WUXI, China, Feb. 5 /Xinhua-PRNewswire-FirstCall/ -- China Wind Systems, Inc. (OTC Bulletin Board: CWSI), which through its affiliates manufactures and supplies industrial equipment for use in the textile and energy related industries in the People's Republic of China, announced financial results for the third quarter ended September 30, 2007.
Third Quarter 2007 Results
-- Net revenues totaled $8.0 million, up 36.3% from the prior year
-- Gross profit was $2.4 million, up 26.3% from the prior year
-- Operating income was $2.1 million, up 42.1% from the prior year
-- Net income was $8.1 million, up 714.6% from the prior year
-- Non-GAAP net income was $1.3 million, up 35.4% from the prior year
Recent Highlights
-- Constructed new manufacturing facility, for which the company has
begun the acquisition of necessary assets
-- Completed reverse takeover transaction to become public company in
November 2007
-- Raised $5.5 million in private placement financing in the fourth
quarter of 2007
-- Began first phase of expansion plan
Projected Revenue and Net Income
China Wind Systems anticipates that for the 2007 fiscal year, it will end with approximately $23 million in revenues, $10.4 million in net income (which includes the effect of a one-time tax relief of $6.8 million in VAT and income taxes).
In addition, China Wind System projects that in the 2008 fiscal year, it may achieve an estimated $40 million in revenues, and $7 million in net income.
"We achieved double-digit growth in revenues in the third quarter of 2007 due to our focus on supplying forged rolled rings to the wind power and other heavy machinery industries. The wind power industry in China is experiencing significant growth and we are focused on addressing this need," said Mr. Jianhua Wu, Chairman and CEO of China Wind Systems, Inc.
Third Quarter of 2007 Results
Net revenues for the third quarter of 2007 totaled $8.0 million, up 36.3% from $5.9 million in the same quarter of 2006. The increase in revenues was primarily due to the introduction of a new line of products, the release of which led to increased sales. These new products include forged rolled rings to the wind power and other heavy machinery industries.
Gross profit for the third quarter of 2007 totaled $2.4 million, an increase of 26.3% from $1.9 million in the same quarter of 2006. Gross profit margin was 29.6% for the third quarter of 2007, slightly down from 31.9% for the same quarter of 2006.
Operating expenses for the third quarter of 2007 were $0.3 million, down 29.5% from $0.4 million in the same quarter of 2006. This was primarily due to a decrease in bad debt expense of $0.2 million offset by increases in operating expenses such as travel and wages. Operating expenses were 3.7% of net revenues in the third quarter of 2007, down from 7.1% of net revenues in the same quarter of 2006.
Operating income for the third quarter of 2007 was $2.1 million, up 42.2% from $1.5 million in the third quarter of 2006. Operating margin was 25.9%, compared to 24.9% in the same quarter of 2006. The increase in operating margin was mainly due to the decrease in operating expenses as described above.
Net income for the third quarter of 2007 was $8.1 million, up 714.6% from net income of approximately $1.0 million in the third quarter of 2006.
Adjusted net income, adjusted for one-time tax relief, for the third quarter of 2007 was $1.3 million. Since the tax relief is a one-time event, it would be appropriate to evaluate the underlying performance of the company without the effect of the tax relief.
Nine Month Results
For the nine months ended September 30 2007, net revenues were $16.6 million, up 34.4% from $12.3 million for the same period prior year. Gross profit was $4.8 million, up 35.4% from $3.5 million for the same period prior year. Gross margin was 28.7%, slightly up from gross margin of 28.5% in the year ago period. Operating income was $4 million, up 45.2% from $2.7 million for the same period prior year, and operating margin was 24.0%, compared to 22.2% in the prior year. Net income increased 415.4% to $9.4 million from $1.8 million. Adjusting net income to exclude a one-time tax relief, the non-GAAP net income was $2.6 million in the first nine months of 2007, up 44.5% from $1.8 million for the same period prior year.
Financial Condition
As of September 30, 2007, the company had $0.6 million in cash and cash equivalents, $3.5 million in working capital and a current ratio of 1.73 to 1. The company had $0.6 million in short-term loans payable and $18.1 million in shareholders' equity. The company generated $6.2 million in cash flows from operating activities in the first nine months of 2007.
In July 2007, China Wind Systems agreed to acquire newly constructed buildings and land use rights from Wuxi Huyuang Boiler Company, Ltd. for $11.9 million. The company holds a 33.33% interest in Wuxi Huyuang Boiler Company, Ltd., and the remaining 66.7% is owned by family members of the company's CEO. The company intends to use the buildings and land use rights to expand its business. As of September 30, 2007 the company had made payments of $5.9 million, which are classified as deposits on long-term assets on the balance sheet. The remaining balance of $6.0 million is due in the first quarter of 2008.
In November 2007, the company completed a $5.5 million private placement financing of 3% convertible subordinated notes, the proceeds of which are not reflected on the financial statements as of September 30, 2007. In January 2008, the company purchased $4.13 million worth of equipment for the first phase of the company's expansion plan. At the end of the first phase of the expansion plan the company intends to manufacture rolled rings as well as other windmill component such as shafts.
Business Outlook
China Wind Systems is positioning itself to be a significant manufacturer of forged rolled rings and other wind energy components for the rapidly growing wind industry in China. In 2008, the company plans to use the proceeds from its recent private placement financing to purchase equipment and begin production of forged rolled rings as well as other wind energy components for the wind power industry.
For fiscal year 2007, the company anticipates net revenues of approximately $23 million and net income of approximately $10.4 million (including a one-time gain from the forgiveness of income and VAT taxes of $6.8 million). For 2008, China Wind Systems anticipates net revenues of approximately $40 million and net income of approximately $7 million.
"We are pleased to have completed our transition to become a public company and are now focusing our attention on our growth strategy. In the coming year, we plan to continue supplying forged rolled rings to various heavy manufacturing industries, including the wind power industry, and will begin manufacturing rolled rings and other wind energy components," said Mr. Jianhua Wu, CEO of China Wind Systems. "Given our extensive experience in manufacturing industrial equipment, our new state-of-the-art manufacturing facility and our prime location in the coastal region of China, we believe we are well positioned to succeed in the fast growing wind power industry in China," added Mr. Jianhua Wu.
As of the date of this press release, the company has approximately 37 million shares of common stock outstanding. All currency amounts in this press release are reported in U.S. Dollars.
Additional information about China Wind Systems, Inc., including its financial statements for the period ended September 30, 2007, is available in the company's current report on Form 8-K filed with the Securities and Exchange Commission on February 1, 2008. All forward looking statements in this press release should be read in conjunction with the "risk factors" set forth in the above-mentioned current report and in the other period reports of the company.
Use of Non-GAAP Financial Information
GAAP results for the third quarter and nine months ended September 30, 2007 include a one-time tax relief of $6.8 million. To supplement the company's condensed consolidated financial statements presented on a GAAP basis, the company has provided non-GAAP financial information excluding the impact of this item in this release. The company's management believes that this non-GAAP measure provides investors with a better understanding of how the results relate to the company's historical performance. A reconciliation of adjustment to GAAP results appears in the table accompanying this press release. This additional non-GAAP information is not meant to be considered in isolation or as a substitute for GAAP financials. The non-GAAP financial information that the Company provides also may differ from the non-GAAP information provided by other companies.
About China Wind Systems, Inc.
China Wind Systems, through its affiliates, Huayang Dye Machine and Huayang Electrical Power Equipment, manufactures and sells industrial equipment for use in the textile and energy related industries in China. Since August 2007, the company has shifted its strategy to focus on the growing wind energy industry in China, and has begun to supply high precision rolled rings to companies in the wind power energy industry.
Safe Harbor Statement
This announcement contains "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact in this announcement are forward-looking statements, including but not limited to, the company's ability to obtain the necessary financing to continue and expand operations, to market its products in new markets and to offer products at competitive pricing, to attract and retain management, and to integrate and maintain technical information and management information systems; compliance with laws and regulations of the PRC, the effects of currency policies and fluctuations, general economic conditions and other factors detailed from time to time in the company's filings with the United States Securities and Exchange Commission and other regulatory authorities. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
CHINA WIND SYSTEMS, INC.
RECONCILIATION OF NON-GAAP FINANCIAL DATA
Non-GAAP Net Income Q3 2007 Q3 2006
Net Income (Loss)
Adjusted Amount $1,349,850 $996,930
Adjustment
Other income from forgiveness of
VAT and income taxes (1) $6,771,442 --
Amount per consolidated statement of
operations $8,121,292 $996,930
(1) One-time tax relief in VAT and income taxes in the third quarter
of 2007
First Nine Months
Non-GAAP Net Income 2007 2006
Net Income (Loss)
Adjusted Amount $2,637,866 $1,825,586
Adjustment
Other income from forgiveness of
VAT and income taxes (1) $6,771,442 --
Amount per consolidated statement of
operations $9,409,308 $1,825,586
(1) One-time tax relief in VAT and income taxes in the third quarter
of 2007
CONSOLIDATED STATEMENTS OF OPERATIONS
CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
(Unaudited)
For the Three Months For the Nine Months
Ended Ended
September 30, September 30,
2007 2006 2007 2006
NET REVENUES 8,000,293 5,868,385 16,589,475 12,344,395
GROSS PROFIT 2,366,316 1,873,430 4,757,929 3,513,454
OPERATING EXPENSES:
Depreciation and
Amortization expense 68,607 91,224 207,875 223,432
Selling, general and
administrative 223,164 322,829 566,106 545,524
Total Operating Expenses 291,771 414,053 773,981 768,956
INCOME FROM OPERATIONS 2,074,545 1,459,377 3,983,948 2,744,498
OTHER INCOME (EXPENSE):
Interest income 91 3,347 372 7,959
Interest expense (9,946) (2,723) (31,360) (13,474)
Other income from
forgiveness of
income and VAT taxes 6,771,442 -- 6,771,442 --
Total Other Income (Expense) 6,761,587 624 6,740,454 (5,515)
INCOME BEFORE INCOME TAXES 8,836,132 1,460,001 10,724,402 2,738,983
INCOME TAXES 714,840 463,071 1,315,094 913,397
NET INCOME 8,121,292 996,930 9,409,308 1,825,586
COMPREHENSIVE INCOME:
NET INCOME 8,121,292 996,930 9,409,308 1,825,586
OTHER COMPREHENSIVE INCOME:
Unrealized foreign currency
translation gain 299,690 183,521 523,986 226,670
COMPREHENSIVE INCOME 8,420,982 1,180,451 9,933,294 2,052,256
CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended
September 30,
2007 2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $9,409,308 $1,825,586
Adjustments to reconcile net income
from operations to net cash
provided by (used in) operating
activities:
Depreciation and amortization 441,590 428,232
Increase in allowance for doubtful
accounts 182,882 253,567
Increase in reserve for inventory
obsolescence 106,942 24,382
Other income from forgiveness of
income and VAT taxes (6,771,442) --
Changes in assets and liabilities:
Accounts receivable (2,538,272) (1,717,524)
Inventories 426,386 (420,986)
Prepaid and other current assets 72,686 (2,019)
Advanced to suppliers (127,886) (87,155)
Accounts payable 1,161,510 (189,035)
Accrued expenses 22,058 (1,829,448)
VAT and service taxes payable 1,011,064 639,286
Income taxes payable 957,899 889,897
Advances from customers 1,830,260 (514,002)
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 6,184,985 (699,219)
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in due from
related parties (486,032) 636,238
Deposit on long-term assets (5,792,030) --
Purchase of property and equipment (8,290) (25,593)
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (6,286,352) 610,645
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans payable 260,561 (455,209)
Repayments of related party advances -- 484,663
NET CASH PROVIDED BY FINANCING
ACTIVITIES 260,561 29,454
EFFECT OF EXCHANGE RATE ON CASH 20,161 3,798
NET INCREASE (DECREASE) IN CASH 179,355 (55,322)
CASH - beginning of year 421,390 230,179
CASH - end of period $600,745 $174,857
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for:
Interest $31,360 $13,474
Income taxes $-- $--
CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 2007
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $600,745
Accounts receivable, net of
allowance for doubtful accounts
of $413,385 4,842,458
Inventories, net of reserve for
obsolete inventory of $267,939 1,045,841
Advances to suppliers 1,749,226
Prepaid expenses and other 17,743
Total Current Assets 8,256,013
PROPERTY AND EQUIPMENT - Net 6,510,616
OTHER ASSETS:
Deposit on long-term assets 5,913,886
Intangible assets, net of
accumulated amortization 491,686
Investments in cost and equity
method investees 99,766
Due from related parties 1,593,297
Total Assets $22,865,264
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Loan payable $665,106
Accounts payable 1,830,645
Accrued expenses 170,990
VAT and service taxes payable 14,666
Advances from customers 2,055,634
Income taxes payable 22,410
Total Current Liabilities 4,759,451
STOCKHOLDERS' EQUITY:
Common stock ($0.001 par value;
75,000,000 shares authorized;
36,577,704 shares issued and
outstanding) 36,578
Additional paid-in capital 1,737,392
Retained earnings 15,476,309
Other comprehensive gain -
cumulative foreign currency
translation adjustment 855,534
Total Stockholders' Equity 18,105,813
Total Liabilities and
Stockholders' Equity $22,865,264
For more information, please contact:
CCG Elite Investor Relations
Crocker Coulson, President
Tel: +1-646-213-1915
Email: crocker.coulson@ccgir.com
