China Recycling Energy Corporation (China Recycling), a China-based company engaged in development, investment, construction and operation of recovered energy power plants, has reported revenues of $4.3 million for the first quarter of 2009, compared with the revenues in the year-ago quarter. It has also reported a net income of $1.1 million, or $0.02 per share, for the first quarter of 2009, compared with the net loss of $888,000, or $0.04 loss per share, in the year-ago quarter.

‘I am pleased with our continued profitability since the third quarter of last year and our steady revenue streams from operational rental business and interest income from sales-type leases,’ Guohua Ku, chairman and chief executive officer of China Recycling, said. ‘Our business model is working and our cash flow has continued to be positive since late last year. If the macro economic environment continues to improve and the Chinese government continues to induce more clean energy generation, with the recent $7.9 million capital raise and our electricity- generation Joint Venture with Inner Mongolia Erdos Metallurgy Co., Ltd., the largest iron-alloy production facilities in China, we are confident to apply our financial resources and our engineering prowess to pursue large-scale, clustered power system projects.’

First Quarter 2009 Financial Results:

For the first quarter of 2009, China Recycling generated revenue of $4.3 million, compared with $12.3 million in the fourth quarter of 2008 and zero in the first quarter of 2008. Rental income from operational leases of industrial plants in China contributed the entire amount of the revenue in the first quarter of 2009, compared with 34.8% in the fourth quarter of 2008. Product sales accounted 65.2% of the revenue in the fourth quarter of 2008.

Gross profit was $1.3 million, compared with $3.1 million in the fourth quarter of 2008 and zero in the first quarter of 2008. Gross margin was 30.2%, vs. 25.5% in the fourth quarter of 2008. The improvement in gross margin was primarily because of higher profitability of operational rental business compared with straight product sales, which China Recycling did not record any in first quarter 2009.

Interest income from sales-type leases was $1.2 million or 110.7% higher than $569,038 in the fourth quarter of 2008 and 112.2% higher than $564,952 for the first quarter of 2008. The increase was primarily due to the inception of one more sales-type lease in December 2008 starting generating interest income this year.

General and administrative expenses were $795,438, compared with $630,974 in the fourth quarter of 2008 and $648,610 in the first quarter of 2008. The increase was primarily because of the variable fair value of the stock options to employees, and increased payroll, marketing and traveling expense due to the expansion of the company’s business, as well as general costs of maintaining the status of a public company.

Non-GAAP operating income, as defined below, was $2.1 million, compared with $3.3 million in the fourth quarter of 2008. GAAP operating income was $1.7 million, compared with $3.1 million in the fourth quarter of 2008 and an operating loss of $83,658 in the first quarter of 2008.

Non-GAAP net income was $1.5 million, compared with $2.4 million in the fourth quarter of 2008. Non-GAAP diluted EPS was $0.03, compared with $0.04 in the fourth quarter of 2008. GAAP net income was $1.1 million, compared with $2.3 million in the fourth quarter of 2008 and a net loss of $887,940 in the first quarter of 2008. GAAP diluted EPS was $0.02, compared with $0.04 in the fourth quarter of 2008 and diluted loss per share of $0.03 in the first quarter of 2008.

As of March 31, 2009, cash and cash equivalents were $10.2 million, compared with $7.3 million at year-end 2008. Total investments in sales-type leases were $16.4 million, compared with $16.8 million as of the end of 2008. Net working capital increased to $14.7 million, from $11.3 million at December 31, 2008. Total shareholders’ equity was $33.0 million, compared with $32.4 million at December 31, 2008.

Net cash provided by operating activities was $4.4 million in the first quarter of 2009, compared with net cash outflow from operations of $279,044 in the same period of 2008.

Recent Developments:

On April 29, 2009, China Recycling issued an 8% Secured Convertible Promissory Note in the principal amount of $3 million to Carlyle Asia Growth Partners and CAGP III Co-Investment (‘Carlyle Asia’). In addition, the Company amended and restated the 5% Secured Convertible Promissory Note in the principal amount of $5 million previously issued to Carlyle Asia in April 2008.

On April 20, 2009, the Company entered into a Stock Purchase Agreement with an accredited private investor. Pursuant to the agreements, China Recycling issued about 2.4 million shares, with one-year lock-up period not to sell, for an aggregate purchase price of $2 million, or $0.85 per share.

On April 13, 2009, the Company’s wholly owned subsidiary, Xi’an TCH Energy Technology Co., Ltd., entered into a one-year working capital loan agreement with the Industrial Bank Co., Ltd.’s Xi’an branch, to borrow $2.9 million (RMB 20 million) at an interest rate of 5.3%. The loan agreement contains standard representations, warranties and covenants.

China Recycling intends to use the net proceeds from the aforementioned transactions to cover capital expenditures for its operations in China and other working capital needs.

Business Outlook:

China Recycling reaffirms revenues for 2009 to be in the range of $33 million to $36 million, with net income, excluding non-cash charges, of about $8 million. These targets are based on the Company’s current views on the operating and market conditions, which are subject to change.