Gross profit increased 108.6% year-over-year; Net income rose 99.8%
year-over-year
WUXI, Jiangsu, China, Aug. 15 /Xinhua-PRNewswire/ -- China Wind Systems, Inc. (OTC Bulletin Board: CWSI) (“China Wind Systems” or the “Company”), supplies forged rolled rings to the wind power and other industries and industrial equipment to the textile and energy industries in China. With its newly finished state-of-the-art production facility, the Company plans to use the additional capacity to significantly increase its shipment of high-precision rolled rings and other essential components to the wind power and other industries. The Company today announced its financial results for the second quarter ended June 30, 2008.
Second Quarter 2008 Highlights and Recent Events
-- Net revenues increased 150.7% year-over-year to $11.2 million
-- Gross profit increased 108.6% year-over-year to $2.8 million
-- Net income increased to $1.4 million, or $0.02 per diluted share
-- Revenue from the forging of rolled rings for the wind power and other
industries grew to $4.1 million. During the comparable quarter of 2007,
the company was in the start-up phase of this business, generating
revenue of $0.03 million.
-- Improved corporate governance with the addition of two independent
directors
-- The Company was added to First Trust Global ISE Wind Energy Index Fund
“FAN”
-- Began installation of equipment for its phase one expansion
“We are very pleased with the exceptional growth reflected in our second quarter results, particularly the increase in our wind-related revenue as we execute on our long-term strategy to seek to become a leading component supplier to the wind power industry in China. Net revenue generated from the forging of rolled rings for the wind power and other industries accounted for $4.1 million, or 36.5% of net revenues, during the quarter. In the first half of the year, revenue from the sale of forged rolled rings to the wind power industry accounted for $2.6 million, whereas one year ago we were in the start-up phase of this business,” said Mr. Jianhua Wu, chairman and CEO of China Wind Systems. “Our new manufacturing facility is scheduled to come online in October 2008, and will allow us to manufacture essential wind-power components internally, including larger forged rolled rings, gear rims, flanges and shafts.”
Second Quarter 2008 Results
Total net revenues for the second quarter of 2008 totaled $11.2 million, up 150.7% from $4.5 million in the three month period ended June 30, 2007. The increase in total revenue was attributable to increases from both segments: dyeing and finishing equipment and forged rolled rings and electric power equipment. Revenues from dyeing and finishing equipment increased 50.8% to $6.5 million from $4.3 million a year ago, attributable to continued strong sales of the Company’s equipment to the textile industry. Revenues from the forged rolled ring and electric power equipment segment increased to $4.7 million due to strong demand from the wind power and other industries for the Company’s forged rings. In the comparable quarter of 2007, the Company was in the start-phase of this segment and its revenue was nominal.
Gross profit for the second quarter of 2008 was $2.8 million, an increase of 108.6% from $1.3 million for the three months ended June 30, 2007. Gross margin was 24.7% for the second quarter of 2008, compared to 29.7% for the prior year period. Gross margin for the dyeing and finishing equipment segment was 25.9%, down from 31.45% a year ago due to higher raw material costs for steel and other metals used to manufacture dye machines. Gross margins from forged rolled rings and electrical power generating equipment was 23.1%. The Company had negative gross margins for the three months ended June 30, 2007, since sales of the forged rolled rings were nominal and the Company was in a start-up phase for all aspects of this segment.
Operating expenses were $0.7 million in the second quarter of 2008, compared to $0.3 million a year ago. This was due to higher selling, general and administrative expenses from increased professional fees associated with being a public company, and higher payroll and related benefits. Depreciation and amortization expenses also increased due to increases in equipment and the amortization of recently acquired land use rights.
Operating income for the second quarter of 2008 totaled $2.0 million, a 99.0% increase from $1.0 million for the same period of the prior year.
Net income for the second quarter of 2008 was $1.4 million, or $0.02 per diluted share, compared with $0.7 million, or $0.02 per diluted share, in the second quarter of 2007. Earnings per share were calculated using a diluted weighted share count of 65.7 million shares for the second quarter of 2008 and 36.6 million shares for the second quarter of 2007. The increase in weighted average shares includes the impact of the Company’s Series A convertible preferred shares and warrants.
Six Months Results
For the first half of 2008, revenues increased to $19.6 million, up 128.5% from $8.6 million in the corresponding period of 2007. Gross profit increased 106.5% to $4.9 million in the first six months of 2008, versus $2.4 million in the same period one year ago. Gross margin was 25.2% in the first half of 2008 compared to 27.8% during the first half of 2007. Operating income in the first half of 2008 rose 83.9% to $3.5 million compared to $1.9 million in the first half of 2007. Net loss attributable to common shareholders was $2.7 million, or $0.07 per fully diluted share, compared to net income available to common shareholders of $1.3 million, or $0.04 per fully diluted share, in the first half of 2007. For the six months ended June 30, 2008, net loss attributable to common shareholders included a deemed preferred stock dividend of $2.9 million which had the effect of reducing our net income available to common stockholders. Non-GAAP adjusted net income available to common shareholders, which is computed by adding back the non-cash items related to the amortization of debt discount to interest expense and the deemed preferred dividend, was $2.4 million, or $0.06 per fully diluted share.
Financial Condition
As of June 30, 2008, the Company had cash and cash equivalents of $2.3 million and working capital of $5.8 million. Accounts receivable were $4.0 million. At June 30, 2008, the Company had $1.0 million in short-term loans payable and stockholders’ equity of $29.5 million.
Business Outlook
China Wind Systems is in the process of installing the equipment related to its phase one expansion, including a ring-rolling mill and a 4,500-ton press to produce rolled rings up to 6.3 meters in diameter with cross sections measuring up to 700mm. Upon completion of the equipment installation, the Company expects to be capable of manufacturing forged products such as rolled rings, flanges and gear rims used in up to five megawatt (MW) wind turbine units, as well as shafts used in 1 MW to 3 MW wind turbine units. The designed annual capacity of the Company’s phase one expansion is 40,000 tons of rolled rings, flanges, shafts and gear rims.
“We expect to produce prototypes of our forged products for potential wind power customers in September 2008 and hope to secure sizable contracts upon successful inspection and acceptance of our prototype products,” said Mr. Wu. “Based on our 12 years of experience in manufacturing industrial equipment, we believe we have the technical expertise to meet the high-standards required by our potential customers. We are confident that we have the strategy in place to take advantage of the wind-power equipment market in China, which industry analysts expects to reach USD8.59 Billion in three years,” concluded Mr. Wu.
Based on the Company’s strong fundamentals, in 2008 China Wind Systems expects $40.0 million in revenues and $7.0 million in net income after a 25% tax rate, or $0.11 per share, based on 61.7 million weighted average diluted shares in 2008. The Company expects to produce 20,000 tons of forged products in 2009, generating up to $40 million in revenues from the sale of forged products.
Use of Non-GAAP Financial Measures
GAAP results for the six months ended June 30, 2008 include a one-time, non-cash interest expense related to the amortization of debt discount in the amount of $2.3 million, and a non-cash deemed preferred stock dividend in the amount of $2.9 million. Because these charges are non-cash charges which result from the nature of our private placement in November, the Company believes that the non-GAAP information is useful to supplement the Company’s condensed consolidated financial statements. A reconciliation of the adjustments to GAAP results appears in the table accompanying this press release. This additional non-GAAP information is not meant to be considered 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 supplies forged rolled rings to the wind power and other industries and industrial equipment to the textile and energy industries in China. With its newly finished state-of-the-art production facility, the Company is expected soon to significantly increase its shipment of high-precision rolled rings and other essential components primarily to the wind power and other industries. For more information on the Company, visit http://www.chinawindsystems.com . Information on the Company’s Web site or any other Web site does not constitute a portion of this release.
Safe Harbor Statement
This release contains certain "forward-looking statements" relating to the business of the Company and its subsidiary and affiliated companies. These forward looking statements are often identified by the use of forward-looking terminology such as "believes, expects" or similar expressions. Such forward looking statements involve known and unknown risks and uncertainties that may cause actual results to be materially different from those described herein as anticipated, believed, estimated or expected. 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 ( http://www.sec.gov ). All forward-looking statements attributable to the Company or to 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.
-Financial Tables Follow-
CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
2008 2007 2008 2007
NET REVENUES $11,182,950 $4,459,972 $19,630,024 $8,589,182
COST OF SALES 8,419,505 3,135,450 14,692,331 6,197,569
GROSS PROFIT 2,763,445 1,324,522 4,937,693 2,391,613
OPERATING EXPENSES:
Depreciation
and amortization 141,568 67,464 219,588 139,268
Selling,
general and
administrative 589,420 235,951 1,205,988 342,942
Total Operating
Expenses 730,988 303,415 1,425,576 482,210
INCOME FROM OPERATIONS 2,032,457 1,021,107 3,512,117 1,909,403
OTHER INCOME
(EXPENSE):
Interest income 4,011 180 9,644 281
Interest expense (18,753) (13,366) (2,278,447) (21,414)
Debt issuance costs -- -- (21,429) --
Total Other Income
(Expense) (14,742) (13,186) (2,290,232) (21,133)
INCOME BEFORE INCOME
TAXES 2,017,715 1,007,921 1,221,885 1,888,270
INCOME TAXES 606,531 301,670 1,060,562 600,254
NET INCOME 1,411,184 706,251 161,323 1,288,016
DEEMED PREFERRED
DIVIDEND -- -- (2,884,062) --
NET INCOME (LOSS)
AVAILABLE TO COMMON
SHAREHOLDERS $1,411,184 $706,251 $(2,722,739) $1,288,016
COMPREHENSIVE
INCOME:
NET INCOME $1,411,184 $706,251 $161,323 $1,288,016
OTHER
COMPREHENSIVE
INCOME:
Unrealized
foreign
currency
translation
gain 605,039 141,135 1,612,284 224,296
COMPREHENSIVE
INCOME $2,016,223 $847,386 $1,773,607 $1,512,312
NET INCOME (LOSS)
PER COMMON SHARE:
Basic $0.04 $0.02 $(0.07) $0.04
Diluted $0.02 $0.02 $(0.07) $0.04
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING:
Basic 38,036,208 36,577,704 37,760,355 36,577,704
Diluted 65,712,820 36,577,704 37,760,355 36,577,704
CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2008 2007
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $2,274,524 $5,025,434
Accounts receivable, net of allowance
for doubtful accounts 4,037,060 2,158,412
Inventories, net of reserve for
obsolete inventory 2,992,334 1,929,796
Advances to suppliers 332,707 938,331
Prepaid expenses and other 124,051 378,429
Total Current Assets 9,760,676 10,430,402
PROPERTY AND EQUIPMENT - Net 8,802,673 6,525,986
OTHER ASSETS:
Deposit on long-term assets - related
party 5,993,550 10,863,706
Deposit on long-term assets 2,725,487 --
Intangible assets, net of accumulated
amortization 6,127,043 502,634
Investment in cost method investee -- 34,181
Due from related parties 47,581 139,524
Total Assets $33,457,010 $28,496,433
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Loans payable $1,018,656 $820,333
Convertible debt, net of discount on
debt -- 3,261,339
Accounts payable 1,841,809 1,845,769
Accrued expenses 191,201 198,542
VAT and service taxes payable 225,417 434,839
Advances from customers 83,226 77,357
Due to related party -- 98,541
Income taxes payable 617,448 508,407
Total Current Liabilities 3,977,757 7,245,127
STOCKHOLDERS’ EQUITY:
Series A convertible preferred ($0.001
par value; 60,000,000 shares authorized;
14,028,189 and 0 shares issued and
outstanding at June 30, 2008 and
December 31, 2007, respectively) 14,028 --
Common stock ($0.001 par value;
150,000,000 shares authorized;
39,656,241 and 37,384,295 shares
issued and outstanding at June 30,
2008 and December 31, 2007,
respectively) 39,657 37,385
Additional paid-in capital 12,810,998 3,488,896
Retained earnings 13,235,643 16,074,270
Statutory reserve 421,360 305,472
Other comprehensive gain - cumulative
foreign currency translation
adjustment 2,957,567 1,345,283
Total Stockholders’ Equity 29,479,252 21,251,306
Total Liabilities and Stockholders’
Equity $33,457,010 $28,496,433
CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended
June 30,
2008 2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $161,323 $1,288,016
Adjustments to reconcile net income
from operations to net cash provided
by operating activities:
Depreciation and amortization 389,684 299,451
Amortization of debt discount to interest
expense 2,263,661 --
Amortization of debt offering costs 21,429 --
Increase in allowance for doubtful
accounts 170,024 133,693
Increase in reserve for inventory
obsolescence -- 71,853
Stock based compensation expense 75,000 --
Changes in assets and
liabilities:
Accounts receivable (1,860,346) (1,706,864)
Inventories (911,684) 580,971
Prepaid and other current
assets 235,398 71,321
Advances to suppliers 647,106 (860,923)
Accounts payable (137,507) 781,112
Accrued expenses 3,085 (6,938)
VAT and service taxes payable (230,670) 461,352
Income taxes payable 74,150 603,112
Advances from customers 864 1,231,834
NET CASH PROVIDED BY OPERATING ACTIVITIES 901,517 2,947,990
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in due from related parties 98,058 (3,523,139)
Proceeds from sale of cost-method
investee 35,348 --
Deposit on long-term assets - related
party (88,783) --
Deposit on long-term assets (2,648,096) --
Purchase of property and equipment (2,126,847) (7,740)
NET CASH USED IN INVESTING ACTIVITIES (4,730,320) (3,530,879)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans payable 141,390 258,736
Proceeds from exercise of warrants 854,340 --
Payments on related party advances (101,905) --
NET CASH PROVIDED BY FINANCING ACTIVITIES 893,825 258,736
EFFECT OF EXCHANGE RATE ON CASH 184,068 6,182
NET DECREASE IN CASH (2,750,910) (317,971)
CASH - beginning of year 5,025,434 421,390
CASH - end of period $2,274,524 $103,419
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for:
Interest $35,505 $21,414
Income taxes $1,169,603 $--
NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Deemed preferred dividend reflected in
paid-in capital $2,884,062 $--
Convertible debt converted to series A
preferred stock $5,525,000 $--
Deposit on long-term assets -related
party reclassified to intangible assets $5,500,030 $--
Series A preferred converted to common
shares $759 $--
CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP NET INCOME (LOSS) AVAILABLE
TO COMMON SHAREHOLDERS AND DILUTED EPS
For the Six Months ended June 30, 2006
2008 2007
Net Diluted Net Diluted
Income EPS Income EPS
Adjusted Amount of Net Income
available to Common
Shareholders $2,446,413 $0.06 8,016 4
Adjustment
Interest expenses related
to amortization of
conversion of convertible
debt to common stock (1) 2,263,661 0.06 -- --
Amortization of debt
issuance costs (2) 21,429 0.00
Deemed preferred dividend (3) 2,884,062 0.08
Amount per consolidated
statement of operations $(2,722,739) $(0.07) $1,288,016 $0.04
(1) One-time, non-cash
interest expenses related
to amortization of debt
discount to interest
expense, Q1 2008
(2) Amortization related to
debt issuance
(3) One-time non-cash deemed
preferred dividend related
to issuance of stock
warrants upon conversion
of convertible debt to
series A preferred stock
Weighted average diluted
shares, 61,666,621 for six
months ended June 30,2008
and 36,577,704 for six
months ended June 30, 2007
