Monday November 17, 7:00 am ET
-- Gross Profit Increased by 411% to $3.5 Million
-- Gross Margin Increased to 22.0% from 9.1% a Year Ago
-- Net Margin Increased to 5.1% Compared to a Loss in 2007

SHANGHAI, China--(BUSINESS WIRE)--China Energy Recovery, Inc. (OTCBB: CGYV - News) ("CER"), a leader in the waste-heat recovery sector of the alternative energy industry, today announced financial results for the nine months and the third fiscal quarter ended September 30, 2008.

Financial Results for the Nine Months Ended September 30, 2008

Revenue in the nine months ended September 31, 2008 increased to $16.0 million, up from $7.5 million in the corresponding period in 2007, an increase of 112.0%. The increase in revenue is due to increased sales volume of energy recovery systems and services of the company as a result of increasing market demand.

Gross profit increased by 411.4% to $3.5 million, representing a 22.0% gross margin, for the nine months ended September 30, 2008, compared with gross profit of $0.7 million, or a 9.1% gross margin, for the same period in 2007. The increase in gross profit is mainly attributable to increased licensing and design service revenue with higher margins and the company's efforts in adjusting contract prices in coping with orders of increasing size and the increased prices of raw materials in 2008.

Selling, general and administrative expenses were $2.3 million for the nine months ended September 30, 2008, or 14.2% of sales revenue, as compared to $0.8 million, or 11.2% of sales revenue, for the same period in 2007. The increase is mainly due to increases in professional expenses related to public company operations, salary expenses due to company-wide salary raises and addition of staff, and sales and marketing expenses as a result of increased sales efforts. There are also about $0.4 million of non-cash expenses related to issuance of shares and stock options for services.

Net income increased to $0.8 million for the nine months ended September 30, 2008 as compared to a net loss of $0.2 million for the same period in 2007. The increase in net income is mainly attributable to increased sales volume of the company's products and services and improved operational efficiency given the increased effect of economies of scale.

Financial Results for the Three Months Ended September 30, 2008

Comparing the third fiscal quarter of 2008 to the third fiscal quarter of 2007:

Revenue increased by 56.7% to $6.1 million from $3.9 million, as a result of a continuous increase in sales volume of our systems and provision of design services.

Gross profit rose to $1.6 million from $0.1 million, a 1,099.4% increase. The respective gross margins were 26.3% and 3.4%. The increase primarily resulted from contracts with higher margins including those for design services and the contracts where new technology was applied.

Selling, general and administrative expenses amounted to $1.2 million, or 19.3% of sales revenue, from $0.2 million, or 5.4% of sales revenue, for the same period in 2007. The increase is mainly attributable to increased professional expenses, salary expenses due to salary raises and addition of new staff, sales and marketing expenses as a result of increased sales efforts and an increase in administrative expenses. There are also about $0.2 million of non-cash expenses related to the issuance of shares and stock options for services.

Net income rose to $0.2 million compared to a net loss of $0.1 million for the same period in 2007. The increase in net income is mainly attributable to new contracts with higher margins and improved operational efficiency given the increased effect of economies of scale.

“We announced last quarter that our company has been producing new products at an accelerated rate, and we’re pleased to see that at this point in time China Energy Recovery is setting historical records for that growth,” stated CER’s CEO, Mr. Qinghuan Wu. “With contracts continuing to come in including some of our biggest systems to date, and with clients who represent some of the largest manufacturers in their industries, we expect that we’ll continue on this trajectory of growth and expansion into 2009 and beyond.”

What is Energy Recovery?

Industrial facilities and power plants release significant amounts of excess heat into the atmosphere in the form of hot exhaust gases or high pressure steam. Energy recovery is the process of recovering vast amounts of that wasted energy and converting it into usable electricity, dramatically lowering energy costs. Energy recovery systems are also capable of capturing the majority of carbon emissions and other harmful pollutants that would otherwise be released into the environment. It is estimated that energy recovery systems installed in U.S. industrial facilities could produce up to 20% of U.S. electricity needs without burning any additional fossil fuel, and could help many industries to meet stringent environmental regulations.

About China Energy Recovery, Inc.

CER is an international leader in energy recovery systems, with a primary focus on the Chinese market. CER's technology captures industrial waste energy to produce low-cost electrical power, enabling industrial manufacturers to reduce their energy costs, shrink their emissions footprint, and generate sellable emissions credits. CER has deployed its systems throughout China and in such international markets as: Egypt, Turkey, Korea, Vietnam and Malaysia. CER focuses on numerous industries in which a rapid payback on invested capital is achieved by its customers, including: chemical, petro-chemicals, refining (including Ethanol refining), coke processing, and the manufacture of paper, cement and steel. CER continues to expand its recovery system research and fabrication facility to meet the increasing demands for its products and services both in China and internationally. For more information on CER, please visit: http://www.chinaenergyrecovery.com/s/Home.asp. Information on CER's website does not comprise a part of this press release.

Forward-Looking Statement Disclaimer

This press release includes "forward-looking statements" within the meaning of the Securities Litigation Reform Act of 1995, as amended. All statements, other than statements of historical fact, included in the press release that address activities, events or developments that CER believes or anticipates will or may occur in the future are forward-looking statements. These statements are based on certain assumptions made based on experience, expected future developments and other factors that CER believes are appropriate under the circumstances. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond CER's control and may not materialize, including, without limitation, the efficacy and market acceptance of CER's products and services, and CER's ability to successfully complete construction of future projects. In addition, such statements could be affected by general industry and market conditions and growth rates, and general economic and political conditions in China. The contents of this release should be considered in conjunction with the warnings and cautionary statements contained in CER's recent filings with the Securities and Exchange Commission, including CER's Current Report on Form 8-K filed on April 21, 2008, as amended. All forward-looking statements attributable to CER or any persons acting on CER's behalf are expressly qualified in their entirety by these cautionary statements. Furthermore, all guidance and forward-looking statements in this press release are made as of the date hereof and CER is not obligated to and does not undertake any obligation to update any forecast or forward-looking statements, except as may be required by law.

CHINA ENERGY RECOVERY, INC. AND SUBSIDIARIES
 

CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2008 AND DECEMBER 31, 2007
 

ASSETS

      September 30,    December 31,
      2008       2007 
      UNAUDITED 
CURRENT ASSETS: 
 Cash   $  6,368,633    $  306,150 
 Restricted cash    596,319     89,115 

Accounts receivable, net of allowance for doubtful accounts of $127,794 and $237,475 as of September 30, 2008 and December 31, 2007, respectively
   4,968,881     577,005 
 Accounts receivable - related parties    -     572,036 
 Notes receivable    641,745     351,799 
 Inventories    8,592,517     5,262,329 
 Costs and estimated earnings in excess of billings    2,089,938     1,155,909 
 Other receivables    88,388     37,852 
 Advances on inventory purchases    2,829,012       1,995,345 
  Total current assets    26,175,433       10,347,540 

PLANT AND EQUIPMENT, net    765,034       649,392 

OTHER ASSETS: 
 Long term accounts receivable, retainage    820,694     588,433 
 Due from shareholder    371,172       463,663 
  Total other assets    1,191,866     1,052,096 

   Total assets   $  28,132,333      $  12,049,028 

LIABILITIES AND SHAREHOLDERS' EQUITY 

CURRENT LIABILITIES: 
 Accounts payable   $  4,580,760    $  2,196,508 
 Other payables    318,330     275,591 
 Other payables - related parties    64,900     60,819 
 Accrued liabilities    143,017     27,850 
 Customer deposits    9,529,208     8,052,570 
 Customer deposits - related parties    2,765,598     - 
 Taxes payable    1,571,719     719,132 
 Deferred revenue    1,737,839     930,546 
 Short term loan payable    380,380       - 
  Total current liabilities    21,091,751       12,263,016 

COMMITMENTS AND CONTINGENCIES    -     - 

SHAREHOLDERS' EQUITY: 
 

Preferred stock ($0.001 par value, 50,000,000 shares authorized, 2,991,934 issued and outstanding as of September 30, 2008 and 0 issued and outstanding as of December 31, 2007)
2,992 

Common stock ($0.001 par value, 100,000,000 shares authorized, 28,774,088 issued and outstanding as of September 30, 2008 and 20,757,090 issued and outstanding as of December 31, 2007) 

28,774 

20,757

 Paid-in-capital    9,111,556     871,787 
 Deferred compensation    (1,760,860  )    - 
 Contribution receivables    (1,000  )    (1,000  )
 Accumulated deficit    (648,297  )    (1,270,165  )
 Statutory reserves    391,978     204,758 
 Accumulated other comprehensive loss    (84,561  )    (40,125  )
  Total shareholders' equity    7,040,582     (213,988  )

   Total liabilities and shareholders' equity   $  28,132,333      $  12,049,028 
CHINA ENERGY RECOVERY, INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME

FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(UNAUDITED)

     Three months ended    Nine months ended
     September 30    September 30
     2008    2007       2008       2007 
REVENUES 
 Third parties   $  4,208,911   $  3,908,221    $  14,017,367    $  7,538,493 
 Related party    1,914,793    -       1,962,824 
  Total revenue    6,123,704    3,908,221       15,980,191       7,538,493 

COST OF SALES 
 Third parties    3,343,536    3,773,927     11,297,946     6,851,603 
 Related party    1,169,502    -       1,169,502 
  Total cost of sales    4,513,038    3,773,927       12,467,448       6,851,603 

GROSS PROFIT    1,610,666    134,294     3,512,743     686,890 

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES    1,184,844    212,597       2,273,105       842,776 

INCOME (LOSS) FROM OPERATIONS    425,822    (78,303  )    1,239,638       (155,886  )

OTHER INCOME (EXPENSE), NET 
 Non-operating income (expense), net    8,645    (7,236  )    31,043     11,170 
 Interest income (expense), net    14,823    (8,688  )    (49,954  )    (37,289  )
  Total other income (expense), net    23,468    (15,924  )    (18,911  )    (26,119  )

INCOME (LOSS) FROM OPERATIONS BEFORE 
 PROVISION FOR INCOME TAXES    449,290    (94,227  )    1,220,727     (182,005  )

PROVISION FOR INCOME TAXES    204,434    1,583       411,639       7,944 

NET INCOME (LOSS)    244,856    (95,810  )    809,088       (189,949  )

OTHER COMPREHENSIVE INCOME (LOSS) 
 Foreign currency translation adjustment    469    8,174       (44,436  )    (49,414  )

COMPREHENSIVE INCOME (LOSS)   $  245,325    (87,636  )    764,652      $  (239,363  )

EARNING (LOSS) PER SHARE 
 Basic 
  Weighted average number of shares    27,460,695    20,757,090       24,415,471       20,757,090 
  Earning (loss) per share   $  0.009   $  (0.005  )   $  0.033      $  (0.009  )
 Diluted 
  Weighted average number of shares    30,171,968    20,757,090       26,044,405       20,757,090 
  Earning (loss) per share   $  0.008   $  (0.005  )   $  0.031      $  (0.009  )

CHINA ENERGY RECOVERY, INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
(UNAUDITED)

       2008       2007 
CASH FLOWS FROM OPERATING ACTIVITIES: 
 Net income (loss)   $  809,088    $  (189,949  )
 Adjustments to reconcile net income to cash 
 provided by (used in) operating activities: 
   Depreciation    84,142     50,485 
   Change in allowance for uncollectible accounts    80,031     27,657 
   Common stock issued for services    239,512     - 
   Option issued for services    73,254     - 
   Amortization of stock-based compensation to consultants    49,000     - 
   Write off fixed assets    39,427     - 
   Loss on fixed assets disposal    -     9,637 
  Change in operating assets and liabilities 
   Accounts receivable    (4,400,769  )    42,330 
   Accounts receivable - related parties    598,197     - 
   Notes receivable    (261,005  )    78,163 
   Inventories    (2,917,441  )    (3,752,200  )
   Costs and estimated earnings in excess of billings    (839,310  )    (2,571,036  )
   Other receivable    (88,098  )    (7,328  )
   Advances on inventory purchases    (641,934  )    (1,307,345  )
   Long term accounts receivable, retainage    (134,149  )    - 
   Other assets    (4,158  )    575 
   Accounts payable    2,175,697     1,156,844 
   Other payables    (15,047  )    135,479 
   Other payables - related parties    -     24,056 
   Accrued liabilities    112,521     117,600 
   Customer deposits    917,524     5,977,142 
   Customer deposits - related parties    2,710,211     317,074 
   Taxes payable    788,221     (612,821  )
   Deferred revenue    729,932       509,028 
    Net cash provided by operating activities    104,846       5,391 

CASH FLOWS FROM INVESTING ACTIVITIES: 
 Purchase equipment    (194,188  )    (92,250  )
    Net cash used in investing activities    (194,188  )    (92,250  )

CASH FLOWS FROM FINANCING ACTIVITIES: 
 Proceeds received from a shareholder    160,731     76,548 
 Increase in restricted cash    (491,186  )    (84,916  )
 

Cash received from re-organization
   119     - 
 Capital contribution    -     65,320 
 Proceeds from issuing preferred stock, net of offering costs    6,619,278     - 
 Shareholder distribution from VIE    (575,771  )    (214,250  )
 Cash proceeds from short term bank loans    359,060       298,760 
    Net cash provided by financing activities    6,072,231       141,462 

EFFECTS OF EXCHANGE RATE CHANGE IN CASH    79,594       (6,650  )

INCREASE IN CASH    6,062,483     47,953 

CASH, beginning of period    306,150       147,605 

CASH, end of period   $  6,368,633      $  195,558 
Contact:

for China Energy Recovery, Inc.
Media:
Sean Mahoney, 310-867-0670
seamah@gmail.com
or
Investor Relations:
Jim Blackman, 713-256-0369
jim@prfmonline.com

Source: China Energy Recovery, Inc.