China Energy Recovery, Inc.

CIK:0001208790|SEC Filings

Earnings per Share

12 Months Ended

Dec. 31, 2012

Note 10 – Earnings per Share

The Company reports earnings per share in accordance with the provisions of ASC 260, “Earnings Per Share.” This standard requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings (loss) per share excludes dilution and is computed by dividing net income (loss) available to common stockholders by the weighted average common shares outstanding during the period under the two-class method. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. In computing the dilutive effect of convertible securities, the number of shares is adjusted for the additional common stock to be issued as if the convertible securities are converted at the beginning of the period (or at the time of issuance, if later). In computing the dilutive effect of options and warrants, the treasury method is used. Under this method, options and warrants are assumed to be exercised at the beginning of the period and as if funds obtained thereby were used to purchase common stock at the average market price during the period. The following table lists the potentially dilutive securities at December 31, 2012 related to our compensation plans under which shares of our common stock are authorized for issuance.

Potentially Dilutive Securities	Number of Securities to be Issued		Reference Index
Dilutive securities from warrants issued as part of financing with Series A preferred stock		1,852,820	Note 12
Dilutive securities from warrants issued with convertible notes		1,388,889	Note 12
Dilutive securities from options to Ye Tian		500,000	Note 13
Dilutive securities from options to Estelle Lau		60,000	Note 13
Dilutive securities from options to Sum Kung		60,000	Note 13
Dilutive securities from options to Jules Silbert		60,000	Note 13
Total potentially dilutive securities		3,921,709

For the year ended December 31, 2011, warrants to purchase 3,241,709 shares of the Company’s common stock and options to purchase 590,000 shares were excluded from the diluted earnings per share calculation because of their anti-dilutive effects.

For the year ended December 31, 2012, warrants to purchase 3,241,709 shares of the Company’s common stock and options to purchase 650,000 shares were excluded from the diluted earnings per share calculation because of their anti-dilutive effects due to the low share price as of December 31, 2012.

The following is a reconciliation of the basic and diluted earnings per share computations for the years ended December 31, 2011 and 2012.

	For the year ended December 31,
		2011			2012
Numerator:
Net income	$	1,995,668		$	97,293
Amount allocated to preferred stockholders		(6,795	)		(331	)
Net income available to common stock holders
-Basic and diluted		1,988,873			96,962
Denominator:
Denominator for basic earnings per share
-Weighted average common shares outstanding		31,033,148			31,077,632
-Weighted average dilutive shares		-			-
Denominator for diluted earnings per share		31,033,148			31,077,632
Basic earnings per share	$	0.06		$	0.003
Diluted earnings per share		0.06			0.003

CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)	12 Months Ended
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)	Dec. 31, 2012	Dec. 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 97,293	$ 1,995,668
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization	1,724,365	1,481,661
Loss on disposal of property, plant, and equipment	0	51,548
Discount reflected in revenue for payment extensions on long-term accounts receivable (Note 3)	1,709,299	0
Interest income - long term accounts receivable accretion (Note 3)	(1,311,915)
Provision for impairment loss of receivables	3,428,447	1,010,102
Provision for inventory	16,186	26,763
Common stock issued for consulting services	0	40,308
Restricted common stock issued for settlement of exchange rate loss related to long-term loan	0	144,498
Stock based compensation	28,266	260,224
Investment income	(2,977)	0
Change in fair value of warrant and derivative liabilities	(44,080)	(1,696,440)
Accretion of interest on convertible note and long term loan	149,055	241,233
Amortization of deferred financing costs	0	215,623
Capitalized interest expenses	(134,579)	(14,729)
Debt issue cost	73,343	0
Cancellation of warrants	0	(15,547)
Deferred income taxes	(166,473)	(450,164)
Changes in operating assets and liabilities:
Notes receivable	1,281,652	(437,874)
Accounts receivable	(6,818,667)	(5,645,663)
Accounts receivable - related party	(3,264,221)	(9,088,157)
Inventories	6,211,871	(6,048,551)
Other current assets and receivables	(91,662)	851,656
Advances on inventory purchases	11,959,536	(9,023,724)
Long term accounts receivable - related party	0	4,679,121
Accounts payable	7,990,531	11,690,296
Notes payable	(1,227,991)	1,396,648
Accrued expenses and other liabilities	2,286,348	(642,594)
Advances from customers	(24,049,858)	15,212,013
Deferred revenue	157,540	89,068
Taxes payable	1,831,572	(411,173)
Effect of exchange rate changes on operating activities	15,656	951,317
Net cash provided by operating activities	1,848,537	6,863,131
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment	(5,885,111)	(9,076,046)
Changes in restricted cash	(2,552,396)	(664,082)
Purchase of intangible assets	(46,167)	(2,434,629)
Purchase of short-term investments	82,332	(79,355)
Proceeds from disposal of property, plant, and equipment	0	24,863
Net cash used in investing activities	(8,401,342)	(12,229,249)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term loans	30,744,479	15,814,185
Repayments of short-term loans	(21,681,692)	(10,703,605)
Repayment of convertible note	(5,000,000)	0
Repayments of long-term loans	0	(3,803,621)
Proceeds from letter of credit	0	4,490,741
Acquisition of treasury stock	(9,950)	0
Net cash provided by financing activities	4,052,837	5,797,700
Effect of Exchange Rate Changes on Cash	11,735	151,788
Increase (Decrease) in Cash	(2,488,233)	583,370
Cash, beginning balance	3,579,446	2,996,076
Cash, ending balance	1,091,213	3,579,446
Supplemental disclosure of cash flow information:
Cash paid for income taxes	680,087	1,237,609
Cash paid for interest	1,267,393	1,394,203
Supplemental schedule of non-cash investing and financing activities:
Common stock for consulting services	0	40,308
Common stock issued for settlement of exchange rate loss related to long-term loan	0	144,498
Accounts payable relating to purchases of property, plant and equipment	$ 2,835,719	$ 5,377,061

CONSOLIDATED BALANCE SHEETS(USD ($))	Dec. 31, 2012	Dec. 31, 2011
ASSETS
Cash	$ 1,091,213	$ 3,579,446
Restricted cash	3,434,824	882,428
Notes receivable	497,581	1,779,233
Accounts receivable - third parties	14,726,322	11,639,138
Accounts receivable - related parties	1,605,100	9,088,157
Inventories, net	8,449,766	14,678,312
Other current assets and receivables	425,038	333,376
Advances on purchases	9,317,116	21,276,652
Short-term investments	0	79,355
Total current assets	39,546,960	63,336,097
Non-Current Assets:
Property, plant and equipment, net	28,199,889	26,159,602
Deferred tax assets	788,413	621,940
Intangible assets	4,930,452	4,999,883
Long term accounts receivable, net - third parties	4,023,840	0
Long term accounts receivable, net - related party	6,608,981	0
Total non-current assets	44,551,575	31,781,425
Total Assets	84,098,535	95,117,522
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable (including accounts payable of the consolidated variable interest entity without recourse to the Company of $7,998,479 and $11,394,637 as of December 31, 2011 and 2012, respectively)	26,935,238	21,625,205
Notes payable (including notes payable of the consolidated variable interest entity without recourse to the Company of nil and nil as of December 31, 2011 and 2012, respectively)	168,657	1,396,648
Accrued expenses and other liabilities (including accrued expenses and other liabilities of the consolidated variable interest entity without recourse to the Company of $82,936 and $1,254,253 as of December 31, 2011 and 2012, respectively)	3,556,298	1,269,950
Advances from customers (including advances from customers of the consolidated variable interest entity without recourse to the Company of $7,151,306 and $4,407,224 as of December 31, 2011 and 2012, respectively)	18,692,220	42,742,078
Taxes payable (including taxes payable of the consolidated variable interest entity without recourse to the Company of $1,180,672 and $1,809,749 as of December 31, 2011 and 2012, respectively)	3,051,906	1,220,334
Long term loans, current portion (including long term loans, current portion of the consolidated variable interest entity without recourse to the Company of nil and nil as of December 31, 2011 and 2012, respectively)	0	4,850,945
Short term loans (including short term loans of the consolidated variable interest entity without recourse to the Company of nil and $7,222,950 as of December 31, 2011 and 2012, respectively)	23,524,779	14,388,649
Derivative liability, current (including derivative liability, current of the consolidated variable interest entity without recourse to the Company of nil and nil as of December 31, 2011 and 2012, respectively)	0	21,274
Total current liabilities	75,929,098	87,515,083
Non-Current Liabilities:
Warrant liability (including warrant liability of the consolidated variable interest entity without recourse to the Company of nil and nil as of December 31, 2011 and 2012, respectively)	0	22,806
Deferred revenue (including deferred revenue of the consolidated variable interest entity without recourse to the Company of nil and nil as of December 31, 2011 and 2012, respectively)	246,608	89,068
Total non-current liabilities	246,608	111,874
Total liabilities	76,175,706	87,626,957
Commitments and contingencies (Note 19)	0	0
Shareholders' Equity:
Convertible preferred stock (US$0.001 par value; 50,000,000 shares authorized, 200,000 shares issued and outstanding both as of December 31, 2011 and 2012, respectively)	189	189
Common stock (US$0.001 par value; 100,000,000 shares authorized, 31,085,859 and 31,085,859 shares issued and outstanding as of December 31, 2011 and 2012, respectively)	31,085	31,085
Treasury Stock (Nil and 33,853 shares repurchased as of December 31, 2011 and December 31, 2012, respectively)	(9,950)	0
Additional paid-in-capital	8,786,502	8,758,236
Accumulated deficits	(2,997,374)	(3,094,667)
Statutory reserves	509,596	509,596
Accumulated other comprehensive income	1,602,781	1,286,126
Total shareholders' equity	7,922,829	7,490,565
Total liabilities and shareholders' equity	$ 84,098,535	$ 95,117,522