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China Recycling Energy Corporation Reports Third Quarter and Nine Months of 2019 Unaudited Financial Results

XI'AN, China, Nov. 15, 2019 (GLOBE NEWSWIRE) -- China Recycling Energy Corporation (Nasdaq: CREG) ("CREG" or "the Company"), an industrial waste-to-energy solution provider in China, today reported certain highlights of its unaudited fiscal third quarter financial results for the three months and nine months ended September 30, 2019.

“As of September 30, 2019, we maintained a strong cash and cash equivalent balance of $50.85 million, although this represents a slight decrease of $2.37 million compared to $53.22 million as of December 31, 2018,” stated Mr. Guohua Ku, Chairman and CEO of the Company. “At the current time, we have evaluated several exciting strategic opportunities for the use of our cash to reinvest in innovative growth initiatives that will reposition our energy sustainability business in direct relation to smart power integrated solutions. Our objective is to vastly improve climate change efficiency in China, which we believe will better serve our clients, employees and shareholders. We look forward to potentially unveiling a major strategic initiative in the near future.”    

Financial Summary for the Three Months ended September 30, 2019

  • Cash and cash equivalent were $50.85 million as of September 30, 2019, a decrease of $2.37 million as compared to $53.22 million as of December 31, 2018.
  • Net sales were $nil as compared to $1.14 million for the same period of 2018. The Company’s recent sales were generated by Erdos TCH Energy Saving Development Co. (“Erdos TCH”) to Erdos Metallurgy Co. Ltd. (“Erdos”). As of May 2019, Erdos TCH ceased its operations due to renovations and furnace safety upgrades of Erdos, and the Company expects the resumption of operations in 2020. During this period, Erdos will compensate Erdos TCH approximately $145,460 per month until operations resume; the Company expects the resumption of operations of Erdos TCH in February 2020.
  • Interest income on sales-type leases was $nil as compared to $0.51 million for the same period of 2018. The decreased interest income was due to the transfer of the Shenqiu Phase I and II systems to Mr. Bai in February 2019. During the three months ended September 30, 2019, there was no interest income; in February 2019, the Shenqiu Phase I and II systems were transferred to Mr. Bai, and the Company only had Pucheng Phase I and II systems during three months ended September 30, 2019, which the Company has ceased to accrue interest income since April 2018 because Pucheng power generation systems was suspended due to strict environmental protection policies and lack of supply of biomass waste raw materials. Pucheng has not resumed operations to date.
  • Total operating income was $nil as compared to $1.65 million for the same period of 2018.
  • Total operating expenses were $2.83 million, a decrease of 24.34% as compared to the $3.74 million for the same period of 2018. The decrease was mainly due to a decrease in operating expenses of $1.13 million attributable to Erdos TCH due to its ceasing of operations, which was partly offset by an increase in bad debt expense of $0.22 million.
  • Net loss attributable to the Company was ($4.10) million, or ($0.25) per fully diluted share, compared to a net loss of ($2.54) million or ($0.31) per diluted share in the prior year period.

Financial Summary for the Nine Months ended September 30, 2019

  • Net sales were $0.70 million, a decrease of 82.20% as compared to $3.95 million for the same period of 2018. The sales generated in the period was from electricity sold by Erdos TCH. However, Erdos TCH has ceased its operations due to renovations and furnace safety upgrades of Erdos. The Company expects the resumption of operations of Erdos TCH in February 2020.
  • Interest income on sales-type leases was $0.17 million, a decrease of 93.74% as compared to $2.77 million for the same period of 2018. The decreased interest income was due to the transfer of the Shenqiu Phase I and II systems to Mr. Bai in February 2019 and the suspension of the Pucheng power generation systems due to strict environmental protection policies and lack of supply of biomass waste raw materials, as well as the Company’s ceasing to accrue interest income since April 2018. Pucheng has not resumed operations to date.
  • Total operating income was $0.88 million, a decrease of 86.96% as compared to $6.72 million for the same period of 2018.
  • Total operating expenses were $8.92 million, an increase of 20.08% as compared to $7.43 million for the same period of 2018. The increase was mainly due to an increase in bad debt expense of $2.21 million for the Pucheng and Zhongtai systems and a $1.25 million increase in the loss on the disposals of systems, which were partly offset by a decrease in operating expenses of $1.97 million attributable to Erdos.
  • Net loss attributable to the Company was ($11.31) million or ($0.77) per basic and fully diluted share, compared to a net loss of ($4.08) million or ($0.49) per basic and diluted share for the prior nine-month period.

About China Recycling Energy Corp.

China Recycling Energy Corporation (Nasdaq: 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 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. 

Safe Harbor Statement

This press release may contain certain "forward-looking statements" relating to the business of CREG 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, but not limited to, the risks and uncertainties associated with market conditions and the satisfaction of customary closing conditions relating to the registered direct offering and those discussed in the Company's annual and 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 SHEETS
AS OF SEPTEMBER 30, 2019 (UNAUDITED) AND DECEMBER 31, 2018
   

    SEPTEMBER 30,
2019
    DECEMBER 31,
2018
 
    (UNAUDITED)        
             
ASSETS            
CURRENT ASSETS            
Cash and equivalents   $ 50,845,538     $ 53,223,142  
Accounts receivable, net     43,670,925       11,755,251  
Interest receivable on sales type leases     5,173,531       9,336,140  
Prepaid expenses     51,126       32,395  
Other receivables     1,013,369       1,559,116  
                 
Total current assets     100,754,489       75,906,044  
                 
NON-CURRENT ASSETS                
Investment in sales-type leases, net     8,174,254       24,962,056  
Long term investment     -       475,635  
Long term deposit     15,497       15,971  
Property and equipment, net     26,674,637       27,495,049  
Construction in progress     24,353,518       42,582,177  
                 
Total non-current assets     59,217,906       95,530,888  
                 
TOTAL ASSETS   $ 159,972,395     $ 171,436,932  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
                 
CURRENT LIABILITIES                
Accounts payable   $ 2,168,743     $ 5,591,876  
Taxes payable     3,451,111       3,636,559  
Accrued liabilities and other payables     1,139,403       1,617,997  
Due to related parties     41,179       41,168  
Interest payable on entrusted loans     22,335,362       17,473,492  
Entrusted loan payable     46,939,728       48,373,936  
                 
Total current liabilities     76,075,526       76,735,028  
                 
NONCURRENT LIABILITIES                
Convertible note payable, net of unamortized OID and debt issuing costs     -       1,016,589  
Accrued interest on notes     326,620       40,572  
Income tax payable     6,390,625       6,390,625  
Deferred tax liability, net     -       3,040,346  
Notes payable, net of unamortized OID     1,829,250       -  
Long term payable     424,154       -  
Refundable deposits from customers for systems leasing     537,262       1,034,503  
                 
Total noncurrent liabilities     9,507,911       11,522,635  
                 
Total liabilities     85,583,437       88,257,663  
                 
CONTINGENCIES AND COMMITMENTS                
                 
STOCKHOLDERS’ EQUITY                
Common stock, $0.001 par value; 100,000,000 shares authorized, 16,510,498 shares and 10,295,280 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively     16,510       10,295  
Additional paid in capital     116,031,772       114,484,018  
Statutory reserve     14,525,712       14,525,712  
Accumulated other comprehensive loss     (7,203,689 )     (4,620,930 )
Accumulated deficit     (48,981,347 )     (37,675,202 )
                 
Total Company stockholders’ equity     74,388,958       86,723,893  
                 
Noncontrolling interest     -       (3,544,624 )
                 
Total equity     74,388,958       83,179,269  
                 
TOTAL LIABILITIES AND EQUITY   $ 159,972,395     $ 171,436,932  

The accompanying notes are an integral part of these consolidated financial statements.
  


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

    NINE MONTHS ENDED
SEPTEMBER 30,
    THREE MONTHS ENDED
SEPTEMBER 30,
 
    2019     2018     2019     2018  
                         
Revenue                        
Contingent rental income   $ 702,973     $ 3,948,505     $ -     $ 1,144,237  
                                 
Interest income on sales-type leases     173,360       2,771,452       -       506,971  
                                 
Total operating income     876,333       6,719,957       -       1,651,208  
                                 
Operating expenses                                
Bad debts     5,508,377       3,299,458       2,683,474       2,463,587  
Loss on disposal of systems     1,250,731       -       -       -  
General and administrative     2,160,017       4,128,345       142,681       1,271,810  
                                 
Total operating expenses     8,919,125       7,427,803       2,826,155       3,735,397  
                                 
Loss from operations     (8,042,792 )     (707,846 )     (2,826,155 )     (2,084,189 )
                                 
Non-operating income (expenses)                                
Gain on note conversion     24,240       -       24,240       -  
Interest income     120,903       113,942       38,293       36,722  
Interest expense     (5,888,819 )     (4,035,107 )     (2,094,899 )     (1,116,642 )
Other income (expense), net     332,397       622       1,919       1,903  
Interest expense-inducement on note conversion     893,958       -       -       -  
                                 
Total non-operating expenses, net     (6,305,237 )     (3,920,543 )     (2,030,447 )     (1,078,017 )
                                 
Loss before income tax     (14,348,029 )     (4,628,389 )     (4,856,602 )     (3,162,206 )
Income tax benefit     (3,041,884 )     (272,998 )     (755,840 )     (540,916 )
                                 
Loss before noncontrolling interest     (11,306,145 )     (4,355,391 )     (4,100,762 )     (2,621,290 )
                                 
Less: loss attributable to noncontrolling interest     -       (273,235 )     -       (86,052 )
                                 
Net loss attributable to China Recycling Energy Corporation     (11,306,145 )     (4,082,156 )     (4,100,762 )     (2,535,238 )
                                 
Other comprehensive items                                
Foreign currency translation loss attributable to China Recycling Energy Corporation     (2,582,759 )     (8,090,700 )     (2,486,200 )     (6,110,231 )
Foreign currency translation gain attributable to noncontrolling interest     -       35,361       -       22,735  
                                 
Comprehensive loss attributable to China Recycling Energy Corporation   $ (13,888,904 )   $ (12,172,856 )   $ (6,586,962 )   $ (8,645,469 )
                                 
Comprehensive loss attributable to noncontrolling interest   $ -     $ (237,874 )   $ -     $ (63,317 )
                                 
Basic weighted average shares outstanding     14,671,142       8,310,198       16,159,194       8,310,198  
Diluted weighted average shares outstanding     14,671,142       8,310,198       16,159,194       8,310,198  
                                 
Basic loss per share   $ (0.77 )   $ (0.49 )   $ (0.25 )   $ (0.31 )
Diluted loss per share*   $ (0.77 )   $ (0.49 )   $ (0.25 )   $ (0.31 )


  * The basic and diluted loss per share are the same due to antidilutive options and warrants resulting from the Company’s net loss.

The accompanying notes are an integral part of these consolidated financial statements.
  


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

    NINE MONTHS ENDED
SEPTEMBER 30,
    2019   2018
         
CASH FLOWS FROM OPERATING ACTIVITIES:        
Loss including noncontrolling interest   $ (11,306,145 )   $ (4,355,391 )
Adjustments to reconcile loss including noncontrolling interest to net cash used in operating activities:                
Depreciation           2,049  
Amortization of OID and debt issuing costs of convertible note     84,661       7,767  
Bad debt expense     5,508,377       3,262,588  
Loss on disposal of 40% ownership of Fund Management Co     46,761        
Investment loss           10,962  
Loss on transfer of Chengli Boxing system     628,170        
Loss on transfer of Xuzhou Huayu system     399,601        
Loss on transfer of Shenqiu Phase I & II systems     209,707        
Loss on disposal of fixed assets     289        
Gain on note conversion     24,240        
Interest Expense - inducement on note conversion     893,958          
Changes in deferred tax     (3,044,371 )     (1,589,864 )
Changes in assets and liabilities:                
Interest receivable on sales type leases     (171,506 )     367,877  
Collection of principal on sales type leases           2,453,103  
Accounts receivable     64,306       (1,020,973 )
Prepaid expenses     (20,320 )     699,076  
Other receivables     (132,920 )     (249,966 )
Notes receivable           333,674  
Construction in progress           (7,156,966 )
Accounts payable     (2,857,402 )     3,522,376  
Taxes payable     (1,323,919 )     608,798  
Interest payable on entrusted loan     5,551,651       5,851,446  
Accrued liabilities and other payables     (109,867 )     647,733  
Refundable deposit for systems leasing     (481,462 )      
                 
Net cash provide by (used in) operating activities     (6,084,671 )     3,394,289  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Proceeds from disposal of property & equipment     5,106        
                 
Net cash provided by investing activities     5,106        
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Convertible note payable           1,000,000  
Issuance of notes payable     2,000,000        
Issuance of common stock     3,309,475        
                 
Net cash provided by financing activities     5,309,475       1,000,000  
                 
EFFECT OF EXCHANGE RATE CHANGE ON CASH AND EQUIVALENTS     (1,607,514 )     (3,281,877 )
                 
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS     (2,377,604 )     1,112,412  
CASH AND EQUIVALENTS, BEGINNING OF PERIOD     53,223,142       49,830,243  
                 
CASH AND EQUIVALENTS, END OF PERIOD   $ 50,845,538     $ 50,942,655  
                 
Supplemental cash flow data:                
Income tax paid   $ 223,369     $ 1,160,017  
Interest paid   $     $  
                 
Supplemental disclosure of non-cash operating activities                
Transfer of Xuzhou Huayu Project and Shenqiu Phase I & II project to Mr. Bai   $ 34,931,358          
                 
Supplemental disclosure of non-cash financing activities                
Conversion of notes into common shares   $ 1,272,000     $  


Cathy Loos
Impact IR
Email:  cathyloos@irimpact.com
Phone:  +1-347-334-4135