Overview of Smart Powerr Corp

Smart Powerr Corp, formerly known as China Recycling Energy Corporation, is a company that provides energy-saving solutions and services in China. The company was originally incorporated as Boulder Brewing Company in 1980 and has undergone several name changes over the years.

The company is currently in the process of transforming and expanding its business into an energy storage integrated solution provider. It plans to pursue growth strategies in new market areas and apply energy storage technologies to industries like industrial complexes, renewable energy projects, and smart cities.

For the nine months ended September 30, 2024, the company reported a net loss of $952,285, compared to a net loss of $518,069 in the same period of 2023. The company had an accumulated deficit of $61.45 million as of September 30, 2024. Despite the losses, the company’s cash flow forecast indicates it will have sufficient cash to fund operations for the next 12 months.

Subsidiaries and Projects

Smart Powerr Corp’s business is primarily conducted through its wholly-owned subsidiaries, including Yinghua, Sifang, Huahong, Shanghai TCH, Xi’an TCH, Erdos TCH, Zhonghong, and Zhongxun. These subsidiaries are engaged in various activities such as energy project investment, financial leasing, and energy-saving solutions.

The company’s key project is Erdos TCH, a joint venture formed in 2009 with Erdos Metallurgy Co., Ltd. to recycle waste heat from Erdos’ metal refining plants and generate power and steam. Erdos TCH currently has two power generation systems in Phase I with a total of 18 MW power capacity, and three power generation systems in Phase II with a total of 27 MW power capacity. However, Erdos TCH’s operations were suspended in May 2019 due to renovations and safety upgrades at Erdos’ facilities, and the resumption of operations has been further delayed.

Critical Accounting Policies and Estimates

The company’s financial statements were prepared in accordance with U.S. generally accepted accounting principles (GAAP). The critical accounting policies and estimates include:

1. Basis of Presentation: The financial statements were prepared pursuant to the rules and regulations of the SEC.

2. Principle of Consolidation: The financial statements include the accounts of the parent company and its subsidiaries, with all significant inter-company transactions eliminated.

3. Use of Estimates: Management makes estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses.

4. Concentration of Credit Risk: The company’s cash is held in accounts within China, which are not covered by insurance. The company also has concentration of credit risk in its accounts and other receivables.

5. Revenue Recognition: The company recognizes revenue from sales-type leasing of its waste energy recycling power generating projects. Revenue is recognized at the inception of the lease when control is transferred to the lessee.

6. Foreign Currency Translation and Comprehensive Income (Loss): The company’s functional currency is the Chinese renminbi (RMB), and its reporting currency is the U.S. dollar. Foreign currency translation adjustments are included in other comprehensive income.

Results of Operations

Comparison of Nine Months Ended September 30, 2024 and 2023

For the nine months ended September 30, 2024, the company had no sales and no cost of sales, resulting in a gross profit of $0. This was the same as the nine months ended September 30, 2023.

Operating expenses increased by 23.34% to $747,540 in the 2024 period, mainly due to higher stock compensation expense and legal expenses, partially offset by lower professional fees.

Net non-operating expenses were $190,577 in the 2024 period, compared to net non-operating income of $185,176 in the 2023 period. This was primarily due to lower interest income and higher interest expense, as well as a loss on note conversion.

The company’s net loss for the nine months ended September 30, 2024 was $952,285, compared to a net loss of $518,069 in the same period of 2023. The increase in net loss was mainly attributable to the higher operating expenses, decreased non-operating income, and lower interest income.

Comparison of Three Months Ended September 30, 2024 and 2023

For the three months ended September 30, 2024, the company again had no sales and no cost of sales, resulting in a gross profit of $0, the same as the three months ended September 30, 2023.

Operating expenses increased by 28.21% to $188,295 in the 2024 period, primarily due to higher legal expenses.

Net non-operating expenses were $74,436 in the 2024 period, compared to net non-operating income of $795 in the 2023 period. This was mainly due to higher interest expense and a loss on note conversion.

The company’s net loss for the three months ended September 30, 2024 was $262,731, compared to a net loss of $180,723 in the same period of 2023. The increase in net loss was primarily driven by the higher operating expenses, decreased non-operating income, and lower interest income.

Liquidity and Capital Resources

As of September 30, 2024, the company had $69.12 million in cash and equivalents, $68.39 million in other current assets, and $24.00 million in current liabilities, resulting in a working capital of $113.51 million and a current ratio of 5.73:1.

During the nine months ended September 30, 2024, the company used $330,673 in operating activities, compared to $68,264,743 in the same period of 2023. The decrease in cash outflow was mainly due to lower net loss adjustments and decreased cash outflow on advance to supplier.

The company received $68,502,372 in cash from investing activities in the 2024 period, primarily from the repayment of a short-term loan. There was no cash provided by or used in investing activities in the 2023 period.

There was no cash provided by or used in financing activities during the nine months ended September 30, 2024 and 2023.

The company’s PRC subsidiaries are subject to certain restrictions on their ability to transfer cash or assets to the parent company due to PRC regulations on foreign exchange and corporate law requirements for statutory reserves. However, the company believes it has sufficient cash and access to financing to meet its working capital needs.

Off-Balance Sheet Arrangements and Contractual Obligations

The company does not have any off-balance sheet arrangements or significant contractual obligations as of September 30, 2024. Its main contractual obligations include notes payable, an entrusted loan, and operating lease liabilities, totaling $16.44 million.

Outlook and Conclusion

Smart Powerr Corp is in the midst of transforming its business to focus on energy storage integrated solutions, a high-growth market in China. While the company has reported net losses in recent periods, it appears to have sufficient cash and access to financing to fund its operations and investments in the near term.

The company’s key challenge is the continued suspension of operations at its Erdos TCH joint venture, which has been a significant revenue source in the past. The successful resumption of Erdos TCH’s operations and the company’s ability to execute on its energy storage expansion strategy will be crucial for its future financial performance.

Overall, Smart Powerr Corp is navigating a period of transition, but its strong liquidity position and focus on emerging energy technologies suggest it has the potential to capitalize on growth opportunities in the Chinese energy market.