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Harbin Electric Announces Fourth Quarter and Fiscal 2006 Financial Results

2007-03-08 10:51 969

4Q06 Revenues Increase 66.9% to $12.0 Million

Fiscal 2006 Revenues Increase 70.9% to $40.4 million

HARBIN, China, March 8 /Xinhua-PRNewswire/ -- Harbin Electric,

Inc. (Nasdaq: HRBN) a developer and manufacturer of customized linear motors

and other special electric motors, today announced financial results for the

fourth quarter and fiscal year ended December 31, 2006.

Sales for the fourth quarter increased 66.9% to $12.0 compared to $7.2

million in the prior year period. Gross profit increased 71.3% to $5.8

million compared to $3.4 million in the prior year. Gross margin increased

130 basis points to 48.2%.

Fourth quarter operating profit increased 63.0% to $4.4 million compared

to $2.7 million. Operating margin decreased 90 basis points to 36.7% compared

to 37.6% in the prior year period. Fourth quarter operating expenses increased

to 11.5% of sales compared to 9.4% in 2005. The increase in operating expense

was primarily a result of business expansion initiatives. Operating Expense as

a percent of sales has returned to a more normal range when compared to the

third quarter of 2006.

For the 2006 fiscal year, total sales increased 70.9% to $40.4 million

compared to the $23.6 million reported for fiscal 2005. Industrial electric

linear motors, special motors and motor systems products continued to comprise

significantly all of the Company's total product sales in both comparable

periods. Over 50% of the year over year growth in sales was driven by new

customer activity.

Gross profit increased 70.1% to $19.7 million in 2006 compared to $11.6

million in 2005. Gross profit margin remained steady at 48.6% in 2006 compared

to 48.9% in 2005.

Fiscal 2006 operating profit rose 40.4% to $14.0 million in 2006 compared

to $10.0 million in 2005. Operating margin for 2006 decreased to 34.1% from

42.1% in 2005 due to the increase in operating expenses. Total operating

expenses increased to 14.0% of sales in 2006 compared to 6.7% in 2005. The

increase in operating expenses during 2006 was largely due to businesses

expansion, increased spending on R&D, FAS 123(R) non cash stock compensation

expense, and advisory fees in connection with the Company's August 2006 debt

fundraising. Stock compensation expense totalled approximately $918,088, or

$0.05 per diluted share, in the year ended December 31, 2006.

Net Income for 2006 increased to $18.4 million, or $1.01 per diluted

share, compared to $10.0 million, or $0.67 per diluted share, for 2005. This

increase was driven mainly by increased operating income and the non cash

gain of $6.4 million, or $0.35 per diluted share, included for the change in

fair value of warrants.

Our total fully diluted share count at the end of 2006 was 18,306,569

compared to 15,143,891 at the end of 2005. The increase was driven by warrants

granted to investors and options granted to employees during 2006.

Highlights for the Fiscal Year 2006 include:

-- Entering into a joint research and development agreement

with the Institute of Electrical Engineering of the Chinese

Academy of Sciences ("IEECAS") to produce a train and

system to be tested at the Beijing Airport railway line in

the People's Republic of China by the end of 2008;

-- Closing of a US$50.0 million debt financing with Citadel

Equity Fund Ltd. and Merrill Lynch International;

-- Strengthening of our Board of Directors by adding 3 new

independent board members;

-- Commenced construction of new manufacturing facility in the

Shanghai Zhuqiao Airport Industrial Zone focused on

automobile market.

Tianfu Yang, Chairman and CEO of Harbin Electric commented, "Fiscal 2006

was an exciting and productive year for our company with the continuation of

strong sales growth and expanded corporate development programs, receiving the

investment and sponsorship from well respected international financial leaders, the signing the IEECAS development relationship, and the planning

for our entry into the automotive component supply industry with the initial

construction of our new plant facility near the Shanghai Automotive District."

"We were pleased with our financial performance in the fourth quarter and

all of fiscal 2006" Mr. Yang continued. "Subsequent to the end of the year, we

have achieved several notable goals for our business, which we believe have

strengthened our business position. We obtained a listing of our common stock

on the NASDAQ Global Market. Additionally, we are proud to have accomplished

each of the covenant requirements contained in our recent debt fundraising,

including the NASDAQ listing, the hiring of a senior financial officer, and

the appointment of a top 15 ranked independent auditor."

Mr. Yang concluded, "As we advance into fiscal 2007, we intend to

strengthen our design and development capabilities, expand our capacity into

other attractive market segments, and leverage our customer relationships into

new opportunities in the global marketplace. We believe these initiatives

will enable us to further our development as an internationally competitive

leader in the industrial motor marketplace."

The Company ended fiscal 2006 with $67.3 million in cash, as compared with

$5.8 million for the corresponding period in 2005. The increased cash position

was mainly due the net funds raised through its financing in August 2006. Cash

flow from our operations during fiscal 2006 was $16.9 million compared to

$876,000 in 2005. These annual results can be seen in greater detail in the

Company's SEC Form 10-KSB filed for its fiscal year ended December 31, 2006

with the Securities and Exchange Commission (www.sec.gov) on March 7, 2007.

About Harbin Electric, Inc.

Harbin Electric, Inc. designs, develops and manufactures linear motors and

special electric motors. With proprietary technology and core patents, the

Company builds a wide array of customized linear motors and other special

motor for a variety of applications and industries. The Company currently

designs and supplies its motor products and systems to numerous end users

throughout the Chinese domestic market, as well as, to other industrial OEM

customers overseas. Industry applications for linear motors include oilfield

services, conveyor systems, factory automation, packaging equipment, as well

as mass transportation systems. The Company is based in Harbin, China along

with its wholly owned subsidiaries. The Company has approximately 270

employees with approximately 200,000 square feet of state-of-the-art

manufacturing space. For further information, please see our filings with the

Securities and Exchange Commission ( http://www.sec.gov ).

Safe Harbor Statement

The actual results of Harbin Electric, Inc. could differ materially from

those described in this press release. Detailed information regarding factors

that may cause actual results to differ materially from the results expressed

or implied by statements in this press release may be found in the Company's

periodic filings with the U.S. Securities and Exchange Commission, including

the factors described in the section entitled "Risk Factors" in its annual

report on Form 10-QSB for the quarter ended December 31, 2006. The Company

does not undertake any obligation to update forward-looking statements

contained in this press release. This press release contains forward-looking

information about the Company that is intended to be covered by the safe

harbor for forward-looking statements provided by the Private Securities

Litigation Reform Act of 1995. Forward-looking statements are statements that

are not historical facts. 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, and include discussions of strategy, and

statements about industry trends and the Company's future performance,

operations and products.

(Financial tables to follow)

HARBIN ELECTRIC, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2006 AND DECEMBER 31, 2005

ASSETS

2006 2005

CURRENT ASSETS:

Cash $ 67,313,919 $ 5,739,019

Marketable securities -- 1,005,772

Accounts receivable, net of

allowance for doubtful

accounts of $44,552 and

$29,248 as of December 31,

2006 and December 31, 2005,

respectively 8,827,799 5,842,840

Inventories 583,287 1,343,031

Other receivables 27,991 --

Other receivables - related

parties 44,998 --

Advances on inventory

purchases 834,590 2,746,431

Total current assets 77,632,584 16,677,093

PLANT AND EQUIPMENT, net 9,219,534 7,438,197

OTHER ASSETS:

Debt issuance costs, net of

amortization 2,757,155 --

Advance on intangible assets 2,585,977 --

Intangible assets, net of

accumulated amortization 640,337 679,866

Other assets 123,234 --

Total other assets 6,106,703 679,866

Total assets $ 92,958,821 $ 24,795,156

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable $ 258,911 $ 189,029

Other payables 406,520 --

Accrued liabilities 107,263 --

Customer deposits 319,261 3,208

Taxes payable 556,943 --

Interest payable 1,122,000 --

Total current liabilities 2,770,898 192,237

NOTES PAYABLE, net of debt discount

of $21,410,401 28,589,599 --

WARRANT LIABILITIES 16,568,080 --

Total liabilities 47,928,577 192,237

COMMITMENTS AND CONTINGENCIES -- --

SHAREHOLDERS' EQUITY:

Common Stock, $0.00001 par

value, 100,000,000 shares

authorized, 16,600,451 shares

issued and outstanding 166 166

Paid-in-capital 12,252,064 11,297,676

Retained earnings 26,222,408 10,460,887

Statutory reserves 4,523,715 1,846,724

Accumulated other

comprehensive income 2,031,891 997,466

Total shareholders'

equity 45,030,244 24,602,919

Total liabilities and

shareholders' equity $ 92,958,821 $ 24,795,156

The accompany notes are integral part of these consolidated statements.

HARBIN ELECTRIC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

2006 2005

REVENUES $ 40,415,777 $ 23,643,664

COST OF SALES 20,754,282 12,083,957

GROSS PROFIT 19,661,495 11,559,707

RESEARCH AND DEVELOPMENT EXPENSE 1,491,316 750,000

SELLING, GENERAL AND ADMINISTRATIVE

EXPENSES 4,175,944 845,443

INCOME FROM OPERATIONS 13,994,235 9,964,264

Other expense, net 5,196 --

Non-operating income 89,864 --

Non-operating expense (130,638) --

Gain on sale of marketable

securities 577,071 --

Interest (expense) income, net (2,450,248) 35,894

OTHER (EXPENSE) INCOME, NET (1,908,755) 35,894

CHANGE IN FAIR VALUE OF WARRANTS 6,353,032 --

INCOME BEFORE PROVISION FOR INCOME

TAXES 18,438,512 10,000,158

PROVISION FOR INCOME TAXES -- --

NET INCOME 18,438,512 10,000,158

OTHER COMPREHENSIVE INCOME:

Unrealized gain (loss) on

marketable securities -- 587,171

Foreign currency translation

adjustment 1,034,425 512,540

COMPREHENSIVE INCOME $ 19,472,937 $ 11,099,869

BASIC WEIGHTED AVERAGE NUMBER OF

SHARES 16,600,451 14,934,667

BASIC EARNING PER SHARE $1.11 $0.67

DILUTED WEIGHTED AVERAGE NUMBER OF

SHARES 18,306,569 15,143,891

DILUTED EARNING PER SHARE $ 1.01 $ 0.66

The accompany notes are integral part of these consolidated statements.

HARBIN ELECTRIC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

2006 2005

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income $ 18,438,512 $ 10,000,158

Adjustments to reconcile net

income to cash provided by

(used in) operating activities:

Depreciation 373,539 303,514

Amortization of

intangible assets 93,889 52,899

Amortization of debt

issuance cost 197,470 --

Amortization of debt

discount 1,510,711 --

Loss on disposal of

equipment (1,945) --

Bad debt expense 14,020 28,823

Realized gain on sale of

marketable securities (577,071) --

Change in fair value of

warrants (6,353,032) --

Stock based compensation 918,088 --

(Increase) decrease in assets:

Accounts receivable (2,961,574) (5,751,214)

Inventories 788,713 (1,049,840)

Other receivables 72,579 --

Other receivables -

related parties 86,538 --

Advances on inventory

purchases 1,959,588 (2,698,103)

Other assets (130,972) 52,382

Increase (decrease) in

liabilities:

Accounts payable 148,908 (42,745)

Other payables 401,533 --

Accrued liabilities 49,118 (19,605)

Customer deposits 309,462 --

Interest payable 1,122,000

Other liabilities 7,590 --

Net cash provided by

operating activities 16,913,268 876,269

CASH FLOWS FROM INVESTING ACTIVITIES:

Advance on intangible assets (2,549,389) --

Additions to intangible assets (1,444,350) (269,624)

Additions to property and equipment (1,579,273) (2,288,245)

Proceeds from sale of marketable

securities 1,093,165 --

Net cash used in

investing activities (4,479,847) (2,557,869)

CASH FLOWS FINANCING ACTIVITIES:

Net proceeds from debt issued 47,045,375 --

Net proceeds from issuance of shares -- 4,800,000

Repayments by related party -- 208,015

Capital contribution 36,300 --

Net cash provided by

financing activities 47,081,675 5,008,015

EFFECTS OF EXCHANGE RATE CHANGE IN CASH 2,059,804 201,801

INCREASE IN CASH 61,574,900 3,528,216

CASH, beginning of year 5,739,019 2,210,803

CASH, end of year $ 67,313,919 $ 5,739,019

The accompany notes are integral part of these consolidated statements.

For more information, please contact:

Barry L. Raeburn

EVP Finance & Corporate Development

Tel: +1-215-854-8104

Email: info@HarbinElectric.com

Integrated Corporate Relations

Investors: Bill Zima or Ashley Ammon

Media: Brian Ruby

Tel: +1-203-682-8200

Source: Harbin Electric, Inc.
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