8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):

August 20, 2008

CHINA RECYCLING ENERGY CORPORATION

(Exact name of registrant as specified in its charter)

Nevada	000-12536	90-0093373
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)
0000721693	4911-Electric Services	06628887
(Central Index Key)	(Standard Industrial Classification)	(Film Number.)

Suite 909, Tower B

Chang An International Building

No. 88 Nan Guan Zheng Jie

Xi An City, Shan Xi Province

China 710068

 (Address of principal executive offices, including zip code)

(86-29) 8769-1097

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition

On August 20, 2008, China Recycling Energy Corporation (the “Company”) announced its financial results for the fiscal quarter ended June 30, 2008. A copy of the Company’s press release announcing such financial results is attached as Exhibit 99.1 hereto and incorporated by reference herein.

Item 9.01. Financial Statements and Exhibits.

(d) The following exhibit is filed with this report.

Exhibit Number	Description
99.1	Press Release dated August 20, 2008.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	China Recycling Energy Corporation
Date: August 21, 2008	/s/ Guangyu Wu
	Guangyu Wu Chief Executive Officer

EXHIBIT INDEX

Exhibit Number	Description
99.1	Press Release dated August 20, 2008.

EX-99.1

EXHIBIT 99.1

 

China Recycling Energy Corp. Reports Second Quarter 2008

Financial Results

- Teleconference to Be Held Thursday, August 21, 2008 at 8:30 a.m. EDT -

XI’AN, China, August 20, 2008 - China Recycling Energy Corp. (OTCBB: CREG) (“CREG” or “the Company”), a leading industrial waste-to-energy solution provider in China, today announced its second quarter 2008 financial results for the three months ended June 30, 2008.

Financial Results Overview

During the second quarter of 2008, the Company generated sales of US$2.6 million, all of which came from leasing of energy-saving equipment in China. The Company had no sales in the same period of 2007 due to changing of its business type in the first quarter of 2007.

Gross profit for the second quarter of 2008 was US$783,807, compared with zero in the same period of 2007. Gross margin was 30.0%, compared with zero in the same period of 2007.

Interest income from sales-type leases for energy-saving equipment was US$574,775, compared with US$148,150 in the same period of 2007.

"The results of the second quarter prove to us our sales-type leasing business model is working and our revenue is expanding," said Mr. Guangyu Wu, CEO of CREG. "The two new projects that came into operation in April and May have started to generate rental income, albeit in small amounts as the second-quarter results only reflect less than two months of their revenue contribution. They are expected to join our three existing top-gas recovery turbine (“TRT”) projects in full contribution starting in the third quarter. In addition, we expect to launch one more TRT and two cement heat power generation projects by October this year.”

Mr. Wu continued, “With the continued policy emphasis in China on energy efficiency and environmental consciousness, we reaffirm our 2008 and 2009 guidance.”

General and administrative expenses were US$855,169 for the second quarter ended June 30, 2008, compared with US$86,501 in the same period of 2007. The increase was mainly attributable to changing of business type and accrued compensation expense of $307,289 for stock options to employees in the second quarter. Effective June 25, 2008, the Company cancelled all vested shares and accepted Optionees’ forfeiture of any unvested shares underlying the currently outstanding options. Therefore, expenses related to stock options will no longer be recorded after June 25, 2008.

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Operating income was US$503,413 in the second quarter of 2008, compared with US$61,649 in the same period of 2007.

Total non-operating expenses were US$503,469 in the second quarter of 2008, compared with non-operating income of US$208,968 in the same period of 2007. This increase was mainly due to accrued interest expense of approximately US$589,041 on amortized beneficiary conversion feature for the convertible note in the second quarter prior to the rescission date of June 26, 2008. This non-cash charge is one-time and will no longer occur in the future.

Net loss for the second quarter of 2008 was US$317,636, or US$0.01 loss per diluted share, compared with net income of US$219,181, or US$0.01 earnings per diluted share, in the same period of 2007. The decrease in net income (loss) was mainly due to income tax expenses of US$317,551, compared with US$51,436 in the same period of 2007.

Excluding the stock-based compensation expense of US$307,289 and the amortization of beneficiary conversion feature for the cancelled convertible note of US$589,041, pro forma net income for the quarter was US$578,723.

Balance Sheet

The Company’s balance sheet at June 30, 2008 included cash and cash equivalents of US$7.0 million, compared with US$1.6 million at December 31, 2007. Total investments in sales-type leases were US$9.1 million, compared to US$9.0 million at December 31, 2007. Net working capital increased to US$12.8 million from US$7.0 million at December 31, 2007. Total shareholders' equity was US$29.0 million, compared with US$17.3 million at December 31, 2007.

Update on Recent Projects

The Company is expecting to complete by October 2008 the construction of a 1,080-cubic-meter blast furnace for the third phase of Zhangzhi Steel Co., Ltd.’s top-gas recovery turbine project in Shanxi Province. The total contract price is approximately US$4.4 million. This project is expected to produce 45-million KW/h annual energy output upon completion.

In addition, the Company is expecting to complete by October 2008 the construction of two sets of 12MW pure low-temperature power generator systems for Shaanxi Province-based cement manufacturer Shenwei Group. The project will have an estimated annual power generated capacity of 180-million KW/h once the two systems are put into operation. The Company is using the BOT (build, operate, transfer) model to build and operate the systems. The operation period will be five years. During the operation period, Shenwei Group will pay the Company the monthly electricity fee based on the actual power generated by the systems at RMB 0.4116 per KW/h as agreed. 

As of August 15, 2008, the Company had five waste-to-energy projects in operation servicing Chinese steel and cement factories.

Full Years 2008 and 2009 Guidance

The Company expects revenues for the 2008 year to be in the range of US$17 million to US$19 million and net income, excluding non-cash items, in the range of US$4.5 million to US$5 million.

The Company expects revenues for the 2009 year to be in the range of US$33 million and US$36 million, with net income, excluding non-cash items, of approximately US$10 million.

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These targets are based on the Company's current views on the operating and market conditions, which are subject to change.

Conference Call

The Company will host a conference call on Thursday, August 21, 2008, at 8:30 a.m. Eastern Daylight Time / 8:30 p.m. Beijing Time. Interested parties may participate in the conference call by dialing +1-877-407-8035 (North America) or +1-201-689-8035 (International) 10 minutes before the call start time.

A replay of the call will be available through Thursday, August 28, 2008 at 11:59 p.m. Eastern Daylight Time. Interested parties may access the replay by dialing +1-877-660-6853 (North America) or + 1-201-612-7415 (International) and entering account number: 286 and conference ID number: 294872.

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.

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For more information, please contact:

In China:

Mr. Leo Wu

Investor Relations

China Recycling Energy Corp.

Tel: +86-29-8765-1096

Email: tch@creg-cn.com

In the U.S.:

Mr. Valentine Ding

Investor Relations

Grayling Global

Tel: +1-646-284-9412

Email: vding@hfgcg.com

FINANCIAL TABLES TO FOLLOW

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CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

	AS OF		AS OF
	JUNE 30,		DECEMBER 31,
	2008		2007
	(UNAUDITED)		(AUDITED)
ASSETS
CURRENT ASSETS
Cash & cash equivalents	$	7,001,594	$	1,634,340
Accounts receivable		867,473		—
Investment in sales type leases, net		1,247,448		1,081,981
Interest receivable		—		144,262
Prepaid equipment rent		9,479,730		—
Other receivables		57,828		32,902
Inventory		10,497,157		9,870,315
Total current assets		29,151,230		12,763,800
NON-CURRENT ASSETS
Investment in sales type leases, net		7,918,642		7,933,780
Advance for equipment		2,624,930		2,467,579
Property and equipment, net		83,133		—
Construction in progress		5,613,063		—
Intangible assets, net		—		6,169
Total non-current assets		16,239,768		10,407,528

TOTAL ASSETS	45,390,998		23,171,328
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable	6,963,837		2,298,201
Tax payable	855,615		534,522
Accrued liabilities and other payables	3,521,508		2,565,726
Advance from management	—		71,508
Convertible notes, net of discount due to beneficial conversion feature	5,000,000		315,068
Total current liabilities	16,340,960		5,785,025
ACCRUED INTEREST ON CONVERTIBLE NOTES	42,466		63,014
CONTINGENCIES AND COMMITMENTS
MINORITY INTEREST	16,095		15,080
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value; 100,000,000 shares authorized, 36,425,094 and 25,015,089 shares issued and outstanding as of June 30, 2008 and December 31, 2007,respectively	36,425		25,015
Additional paid in capital	30,251,407		19,070,908
Statutory reserve	926,328		832,467
Accumulated other comprehensive income	2,828,735		1,718,260
Accumulated deficit	(5,051,418	)	(4,338,441	)
Total stockholders' equity	28,991,477		17,308,209
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	45,390,998		23,171,328

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CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	FOR THE SIX MONTHS						FOR THE THREE MONTHS
	ENDED JUNE 30,						ENDED JUNE 30
	2008			2007			2008			2007
Revenue
Sales of products	$	—		$	4,781,163		$	—		$	—
Rental income		2,616,416			—			2,616,416			—
Totalrevenue		2,616,416			4,781,163			2,616,416			—
Cost of sales
Cost of products		—			3,677,818			—			—
Rental expense		1,832,609			—			1,832,609			—
Total cost of sales		1,832,609			3,677,818			1,832,609			—
Gross profit		783,807			1,103,345			783,807			—
Interest income on sales-type leases		1,139,727			198,386			574,775			148,150
Total operating income		1,923,534			1,301,731			1,358,582			148,150
Operating expenses
General and administrative expenses		1,503,779			343,543			855,169			86,501
Total operating expenses		1,503,779			343,543			855,169			86,501
Income from operations		419,755			958,188			503,413			61,649
Non-operating income (expenses)
Investment income		1,604			—			1,604			—
Interestincome		14,846			104			758,124			59
Interest expense		(1,191,781	)		—			(1,191,781	)		—
Other income		—			208,909			(1,581	)		208,909
Financial expense		(1,001	)		(95	)		(579	)		—
Exchange loss		(80,445	)		—			(69,256	)		—
Total non-operating income (expenses)		(1,256,777	)		208,918			(503,469	)		208,968
Income (loss) before income tax		(837,022	)		1,167,106			(56	)		270,617
Incometax expense		368,498			211,593			317,551			51,436
Net income (loss) from continuing operations		(1,205,520	)		955,513			(317,607	)		219,181
Income from operations of discontinued component		—			23,105			—			—
Less: minority interest		56			—			29			—
Net income (loss)		(1,205,576	)		978,618			(317,636	)		219,181
Other comprehensive item
Foreign currency translation		1,110,475			(303,894	)		1,035,750			40,098
Comprehensive Income (loss)		(95,101	)		674,724			718,114			259,279
Basic weighted average shares outstanding		27,718,959			17,147,268			30,422,829			17,147,268
Diluted weighted average shares outstanding		32,639,681			17,147,268			34,602,018			17,147,268
Basic net earnings (loss) per share		(0.04	)		0.06			(0.01	)		0.01
Diluted net earnings (loss) per share		(0.04	)		0.06			(0.01	)		0.01

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CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	FOR THE SIX MONTHS
	ENDED JUNE 30,
	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(1,205,576	)	$	978,618
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation and amortization		5,000			—
Amortization of discount related to conversion feature of convertible note		1,212,329			—
Stock option compensation expense		632,444			—
Accrued interest on convertible notes		(20,548	)		—
Minority interest		56			—
(Increase) decrease in current assets:
Account receivable		(843,015	)		6,361
Gross investment on sales type leases		559,436			—
Advances to suppliers		—			688,311
Prepaid equipment rent		(9,213,073	)
Other receivables		(22,193	)		—
Inventory		—			(1,309,002	)
Increase (decrease) in current liabilities:
Accounts payable		4,392,250			2,278,701
Unearned revenue		—			(7,776	)
Advance from customers		—			(143,527	)
Tax payable		267,704			254,109
Accrued liabilities and other payables		1,041,821			1,432,657
Net cash (used in) provided by operating activities		(3,193,365	)		4,178,452
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in sales-type leases		—			(4,471,351	)
Acquisition of property & equipment		(85,789	)		(3,751	)
Construction in progress		(5,613,063	)		—
Net cash used in investing activities		(5,698,852	)		(4,475,102	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock		9,032,258			—
Convertible notes		5,000,000			—
Repayment to management		(73,906	)		—
Advance from shareholder		—			36,137
Net cash provided by financing activities		13,958,352			36,137
EFFECT OF EXCHANGE RATE CHANGE ON CASH & CASH EQUIVALENTS		301,119			11,981
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS		5,367,254			(248,532	)
CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD		1,634,340			252,125
CASH & CASH EQUIVALENTS, END OF PERIOD		7,001,594			3,593
Supplemental Cash flow data:
Income tax paid		105,433			35,281
Interest paid		—			—

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