UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________

Commission file number: 000-12536

China Recycling Energy Corporation

(Exact name of registrant as specified in its charter)

Nevada

90-0093373

(State or other jurisdiction of
incorporation or organization)

(IRS Employer

Identification No.)

4/F, Tower C

Rong Cheng Yun Gu Building Keji 3rd Road, Yanta District

Xi An City, Shaan Xi Province

China 710075

(Address of principal executive offices)

(011) 86-29-8765-1098

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, $0.001 par value		CREG		NASDAQ Capital Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 11, 2021, there were 6,926,802 shares of the registrant’s common stock outstanding.

CHINA RECYCLING ENERGY CORPORATION

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

TABLE OF CONTENTS

		PAGE

PART I - FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements	1

	Consolidated Balance Sheets as of September 30, 2021 (Unaudited) and December 31, 2020	1

	Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) – Three and Six Months Ended September 30, 2021 and September 30, 2020	2

	Consolidated Statements of Cash Flows (Unaudited) – Six Months Ended September 30, 2021 and September 30, 2020	3

	Consolidated Statements of Stockholders’ Equity – Six and Three Months Ended September 30, 2021 and September 30, 2020	4

	Notes to Consolidated Financial Statements (Unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37

Item 4.	Controls and Procedures	37

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	38

Item 1A.	Risk Factors	38

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 3.	Defaults Upon Senior Securities	38

Item 4.	Mine Safety Disclosures	38

Item 5.	Other Information	38

Item 6.	Exhibits	38

SIGNATURES		39

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	SEPTEMBER 30, 2021			DECEMBER 31, 2020
	(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash	$	149,522,088		$	107,804,013
Accounts receivable, net		-			308,677
VAT receivable		186,415			-
Prepaid expenses		38,592			55,420
Other receivables		881,835			35,687
Total current assets		150,628,930			108,203,797

NON-CURRENT ASSETS
Long term deposit		16,901			16,799
Operating lease right-of-use assets, net		145,586			-
Fixed assets, net		6,266			6,228
Asset subject to buyback		-			28,910,696
Total non-current assets		168,753			28,933,723
TOTAL ASSETS	$	150,797,683		$	137,137,520

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	76,537		$	76,074
Taxes payable		2,443,562			3,145,612
Accrued interest on notes		221,996			18,968
Notes payable, net of unamortized OID of 275,605 and $144,355, respectively		7,133,323			3,005,645
Accrued liabilities and other payables		729,781			726,696
Operating lease liability		65,941			-
Due to related parties		28,418			28,440
Interest payable on entrusted loans		-			10,144,228
Entrusted loan payable		-			21,896,744
Total current liabilities		10,699,558			39,042,407

NONCURRENT LIABILITIES
Income tax payable		5,174,625			5,174,625
Operating lease liability		62,744			-
Long term payable		462,577			459,777
Entrusted loan payable		308,385			306,518
Total noncurrent liabilities		6,008,331			5,940,920
Total liabilities		16,707,889			44,983,327

CONTINGENCIES AND COMMITMENTS (NOTE 15 & 16)

STOCKHOLDERS’ EQUITY
Common stock, $0.001 par value; 100,000,000 shares authorized, 6,729,030 and 3,177,050 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively		6,729			3,177

Additional paid in capital		159,591,760			119,748,999
Statutory reserve		15,174,627			15,155,042
Accumulated other comprehensive income		975,955			273,440
Accumulated deficit		(41,659,277	)		(43,026,465	)
Total Company stockholders’ equity		134,089,794			92,154,193
TOTAL LIABILITIES AND EQUITY	$	150,797,683		$	137,137,520

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,
	2021			2020			2021			2020

Revenue
Contingent rental income	$	-		$	-		$	-		$	-

Interest income on sales-type leases		-			-			-			-

Total operating income		-			-			-			-

Operating expenses
Bad debts (reversal)		(34,581	)		(1,659,101	)		-			(9,479	)
General and administrative		798,773			477,358			380,040			86,494

Total operating (income) expenses		764,192			(1,181,743	)		380,040			77,015

Income (loss) from operations		(764,192	)		1,181,743			(380,040	)		(77,015	)

Non-operating income (expenses)
Loss on note conversion		(61,155	)		(496,853	)		(58,436	)		(298,523	)
Interest income		302,426			124,305			109,269			51,688
Interest expense		(1,212,469	)		(1,037,183	)		(165,854	)		(340,155	)
Gain on termination of buy-back agreement of Chengli project		3,156,138			-			179			-
Other expenses, net		(121,026	)		(47,903	)		(50,790	)		(7,275	)

Total non-operating income (expenses), net		2,063,914			(1,457,634	)		(165,632	)		(594,265	)

Income (loss) before income tax		1,299,722			(275,891	)		(545,672	)		(671,280	)
Income tax (benefit) expense		(87,051	)		-			10,902			-

Net income		1,386,773			(275,891	)		(556,574	)		(671,280	)

Other comprehensive items
Foreign currency translation income (loss)		702,515			2,173,569			(565,170	)		3,456,157

Comprehensive income (loss)	$	2,089,288		$	1,897,678		$	(1,121,744	)	$	2,784,877

Weighted average shares used for computing basic and diluted loss per share		5,175,164			2,381,180			6,615,759			2,687,609

Basic and diluted net income per share		0.27		$	(0.12	)	$	(0.08	)	$	(0.25	)

CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	NINE MONTHS ENDED SEPTEMBER 30,
	2021			2020

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	1,386,773		$	(275,891	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Amortization of OID and debt issuing costs of notes		118,750			45,833
Stock compensation expense		223,438			10,999
Operating lease expenses		50,812			49,034
Bad debts expense (reversal)		(34,581	)		(1,659,101	)
Loss on note conversion		61,155			496,853
Interest expense		818,914			-
Gain on termination of buy-back agreement of Chengli project		(3,156,138	)		-
Changes in assets and liabilities:
Collection of principal and interest on sales type leases for Pucheng systems		-			13,959,334
Accounts receivable		345,808			43,765,943
Prepaid expenses		19,253			(8,339	)
Other receivables		1,981			(3,141	)
Advance to suppliers		(850,000	)		-
VAT receivable		(186,817	)		-
Taxes payable		(707,917	)		(2,133,778	)
Payment of lease liability		(67,750	)		(57,442	)
Interest payable on entrusted loan		-			962,052
Accrued liabilities and other payables		392,401			46,968

Net cash provided by (used in) operating activities		(1,583,918	)		55,199,324

CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of notes payable		5,000,000			-
Issuance of common stock		37,561,720			497,187

Net cash provided by financing activities		42,561,720			497,187

EFFECT OF EXCHANGE RATE CHANGE ON CASH		740,273			1,869,350

NET INCREASE IN CASH		41,718,075			57,565,861
CASH, BEGINNING OF PERIOD		107,804,013			16,221,297

CASH, END OF PERIOD	$	149,522,088		$	73,787,158

Supplemental cash flow data:
Income tax paid	$	197,296		$	-
Interest paid	$	-		$	-

Supplemental disclosure of non-cash operating activities Repayment of entrusted loan resulting from termination of buy-back option for Chengli project	$	29,149,705		$	-
Transfer of Tian’an project from construction in progress to accounts receivable	$	-		$	23,771,386
Adoption of ASC 842-right-of-use asset	$	191,200		$	-
Adoption of ASC 842-operating lease liability	$	191,200		$	-

Supplemental disclosure of non-cash financing activities
Conversion of notes into common shares	$	2,000,000		$	1,442,086

CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(UNAUDITED)

	Common Stock						Paid in			Statutory		Other Comprehensive			Accumulated
	Shares			Amount			Capital			Reserves		(Loss) / Income			Deficit			Total
Balance at December 31, 2020		3,177,050		$	3,177		$	119,748,999		$	15,155,042	$	273,440		$	(43,026,465	)	$	92,154,193
Net loss		-			-			-			-		-			(277,224	)		(277,224	)
Shares to be issued		-			-			38,253,041			-		-			-			38,253,041
Transfer to Statutory Reserves		-			-			-			1,538		-			(1,538	)		-
Foreign currency translation loss		-			-			-			-		(1,140,163	)		-			(1,140,163	)
Balance at March 31, 2021		3,177,050			3,177			158,002,040			15,156,580		(866,723	)		(43,305,227	)		128,989,847
Net income		-			-			-			-		-			2,220,571			2,220,571
Conversion of long-term notes into common shares		54,348			54			502,665			-		-			-			502,719
Issuance of common stock for equity financing		3,320,000			3,320			(3,320	)		-		-			-			-
Return of shares issued to CEO for equity financing		(60,000	)		(60	)		(691,260	)		-		-			-			(691,320	)
Transfer to Statutory Reserves		-			-			-			14,774		-			(14,774	)		-
Foreign currency translation gain		-			-			-			-		2,407,848			-			2,407,848
Balance at June 30, 2021		6,491,398			6,491			157,810,125			15,171,354		1,541,125			(41,099,430	)		133,429,665
Net income		-			-			-			-		-			(556,574	)		(556,574	)
Conversion of long-term notes into common shares		206,382			207			1,558,228			-		-			-			1,558,435
Stock compensation expense		31,250			31			223,407			-		-			-			223,438
Transfer to statutory reserves		-			-			-			3,273		-			(3,273	)		-
Foreign currency translation gain		-			-			-			-		(565,170	)		-			(565,170	)
Balance at September 30, 2020		6,729,030		$	6,729		$	159,591,760		$	15,174,627	$	975,955		$	(41,659,277	)	$	134,089,794

	Common Stock				Paid in			Statutory		Other Comprehensive			Accumulated
	Shares		Amount		Capital			Reserves		Loss			Deficit			Total
Balance at December 31, 2019		2,032,721	$	2,033	$	116,682,374		$	14,525,712	$	(6,132,614	)	$	(46,447,959	)	$	78,629,546
Net loss		-		-		-			-		-			(598,551	)		(598,551	)
Issuance of common stock for stock compensation		3,333		3		10,996			-		-			-			10,999
Conversion of long-term notes into common shares		143,333		143		533,024			-		-			-			533,167
Foreign currency translation loss		-		-		-			-		(1,341,276	)		-			(1,341,276	)
Balance at March 31, 2020		2,179,387		2,179		117,226,394			14,525,712		(7,473,890	)		(47,046,510	)		77,233,885
Conversion of long-term notes into common shares		304,710		305		769,444			-		-			-			769,749
Round-up of fractional shares due to reverse split		9,100		9		(9	)		-		-			-			-
Net income		-		-		-			-		-			993,940			993,940
Transfer to statutory reserves		-		-		-			140,494		-			(140,494	)		-
Foreign currency translation gain		-		-		-			-		58,688			-			58,688
Balance at June 30, 2020		2,493,197		2,493		117,995,829			14,666,206		(7,415,202	)		(46,193,064	)		79,056,262
Conversion of long-term notes into common shares		242,699		243		635,779			-		-			-			636,022
Shares issued for equity financing		265,250		265		496,922			-		-			-			497,187
Net income		-		-		-			-		-			(671,280	)		(671,280	)
Transfer to statutory reserves		-		-		-			1,198		-			(1,198	)

SEC Form 10-Q filed by China Recycling Energy Corporation