China Recycling Energy Corporation Reports Third Quarter and Nine Months of 2019 Unaudited Financial Results
November 15, 2019 - 5:30 PM EST
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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
