Recurring Cash Flow Receipts (US$ in Millions)*

From

To

Project Life
(Year)

TRT

Zhangzhi

Q2 2007

Q2 2020

13

9.0

4

2.1

BMPG

Pucheng Phase I

Q3 2010

Q2 2024

15

12.0

19

3.7

Pucheng Phase II

Q3 2013

Q2 2025

11.9

12.0

17

3.7

WHPG

Zhongbao

Q4 2010

Q3 2019

9

7.0

9

2.9

BMPG

Shenqiu Phase I

Q3 2011

Q3 2022

11

12.0

14

3.5

Shenqiu Phase II

Q2 2013

Q3 2022

9.5

12.0

11

2.9

BPRT

Shanxi Datong No.1

Q3 2013

Q2 2043

30

3.0

6

1.2

Shanxi Datong No.2

Q3 2013

Q2 2043

30

3.0

6

1.2

Power and steam
generating system

Erdos Phase I-No.1

Q1 2010

Q4 2029

20

9.0

10

2.9

Erdos Phase I-No.2

Q2 2010

Q1 2030

20

9.0

10

2.9

Erdos Phase II-No.1

Q1 2011

Q4 2030

20

9.0

11

2.9

Erdos Phase II-No.2

Q2 2011

Q1 2030

20

9.0

9

2.9

Erdos Phase II-No.3

Q1 2011

Q4 2030

20

9.0

13

2.9

WHPG

Jitie

Q1 2014

Q1 2038

24

11.0

10

3.5

WGPG

Yida

Q3 2014

Q2 2029

15

15.0

19

5.9

Total

141.0

168

45.1

*Note: exchange rate of RMB 6.1528 to US $1.00 as of June 30, 2014

Systems under Construction

In addition, the Company currently has 6 projects under construction, with a total capacity of 135MW. All 6 projects are progressing well and on schedule. By the time they are completed, the total capacity of projects in operation will be nearly doubled.

System Type

Project Name

Capacity (MW)

Investment

(US$ in Millions)**

Expected Completion

WGPG

Shanxi Datong Coal Group

15.0

20

Second Half of 2014

CDQ

Xuzhou Tian’an

25.0

33

Second Half of 2015

CDQ

Xuzhou Huayu

25.0

33

Second Half of 2015

CDQ

Shandong Boxing

25.0

33

Second Half of 2014

CDQ

Xuzhou Zhongtai

25.0

34

Second Half of 2015

CDQ

Tangshan Rongfeng

20.0

24

First Half of 2016

Total

135.0

177

**Note: exchange rate of RMB 6.1528 to US $1.00 as of June 30, 2014

Financial Results Conference Call

The Company will host a conference call at 8:30 a.m. EDT on Friday, August 15, 2014, to discuss the Company’s second quarter 2014 financial results. Mr. Guohua Ku, Chief Executive Officer, and Mr. David Chong, Chief Financial Officer, will be hosting the call.

Listeners may access the call by dialing:

International: +1-412-317-0790
US Toll Free: 1877-870-4263
China Toll Free: 4001-201203
Conference Reference: China Recycling Energy Corp. conference call

A telephone replay will be available shortly after the call until August 22, 2014 by dialing the following numbers:

International: +1-412-317-0088
US Toll Free: 1877-344-7529
Replay Access Code: 04021401

10Q Filing

For more information regarding China Recycling Energy Corp.’s financial performance during the second quarter ended June 30, 2014, please refer to the Quarterly Report on Form 10-Q, which was filed with the Securities and Exchange Commission on August 14, 2014.

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; +65-9721 6163
Email: chongscd@creg-cn.com

Christensen
Mr. Rene Vanguestaine (China and US)
Chairman and CEO
Tel: +86 135 2160 9333
Email: rvanguestaine@christensenIR.com

Mr. Christian Arnell (China)
Vice President
Phone: +86-10-5900-1548
E-mail: carnell@christensenir.com

CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2014 AND DECEMBER 31, 2013

2014

2013

(UNAUDITED)

ASSETS

CURRENT ASSETS

Cash & equivalents

$ 6,615,642

$ 7,701,530

Restricted cash

7,720,062

2,296,249

Accounts receivable

61,083

71,573

Current portion of investment in sales type leases, net

7,772,144

9,063,386

Interest receivable on sales type leases

977,156

765,010

Prepaid expenses

310,527

1,045,802

Other receivables

1,788,957

1,813,220

Notes receivable

656,071

Prepaid loan fees – current

82,899

83,649

Total current assets

25,328,470

23,496,490

NON-CURRENT ASSETS

Prepaid loan fees – noncurrent

82,879

125,474

Investment in sales type leases, net

188,621,336

175,441,561

Long term investment

726,167

738,513

Long term deposit

381,574

385,073

Property and equipment, net

28,274

44,243

Construction in progress

140,311,888

83,719,596

Total non-current assets

330,152,118

260,454,459

TOTAL ASSETS

$ 355,480,588

$ 283,950,949

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES

Accounts payable

$ 1,423,526

$ 2,642,662

Notes payable – bank acceptances

15,115,070

5,740,622

Taxes payable

1,678,481

1,560,829

Accrued liabilities and other payables

1,663,985

1,517,191

Due to related parties

11,854,300

2,420,391

Deferred tax liability

1,296,735

1,442,317

Loans payable – current

17,268,561

14,925,618

Interest payable on entrusted loans

257,900

287,887

Current portion of long term payable

1,485,175

1,441,051

Total current liabilities

52,043,733

31,978,568

NONCURRENT LIABILITIES

Deferred tax liability, net

13,371,788

11,884,068

Refundable deposit from customers for systems leasing

1,153,946

1,164,526

Shares to be issued

14,491,450

Long term payable

1,606,577

2,385,422

Loans payable

47,514,953

18,862,045

Entrusted loan payable

62,085,555

62,654,792

Total noncurrent liabilities

140,224,269

96,950,852

Total liabilities

192,268,002

128,929,421

CONTINGENCIES AND COMMITMENTS

STOCKHOLDERS’ EQUITY

Common stock, $0.001 par value; 100,000,000 shares

60,946

60,910

authorized, 60,946,182 and 60,910,058 shares issued and

outstanding as of June 30, 2014 and December 31, 2013, respectively

Additional paid in capital

78,130,017

78,130,053

Statutory reserve

10,760,463

9,672,754

Accumulated other comprehensive income

14,735,130

16,209,403

Retained earnings

59,227,665

50,603,291

Total Company stockholders’ equity

162,914,221

154,676,411

Noncontrolling interest

298,365

345,117

Total equity

163,212,586

155,021,528

TOTAL LIABILITIES AND EQUITY

$ 355,480,588

$ 283,950,949

CHINA RECYCLING ENERGY CORPORATION
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)

SIX MONTHS ENDED JUNE 30,

THREE MONTHS ENDED JUNE 30,

2014

2013

2014

2013

(UNAUDITED)

(UNAUDITED)

Revenue

Sales of systems

$ 18,946,044

$ 27,702,800

$ 18,946,044

$ 13,623,004

Contingent rental income

388,154

550,334

210,547

$ 289,559

Total revenue

19,334,198

28,253,134

19,156,591

13,912,563

Cost of sales

Cost of contingent rental income and systems

14,616,592

21,402,848

14,594,688

10,501,936

Total cost of sales

14,616,592

21,402,848

14,594,688

10,501,936

Gross profit

4,717,606

6,850,286

4,561,903

3,410,627

Interest income on sales-type leases

12,421,000

8,553,546

6,115,284

4,728,706

Total operating income

17,138,606

15,403,832

10,677,187

8,139,333

Operating expenses

General and administrative

1,608,203

1,766,560

763,228

684,114

Total operating expenses

1,608,203

1,766,560

763,228

684,114

Income from operations

15,530,403

13,637,272

9,913,959

7,455,219

Non-operating income (expenses)

Interest income

56,800

153,232

17,511

60,644

Interest expense

(1,861,593)

(2,787,689)

(949,020)

(1,293,193)

Investment income

13,268

1,955

Other income (expenses)

(831,491)

2,873

(416,100)

3,853

Total non-operating expenses, net

(2,623,016)

(2,631,584)

(1,345,654)

(1,228,696)

Income before income tax

12,907,387

11,005,688

8,568,305

6,226,523

Income tax expense

3,239,169

3,726,870

2,001,640

2,366,816

Income before noncontrolling interest

9,668,218

7,278,818

6,566,665

3,859,707

Less: income (loss) attributable to noncontrolling interest

(43,864)

247,284

(22,393)

126,363

Net income attributable to China Recycling Energy Corp

9,712,082

7,031,534

6,589,058

3,733,344

Other comprehensive items

Foreign currency translation gain (loss)
attributable to China Recycling Energy Corp

(1,474,273)

2,360,535

(61,788)

2,035,201

Foreign currency translation gain (loss)
attributable to noncontrolling interest

(2,888)

78,153

90

66,379

Comprehensive income attributable to China Recycling Energy Corp

$ 8,237,809

$ 9,392,069

$ 6,527,270

$ 5,768,545

Comprehensive income (loss) attributable to noncontrolling interest

$ (46,752)

$ 325,437

$ (22,303)

$ 192,742

Basic weighted average shares outstanding

61,066,042

50,224,350

61,217,625

50,224,350

Diluted weighted average shares outstanding

61,181,229

50,857,523

61,299,932

50,770,461

Basic earnings per share

$ 0.16

$ 0.14

$ 0.11

$ 0.07

Diluted earnings per share

$ 0.16

$ 0.14

$ 0.11

$ 0.07

CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30,

2014

2013

(UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES:

Income including noncontrolling interest

$ 9,668,218

$ 7,278,818

Adjustments to reconcile income including noncontrolling

interest to net cash used in operating activities:

Changes in sales type leases receivables

(18,946,044)

(27,702,800)

Shares to be issued for cost of Yida project

14,491,450

Depreciation and amortization

16,211

23,143

Amortization of prepaid loan fees

41,680

40,857

Changes in deferred tax

1,471,536

1,419,815

Changes in assets and liabilities:

Interest receivable on sales type lease

(220,343)

262,055

Collection of principal on sales type leases

5,304,071

4,751,915

Prepaid expenses

729,902

433

Accounts receivable

9,895

17,251

Other receivables

13,502

(49,562)

Construction in progress

(57,679,140)

5,257,935

Accounts payable

8,278,300

(1,842,164)

Taxes payable

132,582

154,630

Interest payable

(27,528)

1,964,953

Accrued liabilities and other payables

156,908

255,153

Accrued interest on convertible notes

(202,975)

Long term refundable deposit from customer

240,335

Net cash used in operating activities

(36,558,800)

(8,130,208)

CASH FLOWS FROM INVESTING ACTIVITIES:

Changes of restricted cash

(5,475,646)

1,863,073

Acquisition of property & equipment

(556)

(20,741)

Long term investment

(640,892)

Net cash provided by (used in) investing activities

(5,476,202)

1,201,440

CASH FLOWS FROM FINANCING ACTIVITIES:

Notes receivable

653,808

(801,115)

Proceeds from loans

41,860,085

4,806,691

Repayment of loans

(10,379,209)

(9,453,159)

Long term payable

(703,938)

(637,889)

Advance from related parties

9,509,112

Net cash provided by (used in) financing activities

40,939,858

(6,085,472)

EFFECT OF EXCHANGE RATE CHANGE ON CASH & EQUIVALENTS

9,256

641,174

NET DECREASE IN CASH & EQUIVALENTS

(1,085,888)

(12,373,066)

CASH & EQUIVALENTS, BEGINNING OF PERIOD

7,701,530

45,004,304

CASH & EQUIVALENTS, END OF PERIOD

$ 6,615,642

$ 32,631,238

Supplemental cash flow data:

Income tax paid

$ 1,632,341

$ 2,203,339

Interest paid

$ 6,986,923

$ 1,518,052