The Bankruptcy Court has set June 25, 2012 as the hearing date on the adequacy of the Disclosure Statement. Assuming the Disclosure Statement is approved on June 25, 2012, the Company is targeting August 30, 2012 for confirmation of the Plan.

If the Plan is confirmed, it would provide for the wind down of the U.S. public Company’s affairs and the distribution of available assets to creditors. The Plan establishes, among other things, a liquidating trust that, in its discretion, will pursue the Company’s outstanding litigation in the People’s Republic of China, hold and ultimately sell the Company’s shares of Faith Bloom Limited, the Company’s wholly-owned subsidiary, execute, process and facilitate distributions to holders of claims and equity interests, and resolve disputed claims. Confirmation of the Plan is subject to a number of conditions, including Bankruptcy Court approval of the Plan and Disclosure Statement, the execution of definitive documentation, the establishment of a liquidating trust and appointment of a liquidating trustee pursuant to a liquidating trust agreement, and the receipt of necessary acceptances from creditor classes and equity interest holders. The Company believes that the Plan provides the best, most cost-effective and most prompt possible recovery to holders of claims or equity interests.

For court documents, a list of scheduled hearings, and other information related to ShengdaTech’s bankruptcy proceedings, please visit http://www.gcginc.com/cases/sdt/. A Form 8-K has been filed this date.

About ShengdaTech, Inc.

ShengdaTech is engaged in the business of manufacturing, marketing, and selling nano-precipitated calcium carbonate (“NPCC”) products. The Company converts limestone into NPCC using its proprietary and patent-protected technology. NPCC products are increasingly used in tires, paper, paints, building materials, and other chemical products.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995:

Certain statements in this press release constitute forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. These statements can be identified by the use of forward-looking terminology such as “believe,” “expect,” “may,” “will,” “should,” “project,” “plan,” “seek,” “intend,” or “anticipate” or the negative thereof or comparable terminology. Such statements typically involve risks and uncertainties and actual results could differ materially from the expectations reflected in such forward-looking statements as a result of a variety of factors. You are urged to consider these factors carefully in evaluating the forward-looking statements herein and are cautioned not to place undue reliance on such forward-looking statements, which are qualified in their entirety by this cautionary statement. The forward-looking statements made herein speak only as of the date of this press release and the Company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company’s expectations.

Contact:
ShengdaTech, Inc.
Michael Kang
Tel: (415) 490-2308
Email: mkang@alvarezandmarsal.com

Summary of Financial Results:

(In ’000s of U.S. Dollars,except for per share data)Three Months Ended March 31

20122011
Total Sales (1) + (2)$148$11,563
(1) System Sales-11,271
(2) Contingent Rental Income148292
Gross Profit1333,107
Interest income on sales-type leases4,8145,138
Total Operating Income4,9478,245
Net Income 2,0234,563
Comprehensive Net Income2,1455,545
Basic EPS0.040.14
Diluted EPS0.040.10
Adjusted Net Income in non-GAAP (1)1,7325,297
Adjusted EPS in Non-GAAP (1) (2)0.040.09
(1) CREG provides adjusted net income and earnings per share on a non-GAAP basis that excludes non-cash, share-based compensation expense and non-cash interest expense on the amortization of the beneficial conversion feature for the convertible notes and non-cash deferred income tax expenses, as described below, to enable investors to better assess the Company’s operating performance. The non-GAAP measures are described below and reconciled to the corresponding GAAP measure in the section below titled “Non-GAAP Financial Measures”;

(2) Non-GAAP diluted weighted average shares outstanding were calculated based on outstanding shares, issued options, and estimated shares under the assumption that they would be converted from our convertible debentures.

Positioned for Growth ~ Projects in the Development Phase:

TypeProject NameStart DateProject LifeMWTons of Coal
SavedTons of CO2 ReductionUnleveraged IRRPayback Period
TRTZhangzhi Iron & SteelQ2 2007139.026,46059,27048%3
CHPGShengwei TongchuanQ4 200859.026,46059,27044%3
CHPGShengwei JinyangQ2 200959.026,46059,27041%3
WGPGErdos Phase I, Project 1Q4 20092018.026,46059,27022%5
WGPGErdos Phase I, Project 2Q1 2010209.026,46059,27022%6
BWPGPucheng BiomassQ2 20101512.035,28079,00022%6
WGPGSinoSteel Binghai IQ3 201097.020,58046,10023%5
WGPGErdos Phase IIQ1 20112027.0NANA22%5
BWPGShenqiu BiomassQ3 20111112.0NANA20%5
WGPGErdos Phase IIIUnder Construction2025.0NANA22%5
WGPGDatong Coal – TongmeiUnder Construction2023.0NANA21%5

Mr. Guohua Ku, Chairman and Chief Executive Officer of China Recycling Energy, discussed quarterly financial results, current projects and the company’s’ growth potential. “We are encouraged by the pipeline of new business that we see in 2012 and well into the future. While we saw a decline in our financial results for the first quarter, it should be noted that historically CREG has experienced non-linear revenue flows on a quarterly basis due to the nature of the company’s business model, and this is not indicative of the long-term growth potential of CREG over time. We have a number of projects in the development phase – none of which are slated for completion until the end of calendar year 2012. In addition, we have a solid pipeline of new projects backed by a strong balance sheet.”

Mr. Ku noted, “By leveraging the very strong relationships we have with Chinese industrial giants, CREG is optimally positioned to capitalize on its growth opportunities. Our partnerships include Sino-Steel Group, Binhai Branch – China’s largest nickel steel plant, Erdos Metallurgy Co. – the world’s largest ferrosilicon alloy plant, and Shengwei Cement Group – a major Chinese cement producer. CREG currently has a total of eleven power plants in operation with a total capacity of 107 MW. In addition, we have two heat recovery/WGPG projects under construction, with a total capacity 48 MW, as well as memorandums of understanding (MOUs) for six other TRT, CHPG, and WGPG projects for a total capacity 279 MW.”

Blast Furnace Top Gas Recovery Unit (TRT)

The TRT unit currently has one project in operation: Zhangzhi Iron & Steel. The company noted that China has the third largest steel industry in the world, growing at a 20% rate over the past 5 years. In addition, the regulatory environment is favorable, as the Chinese government is requiring all existing and new blast furnaces to install TRT systems; it is estimated that currently only approximately 50% are in compliance. Mr. Ku commented, “The energy potential of TRT related projects is roughly 38 kWh recovered per ton of steel produced, which is equivalent to electricity revenue of $686 million. We see the TRT market as a sizable one, with a potential of over 200 TRT projects in China over the next five years.”

Cement Heat Power Generation Unit (CHPG)

The CHPG unit currently has two projects in operation: the Shengwei Tongchuan and Shengwei Jinyang projects. China produces more than 45% of the world’s cement, with large-scale plants (eligible for CHPG installation) producing more than 1.35 billion tons per year. Mr. Ku noted, “The energy potential of cement related projects is 38 kWh recovered per ton of cement produced. The regulatory environment is also favorable as it relates to the CHPG unit, as the government requires that by 2010 40% of new, dry-type cement production plants must install CHPG systems and it is estimated that less than 10% have complied and installed such systems. CHPG related projects present CREG with another sizable opportunity for growth, with over 480 related projects in China over the next five years.”

Heat Recovery / Waste Gas Power Generation Unit (WGPG)

The heat recovery WGPG unit currently has six projects in operation: Erdos Phase I, Project 1 and 2, SinoSteel Binghai I, Erdos Phase II, Erdos Phase III and Datong Coal – Tongmei. Mr. Ku noted that China’s annual output of coal coking is reaching 281 million tons, and the industry has a growth rate of 20% per annum. “The energy potential is 80 kWh recovered per ton of steel produced, which is equivalent to $1.5 billion in electricity revenue. The WGPG unit provides CREG with perhaps the single biggest opportunity for growth. Over the next few years, we have identified roughly 300 furnace waste gas projects, 500 blast furnace waste heat projects, 100 glass furnaces projects, 300 non-ferrous metal projects, and 300 waste gas power generation projects.”

Mr. Ku added, “In addition, we have two heat recovery/WGPG projects under construction, with a total capacity 48 MW. And while we had temporarily suspended construction of the 25 MW heat power generation system Erdos Phase III plant due to the technical transformation and renovation of certain equipment and machinery by the customer, construction is currently expected to resume in May 2012, with Phase III targeted for completion by the end of fiscal year 2012.”

Biomass Waste Power Generation Unit (BWPG)

The BWPG unit currently has two projects in operation: Pucheng Biomass and Shenqiu Biomass. The company noted that the National Development and Reform Commission expects the agricultural waste industry to rapidly expand as supportive policies, new technologies, and raw material collection infrastructure materialize. Energy efficiency and alternative energy technologies (including biomass fueled electricity) are top priorities under China’s 12th Five-Year Plan from 2011 to 2015. Mr. Ku said, “When sold to the state grid, recycled biomass waste affords significant energy potential and has a preferential price of RMB 0.25 per kWh versus coal fueled power. In addition, the regulatory environment is highly favorable, as straw power plants receive preferential tax treatment and subsidies.”

Mr. Ku concluded, “Due to our first mover advantage and stringent efforts by the government to impose energy efficiency for industries and curb wastage, CREG is positioned as a market leader in the China waste-to-energy market. While waste-to-energy technology is not new globally, the market for these solutions in China is relatively immature and growing, with numerous heavy industrial companies scrambling to reduce their traditional energy usage and comply with government-issued mandates on energy efficiency. With our proven track record of successful system integration and reliability, as well as our symbiotic partnership with Cinda to provide energy saving solutions to their industrial portfolio companies, we have the ability for significant growth in the coming years. In addition to evaluating new projects to undertake, we are continuously seeking more cost-effective financing options for our company and our customers in an effort to better grow our business organically and via acquisition. CREG’s business is designed to not only help customers comply with energy savings reform and grow their core business, but also to increase our company’s profitability and further grow our recurring revenue stream derived from accruing interest income on sales-type leasing. We have a track record of successfully completing waste-to-energy projects to specific verticals, such as steel, cement, nonferrous metal and coal mining. We plan to continue to focus on such core verticals and leverage our expertise to expand our market share. We intend to expand our waste-to-energy power generating capacity rapidly in order to meet the anticipated growth of demand in China’s energy efficiency industrial applications and to gain market share. We look forward to announcing the completion of projects currently under development now and in the future and bringing more savings to our customers. We remain positive and optimistic on the future earnings potential for China Recycling Energy Corporation.”

Financial Results for Three Months Ended March 31, 2012

Total sales for the 2012 first quarter, comprised of system sales and contingent rental income, was $0.15 million, as compared to $0.52 million reported in the fourth quarter of 2011 and $11.56 million for the first quarter of 2011. The year-over-year decline in total sales was primarily attributable to decreases in system sales and in contingent rental income. Of the total sales, sales of systems for the 2012 first quarter was nil as there was no system being completed during the quarter, as compared to $0.18 million for the 2011 fourth quarter and $11.27 million for the first quarter of 2011. In comparison, net sales of systems for the 2011 first quarter reflected the completion and sale of the third 9MW capacity power station of Erdos Phase II project through sales-type lease in the first quarter of 2011. For the 2012 first quarter, the Company received contingent rental income of $0.15 million from actual usage of the electricity in addition to the minimum lease payments, compared to $0.34 million for the 2011 fourth quarter and $0.29 million for the 2011 first quarter. Interest income from the sales-type leases is CREG’s other major revenue source in addition to system sales revenue.

Cost of sales for the 2012 first quarter was $0.01 million, compared to $0.16 million for the fourth quarter of 2011 and $8.46 million for the first quarter of 2011. The decrease was mainly due to the fact that no power generating system was completed and sold during the first quarter of 2012, while the third 9MW recycling waste heat power generation system of Erdos Phase II project was sold during the first quarter of 2011.

Gross profit for the 2012 first quarter was $0.13 million, compared to $0.35 million for the fourth quarter of 2011 and $3.11 million for the first quarter of 2011, reflecting a gross margin of 90% for the 2012 first quarter, 68% for the 2011 fourth quarter and 27% for the 2011 first quarter. The fluctuation in gross profit was mainly attributable to zero system sales for the 2012 first quarter when compared with the 2011 first quarter. The Company noted that due to the uneven sales of its systems in any given year and the recurring revenue stream from sales-type leasing, gross margin can fluctuate significantly and therefore is not the best indicator of the Company’s profitability.

Interest income on sales-type leases for the first quarter of 2012 was $4.81 million, as compared with $6.01 million for the 2011 fourth quarter and $5.14 million for the 2011 first quarter. During the first quarter of 2012, interest income was derived from 11 systems: one TRT systems, two CHPG systems, two systems with Erdos Phase I project and three systems of Erdos Phase II project, the Pucheng biomass power generation system, Shenqiu biomass power generation system and Zhongbao WHPG system. During the first quarter of 2011, the interest income was derived from 11 systems: two TRT systems, two CHPG systems, one WGPG system, two waste heat power generating systems associated with our Erdos Phase I project and two systems of Erdos Phase II project, the Pucheng biomass power generation system and Zhongbao WHPG system.

Net income for the 2012 first quarter was $2.02 million, as compared with $4.54 million for the 2011 fourth quarter and $4.56 million for the 2011 first quarter. The year-over-year decrease in net income was mainly due to the decreased total sales, and interest income on sales type lease compared with the first quarter of 2011.

For the first quarter of 2012, GAAP diluted EPS was $0.04 with approximately 53.01 million shares of common stock outstanding. This compares with GAAP diluted EPS for the 2011 fourth quarter of $0.06 with approximately 56.18 million shares of common stock outstanding, and $0.09 in the first quarter of 2011 when the Company had 55.13 million shares of common stock outstanding.

Financial Position as of March 31, 2012

As of March 31, 2012, the Company had cash and cash equivalents of $26.47 million, other current assets were $24.51 million and current liabilities were $32.47 million. Total shareholders’ equity was $110.38 million, as compared with $108.21 million as of December 31, 2011.

Net Investment in Sales-Type Leases as of March 31, 2012

The Company, through its subsidiary, Shanghai TCH Energy Technology Co., Ltd (“Shanghai TCH”), sells and leases energy saving systems and equipment. Under sales-type leases, Shanghai TCH leased TRT systems to Zhangzhi with terms of 13 years, and leased CHPG systems to Tong Chuan Shengwei and Jin Yang Shengwei respectively for 5 years, BMPG systems to Pucheng for 15 years, BMPG systems to Shenqiu for 11 years, and 5 power generating systems from waste heat from metal refining to Erdos for 20 years.

The components of the net investment in sales-type leases as of March 31, 2012 and December 31, 2011 are as follows:

March 31, 2012December 31, 2011
Total future minimum lease payments receivable$405,874,585$400,972,427
Less: executory cost(119,470,440)(106,560,187)
Less: unearned interest income(152,260,178)(158,110,200)
Net investment in sales – type leases134,143,967136,302,040
Current portion8,698,3668,725,345
Noncurrent portion$125,445,601$127,576,695
As of March 31, 2012, the future minimum rentals to be received on non-cancelable sales-type leases by years are as follows:

2013$36,300,084
201433,893,748
201527,476,782
201626,348,448
201726,348,448
Thereafter255,507,075
Total$405,874,585
Non-GAAP Financial Measures

For the 2012 first quarter, Non-GAAP net income was $1.732 million, as compared with $0.023 million in the 2011 fourth quarter and $5.297 million in the 2011 first quarter.

The Company believes that “adjusted net income” and “adjusted earnings per share” information, when taken in conjunction with reported results, provide a useful measure of financial performance since they eliminate the impact of certain non-recurring, non-cash charges. These non-GAAP measures should not be considered in isolation or as a substitute for the most comparable GAAP measures. Additionally, the non-GAAP financial measures used by CREG may not be comparable to non-GAAP financial measures used by other companies.

(In ’000s of U.S. Dollars, except for per share data)3 MonthsEnded March 31
Adjusted Net Income and EPS20122011
Net Income2,0234,563
Adjustments

Deferred Income Taxes227633
Interest expense related to beneficiary conversion feature of convertible debentures5841,525
Stock based compensation expenses261,110
Interest income from changes in fair value of conversion liability(1,127)(2,534)
Gain on settlement of debt

Adjusted Net Income (1)1,7325,297
Basic Weighted Average Shares Outstanding (Shares) 46,474,35055,126,048
Adjusted EPS in Non-GAAP (1)0.040.10

(1) CREG provides adjusted net income and earnings per share on a non-GAAP basis that excludes non-cash, share-based compensation expense and non-cash interest expense on the amortization of the beneficial conversion feature for the convertible notes and non-cash deferred income tax expenses, as described below, to enable investors to better assess the Company’s operating performance. The non-GAAP measures are described below and reconciled to the corresponding GAAP measure in the section below titled “About Non-GAAP Financial Measures.”
First Quarter 2012 Financial Results Conference Call

The Company will host a conference call at 8:00 am. EDT on May 22, 2012, to discuss the Company’s 2012 first quarter financial results. Mr. Guohua Ku, Chief Executive Officer, and Mr. David Chong, Chief Financial Officer, will be hosting the call.

Conference Call May 22, 2012 8:00 a.m. EDT

Investors are invited to participate on the live call by dialing 1 (877) 941-8416 for domestic callers and +1 (480) 629-9808 for international callers.

Live Webcast May 22, 2012 8:00 a.m. EDT

Investors that would like to listen to a live webcast of the call, please access the following URL approximately 5 minutes before the start of the conference call: http://event.on24.com/r.htm?e=463568&s=1&k=1608140D523698939BE04F924EBFD1B3

Webcast Archive

An archive of the webcast will be available for 90 days following the call’s conclusion by accessing the following URL: http://event.on24.com/r.htm?e=463568&s=1&k=1608140D523698939BE04F924EBFD1B3

10Q Filing

For more information regarding China Recycling Energy Corp.’s financial performance during the quarter ended March 31, 2012, please refer to the Quarterly Report on Form 10-Q, which was filed with the Securities and Exchange Commission on May 15, 2012.

About Non-GAAP Financial Measures

This press release contains non-GAAP financial measures for earnings that exclude the effect of non-cash, non-operating expenses related to the Convertible Notes issued in April 2008, and the compensation expenses for the fair value of stock options, as well as deferred income tax expenses. The Company uses non-GAAP financial measures when it internally evaluates the performance of its business and makes operating decisions, including internal budgeting and performance measurement. The Company believes that providing the non-GAAP measures is useful to investors for a number of reasons. The non-GAAP measures provide a consistent basis for investors to understand CREG’s financial performance in comparison to historical periods, and it allows investors to evaluate CREG’s performance using the same methodology and information as that used by the Company’s management. However, investors need to be aware that non-GAAP measures are subject to inherent limitations because they do not include all of the expenses included under GAAP, and they involve the exercise of judgment of which charges are excluded from the non-GAAP financial measure.

About China Recycling Energy Corp.

China Recycling Energy Corp. (NASDAQ: 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 percent 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.

For more information, please contact:

Mr. David Chong, Chief Financial Officer
China Recycling Energy Corp.
Tel: +86-1370-1813139
Email: chongscd@creg-cn.com