XI'AN, China, Sept. 29 /PRNewswire-Asia-FirstCall/ -- Highlights --
Company restates financial statements for the fiscal year 2008 and
Q1 2009 with a completely clean opinion from our auditor. --
Restatement pertains to non-cash charges relating to
reclassification of deferred taxes for sales type leases,
rescission of a beneficial conversion feature relating to a
convertible note, and modification of employee options. Restatement
has no impact on statement of cash flows except the
reclassification within the operating activities. -- Additional
financial controls adopted on financial reporting. -- Company
realized $35.5 million total revenue with $6.8 million net incomes
during the trailing four quarters. -- Management reaffirms 2009
full year Net Income guidance of $8 million. China Recycling Energy
Corp. (OTC:CREG) (BULLETIN BOARD: CREG) ('CREG' or 'the Company'),
a fast-growing industrial waste-to-energy solutions provider in
China, today announced that the Company has completed its
restatements for its financial statements for fiscal year 2008 and
the first quarter of 2009, to correct the Company's accounting for
non-cash charges relating to reclassification of deferred taxes for
sales type leases, rescission of a beneficial conversion feature
relating to a convertible note, and modification of employee
options. The restatement items are non-cash charges and have no
impact on fiscal year 2008 cash or cash flows from operations. The
restatement has no impact on the March 31, 2009 Income Statement,
Cash flow Statement or cash balance. On August 25, 2009, the
Company announced that it had identified historical non-cash US
GAAP accounting issues and that the Company's previously issued
audited consolidated financial statements as of and for the fiscal
years ended December 31, 2008, and unaudited interim consolidated
financial statements as of and for the quarterly periods ended
March 31, 2009, September 30, 2008, and June 30, 2008 should no
longer be relied upon. The Company undertook a review to determine
the total amount of the misstatements due to the accounting issues
and the periods in which they occurred. "CREG is committed to the
highest standards of business conduct, compliance, financial
reporting and internal controls," said Xinyu Peng, CFO. "When we
became aware of these matters, the Company immediately carried out
an assessment of our internal controls over financial reporting and
the effectiveness of the design and operation of our disclosure
controls and procedures." While the correction of the misstatements
significantly reduced the Company's net income, earnings per share
and EBITDA for each of the affected periods, it had no effect on
the Company's total assets, total liabilities, total stockholders'
equity, cash flows from operations, or adjusted EBITDA. The current
estimated impact of the restatement is below. Financial Statement
Restatement Fiscal year 2008 restatement The financial statements
for the balance sheet date at December 31, 2008 and for the year
ended December 31, 2008 were restated to reflect the following: 1.
Reclassification of current tax payable to deferred tax liability
of $823,407 on sales-type leases as the Company did not separately
record the deferred tax liability. 2. The Company initially
recorded the rescission of the $5,000,000 convertible note and
cross receipt transaction as the settlement of the note and the
reacquisition of the beneficial conversion feature ("BCF"). The
Company's management has now concluded that in substance the
transaction resulted in the conversion of the first $5,000,000 note
into common stock and should have been accounted for as such.
Accordingly, in accordance with EITF 00-27, the remaining BCF of
$3,472,603 at the date of conversion has been expensed. 3. A change
in the accounting for the options forfeited and cancelled on June
25, 2008 and the subsequent reissuance on August 4, 2008. The
Company originally recorded the employee stock options expense for
those options that had vested prior to being forfeited and
cancelled on June 25, 2008. The Company's management has now
concluded that the options subsequently issued on August 4, 2008
should be accounted as a modification of the options cancelled and
forfeited on June 25, 2008. Accordingly, the Company recorded the
difference between the fair values of the options before and after
the modification date as incremental cost and amortized such cost
including the unamortized grant date fair value over the new
vesting period. These restatement adjustments did not have an
impact to the statement of cash flows except that certain items
within the operating activities have been reclassified. The
following table presents the effects of the restatement adjustment
on the accompanying consolidated statement of operations for the
year ended December 31, 2008: Consolidated Statement of Operations
and Comprehensive Loss As Previously Net Reported Restated
Adjustment General and administrative expenses $ 2,773,702 $
3,354,028 $ 580,326 Total operating expenses $ 2,773,702 $
3,354,028 $ 580,326 Interest expense $ (1,314,689) $ (4,787,292) $
(3,472,603) Total non-operating expenses $ (1,261,705) $
(4,734,308) $ (3,472,603) (Loss) income before income taxes $
3,466,102 $ (586,827) $ (4,052,929) Net (Loss) income $ 1,833,265 $
(2,219,664) $ (4,052,929) Comprehensive (loss) income $ 3,697,592 $
(355,337) $ (4,052,929) Net (Loss) income per common share - basic
$ 0.06 $ (0.07) $ (0.13) Net (Loss) income per common share -
diluted $ 0.03 $ (0.07) $ (0.10) The following table presents the
effects of the restatement adjustment on the accompanying
consolidated balance sheet for the date at December 31, 2008:
Consolidated Balance Sheet at December 31, 2008 As Previously Net
Reported Restated Adjustment Tax payable $ 2,137,356 $ 1,313,949 $
(823,407) Deferred tax liability, net $ -- $ 823,407 $ 823,407
Total liabilities $ 12,679,694 $ 12,679,694 $ -- Additional paid in
capital $ 30,475,360 $ 34,528,289 $ 4,052,929 Accumulated deficit $
(2,991,995) $ (7,044,924) $ (4,052,929) Total stockholders' equity
$ 32,421,663 $ 32,421,663 $ -- Q1 2009 restatement The financial
statement for the balance sheet date at March 31, 2009 was restated
to reflect the following: 1. Reclassification of current tax
payable to deferred tax of liability of $258,659 on sales-type
leases as the Company did not separately record the deferred tax
liability. 2. The Company initially recorded the rescission of the
first $5,000,000 convertible note and cross receipt transactions as
the settlement of the note and the reacquisition of the BCF. The
Company's management has now concluded that in substance the
transaction resulted in the conversion of the first $5,000,000 note
into common stock and should have been accounted for as such.
Accordingly, in accordance with EITF 00-27, the remaining BCF of
$3,472,603 at the date of conversion has been expensed and recorded
as an increase in accumulated deficit at March 31, 2009. 3. At
March 31, 2009, the Company treated the modification to options
under variable accounting, and accordingly, recorded the fair value
of the options as a liability. During the quarter ended June 30,
2009, management concluded that the options should be classified as
equity; accordingly, the options liability at March 31, 2009 was
reclassified to additional paid in capital. The reclassification
did not have any material impact to the results of operations for
the three months ended March 31, 2009. All the restatement
adjustments did not have an impact to the statement of cash flows
except that certain items within the operating activities have been
reclassified. The following table presents the effects of the
restatement adjustment on the accompanying consolidated balance
sheet for the date at March 31, 2009: Consolidated Balance Sheet at
March 31, 2009 As Previously Net Reported Restated Adjustment Tax
payable $ 1,058,328 $ 1,316,987 $ 258,659 Option liability $
827,965 $ -- $ (827,965) Deferred tax liability, net $ 931,729 $
673,070 $ (258,659) Total liabilities $ 13,475,603 $ 12,647,638 $
(827,965) Additional paid in capital $ 30,251,597 $ 34,917,665 $
4,666,068 Unamortized compensation expense, net $ (1,454,954 $ -- $
1,454,954 Accumulated deficit $ (846,451 $ (6,139,508 $ (5,293,057
Total stockholders' equity $ 33,029,028 $ 33,856,993 $ 827,965
Additional Internal Control over financial reporting In connection
with the restatement of our financial statements, management
reevaluated the effectiveness of the design and operation of our
disclosure controls and procedures and internal control over
financial reporting. To address our concerns regarding the
accounting issues, the Company has retained a consultant to
evaluate our internal control over financial reporting and to
assist us in making improvements to the quality of our controls,
policies and procedures. The Company also intends to form an Audit
Committee of independent directors during the 2009 fiscal year to
oversee the audit and internal audit process. In addition, we are
improving supervision, education, and training of our accounting
staff and continue to search for more qualified financial personnel
with experience with U.S. GAAP and U.S. public company reporting
and compliance obligations. Trailing 12-month's Income Statements
While the correction of the accounting issues significantly reduced
the Company's net income and earnings per share for fiscal year
2008, the restated items were non-cash in nature and the
restatement had no impact on fiscal year 2008 cash or cash flows
from operations and no impact on the March 31, 2009 Income
Statement, Cash flow Statement or cash balance. The restatement has
a limited impact on the trailing four quarters' income statements.
During the trailing four quarters, the Company realized total sales
of $35.5 million with net income of $6.8 million while the
Company's earnings before interest & income tax (E.B.I.T.)
reached $ 8.8 million. Summary of trailing four-quarter income
statements, reflecting the impact of the restatements Quarter
Ending (In Thousand Dollars) June 30, March 31, Dec. 31, Sept. 30,
4-Quarter % 2009 2009 2008 2008 Total Total Revenue 12,272 5,521
12,910 4,837 35,540 100.0% Sales & Rental Income 11,137 4,323
12,341 4,260 32,061 90.2% Interest Income from sales-type leasing
1,135 1,199 569 577 3,479 9.8% Cost of Revenue 8,445 3,021 9,191
2,977 23,635 66.5% Gross Profit 3,827 2,500 3,719 1,860 11,905
33.5% Operating Expenses General & Administrative 560 795 810
1,040 3,206 9.0% Expenses Income from Operations 3,267 1,704 2,908
820 8,699 24.5% Other Income (Expenses) net (3) 3 136 (3) 133 0.3%
E.B.I.T. 3,264 1,707 3,044 817 8,832 24.8% Interest Expenses 376 63
81 57 577 1.6% Income Before Taxes 2,888 1,644 2,963 760 8,255
23.2% Income Tax Expenses (343) 568 836 428 1,489 4.2% Minority
Interests 3 3 Net Income 3,234 1,076 2,127 332 6,769 19.0% 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 China Recycling
Energy Corp. China Recycling Energy Corp. ('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 the SEC's 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: In China: Mr. Leo Wu Investor
Relations China Recycling Energy Corp. Email: DATASOURCE: China
Recycling Energy Corp. CONTACT: In China: Mr. Leo Wu, Investor
Relations of China Recycling Energy Corp., Web Site:
http://www.creg-cn.com/
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