EX-99.1 2 v115502_ex99-1.htm
 
 
CCG Elite Investor Relations  
Mr. Crocker Coulson, President
Phone: +1-646-213-1915 (New York) Email: crocker.coulson@ccgir.com 
URL: www.ccgelite.com
 
FOR IMMEDIATE RELEASE
 
China Wind Systems, Inc Reports First Quarter 2008 Results

Wuxi, Jiangsu Province, China, - May 15, 2008 -China Wind Systems, Inc. (OTC Bulletin Board: (CWSI.OB) (“China Wind Systems” or the “Company”), which through its wholly owned subsidiaries and variable interest entities manufactures and sells industrial machines for use in the textile and energy related industries in the People’s Republic of China, today announced its financial results for the first quarter ended March 31, 2008.
 
First Quarter 2008 Highlights 
 
·
Net revenues increased 104.6% year-over-year to $8.4 million
 
·
Gross profit increased 103.8% year-over-year to $2.2 million
 
·
Net loss allocable to common shareholders, after a $2.9 million non-cash deemed preferred dividend, totaled $(4.1) million, or $(0.11) per diluted share
 
·
Adjusting for non-cash items such as interest expense of $2.3 million and a deemed preferred dividend of $2.9 million, non-GAAP net income was $1.0 million, or $0.03 per diluted share.
 
·
Revenue from the forging of rolled rings, for the wind power and other industries grew from $0 in the March Quarter of 2007 to $3.2 million in the March Quarter of 2008.
 
“Last quarter we made progress in executing our long term strategy, which is to expand our products to offer products and services for the wind power industry. During 2007, we began to generate revenue from the forging of rolled rings, for the wind power and other industries. These activities accounted for $3,204,266, or 37.9% of total revenue for the three months ended March 31, 2008, of which approximately 30% are used for the wind industry. Wind industries revenues accounted for $1,902,916, or 7.8% of revenues for the year ended December 31, 2007. Management estimates that 25% of rings in 2007 and 30% of rings in the March Quarter of 2008 are for use in the wind industry. We are presently only perform forging services relating to rolled rings, but intend to be in a position to manufacture these components internally in the fall of 2008,” said Mr. Jianhua Wu, Chairman and CEO of China Wind Systems. Further, he said, “To increase oversight, we elected two new independent members to our board of directors who are serving on our audit and compensation committees.”
 
 
 
 
 
First Quarter 2008 Results
 
Total revenue for the first quarter of 2008 totaled $8.4 million, up 104.6% from $4.1 million in the three month period ended March 31, 2007. The increase in total revenue was attributable to increases from both segments: dyeing and finishing equipment and electric power equipment. Revenues from the electric power equipment segment increased to $3.8 million from $0.3 million a year ago. Revenues from dyeing and finishing equipment increased 20% to $4.7 million from $3.9 million a year ago, due to marketing efforts focused on developing new customers and making follow-on sales to existing customers.
 
Gross profit for the first quarter of 2008 was $2.2 million, an increase of 103.8% from $1.1 million for the three months ended March 31, 2007. Gross margin was 25.7% for the first quarter of 2008, compared to 25.8% for the prior year period. Gross profit for dyeing was $1.2 million for the first quarter 2008 compared to $1.0 million for the same period prior year, representing gross margin of approximately 26.1% and 25.8%, respectively. Gross profit for the electrical power equipment segment was $1.0 million for the first quarter 2008 compared to $0.1 for the same period prior year.
 
Operating expenses were $0.7 million in the first quarter of 2008, compared to $0.2 million a year ago. Selling, general and administrative expenses for the first quarter of 2008 totaled $0.6 million, compared to $0.1 million a year ago, primarily due to increased professional fees associated with being a public company and higher payroll and related benefits.
 
Operating income for the first quarter of 2008 totaled $1.5 million, a 66.6% increase from $0.9 million for the same period prior year.
 
Net loss, including non-cash items such as interest expense related to amortization of debt discount of $2.3 million and a deemed preferred dividend of $2.9 million, for the first quarter of 2008 was ($4.1) million, or ($0.11) per fully diluted share, compared to net income of $0.6 million, or $0.02 per fully diluted share, for the three months ended March 31, 2007. Adjusting net loss for the non-cash items related to the amortization of debt discount to interest expense and the deemed preferred dividend, non-GAAP net income was $1.0 million, or $0.03 per fully diluted share. Earnings per share were calculated using a diluted weighted share count of 37.5 million shares for the first quarter of 2008 and 36.6 million shares for the first quarter of 2007. The increase in weighted average shares includes the impact of the reverse merger transaction and private placement in November 2007 as well as the issuance of common shares for services.
 
 
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Financial Condition
 
As of March 31, 2008, the Company had cash and cash equivalents of $2.6 million and working capital of $7.4 million. Accounts receivable were $3.5 million. At March 31, 2008, the Company had $1.0 million in short-term loans payable and stockholders’ equity of $26.8 million.
 
Business Outlook
 
“In 2008, we expect to significantly increase our revenues generated from our electric power equipment business and our wind power business. We have been evaluating working relationships with leading wind energy companies in China to supply wind components. We are on track to complete the first phase of our expansion plan and will manufacture larger forged rolled rings and shafts at our facilities by October 2008,” concluded Mr. Jianhua Wu, CEO of China Wind Systems.
 
In 2008, the Company 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 62.9 million weighted average diluted share count.
 
Use of Non-GAAP Financial Measures

GAAP results for the quarter ended March 31, 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. 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 these items in this release, non-GAAP net income available to common shareholders and diluted earnings per share. The Company's management believes that these non-GAAP measures provide investors with a better understanding of how the results relate to the Company's historical performance. 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, 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.
 
 
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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 (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-

 
4
 

CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
   
For the Three Months Ended
  
   
March 31,
  
   
2008
  
2007
  
           
NET REVENUES
  
$
8,447,074
  
$
4,129,210
  
               
COST OF SALES
    
6,272,826
   
3,062,119
 
               
GROSS PROFIT
    
2,174,248
   
1,067,091
 
               
OPERATING EXPENSES:
              
Depreciation and amortization
    
78,020
   
71,804
 
Selling, general and administrative
    
616,568
   
106,991
 
 
              
Total Operating Expenses
    
694,588
   
178,795
 
               
INCOME FROM OPERATIONS
    
1,479,660
   
888,296
 
               
OTHER INCOME (EXPENSE):
              
Interest income
    
5,633
   
101
 
Interest expense
    
(2,259,694
)
  
(8,048
)
Debt issuance costs
    
(21,429
)
  
-
 
               
Total Other Income (Expense)
    
(2,275,490
)
  
(7,947
)
               
INCOME (LOSS) BEFORE INCOME TAXES
    
(795,830
)
  
880,349
 
               
INCOME TAXES
    
454,031
   
298,584
 
               
NET INCOME (LOSS)
    
(1,249,861
)
  
581,765
 
               
DEEMED PREFERRED DIVIDEND
    
(2,884,062
)
  
-
 
               
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS
  
$
(4,133,923
)
$
581,765
  
               
COMPREHENSIVE INCOME:
              
NET INCOME (LOSS)
  
$
(1,249,861
)
$
581,765
  
               
OTHER COMPREHENSIVE INCOME:
              
Unrealized foreign currency translation gain
    
1,007,245
   
83,161
 
               
COMPREHENSIVE INCOME (LOSS)
  
$
(242,616
)
$
664,926
  
               
NET INCOME (LOSS) PER COMMON SHARE:
              
Basic
  
$
(0.11
)
$
0.02
  
Diluted
  
$
(0.11
)
$
0.02
  
               
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
              
Basic
    
37,484,504
   
36,577,704
 
Diluted
    
37,484,504
   
36,577,704
 
 
See notes to unaudited consolidated financial statements
 
 
5
 

CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
   
March 31,
  
December 31,
  
   
2008
  
2007
  
   
(Unaudited)
      
ASSETS
          
           
CURRENT ASSETS:
              
Cash and cash equivalents
  
$
2,580,723
  
$
5,025,434
  
Accounts receivable, net of allowance for doubtful accounts
    
3,539,495
   
2,158,412
 
Inventories, net of reserve for obsolete inventory
    
3,171,362
   
1,929,796
 
Advances to suppliers
    
649,745
   
938,331
 
Prepaid expenses and other
    
412,506
   
378,429
 
               
Total Current Assets
    
10,353,831
   
10,430,402
 
               
PROPERTY AND EQUIPMENT - Net
    
6,638,714
   
6,525,986
 
               
OTHER ASSETS:
              
Deposit on long-term assets - related party
    
12,155,472
   
10,863,706
 
Intangible assets, net of accumulated amortization
    
520,682
   
502,634
 
Investment in cost method investee
    
-
   
34,181
 
Due from related parties
    
46,561
   
139,524
 
               
Total Assets
  
$
29,715,260
  
$
28,496,433
  
               
LIABILITIES AND STOCKHOLDERS' EQUITY
              
               
CURRENT LIABILITIES:
              
Loans payable
  
$
996,839
  
$
820,333
  
Convertible debt, net of discount on debt
    
-
   
3,261,339
 
Accounts payable
    
688,576
   
1,845,769
 
Accrued expenses
    
191,307
   
198,542
 
VAT and service taxes payable
    
516,940
   
434,839
 
Advances from customers
    
91,613
   
77,357
 
Due to related party
    
-
   
98,541
 
Income taxes payable
    
463,955
   
508,407
 
 
              
Total Current Liabilities
    
2,949,230
   
7,245,127
 
               
STOCKHOLDERS' EQUITY:
              
Seires A convertible preferred ($0.001 par value; 60,000,000 shares authorized; 14,787,135 and 0 shares issued and outstanding at March 31, 2008 and December 31, 2007, respectively)
    
14,787
   
-
 
Common stock ($0.001 par value; 150,000,000 shares authorized; 37,732,295 and 36,577,704 shares issued and outstanding at March 31, 2008 and December 31, 2007, respectively)
    
37,733
   
37,385
 
Additional paid-in capital
    
12,115,163
   
3,488,896
 
Retained earnings
    
11,874,576
   
16,074,270
 
Statutory reserve
    
371,243
   
305,472
 
Other comprehensive gain - cumulative foreign currency translation adjustment
    
2,352,528
   
1,345,283
 
               
Total Stockholders' Equity
    
26,766,030
   
21,251,306
 
               
Total Liabilities and Stockholders' Equity
  
$
29,715,260
  
$
28,496,433
  
 
See notes to unaudited consolidated financial statements
 
 
6
 
 
CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS AND DILUTED EPS


   
For the Quarter Ended March 31,
              
   
2008
      
2007
      
   
Net Income
  
Diluted EPS
  
Net Income
 
Diluted EPS
  
Adjusted Amount of Net Income available to Common Shareholders
  
$
1,031,262
  
$
0.03
  
$
581,765
  
$
0.02
  
Adjustment
                          
Interest expenses related to amortization of convertion of convertible debt to common stock (1)
    
(2,259,694
)
  
(0.06
)
  
-
   
-
 
Amortization of debt issuance costs (2)
    
(21,429
)
                  
Deemed preferred dividend (3)
    
(2,884,062
)
  
(0.08
)
            
                           
Amount per consolidated statement of operations
  
$
(4,133,923
)
$
(0.11
)
$
581,765
  
$
0.02
  
 
(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, 37,484,504 for Q1 2008 and 36,577, 704 for Q1 2007
 
 
  ###
 
 
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