WUXI, Jiangsu, China, Nov. 14 /Xinhua-PRNewswire-FirstCall/ -- China Wind Systems, Inc. (OTC Bulletin Board: CWSI) ("China Wind Systems" or the "Company"), which supplies forged rolled rings to the wind power and other industries and industrial equipment to the textile and energy industries in China, today announced its financial results for the third quarter ended September 30, 2008.
Third Quarter 2008 Highlights and Recent Events
-- Net revenues increased 47.1% year-over-year to $11.8 million
-- Gross profit increased 24.8% year-over-year to $3.0 million
-- Net income was $1.9 million, or $0.03 per diluted share, up 35.7% year-
over-year from adjusted net income of $1.4 million, or $0.04 per
diluted share
-- Revenue from the forged rolled rings for the wind power and other
industries increased to $5.3 million, or 44.7% of net revenues
-- Revenue from the sale of forged rolled rings for use in the wind power
industry reached $2.5 million, up 47.1% from the second quarter of 2008
-- Completed installing equipment for first phase of expansion plan to
increase production of forged products used in wind-turbine components
-- Signed letter of intent to supply shafts and gear rims to Hangzhou
Advance Gearbox Group, Co. Ltd.
-- Signed preliminary agreements to supply approximately $18 million of
forged products for use in the wind power and other industries.
"We are pleased to report strong growth in the sales of our forged wind-power products, which are becoming an increasing part of our revenue mix and which we hope will continue to increase as we begin production at our new facility this month," said Mr. Jianhua Wu, chairman and CEO of China Wind Systems. "From a nominal amount a year ago, our wind power revenues of $2.5 million in the third quarter represent the fastest growing segment of our business due to strong demand for these products," Mr. Wu continued. "During the quarter we completed installing equipment at our new manufacturing facility and signed preliminary agreements with four wind-power and heavy machinery customers to supply shafts, gear rims and flanges used in wind turbines."
Third Quarter 2008 Results
Gross profit for the third quarter was $3.0 million, a 24.8% increase from $2.4 million for the same period prior year. Gross margin was 25.1% for the third quarter, compared to 29.6% for the same period prior year. Gross margin for the dyeing and finishing equipment segment was 26.3%, down from 29.7% a year ago due to higher raw material costs for steel and other metals used to manufacture dye machines. Gross margin from the forged rolled rings and electrical equipment segment was 23.8%, compared to 29.1% a year ago, due to the change in the segment's product mix as the Company ramps up its production of forged products. Gross margin in the forged rolled rings and electrical equipment segment improved from 23.1% in the second quarter of 2008.
Operating expenses were $0.5 million in the third 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.
Operating income for the third quarter of 2008 totaled $2.5 million, a 19.1% increase from $2.1 million for the same period prior year.
Nine Months Results
Financial Condition
As of September 30, 2008, the Company had cash and cash equivalents of $0.7 million, accounts receivable of $4.0 million and working capital of $2.1 million. The Company had $1.0 million in short-term loans payable and stockholders' equity of $29.8 million. During the first nine months of 2008, the Company generated $5.0 million in operating activities and had capital expenditures of $11.6 million, primarily related to its phase one expansion, which it expects to complete in the fourth quarter of 2008.
In order to obtain funds to complete the Company's Phase I plan, in late October and early November, China Wind Systems sold 3.4 million shares of common stock in a private placement, for approximately $1.4 million and the Company also borrowed $575,000 from a private investor. As part of this transaction, the investor exercised warrants having an exercise price of approximately $175,000 and the Company entered into a consulting agreement with an affiliate of the investor. Total payments made by the Company as interest on the note and as consulting fees under the agreement would total $240,000, assuming the note is paid on the maturity date of April 20, 2009. The Company paid this note in November 2008.
Business Outlook
Despite difficult global economic and financial conditions, the Company remains confident with the outlook for its forging business as the Chinese government remains committed to increasing wind capacity and reducing the country's reliance on coal. However, the Company does anticipate a downward trend in its dyeing and finishing equipment business as the textile industry in China is impacted by economic conditions in other countries.
China Wind Systems has completed the installation of 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 750mm. The Company expects to begin 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 in November 2008. The designed annual capacity of the Company's phase one expansion is 40,000 tons of rolled rings, flanges, shafts and gear rims.
"The completion of equipment installation at our facility allows us to manufacture essential wind-power components internally, including larger forged rolled rings, gear rims, flanges and shafts," Mr. Wu said. "Already we have secured several preliminary purchase agreements and are confident that we will secure those orders when we deliver the product prototypes, which is scheduled for November 2008. With the strong demand for our forged products from the wind-power industry and our increased capacity to supply a wider range of products, we are successfully executing our business strategy to become a key supplier to the wind-power industry in China."
China Wind Systems expects to achieve its $45 million in net revenue and $7 million in net income guidance in 2008, should there be no engineering or technical issues once its new facility goes into actual production. "We are working diligently to fulfill our guidance and we will take all necessary steps to ensure that our new forged rolled-ring facility runs smoothly," concluded Mr. Wu.
Conference Call
The Company will conduct a conference call at 9:00 a.m. Eastern Time (ET) on Friday, November 14, 2008 to discuss its third quarter 2008 results. To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: 800-688-0796, and enter the conference passcode 202-158-47 when prompted. International callers should dial 617-614-4070, and enter the same passcode, 202-158-47. If you are unable to participate in the call at this time, a replay will be available for 14 days starting on November 14 at 11:00 a.m. ET. To access the replay, dial 888-286-8010 and enter the passcode, 702-62-805. International callers dial 617-801-6888, and enter the same passcode, 702-62-805.
Use of Non-GAAP Financial Measures
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
--Financial Tables Follow--
CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
NET REVENUES $11,770,162 $8,000,293 $31,400,186 $16,589,475
COST OF SALES 8,816,389 5,633,977 23,508,720 11,831,546
GROSS PROFIT 2,953,773 2,366,316 7,891,466 4,757,929
OPERATING EXPENSES:
Depreciation and
amortization 69,712 68,607 228,189 207,875
Selling, general
and administrative 414,078 223,164 1,681,177 566,106
Total Operating
Expenses 483,790 291,771 1,909,366 773,981
INCOME FROM OPERATIONS 2,469,983 2,074,545 5,982,100 3,983,948
OTHER INCOME (EXPENSE):
Interest income 2,075 91 11,719 372
Interest expense (20,427) (9,946) (2,298,874) (31,360)
Other income from
forgiveness of
income and VAT
taxes -- 6,771,442 -- 6,771,442
Debt issuance
costs -- -- (21,429) --
Total Other
Income (Expense) (18,352) 6,761,587 (2,308,584) 6,740,454
INCOME BEFORE INCOME
TAXES 2,451,631 8,836,132 3,673,516 10,724,402
INCOME TAXES 590,769 714,840 1,651,331 1,315,094
NET INCOME 1,860,862 8,121,292 2,022,185 9,409,308
DEEMED PREFERRED
DIVIDEND -- -- (2,884,062) --
NET INCOME (LOSS)
AVAILABLE TO COMMON
SHAREHOLDERS $1,860,862 $8,121,292 $(861,877) $9,409,308
COMPREHENSIVE INCOME:
NET INCOME $1,860,862 $8,121,292 $2,022,185 $9,409,308
OTHER
COMPREHENSIVE
INCOME:
Unrealized
foreign
currency
translation
gain 67,269 299,690 1,679,553 523,986
COMPREHENSIVE
INCOME $1,928,131 $8,420,982 $3,701,738 $9,933,294
NET INCOME (LOSS) PER
COMMON SHARE:
Basic $0.05 $0.22 $(0.02) $0.26
Diluted $0.03 $0.22 $(0.02) $0.26
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic 40,363,220 36,577,704 38,634,312 36,577,704
Diluted 67,189,108 36,577,704 38,634,312 36,577,704
CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2008 2007
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $744,885 $5,025,434
Accounts receivable, net of
allowance for doubtful accounts 3,942,594 2,158,412
Inventories, net of reserve for
obsolete inventory 2,185,721 1,929,796
Advances to suppliers 259,190 938,331
Prepaid expenses and other 78,847 378,429
Total Current Assets 7,211,237 10,430,402
PROPERTY AND EQUIPMENT - Net 18,343,726 6,525,986
OTHER ASSETS:
Deposit on long-term assets -
related party 5,603,128 10,863,706
Prepaid land use rights, net 3,827,481 502,634
Investment in cost method investee -- 34,181
Due from related parties -- 139,524
Total Assets $34,985,572 $28,496,433
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Loans payable $1,021,138 $820,333
Convertible debt, net of discount
on debt -- 3,261,339
Accounts payable 3,202,606 1,845,769
Accrued expenses 190,882 198,542
VAT and service taxes payable 65,831 434,839
Advances from customers 65,850 77,357
Due to related party -- 98,541
Income taxes payable 591,745 508,407
Total Current Liabilities 5,138,052 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 September 30,
2008 and December 31, 2007,
respectively) 14,028 --
Common stock ($0.001 par value;
150,000,000 shares authorized;
40,976,062 and 37,384,295
shares issued and outstanding
at September 30, 2008 and
December 31, 2007, respectively) 40,976 37,385
Additional paid-in capital 13,966,914 3,488,896
Retained earnings 12,379,406 16,074,270
Statutory reserve 421,360 305,472
Other comprehensive gain -
cumulative foreign currency
translation adjustment 3,024,836 1,345,283
Total Stockholders' Equity 29,847,520 21,251,306
Total Liabilities and
Stockholders' Equity $34,985,571 $28,496,433
CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended
September 30,
2008 2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,022,185 $9,409,308
Adjustments to reconcile net income
from operations to net cash
provided by operating activities:
Depreciation 482,376 450,881
Amortization of debt discount to
interest expense 2,263,661 --
Amortization of debt offering costs 21,429 --
Rent expense associated with
prepaid land use rights 63,346 7,805
Increase in allowance for doubtful
accounts 171,816 182,882
Increase in reserve for inventory
obsolescence -- 106,942
Stock based compensation expense 75,000 --
Other income from forgiveness of
income and VAT taxes -- (6,771,442)
Changes in assets and liabilities:
Accounts receivable (1,777,797) (2,538,272)
Inventories (124,107) 426,386
Prepaid and other current assets 280,762 46,630
Advances to suppliers 726,728 (127,886)
Accounts payable 1,189,915 1,153,705
Accrued expenses 2,343 22,058
VAT and service taxes payable (389,946) 1,011,064
Income taxes payable 48,284 957,899
Advances from customers (16,345) 1,830,260
NET CASH PROVIDED BY OPERATING
ACTIVITIES 5,039,650 6,168,220
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds (payments) for due from
related parties 145,808 (486,032)
Proceeds from sale of cost-method
investee 35,720 26,056
Deposit on long-term assets -
related party (89,721) (5,792,030)
Purchase of property and equipment (11,629,385) (17,581)
NET CASH USED IN INVESTING ACTIVITIES (11,537,578) (6,269,587)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans payable 142,880 260,561
Proceeds from exercise of warrants 2,011,575 --
Payments on related party advances (102,979) --
NET CASH PROVIDED BY FINANCING
ACTIVITIES 2,051,476 260,561
EFFECT OF EXCHANGE RATE ON CASH 165,903 20,161
NET (DECREASE) INCREASE IN CASH (4,280,549) 179,355
CASH - beginning of year 5,025,434 421,390
CASH - end of period $744,885 $600,745
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for:
Interest $55,932 $31,360
Income taxes $1,169,603 $--
NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Deemed preferred dividend reflected
in paid-in capital $2,884,062 $--
Reclassification of long-term deposit
- related party to distribution $--
Convertible debt converted to series
A preferred stock $5,525,000 $--
Deposit on long-term assets -related
party reclassified to prepaid land
use rights $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 Three Months ended September 30,
2008 2007
Net Income Diluted EPS Net Income Diluted EPS
Adjusted Amount of Net
Income available to
Common Shareholders $1,860,862 $0.03 $1,349,850 $0.04
Adjustment
Other income from
forgiveness of VAT
and income taxes (1) (6,771,442) ($0.19)
Amount per consolidated
statement of operations $1,860,862 $0.03 $8,121,292 $0.22
(1) One-time tax relief in VAT and income taxes in the third quarter of
2007
Weighted average diluted shares, 67,189,108 for the three months
ended September 30, 2008 and 36,577,704 for the three months ended
September 30, 2007
For the Nine Months ended September 30,
2008 2007
Net Income Diluted EPS Net Income Diluted EPS
Adjusted Amount of Net
Income available to
Common Shareholders $4,307,275 $0.11 $2,637,866 $0.09
Adjustments
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 -- --
Other income from
forgiveness of VAT and
income taxes (4) (6,771,442) (0.17)
Amount per consolidated
statement of operations $(861,877) $(0.02) $9,409,308 $0.26
(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
(4) One-time tax relief in VAT and income taxes in the third quarter of
2007
Weighted average diluted shares, 38,634,312 for the nine months
ended September 30,2008 and 36,577,704 for the nine months ended
September 30, 2007
For more information, please contact:
Company Contact:
Mr. Leo Wang
Senior Vice President, Finance
China Wind Systems, Inc.
Tel: +1-917-455-7735
Email: leo.wang@chinawindsystems.com
Web: http://www.chinawindsystems.com
Investor Relations Contact:
Mr. Crocker Coulson
President
CCG Investor Relations
Tel: +1-646-213-1915 (NY Office)
Email: crocker.coulson@ccgir.com
Web: http://www.ccgirasia.com
