China Wind Systems, Inc. Reports Fourth Quarter and Fiscal 2008 Results

WUXI, Jiangsu, China, March 31 /PRNewswire-Asia-FirstCall/ -- China Wind Systems, Inc. (OTC Bulletin Board: CWSI), ("China Wind Systems" or the "Company"), a leading supplier of forged products and industrial equipment to the wind power and other industries in China, today announced its financial results for the fourth quarter and fiscal year ended December 31, 2008.

    Fourth Quarter 2008 Highlights and Recent Events
    -- Net revenues increased 39.0% year-over-year to $10.9 million
    -- Gross profit increased 15.7% year-over-year to $2.7 million
    -- Net income increased 61.6% year-over-year to $1.5 million, or $0.02 per
       diluted share, from net income of $0.9 million, or $0.02 per diluted
       share, in 2007
    -- Revenue from the sale of forged products for the wind power and other
       industries was $5.0 million, or 45.5% of net revenues, of which $1.6
       million, or 14.7% of net revenue, is from the wind power industry.

    Full Year 2008 Highlights
    -- Net revenues increased 73.2% to $42.3 million
    -- Gross profit increased 49.5% to $10.5 million
    -- Operating income increased 42.4% to $8.1 million
    -- Adjusted non-GAAP net income was $5.8 million, or $0.09 per diluted
       share, up 62.9% year-over-year and excludes the impact of a $2.9
       million non-cash preferred deemed dividend from the issuance of stock
       warrants upon conversion of convertible debt into series A preferred
       stock and $2.3 million in amortization of debt discount and debt
       issuance costs
    -- Revenue from the sale of forged products for the wind power and other
       industries was $17.5 million, or 41.4% of net revenue, of which $6.9
       million (15.9% of net revenue) was from the wind power industry.
    -- Completed installing equipment at new 40,000 ton-capacity facility in
       Wuxi City and began equipment test runs
    -- Signed several preliminary agreements with new and existing wind-power
       and heavy machinery customers to supply forged products in 2009
    -- Appointed Leo Wang as CFO

"We are pleased to report strong 2008 results where sales of wind-related products accounted for 15.9% of net revenues for the full year compared to a nominal amount in 2007, demonstrating our success in the strategy we laid out four years ago to become a leading supplier of essential wind turbine components in China," commented Mr. Jianhua Wu, chairman and CEO of China Wind Systems, Inc. "Despite the delayed start-up of our new facility, we are satisfied with the growth pace of our forged products business and anticipate continued growth in 2009 as we establish ourselves among new customers as a premier provider of high-quality forged rolled rings, shafts and flanges for use in the wind power and heavy machinery industries," Mr. Wu added.

Fourth Quarter 2008 Results

Net revenues for the fourth quarter of 2008 totaled $10.9 million, up 39.0% from $7.8 million for the same period prior year. The Company's management attributes the growth in revenues to the increase in sales of the Company's forged rolled rings to the wind power and other industries such as the railway, heavy machinery manufacturing and defense and radar industries. Revenues from the sale of forged rolled rings for the wind power and other industries were $5.0 million for the fourth quarter of 2008, compared to $1.5 million for the same period prior year when the Company was just entering into this business. Revenue from the sale of forged rolled rings exclusively for the wind power industry accounted for $1.6 million, or 14.7% of total revenue, in the fourth quarter. Revenues from the Company's dyeing and finishing segment increased 0.6% to $5.3 million, accounting for 49.0% of net revenues compared to $5.3 million, or 67.8% of net revenue, for the fourth quarter of 2007.

"While the dyeing and finishing segment generated healthy cash flow for the Company during 2008, the textile industry in China has been adversely affected by the economic downturn and consequently we have experienced a decline in this part of our business as well as a longer collection period for accounts receivables," Mr. Wu said. "We believe that the sale of forged rolled rings and other forged products should continue to drive our revenues going forward and we are hopeful that the Chinese government's support of wind power development will benefit our operations."

Gross profit for the fourth quarter was $2.7 million, a 15.7% increase from $2.3 million for the same period prior year. Gross margin was 24.4% for the fourth quarter of 2008, compared to 29.3% for the same period prior year. Gross margin for the dyeing and finishing equipment segment was 25.6%, down from 29.5% a year ago due to higher raw material costs for steel and other metals which could not be passed on to the Company's customers during that period. Gross margin for the forged rolled rings and electrical equipment segment was 23.2%, compared to 28.8% a year ago, due to the increased raw material costs for steel and other metals and a change in product mix in the segment.

Operating expenses were $0.6 million in the fourth quarter of 2008, slightly less than one year ago.

Operating income for the fourth quarter of 2008 totaled $2.1 million, a 24.0% increase from $1.7 million for the same period prior year.

Net income for the fourth quarter of 2008 was $1.5 million, or $0.02 per diluted share, compared to $0.9 million, or $0.02 per diluted share, in the fourth quarter of 2007. Earnings per share were calculated using a diluted weighted share count of 62,585,767 shares for the fourth quarter of 2008, as compared with 59,896,403 shares for the fourth quarter of 2007.

Full Year 2008 Results

For the full year 2008, revenues increased to $42.3 million, up 73.2% from $24.4 million in 2007. The dyeing and finishing equipment business contributed $22.5 million, or 53.1%, of net revenue in 2008, compared to $19.8 million, or 81.1%, of net revenue, in 2007. The forged rolled rings and electrical power equipment segment contributed $19.8 million, or 46.9% of net revenues, in 2008, compared to $4.6 million, or 18.9% of net revenue, in 2007.

Gross profit increased 49.5% to $10.5 million in 2008, compared to $7.1 million in 2007. Gross margin was 24.9% in 2008, compared to 28.9% in 2007, with gross margin in the dyeing and finishing equipment segment of 26.0% in 2008 compared to 29.3% in 2007 and gross margin of 23.7% in the forged rolled rings and electric power segment compared to 27.2% in 2007. Operating income rose 42.4% to $8.1 million in 2008 compared to $5.7 million in 2007. Income before income taxes, which was $5.7 million for 2008, reflected the impact of $2.3 million in one-time amortization of debt discount and $21,427 debt issuance costs related to the Company's November 2007 private placement. Income before income taxes of $12.0 million for 2007 reflected the impact of a one-time forgiveness of income and VAT taxes of $6.7 million.

Net income available to common shareholders of $0.6 million for 2008, or $0.01 per basic and diluted share, reflects a $2.9 million non-cash preferred deemed dividend from the issuance of stock warrants upon conversion of convertible debt into series A preferred stock and warrants. In 2007, net income available to common shareholders, which included the impact of a one-time tax relief of $6.7 million, was $10.3 million, or $0.28 per basic share and $0.26 per diluted share.

Excluding the aforementioned preferred stock deemed dividend and amortization of debt discount and issuance costs, adjusted net income for 2008 was $5.8 million, or $0.09 per fully diluted share, up 62.9% from adjusted net income available to common shareholders of $3.6 million, or $0.09 per fully diluted share, in 2007. Adjusted net income for 2007 excludes a one-time tax relief of $6.7 million. The computation of adjusted net income is set forth below.

Financial Condition

As of December 31, 2008, the Company had cash and cash equivalents of $0.3 million, accounts receivable of $4.5 million and working capital of $3.2 million. The Company had $1.0 million in short-term loans payable and stockholders' equity of $32.9 million. During 2008, the Company generated $5.2 million from operating activities and had net capital expenditures of $13.7 million, primarily related to acquiring and equipping facilities for the larger size forged rolled rings.

Business Outlook

China Wind Systems began producing forged products at its new facility in February 2009 after successfully completing equipment test runs. The Company's sample products were approved and inspected by prospective customers and preliminary agreements with several additional customers were signed in March 2009, including Dong Fang Electric, Co., Ltd., Zhejiang Yunda Co., Ltd., Shanghai Electric Co., Ltd. and Mingyang Wind Power Technology Co., Ltd.

While the Company did experience some delay in the automation process at its new facility, production is underway and management expects to ramp up capacity to meet existing orders in the second and third quarters of 2009.

"Apart from manufacturing first-class forged products, we are also dedicated to providing superior after-sales service in order to establish ourselves as the preferred manufacturer of forged products," Mr. Wu said. "We are encouraged by the Chinese government's strong support of China's wind industry, which analysts predict will reach 50-60 GW of installed wind capacity by 2015, and are confident that we have found our niche in the supplying this industry while we continue to generate revenue from our other segments. However," Mr Wu continued, "the worldwide economic downturn has hit the Chinese textile manufacturing segment hard, and we anticipate that sales from our dyeing and finishing segment may decline significantly."

Conference Call

The Company will conduct a conference call at 8:00 a.m. Eastern Daylight Time (EDT) on Wednesday, April 1, 2009 to discuss its fourth quarter and full year 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 660-967-97 when prompted. International callers should dial 617-614-4070, and enter the same passcode, 660-967-97. If you are unable to participate in the call at this time, a replay will be available for 14 days starting on April 1 at 10:00 a.m. EDT. To access the replay, dial 888-286-8010 and enter the passcode, 503-31-533. International callers dial 617-801-6888, and enter the same passcode, 501-31-533.

Use of Non-GAAP Financial Measures

GAAP results for fiscal year 2008 include $2.3 million in one-time amortization of debt discount and debt issuance costs related to the Company's November 2007 private placement and a $2.9 million non-cash preferred deemed dividend from the issuance of stock warrants upon conversion of convertible debt into series A preferred stock. GAAP results for the fiscal year 2007 include a one-time tax relief in VAT and income taxes of $6.7 million. Because these charges are non-cash, one-time charges and are not related to the Company's operating results, 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 plans to increase its production and 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 (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 INCOME

                          For the three months ended  For the Years Ended
                                 December 31,              December 31,

                                  2008        2007        2008         2007

    NET REVENUES            $10,885,299  $7,828,910  $42,285,485  $24,418,385

    COST OF SALES             8,231,321   5,534,454   31,740,041   17,366,000

    GROSS PROFIT              2,653,978   2,294,456   10,545,444    7,052,385

    OPERATING EXPENSES:
         Depreciation            77,643      74,922      305,832      282,797
         Selling, general
          and administrative    495,105     541,187    2,176,282    1,107,293

            Total Operating
             Expenses           572,748     616,109    2,482,114    1,390,090

    INCOME FROM OPERATIONS    2,081,230   1,678,347    8,063,330    5,662,295

    OTHER INCOME (EXPENSE):
         Interest income          1,850       2,570       13,569        2,942
         Interest expense       (25,985)   (435,344)  (2,324,859)    (466,704)
         Foreign currency
          loss                  (13,400)         --      (13,400)          --
         Other income from
          foregiveness of
          income and VAT
          taxes                      --     (61,431)          --    6,710,011
         Debt issuance
          costs                      --      (3,571)     (21,429)      (3,571)
         Other income                --      57,198           --       57,198

            Total Other
             Income (Expense)   (37,535)   (440,578)  (2,346,119)   6,299,876

    INCOME BEFORE INCOME
     TAXES                    2,043,695   1,237,769    5,717,211   11,962,171

    INCOME TAXES                583,617     334,336    2,234,948    1,649,430

    NET INCOME                1,460,078     903,433    3,482,263   10,312,741

    DEEMED PREFERRED STOCK
     DIVIDEND                        --          --   (2,884,062)          --

    NET INCOME AVAILABLE TO
     COMMON SHAREHOLDERS      1,460,078     903,433     $598,201  $10,312,741

    COMPREHENSIVE INCOME:
          NET INCOME          1,460,078     903,433   $3,482,263  $10,312,741

          OTHER
           COMPREHENSIVE
           INCOME:
               Unrealized
                foreign
                currency
                translation
                gain              9,391     489,749    1,688,944    1,013,735

          COMPREHENSIVE
           INCOME             1,469,469   1,393,182   $5,171,207  $11,326,476

    NET INCOME PER COMMON
     SHARE:
        Basic                     $0.03       $0.02        $0.01        $0.28
        Diluted                   $0.02       $0.02        $0.01        $0.26

    WEIGHTED AVERAGE COMMON
     SHARES OUTSTANDING:
        Basic                44,069,316  36,998,534   40,000,487   36,683,776
        Diluted              62,585,767  59,869,403   63,621,211   40,168,234



                  CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEETS

                                            December 31,      December 31,
                                                2008              2007
                   ASSETS

    CURRENT ASSETS:
        Cash and cash equivalents                 $328,614        $5,025,434
        Notes receivable                           269,549                --
        Accounts receivable, net of
         allowance for doubtful accounts         4,518,259         2,158,412
        Inventories, net of reserve for
         obsolete inventory                      1,892,090         1,929,796
        Advances to suppliers                      117,795           938,331
        Due from related party                     437,688                --
        Prepaid expenses and other                  21,744           378,429

            Total Current Assets                 7,585,739        10,430,402

    PROPERTY AND EQUIPMENT - net                25,939,596         6,525,986

    OTHER ASSETS:
       Deposit on long-term assets -
        related party                                   --        10,863,706
       Land use rights, net                      3,806,422           502,634
       Investment in cost method investee               --            34,181
       Due from related party                           --           139,524

            Total Assets                       $37,331,757       $28,496,433

    LIABILITIES AND STOCKHOLDERS' EQUITY

    CURRENT LIABILITIES:
        Loans payable                           $1,021,272          $820,333
        Convertible debt, net of discount
         on debt                                        --         3,261,339
        Accounts payable                         2,485,137         1,845,769
        Accrued expenses                           187,605           198,542
        VAT and service taxes payable               97,341           434,839
        Advances from customers                     45,748            77,357
        Due to related party                            --            98,541
        Income taxes payable                       569,371           508,407

            Total Current Liabilities            4,406,474         7,245,127

    RELATED PARY TRANSACTIONS
    COMMITMENTS

    STOCKHOLDERS' EQUITY:
        Preferred stock $0.001 par value;
           (December 31, 2008 -
            60,000,000 shares authorized,
            all of which were designated
            as series A convertible
            preferred, 14,028,189 shares
            issued and outstanding;
           December 31, 2007 - no shares
            authorized, issued or
            outstanding)                            14,028                --
        Common stock ($0.001 par value;
         150,000,000 shares authorized;
         44,895,546 and 37,384,295
         shares issued and outstanding
         at December 31, 2008 and 2007,
         respectively)                              44,896            37,385
        Additional paid-in capital              15,571,288         3,488,896
        Retained earnings                       13,639,641        16,074,270
        Statutory reserve                          621,203           305,472
        Other comprehensive gain -
         cumulative foreign currency
         translation adjustment                  3,034,227         1,345,283

            Total Stockholders' Equity          32,925,283        21,251,306

            Total Liabilities and
             Stockholders' Equity              $37,331,757       $28,496,433



                  CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                 For the Years Ended
                                                     December 31,
                                                2008              2007
    CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income                                 $3,482,263       $10,312,741
     Adjustments to reconcile net income
      from operations to net cash
      provided by operating activities:
      Depreciation                                 648,952           598,507
      Amortization of debt discount to
       interest expense                          2,263,661           377,277
      Amortization of debt offering costs           21,429             3,571
      Amortization of land use rights               84,906            10,492
      Increase in allowance for doubtful
       accounts                                    203,414           377,608
      Increase in reserve for inventory
       obsolescence                                     --          (244,981)
      Stock based compensation expense             113,420           139,373
      Other income from forgiveness of
       income and VAT taxes                             --        (6,710,011)
     Changes in assets and liabilities:
      Notes receivable                            (265,366)               --
      Accounts receivable                       (2,384,061)          (44,492)
      Inventories                                  164,596           (38,432)
      Prepaid and other current assets             338,063          (273,312)
      Advances to suppliers                        869,784           696,492
      Due from related party                      (430,894)               --
      Accounts payable                             490,230         1,160,691
      Accrued expenses                                (894)           23,103
      VAT and service taxes payable               (360,984)        1,472,360
      Income taxes payable                          26,434         1,267,374
      Advances from customers                      (36,229)         (110,144)

    NET CASH PROVIDED BY OPERATING
     ACTIVITIES                                  5,228,724         9,018,217

    CASH FLOWS FROM INVESTING ACTIVITIES:
      Proceeds from due from related
       parties                                     145,534           948,722
      Proceeds from sale of cost-method
       investee                                     35,908                --
      Deposit on long-term assets -
       related party                               (89,721)      (10,339,525)
      Purchase of property and equipment       (13,813,297)          (10,566)

    NET CASH USED IN INVESTING ACTIVITIES      (13,721,576)       (9,401,369)

    CASH FLOWS FROM FINANCING ACTIVITIES:
      Proceeds from loans payable                  143,632           393,846
      Proceeds from convertible debt                    --         5,525,000
      Payment of placement fees                         --           (30,000)
      Payments in connection with
       recapitalization                                 --        (1,040,000)
      Proceeds from exercise of warrants         2,187,566                --
      Proceeds from sale of common stock         1,393,883                --
      Payments on related party advances          (102,979)           94,620

    NET CASH PROVIDED BY FINANCING
     ACTIVITIES                                  3,622,102         4,943,466

    EFFECT OF EXCHANGE RATE ON CASH                173,930            43,730

    NET (DECREASE) INCREASE IN CASH             (4,696,820)        4,604,044

    CASH  - beginning of year                    5,025,434           421,390

    CASH - end of year                            $328,614        $5,025,434

    SUPPLEMENTAL DISCLOSURE OF CASH FLOW
     INFORMATION:
     Cash paid for:
        Interest                                   $75,159           $68,708
        Income taxes                            $2,208,514           $85,120



                  CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
  RECONCILIATION OF NON-GAAP NET INCOME AVAILABLE TO COMMON SHAREHOLDERS AND
                                 DILUTED EPS

                                     For the Twelve Months ended December 31,
                                                2008                2007
                                                   Diluted             Diluted
                                        Net Income   EPS   Net Income    EPS
    Adjusted Amount of Net Income
     available to Common Shareholders   $5,828,551  $0.09  $3,602,730   $0.09
    Adjustment
        Interest expenses related to
         amortization of conversion of
         convertible debt to common
         stock (1)                       2,324,859   0.04          --      --
        Amortization of debt issuance
         costs (2)                          21,429   0.00          --      --
        Deemed preferred dividend (3)    2,884,062   0.05          --      --
        Other income from forgiveness
         of VAT and income taxes (4)            --     --  (6,710,011)  (0.17)
    Amount per consolidated statement
     of operations                        $598,201  $0.01  $10,312,741  $0.27

     (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, 63,621,211 for twelve months ended
         December 31,2008 and 40,168,234 for twelve months ended December
         31, 2007



    For more information, please contact:

    Company Contact:
     Mr. Leo Wang
     Chief Financial Officer
     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

SOURCE China Wind Systems, Inc.