Attached files
file | filename |
---|---|
EX-31.1 - Wonder Auto Technology, Inc | v184121_ex31-1.htm |
EX-31.2 - Wonder Auto Technology, Inc | v184121_ex31-2.htm |
EX-32.1 - Wonder Auto Technology, Inc | v184121_ex32-1.htm |
EX-32.2 - Wonder Auto Technology, Inc | v184121_ex32-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10−Q
(Mark
One)
x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
quarterly period ended: March 31, 2010
¨ TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from ____________ to _____________
Commission
File Number: 001-33648
WONDER AUTO TECHNOLOGY,
INC.
(Exact
name of registrant as specified in its charter)
Nevada
|
88-0495105
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Empl. Ident. No.)
|
No. 16
Yulu Street
Taihe
District, Jinzhou City, Liaoning
People’s
Republic of China, 121013
(Address
of principal executive offices, Zip Code)
(86)
416-518-6632
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90
days. Yes
x No
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes ¨ No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large
Accelerated Filer
|
¨
|
Accelerated
Filer
|
x
|
|
Non-Accelerated
Filer
|
¨
|
(Do
not check if a smaller reporting company)
|
Smaller
reporting company
|
¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No x
The
number of shares outstanding of each of the issuer’s classes of common equity,
as of May 9, 2010 is as follows:
Class
of Securities
|
Shares
Outstanding
|
|
Common
Stock, $0.0001 par value
|
33,859,994
|
TABLE
OF CONTENTS
PART
I
|
|||
FINANCIAL
INFORMATION
|
|||
Item
1.
|
Financial
Statements
|
1
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
29
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
40
|
|
Item
4.
|
Controls
and Procedures
|
41
|
|
PART
II
|
|||
OTHER
INFORMATION
|
|||
Item
1.
|
Legal
Proceedings
|
42
|
|
Item
1A.
|
Risk
Factors
|
42
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
42
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
42
|
|
Item
4.
|
(Removed
and Reserved)
|
42
|
|
Item
5.
|
Other
Information
|
42
|
|
Item
6.
|
Exhibits
|
42
|
PART
I
FINANCIAL
INFORMATION
ITEM
1.
|
FINANCIAL
STATEMENTS.
|
Wonder
Auto Technology, Inc.
Condensed
Consolidated Financial Statements
For the
three months ended
March 31,
2010 and 2009
(Stated
in US dollars)
Wonder
Auto Technology, Inc.
Condensed
Consolidated Financial Statements
Three
months ended March 31, 2010 and 2009
Index to
Condensed Consolidated Financial Statements
Pages
|
||
Condensed
Consolidated Statements of Income and Comprehensive Income
|
1
|
|
Condensed
Consolidated Balance Sheets
|
3 -
4
|
|
Condensed
Consolidated Statements of Cash Flows
|
5 -
6
|
|
Condensed
Consolidated Statements of Equity
|
7
|
|
Notes
to Condensed Consolidated Financial Statements
|
8 -
28
|
Wonder
Auto Technology, Inc.
Condensed
Consolidated Statements of Income and Comprehensive Income
For
the three months ended March 31, 2010 and 2009
(Unaudited)
(Stated
in US Dollars)
Three months ended
|
||||||||
March 31,
|
||||||||
2010
|
2009
|
|||||||
Sales
revenue
|
$ | 63,620,565 | $ | 39,976,020 | ||||
Cost
of sales
|
47,994,842 | 29,881,662 | ||||||
Gross
profit
|
15,625,723 | 10,094,358 | ||||||
Operating
expenses
|
||||||||
Administrative
expenses (included share-based compensation of $1,477,694 in 2010, $Nil in
2009)
|
5,078,798 | 2,315,992 | ||||||
Research
and development expenses (included share-based compensation of $91,782 in
2010, $Nil in 2009)
|
1,349,529 | 456,232 | ||||||
Selling
expenses (included share-based compensation of $65,419 in 2010, $Nil in
2009)
|
2,408,261 | 1,212,659 | ||||||
8,836,588 | 3,984,883 | |||||||
Income
from operations
|
6,789,135 | 6,109,475 | ||||||
Other
income
|
528,795 | 114,516 | ||||||
Government
grants
|
201,511 | 175,062 | ||||||
Equity
in net income of an non-consolidated affiliate - Note 2
|
548,792 | - | ||||||
Net
finance costs - Note 6
|
(630,828 | ) | (83,989 | ) | ||||
Income
before income taxes and noncontrolling interests
|
7,437,405 | 6,315,064 | ||||||
Income
taxes - Note 7
|
(1,448,090 | ) | (920,005 | ) | ||||
Net
income before noncontrolling interests
|
5,989,315 | 5,395,059 | ||||||
Net
income attributable to noncontrolling interests
|
(208,238 | ) | (223,435 | ) | ||||
Net
income attributable to Wonder Auto Technology, Inc.
|
||||||||
common
stockholders
|
$ | 5,781,077 | $ | 5,171,624 | ||||
Net
income before noncontrolling interests
|
$ | 5,989,315 | $ | 5,395,059 | ||||
Other
comprehensive income
|
||||||||
Foreign
currency translation adjustments
|
(4 | ) | (65,109 | ) | ||||
Comprehensive
income
|
5,989,311 | 5,329,950 | ||||||
Comprehensive
income attributable to noncontrolling interests
|
(208,238 | ) | (208,020 | ) | ||||
Comprehensive
income attributable to Wonder Auto
|
||||||||
Technology,
Inc. common stockholders
|
$ | 5,781,073 | $ | 5,121,930 | ||||
Earnings
per share attributable to Wonder Auto Technology, Inc.
|
||||||||
common
stockholders:
|
||||||||
basic
and diluted - Note 8
|
$ | 0.17 | $ | 0.19 |
- 1
-
Wonder
Auto Technology, Inc.
Condensed
Consolidated Statements of Income and Comprehensive Income (Cont’d)
For
the three months ended March 31, 2010 and 2009
(Unaudited)
(Stated
in US Dollars)
Three months ended
|
|||
March 31,
|
|||
2010
|
2009
|
||
Weighted
average number of shares outstanding:
|
|||
basic
and diluted
|
33,859,994
|
26,959,994
|
See the
accompanying notes to condensed consolidated financial
statements
- 2
-
Wonder
Auto Technology, Inc.
Condensed
Consolidated Balance Sheets
As
of March 31, 2010 and December 31, 2009
(Stated
in US Dollars)
March 31,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
ASSETS
|
||||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
$ | 68,548,780 | $ | 82,414,287 | ||||
Restricted
cash
|
11,803,871 | 15,753,748 | ||||||
Trade
receivables, net
|
48,280,371 | 49,522,583 | ||||||
Bills
receivable
|
30,069,035 | 21,965,065 | ||||||
Other
receivables, prepayments and deposits
|
13,112,782 | 14,826,460 | ||||||
Inventories
- Note 9
|
55,024,719 | 51,119,562 | ||||||
Deferred
taxes
|
1,063,524 | 1,186,410 | ||||||
Total
current assets
|
227,903,082 | 236,788,115 | ||||||
Restricted
cash
|
586,800 | - | ||||||
Intangible
assets - Note 10
|
31,595,891 | 32,907,720 | ||||||
Property,
plant and equipment, net - Note 11
|
72,531,432 | 73,770,329 | ||||||
Land
use rights
|
10,083,377 | 10,618,853 | ||||||
Deposits
for acquisition of property, plant and equipment
|
8,750,363 | 7,435,563 | ||||||
Investment
in a non-consolidated affiliate - Note 2
|
15,411,369 | - | ||||||
Deferred
taxes
|
851,496 | 731,575 | ||||||
TOTAL
ASSETS
|
$ | 367,713,810 | $ | 362,252,155 |
See the
accompanying notes to condensed consolidated financial
statements
- 3
-
Wonder
Auto Technology, Inc.
Condensed
Consolidated Balance Sheets (Cont’d)
As
of March 31, 2010 and December 31, 2009
(Stated
in US Dollars)
March 31,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
LIABILITIES
AND EQUITY
|
||||||||
LIABILITIES
|
||||||||
Current
liabilities
|
||||||||
Trade
payables
|
$ | 37,830,098 | $ | 34,126,534 | ||||
Bills
payable
|
19,387,872 | 29,388,653 | ||||||
Other
payables and accrued expenses
|
15,553,707 | 14,886,909 | ||||||
Provision
for warranty - Note 12
|
2,593,327 | 2,272,322 | ||||||
Income
tax payable
|
1,439,306 | 892,340 | ||||||
Secured
borrowings - Note 13
|
58,524,564 | 57,082,779 | ||||||
Early
retirement benefits cost
|
363,831 | 353,584 | ||||||
Total
current liabilities
|
135,692,705 | 139,003,121 | ||||||
Secured
borrowings - Note 13
|
22,252,100 | 20,908,721 | ||||||
Deferred
revenue - government grants
|
3,209,466 | 3,315,762 | ||||||
Early
retirement benefits cost
|
461,179 | 550,397 | ||||||
TOTAL
LIABILITIES
|
161,615,450 | 163,778,001 | ||||||
COMMITMENTS AND CONTINGENCIES
- Note 15
|
||||||||
STOCKHOLDERS’
EQUITY
|
||||||||
Preferred
stock: par value $0.0001 per share; authorized 10,000,000 shares in 2010
and 2009; none issued and outstanding
|
- | - | ||||||
Common
stock: par value $0.0001 per share Authorized 90,000,000 shares in 2010
and 2009; issued and outstanding 33,859,994 shares in 2010 and
2009
|
3,386 | 3,386 | ||||||
Additional
paid-in capital
|
139,177,597 | 137,542,702 | ||||||
Statutory
and other reserves
|
10,186,701 | 10,186,701 | ||||||
Accumulated
other comprehensive income
|
9,647,047 | 9,647,051 | ||||||
Retained
earnings
|
41,051,673 | 35,270,596 | ||||||
TOTAL
WONDER AUTO TECHNOLOGY, INC. STOCKHOLDERS’
|
||||||||
EQUITY
|
200,066,404 | 192,650,436 | ||||||
NONCONTROLLING
INTERESTS
|
6,031,956 | 5,823,718 | ||||||
TOTAL
EQUITY
|
206,098,360 | 198,474,154 | ||||||
TOTAL
LIABILITIES AND EQUITY
|
$ | 367,713,810 | $ | 362,252,155 |
See the
accompanying notes to condensed consolidated financial
statements
- 4
-
Wonder
Auto Technology, Inc.
Condensed
Consolidated Statements of Cash Flows
For
the three months ended March 31, 2010 and 2009
(Unaudited)
(Stated
in US Dollars)
Three months ended March 31,
|
||||||||
2010
|
2009
|
|||||||
Cash
flows from operating activities
|
||||||||
Net
income before noncontrolling interests
|
$ | 5,989,315 | $ | 5,395,059 | ||||
Adjustments
to reconcile net income before noncontrolling interests to net cash (used
in) provided by operating activities:
|
||||||||
Depreciation
|
1,668,523 | 1,373,739 | ||||||
Amortization
of intangible assets and land use rights
|
387,015 | 98,848 | ||||||
Deferred
taxes
|
2,964 | 125,167 | ||||||
(Recovery
of) provision for doubtful accounts
|
(102,611 | ) | 10,794 | |||||
Provision
of obsolete inventories
|
71,807 | 19,498 | ||||||
Exchange
gain on translating of monetary assets and liabilities
|
(603,606 | ) | (762,035 | ) | ||||
Loss
(gain) on disposal of property, plant and equipment
|
33,066 | (296 | ) | |||||
Deferred
revenue amortized
|
(106,296 | ) | (61,329 | ) | ||||
Equity
in net income of an non-consolidated affiliate
|
(548,792 | ) | - | |||||
Share-based
compensation
|
1,634,895 | - | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Trade
receivables
|
1,344,744 | (5,749,760 | ) | |||||
Bills
receivable
|
(8,123,041 | ) | 2,203,465 | |||||
Other
receivables, prepayments and deposits
|
(2,633,496 | ) | 4,142,968 | |||||
Inventories
|
(4,626,870 | ) | 2,650,725 | |||||
Trade
payables
|
3,696,142 | 504,105 | ||||||
Early
retirement benefit costs
|
(79,184 | ) | (107,547 | ) | ||||
Other
payables and accrued expenses
|
652,579 | (2,050,977 | ) | |||||
Provision
for warranty
|
321,006 | 190,783 | ||||||
Income
tax payable
|
487,524 | 652,399 | ||||||
Net
cash flows (used in) provided by operating activities
|
$ | (534,316 | ) | $ | 8,635,606 |
See the
accompanying notes to condensed consolidated financial
statements
- 5
-
Wonder
Auto Technology, Inc.
Condensed
Consolidated Statements of Cash Flows (Cont’d)
For
the three months ended March 31, 2010 and 2009
(Unaudited)
(Stated
in US Dollars)
Three months ended March 31,
|
||||||||
2010
|
2009
|
|||||||
Cash
flows from investing activities
|
||||||||
Payments
to acquire and for deposits for acquisition of property, plant and
equipment
|
$ | (3,284,627 | ) | $ | (1,422,433 | ) | ||
Proceeds
from sales of property, plant and equipment
|
- | 5,421 | ||||||
Net
cash received from Winning
|
8,013,693 | - | ||||||
Net
cash paid to acquire Applaud - Note 2
|
(14,862,577 | ) | - | |||||
Net
cash paid for disposal of Jinzhou Jiade - Note 3
|
(114,517 | ) | - | |||||
Net
cash paid to acquire Yearcity
|
- | (2,197,500 | ) | |||||
Net
cash flows used in investing activities
|
(10,248,028 | ) | (3,614,512 | ) | ||||
Cash
flows from financing activities
|
||||||||
Bills
payable
|
(9,981,710 | ) | (14,042,025 | ) | ||||
Decrease
in restricted cash
|
3,363,077 | 11,092,454 | ||||||
Repayment
of secured borrowings
|
(5,779,980 | ) | (10,662,270 | ) | ||||
Proceeds
from secured borrowings
|
9,315,450 | 14,064,001 | ||||||
Net
cash flows (used in) provided by financing activities
|
(3,083,163 | ) | 452,160 | |||||
Effect
of foreign currency translation on cash and cash
equivalents
|
- | (888 | ) | |||||
Net
(decrease) increase in cash and cash equivalents
|
(13,865,507 | ) | 5,472,366 | |||||
Cash
and cash equivalents - beginning of period
|
82,414,287 | 8,159,156 | ||||||
Cash
and cash equivalents - end of period
|
$ | 68,548,780 | $ | 13,631,522 | ||||
Supplemental
disclosures for cash flow information:
|
||||||||
Cash
paid for:
|
||||||||
Interest
|
$ | 975,228 | $ | 923,530 | ||||
Income
taxes
|
$ | 908,961 | $ | 103,140 | ||||
Non-cash
investing and financing activities:
|
||||||||
Acquisition
of Yearcity by offsetting with receivable from disposal of an
unconsolidated affiliate
|
$ | - | $ | 5,950,000 | ||||
Settlement
of amount due to Hony Capital II, L.P. (“Hony Capital”) by offsetting with
amount due from Hony Capital
|
$ | - | $ | 7,626,804 |
See the
accompanying notes to condensed consolidated financial statements
- 6
-
Wonder
Auto Technology, Inc.
Condensed
Consolidated Statements of Equity
(Unaudited)
(Stated
in US Dollars)
Wonder Auto Technology, Inc. stockholders
|
||||||||||||||||||||||||||||||||
Accumulated
|
||||||||||||||||||||||||||||||||
Additional
|
Statutory
|
other
|
||||||||||||||||||||||||||||||
Common stock
|
paid-in
|
and other
|
comprehensive
|
Retained
|
Noncontrolling
|
|||||||||||||||||||||||||||
No. of shares
|
Amount
|
capital
|
reserves
|
income
|
earnings
|
interests
|
Total
|
|||||||||||||||||||||||||
Balance,
December 31, 2009
|
33,859,994 | $ | 3,386 | $ | 137,542,702 | $ | 10,186,701 | $ | 9,647,051 | $ | 35,270,596 | $ | 5,823,718 | $ | 198,474,154 | |||||||||||||||||
Net
income
|
- | - | - | - | - | 5,781,077 | 208,238 | 5,989,315 | ||||||||||||||||||||||||
Foreign
currency translation adjustments
|
- | - | - | - | (4 | ) | - | - | (4 | ) | ||||||||||||||||||||||
Share-based
compensation
|
- | - | 1,634,895 | - | - | - | - | 1,634,895 | ||||||||||||||||||||||||
Balance,
March 31, 2010
|
33,859,994 | $ | 3,386 | $ | 139,177,597 | $ | 10,186,701 | $ | 9,647,047 | $ | 41,051,673 | $ | 6,031,956 | $ | 206,098,360 |
See the
accompanying notes to condensed consolidated financial
statements
- 7
-
Wonder
Auto Technology, Inc.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
(Stated
in US Dollars)
1.
|
Corporate
information and description of
business
|
Wonder
Auto Technology, Inc. (the “Company”) was incorporated in the State of Nevada on
June 8, 2000. The Company’s shares are quoted for trading on the
Nasdaq Global Market in the United States.
The
Company is principally engaged in the design, development, manufacture and
marketing of automotive electrical parts, specifically starters and alternators
and manufacturing of engine valves and tappets for motor vehicles mainly in the
People’s Republic of China (the “PRC”). The major target markets of the
Company’s products are the PRC, South Korea and Brazil.
The
products of the Company are suitable for use in a variety of
automobiles. However, most of the Company’s products are used in
passenger cars with smaller engines having displacement below 1.6
liters. The Company has also begun to manufacture and sell rectifier
and regulator products for use in alternators as well as various rods and shafts
for use in shock absorbers, alternators and starters.
The
Company’s customers include automakers, engine manufacturers and, increasingly,
auto parts suppliers.
The raw
materials used in the Company’s production are mainly divided into four
categories, metal parts, semiconductors, chemicals and packaging
materials.
Currently
the Company has thirteen subsidiaries:
Company name
|
Place/date of
incorporation or
establishment
|
The
Company's
effective
ownership
interest
|
Common stock/
registered capital
|
Principal activities
|
||||
Wonder
Auto Limited (“Wonder”)
|
British
Virgin Islands (“BVI”) / April 16, 2004
|
100%
|
Ordinary
shares: Authorized: 50,000 shares of $1 each, Paid up: 245 shares of $1
each
|
Investment
holding
|
||||
Jinzhou
Halla Electrical Equipment Co., Ltd. (“Jinzhou Halla”)
|
The
PRC / March 21, 1996
|
100%
|
Registered
capital of $31,900,000 and fully paid up
|
Manufacturing
and selling of starters and alternators
|
||||
Jinzhou
Dongwoo Precision Co., Ltd. (“Jinzhou Dongwoo”)
|
The
PRC / April 23, 2003
|
50% *
|
Registered
capital of $2,800,000 and fully paid up
|
Manufacturing
and selling of accessories of alternators
|
||||
Jinzhou
Wanyou Mechanical Parts Co., Ltd. (“Jinzhou Wanyou”)
|
The
PRC / September 21, 2006
|
100%
|
Registered
capital $54,950,000 and fully paid up
|
Manufacturing
and selling of rods and
shafts
|
- 8
-
Wonder
Auto Technology, Inc.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
(Stated
in US Dollars)
1.
|
Corporate
information and description of business
(Cont’d)
|
Company name
|
Place/date of
incorporation or
establishment
|
The
Company's
effective
ownership
interest
|
Common stock/
registered capital
|
Principal activities
|
||||
Jinzhou
Wonder Motor Co., Ltd. (“Wonder Motor”)
|
The
PRC / September 24, 2007
|
100%
|
Registered
capital of $3,500,000 and fully paid up
|
Development
stage company
|
||||
Jinzhou
Wonder Auto Electrical Equipment Co., Ltd. (“Jinzhou
Wonder”)
|
The
PRC / September 24, 2007
|
100%
|
Registered
capital of $5,500,000 and fully paid up
|
Manufacturing
and selling of accessories of starters and alternators
|
||||
Jinzhou
Hanhua Electrical System Co., Ltd. (“Jinzhou Hanhua”)
|
The
PRC / April 23, 2003
|
50%
*
|
Registered
capital of $2,369,000 and fully paid up
|
Manufacturing
and selling of accessories of starters
|
||||
Jinzhou
Karham Electrical Equipment Co., Ltd. (Jinzhou Karham”)
|
The
PRC / May 20, 2006
|
65%
|
Registered
capital of $950,000 and fully paid up
|
Manufacturing
and selling of accessories of starters
|
||||
Fuxin
Huirui Mechanical Co., Ltd. (“Fuxin Huirui”)
|
The
PRC / September 24, 2007
|
100%
|
Registered
capital of $3,000,000 and paid up capital of $740,990
|
Manufacturing
and selling of accessories of alternators
|
||||
Yearcity
Limited (“Yearcity”)
|
BVI
/ March 10, 2005
|
100%
|
Authorized:
50,000 shares of $1 each, Paid up: 100 share of $1 each
|
Investment
holding
|
||||
Jinan
Worldwide Auto Accessories Co., Ltd. (“Jinan Worldwide”)
|
The
PRC / February 1956
|
100%
|
Registered
capital of $20,700,000 and fully paid up
|
Manufacturing
and selling of valves and tappets
|
||||
Friend
Birch Limited (“Friend Birch”)
|
Hong
Kong / November 9, 2005
|
100%
|
Ordinary
shares: Authorized and fully paid up: 10,000 shares of HK$1
each
|
Investment
holding
|
||||
Jinzhou
Lida Auto Parts Co., Ltd. (“Jinzhou Lida”)
|
The
PRC / October 23, 2008
|
100%
|
Registered
capital of $1,000,000 and fully paid up
|
Manufacturing
and selling of accessories of rods and
shafts
|
*
|
The
Company obtained the control over those subsidiaries by appointing more
than half of members in the board of directors in accordance
with those subsidiaries’ Memorandum and Articles of Association
of which a valid board action only requires the approval of
more than half of board
members.
|
- 9
-
Wonder
Auto Technology, Inc.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
(Stated
in US Dollars)
2.
|
Acquisition
|
On
January 18, 2010, Wonder and Yearcity entered into two separate agreements with
Novophalt (China) Limited, a company incorporated in BVI, and Wonder Employee
Capital Limited (“WECL”), a company incorporated in BVI, for acquisition of
their 20.90% and 17.46% equity interests in Applaud Group Limited (“Applaud”) at
considerations of HK$62,915,086 (equivalent to approximately $8.12 million) and
HK$52,534,672 (equivalent to approximately $6.78 million)
respectively. Both considerations were settled in January,
2010. Since Mr. Zhao, a director of the Company, is the sole director
and owner of WECL, the acquisition of 17.46% equity interest in Applaud from
WECL constituted as a related party transaction.
Applaud,
a company incorporated in BVI, is an investment holding company which only holds
50.62% equity interest in Jinheng Automotive Safety Technology Holdings Limited
(“Jinheng Holdings”). As a result of acquisition of 38.36% equity
interest in Applaud, the Company effectively holds 19.42% equity interest in
Jinheng Holdings. Jinheng Holdings is a high-tech automotive parts supplier that
is primarily engaged in developing, manufacturing and selling components of
automotive passive safety restraint systems (airbag and seatbelt), automotive
engine electronic injection management systems (EMS), and components of diesel
engines. Jinheng Holdings is listed on the Main Board of Hong Kong Stock
Exchange.
Investments
in entities over which the Company does not have control, but has significant
influence, are accounted for using the equity method of accounting. The
Company’s investments in Applaud are reported in the condensed consolidated
balance sheets as investment in a non-consolidated affiliate.
Condensed
financial data of Applaud was as follows:-
Three months ended
|
||||||||
March 31,
|
||||||||
(Unaudited)
|
||||||||
2010
|
2009
|
|||||||
Summary
of Operations:-
|
||||||||
Revenues
|
$ | 40,229,986 | $ | - | ||||
Gross
profit
|
9,267,668 | - | ||||||
Income
from operations
|
4,457,325 | - | ||||||
Net
income
|
$ | 1,430,687 | $ | - | ||||
Net
income attributable to the Company
|
$ | 548,792 | $ | - |
- 10
-
Wonder
Auto Technology, Inc.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
(Stated
in US Dollars)
3.
|
Disposal
of a subsidiary
|
On March
1, 2010, the Company disposed of its 100% equity interest in Jinzhou Jiade
Machinery Co., Ltd. (“Jinzhou Jiade”) to two independent third parties at a
total cash consideration of $2,980,959 and [will be paid within 90 days from
March 1, 2010]. The following table summarize the net assets of Jinzhou Jiade
disposed of during the three moths ended March 31, 2010 :
Net
assets disposed of :
|
Unaudited
|
|||
Property,
plant and equipment, net
|
$ | 1,709,036 | ||
Land
use right
|
472,200 | |||
Current
assets
|
1,693,493 | |||
Current
liabilities
|
(1,881,860 | ) | ||
Goodwill
|
988,090 | |||
2,980,959 | ||||
Gain
on disposal of interest in a subsidiary
|
- | |||
Total
consideration, satisfied by cash
|
$ | 2,980,959 | ||
Analysis
of net inflow of cash and cash equivalents in respect of disposal of a
subsidiary :
|
||||
Cash
consideration
|
$ | 2,980,959 | ||
Cash
and cash equivalents disposed of
|
(114,517 | ) | ||
Outstanding
amount included in other receivables, prepayments and
deposits
|
(2,980,959 | ) | ||
Net
cash outflow
|
$ | (114,517 | ) |
4.
|
Basis
of presentation
|
The
accompanying unaudited condensed consolidated financial statements of the
Company and its subsidiaries have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission (the “SEC”) including the
instructions to Form 10-Q and Regulation S-X. Certain information and
note disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted from these statements pursuant to such
rules and regulation and, accordingly, they do not include all the information
and notes necessary for comprehensive consolidated financial statements and
should be read in conjunction with our audited consolidated financial statements
for the year ended December 31, 2009, included in our Annual Report on Form 10-K
for the year ended December 31, 2009.
In the
opinion of the management of the Company, all adjustments, which are of a normal
recurring nature, necessary for a fair statement of the results for the
three-month periods have been made. Results for the interim period
presented are not necessarily indicative of the results that might be expected
for the entire fiscal year.
- 11
-
Wonder
Auto Technology, Inc.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
(Stated
in US Dollars)
5.
|
Summary
of significant accounting policies
|
Principles of
consolidation
The
consolidated financial statements include the accounts of the Company and its
subsidiaries. All significant inter-company accounts and transactions
have been eliminated in consolidation.
Concentrations of credit
risk
Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist principally of cash and cash equivalents and trade and
bills receivables. As of March 31, 2010, substantially all of the
Company’s cash and cash equivalents and restricted cash were held by major
financial institutions located in the PRC, which management believes are of high
credit quality. With respect to trade and bills receivables, the
Company extends credit based on an evaluation of the customer’s financial
condition. The Company generally does not require collateral for
trade receivables and maintains an allowance for doubtful accounts of trade
receivables.
Regarding
bills receivable, they are undertaken by the banks to honor the payments at
maturity and the customers are required to place deposits with the banks
equivalent to certain percentage of the bills amount as
collateral. These bills receivable can be sold to any third party at
a discount before maturity. The Company does not maintain allowance
for bills receivable in the absence of bad debt experience and the payments are
undertaken by the banks.
During
the reporting periods, customers representing 10% or more of the Company’s
condensed consolidated sales are:
Three months ended
|
||||||||
March 31,
|
||||||||
(Unaudited)
|
||||||||
2010
|
2009
|
|||||||
Harbin
Dongan Automotive Engine Manufacturing Company Limited
|
$ | 7,441,654 | $ | 4,895,844 | ||||
Beijing
Hyundai Motor Company
|
3,764,388 | 6,825,112 | ||||||
$ | 11,206,042 | $ | 11,720,956 |
- 12
-
Wonder
Auto Technology, Inc.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
(Stated
in US Dollars)
5.
|
Summary
of significant accounting policies
(Cont’d)
|
Fair value of financial
instruments
The
Company adopted ASC 820 (previously Statement of Financial Accounting Standards
(“SFAS”) No. 157) on January 1, 2008. The adoption of ASC 820 did not materially
impact the Company’s financial position, results of operations or cash
flows.
ASC 820
requires the disclosure of the estimated fair value of financial instruments
including those financial instruments for which fair value option was not
elected. Except for secured borrowings disclosed as below, the carrying amounts
of the financial assets and liabilities approximate to their fair values due to
short maturities or the applicable interest rates approximate the current market
rates :-
As of March 31, 2010
|
As of December 31, 2009
|
|||||||||||||||
(Unaudited)
|
(Audited)
|
|||||||||||||||
Carrying
amount
|
Fair
value
|
Carrying
amount
|
Fair
value
|
|||||||||||||
Secured
borrowings
|
$ | 80,776,664 | $ | 81,320,036 | $ | 77,991,500 | $ | 79,500,520 |
The fair
values of secured borrowings are estimated using discounted cash flow analyses,
based on the Company’s current incremental borrowing rates for similar types of
borrowing arrangements.
Recently issued accounting
pronouncements
Accounting for Transfers of
Financial Assets (Included in amended Topic ASC 860 “Transfers and Servicing”,
previously SFAS No. 166, “Accounting for Transfers of Financial Assets - an
Amendment of Financial Accounting Standard Board (“FASB”) Statement No. 140.”). The
amended topic addresses information a reporting entity provides in its financial
statements about the transfer of financial assets; the effects of a transfer on
its financial position, financial performance, and cash flows; and a
transferor’s continuing involvement in transferred financial assets. Also, the
amended topic removes the concept of a qualifying special purpose entity, limits
the circumstances in which a transferor derecognizes a portion or component of a
financial asset, defines participating interest and enhances the information
provided to financial statement users to provide greater transparency. The
amended topic is effective for the first annual reporting period beginning after
November 15, 2009 and was effective for us as of January 1, 2010. The adoption
of this amended topic has no material impact on the Company’s financial
statements.
- 13
-
Wonder
Auto Technology, Inc.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
(Stated
in US Dollars)
5.
|
Summary
of significant accounting policies
(Cont’d)
|
Recently issued accounting
pronouncements (Cont’d)
Consolidation of Variable Interest
Entities - Amended (Included in amended Topic ASC 810 “Consolidation”,
previously SFAS 167 “Amendments to FASB Interpretation No. 46(R)”). The
amended topic requires an enterprise to perform an analysis to determine the
primary beneficiary of a variable interest entity; to require ongoing
reassessments of whether an enterprise is the primary beneficiary of a variable
interest entity and to eliminate the quantitative approach previously required
for determining the primary beneficiary of a variable interest entity. The
amended topic also requires enhanced disclosures that will provide users of
financial statements with more transparent information about an enterprise’s
involvement in a variable interest entity. The amended topic is effective for
the first annual reporting period beginning after November 15, 2009 and will be
effective for us as of January 1, 2010. The adoption of this amended topic has
no material impact on the Company’s financial statements.
The FASB
issued Accounting Standards Update (ASU) No. 2009-13, Revenue Recognition (Topic
605): Multiple Deliverable Revenue Arrangements - A Consensus of the FASB
Emerging Issues Task Force.” This update provides application guidance on
whether multiple deliverables exist, how the deliverables should be separated
and how the consideration should be allocated to one or more units of
accounting. This update establishes a selling price hierarchy for determining
the selling price of a deliverable. The selling price used for each deliverable
will be based on vendor-specific objective evidence, if available, third-party
evidence if vendor-specific objective evidence is not available, or estimated
selling price if neither vendor-specific or third-party evidence is available.
The Company will be required to apply this guidance prospectively for revenue
arrangements entered into or materially modified after January 1, 2011; however,
earlier application is permitted. The management is in the process of evaluating
the impact of adopting this ASU update on the Company’s financial
statements.
The FASB
issued ASU 2010-06, Improving Disclosures about Fair Value Measurements. ASU
2010-06 amends ASC Topic 820 to require the following additional disclosures
regarding fair value measurements: (i) the amounts of transfers between Level 1
and Level 2 of the fair value hierarchy; (ii) reasons for any transfers in or
out of Level 3 of the fair value hierarchy and (iii) the inclusion of
information about purchases, sales, issuances and settlements in the
reconciliation of recurring Level 3 measurements. ASU 2010-06 also amends ASC
Topic 820 to clarify existing disclosure requirements, requiring fair value
disclosures by class of assets and liabilities rather than by major category and
the disclosure of valuation techniques and inputs used to determine the fair
value of Level 2 and Level 3 assets and liabilities. With the exception of
disclosures relating to purchases, sales, issuances and settlements of recurring
Level 3 measurements, ASU 2010-06 was effective for interim and annual reporting
periods beginning after December 15, 2009. The disclosure requirements related
to purchases, sales, issuances and settlements of recurring Level 3 measurements
will be effective for financial statements for annual reporting periods
beginning after December 15, 2010. The management is in the process
of evaluating the effect of ASC 2010-06 on its financial statements and results
of operation and is currently not yet in a position to determine such
effects.
- 14
-
Wonder
Auto Technology, Inc.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
(Stated
in US Dollars)
5.
|
Summary
of significant accounting policies
(Cont’d)
|
Recently issued accounting
pronouncements (Cont’d)
The FASB
issued ASU No. 2010-02, “Consolidation (Topic 810) Accounting and Reporting for
Decreases in Ownership of a Subsidiary - a Scope Clarification”. This amendment
affects entities that have previously adopted Topic 810-10 (formally SFAS 160).
It clarifies the decrease in ownership provisions of Subtopic 810-10 and removes
the potential conflict between guidance in that Subtopic and asset derecognition
and gain or loss recognition guidance that may exist in other US GAAP. An entity
will be required to follow the amended guidance beginning in the period that it
first adopts FAS 160 (now included in Subtopic 810-10). For those entities that
have already adopted FAS 160, the amendments are effective at the beginning of
the first interim or annual reporting period ending on or after December 15,
2009. The amendments should be applied retrospectively to the first period that
an entity adopted FAS 160. The adoption of this ASU update has no material
impact on the Company’s financial statements.
In
February 2010, the FASB issued ASU 2010-09, Subsequent Events: Amendments to
Certain Recognition and Disclosure Requirements, which amends FASB ASC Topic
855, Subsequent Events. The update provides that SEC filers, as defined in ASU
2010-09, are no longer required to disclose the date through which subsequent
events have been evaluated in originally issued and revised financial
statements. The update also requires SEC filers to evaluate subsequent events
through the date the financial statements are issued rather than the date the
financial statements are available to be issued. The Company adopted ASU 2010-09
upon issuance. This update had no material impact on the financial position,
results of operations or cash flows of the Company.
6.
|
Net
finance costs
|
Three
months ended
|
||||||||
March
31,
|
||||||||
(Unaudited)
|
||||||||
2010
|
2009
|
|||||||
Interest
income
|
$ | (89,518 | ) | $ | (318,548 | ) | ||
Interest
expenses
|
1,137,642 | 999,024 | ||||||
Bills
discounting charges
|
24,412 | 178,789 | ||||||
Bank
charges
|
30,967 | 74,115 | ||||||
Net
exchange gain
|
(488,235 | ) | (869,606 | ) | ||||
Finance
charges from early retirement benefits cost
|
15,560 | 20,215 | ||||||
$ | 630,828 | $ | 83,989 |
- 15
-
Wonder
Auto Technology, Inc.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
(Stated
in US Dollars)
7.
|
Income
taxes
|
United
States
Wonder
Auto Technology, Inc. is subject to the United States of America Tax law at tax
rate of 34%. No provision for the US federal income taxes has been
made as the Company had no taxable income in this jurisdiction for the reporting
period.
BVI
Wonder
and Yearcity were incorporated in the BVI and, under the current laws of the
BVI, are not subject to income taxes.
- 16
-
Wonder
Auto Technology, Inc.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
(Stated
in US Dollars)
7.
|
Income
taxes (Cont’d)
|
PRC
Corporate
income tax (“CIT”) to Jinzhou Halla, Jinzhou Dongwoo, Jinzhou Wanyou, Jinzhou
Hanhua, Jinzhou Karham, Fuxin Huirui and Jinan Worldwide in the PRC was charged
at 27%, of which 24% is for national tax and 3% is for local tax, of the
assessable profits before 2008. The PRC’s legislative body, the
National People’s Congress, adopted the unified CIT Law on March 16,
2007. This new tax law replaces the existing separate income tax laws
for domestic enterprises and foreign-invested enterprises and became effective
on January 1, 2008. Under the new tax law, a unified income tax
rates is set at 25% for both domestic enterprises and foreign-invested
enterprises. However, there will be a transition period for
enterprises, whether foreign-invested or domestic, that are currently receiving
preferential tax treatments granted by relevant tax
authorities. Enterprises that are subject to an enterprise income tax
rate lower than 25% may continue to enjoy the lower rate and will transit into
the new tax rate over a five year period beginning on the effective date of the
CIT Law. Enterprises that are currently entitled to exemptions for a
fixed term will continue to enjoy such treatment until the exemption term
expires. Preferential tax treatment will continue to be granted to
industries and projects that qualify for such preferential treatments under the
new tax law. As approved by the relevant tax authority in the PRC,
Jinzhou Halla, Jinzhou Dongwoo, Jinzhou Wanyou, Jinzhou Hanhua, Jinzhou Karham,
Fuxin Huirui and Jinan Worldwide were entitled to two years’ exemption from the
first profit making calendar year of operations after offset of accumulated
taxable losses, followed by a 50% tax reduction for the immediate next three
calendar years (“tax holiday”). The tax holiday of Jinzhou Halla
commenced in the fiscal financial year of 2001. Accordingly, Jinzhou
Halla was subject to tax rate of 13.5% for 2003, 2004 and
2005. Furthermore, Jinzhou Halla, being a Foreign Investment
Enterprise (“FIE”), engaged in an advanced technology industry, was approved to
enjoy a further three years’ 50% tax reduction for 2006, 2007 and 2008 and
thereafter subject to a rate of 15%. The tax holiday of Jinzhou Dongwoo
commenced in the fiscal year 2004. Accordingly, Jinzhou Dongwoo was
subject to tax rate of 13.5% for 2006 and 2007, and subject to a tax rate of
12.5% for 2008 and 25% for 2009 and thereafter subject to a rate of 25%. Jinzhou
Wanyou has elected to commence the tax holiday in the fiscal year
2007. Accordingly, Jinzhou Wanyou will be exempted from CIT for 2007
and 2008 and thereafter entitled to a 50% reduction on CIT tax rate to 12.5% for
2009, 2010 and 2011. The tax holiday of Jinzhou Hanhua commenced in
the fiscal year 2005. Accordingly, Jinzhou Hanhua was subject to tax
rate of 13.5% for 2007, and subject to a tax rate of 12.5% for 2008 and 2009 and
thereafter subject to a rate of 25%. Jinzhou Karham has elected to commence the
tax holiday in the fiscal year 2008. Accordingly, Jinzhou Karham will
be exempted from CIT for 2008 and 2009 and thereafter entitled to a 50%
reduction on CIT tax rate 12.5% for 2010, 2011 and 2012. The tax
holiday of Fuxin Huirui commenced in the fiscal year
2008. Accordingly, Fuxin Huirui will be exempted from CIT for 2008
and 2009 and thereafter entitled to a 50% reduction on CIT tax rate 12.5% for
2010, 2011 and 2012. The tax holiday of Jinan Worldwide commenced in
the fiscal year of 2006. Accordingly, Jinan Worldwide was subject to
tax rate of 12.5% for 2008, 2009 and 2010. Wonder Motor, Jinzhou
Wonder, Jinzhou Jiade and Jinzhou Lida is subject to a tax rate of
25%.
- 17
-
Wonder
Auto Technology, Inc.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
(Stated
in US Dollars)
8.
|
Earnings
per share
|
During
the reporting periods, certain share-based awards were not included in the
computation of diluted earnings per share because they were anti-dilutive.
Accordingly, the basic and diluted earnings per share are the same.
9.
|
Inventories
|
March
31,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
Raw
materials
|
$ | 12,176,199 | $ | 11,018,873 | ||||
Work-in-progress
|
8,333,674 | 5,123,749 | ||||||
Finished
goods
|
35,892,128 | 36,282,415 | ||||||
56,402,001 | 52,425,037 | |||||||
Provision
for obsolete inventories
|
(1,377,282 | ) | (1,305,475 | ) | ||||
Net
|
$ | 55,024,719 | $ | 51,119,562 |
10.
|
Intangible
assets
|
March
31,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
Costs:
|
||||||||
Goodwill
|
$ | 23,200,260 | $ | 24,188,350 | ||||
Customer
contracts
|
49,053 | 49,053 | ||||||
Unpatented know-how with
infinite useful life
|
1,683,645 | 1,683,645 | ||||||
Unpatented know-how with finite
useful life
|
7,073,874 | 7,073,874 | ||||||
Trademarks and
patents
|
417,905 | 417,905 | ||||||
32,424,737 | 33,412,827 | |||||||
Accumulated
amortization
|
(828,846 | ) | (505,107 | ) | ||||
Net
|
$ | 31,595,891 | $ | 32,907,720 |
- 18
-
Wonder
Auto Technology, Inc.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
(Stated
in US Dollars)
11.
|
Property,
plant and equipment
|
March
31,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
Costs:
|
||||||||
Buildings
|
$ | 33,962,185 | $ | 34,951,440 | ||||
Plant and
machinery
|
46,813,668 | 45,801,702 | ||||||
Furniture, fixtures and
equipment
|
1,188,794 | 1,211,966 | ||||||
Tools and
equipment
|
6,330,776 | 5,898,090 | ||||||
Leasehold
improvements
|
1,061,463 | 1,058,371 | ||||||
Motor vehicles
|
2,018,606 | 1,937,461 | ||||||
91,375,492 | 90,859,030 | |||||||
Accumulated
depreciation
|
(20,909,426 | ) | (19,505,275 | ) | ||||
Construction
in progress
|
2,065,366 | 2,416,574 | ||||||
Net
|
$ | 72,531,432 | $ | 73,770,329 |
|
(i)
|
Pledged
property, plant and equipment
|
As of
March 31, 2010, certain property, plant and equipment with aggregate net book
value of $23,610,739 was pledged to bank to secure general banking facilities
(note 13(a)).
|
(ii)
|
Construction
in Progress
|
Construction
in progress mainly comprises capital expenditures for construction of the
Company’s new offices and factories.
12.
|
Provision
for warranty
|
(Unaudited)
|
||||
Balance
as of January 1, 2010
|
$ | 2,272,322 | ||
Claims
paid for the period
|
(329,209 | ) | ||
Additional
provision for the period
|
650,214 | |||
Balance
as of March 31, 2010
|
$ | 2,593,327 |
- 19
-
Wonder
Auto Technology, Inc.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
(Stated
in US Dollars)
13.
|
Secured
borrowings
|
March
31,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
Short-term
borrowings
|
||||||||
Short-term loans - Note
13(i)
|
$ | 54,792,450 | $ | 53,164,080 | ||||
Long-term loans - current
portion
|
3,732,114 | 3,918,699 | ||||||
58,524,564 | 57,082,779 | |||||||
Long-term
borrowings - Note 13(ii)
|
||||||||
Interest bearing
:-
|
||||||||
- at 5.35% per
annum
|
1,026,900 | 1,026,900 | ||||||
- at 5.47% per
annum
|
15,256,800 | 13,496,400 | ||||||
- at 6.95% per
annum
|
9,700,514 | 10,304,120 | ||||||
25,984,214 | 24,827,420 | |||||||
Less
: current maturities
|
(3,732,114 | ) | (3,918,699 | ) | ||||
22,252,100 | 20,908,721 | |||||||
$ | 80,776,664 | $ | 77,991,500 |
- 20
-
Wonder
Auto Technology, Inc.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
(Stated
in US Dollars)
13.
|
Secured
borrowings (Cont'd)
|
Notes
:-
|
(i)
|
The
weighted-average interest rate for short-term loans as of March 31, 2010
and December 31, 2009, were 5.51% and 5.28%,
respectively.
|
|
(ii)
|
Long-term
borrowings are repayable as follows
:-
|
March
31,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
Within
one year
|
$ | 3,732,114 | $ | 3,918,699 | ||||
After
one year but within two years
|
6,922,838 | 7,109,424 | ||||||
After
two years but within three years
|
6,922,838 | 7,109,424 | ||||||
After
three years but within four years
|
4,628,900 | 3,499,148 | ||||||
After
four years but within five years
|
2,750,624 | 2,163,825 | ||||||
After
five years
|
1,026,900 | 1,026,900 | ||||||
$ | 25,984,214 | $ | 24,827,420 |
As of
March 31, 2010, the Company’s had total bank lines of credit and borrowings
there under as follows :-
Facilities
granted
|
Granted
|
Amount
utilized
|
Unused
|
|||||||||
Secured
borrowings
|
$ | 88,111,664 | $ | 80,776,664 | $ | 7,335,000 |
The above
secured borrowings were secured by the following :-
|
(a)
|
Property,
plant and equipment with carrying value of $23,610,739 (note
11);
|
|
(b)
|
Land
use right with carrying value of
$4,834,509;
|
|
(c)
|
Guarantees
executed by third parties;
|
|
(d)
|
Guarantees
executed by Yuncong Ma, the Company’s director;
and
|
|
(e)
|
Guarantees
executed by a related company of which Mr. Qingjie Zhao (“Mr. Zhao”), a
director of the Company, is a director and a
shareholder.
|
During
the reporting periods, there was no covenant requirement under the banking
facilities granted to the Company.
- 21
-
Wonder
Auto Technology, Inc.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
(Stated
in US Dollars)
14.
|
Share-based
compensation
|
The
Company granted share options to employees, directors and consultants to reward
for services.
Stock
option plan
In
November 24, 2009, the Board of Directors approved the Wonder Auto Technology,
Inc. 2009 Equity Incentive Plan (the “2009 Plan”). The exercise price of the
options granted, pursuant to the 2009 Plan, must be at least equal to the fair
market value of the Company’s common stock at the date of grant. The 2009 plan
will terminate on November 25, 2012.
Pursuant
to the 2009 Plan, the Company issued 1,674,400 options with an exercise price of
$11.48 per share on November 24, 2009. One third of the options will
vest and become exercisable on each of the filing dates of the Company’s Annual
Reports on Form 10-K for fiscal years 2009, 2010 and 2011, respectively, upon
the achievement of certain income thresholds which set to be $23 million for
fiscal year 2009, $34.5 million for fiscal year 2010 and $42.3 million for
fiscal year 2011.
A summary
of share option plan activity for the three-months ended March 31, 2010 is
presented below:
Remaining
|
Aggregate
|
||||||||||||
Number
of
|
Exercise
price
|
contractual
|
intrinsic
|
||||||||||
shares
|
per
share
|
Term
|
value
(1)
|
||||||||||
Outstanding
as of January 1, 2010
|
1,674,400 | $ | 11.48 | ||||||||||
Granted
|
- | - | |||||||||||
Exercised
|
- | - | |||||||||||
Forfeited
|
- | - | |||||||||||
Cancelled
|
- | - | |||||||||||
Outstanding
as of March 31, 2010
|
1,674,400 | $ | 11.48 |
2
years
|
$ | - | |||||||
Exercisable
as of March 31, 2010
|
- | $ | - |
-
|
$ | - |
|
(1)
|
No
aggregate intrinsic value as the exercise price of options ($11.48) is in
excess of the values of the Company’s closing stock price on March 31,
2010 ($10.58).
|
The
grant-date fair values of options granted for 2009, 2010 and 2011 are $3.47,
$7.22 and $8.91 per share respectively. Compensation expense of $1,634,895
arising from abovementioned share options granted was recognized for three
months ended March 31, 2010.
- 22
-
Wonder
Auto Technology, Inc.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
(Stated
in US Dollars)
14.
|
Share-based
compensation (Cont’d)
|
The fair
values of the above option awards were estimated on the date of grant using the
Black-Scholes Option Valuation Model and graded vesting method together with the
following assumptions.
2009
|
2010
|
2011
|
||||||||||
Expected
volatility
|
80.02 | % | 127.81 | % | 140.72 | % | ||||||
Expected
dividends
|
Nil
|
Nil
|
Nil
|
|||||||||
Expected
life
|
1.4
years
|
2.4
years
|
3.4
years
|
|||||||||
Risk-free
interest rate
|
0.28 | % | 0.73 | % | 1.22 | % |
As of
March 31, 2010, there were unrecognized compensation costs of $8,132,583 related
to the above non-vested share options which is expected to be recognized over
the 2 years.
15.
|
Commitments
and contingencies
|
|
(a)
|
Capital
commitment
|
As of
March 31, 2010, the Company had capital commitments amounting to $4,176,741 in
respect of the acquisition of property, plant and equipment which were
contracted for but not provided in the financial statements.
|
(b)
|
Operating
lease arrangement
|
As of
March 31, 2010, the Company had no non-cancelable operating leases for its
property, plant and equipment.
The
rental expense relating to the operating leases was $Nil and $108,055 for the
three months ended March 31, 2010 and 2009 respectively.
(c)
|
Guarantee
|
During
the year, the Company has acted as guarantor for bank loans amounting to
approximately $14,670,000 granted to two independence third parties. These two
third parties also provided guarantees for bank loans amounting to approximately
$13.5 million granted to the Company (Note 13(c)). None of our
directors, director nominees or executive officers is involved in normal
operation or investing in the business of the guaranteed third
parties. All the third parties have a healthy financial position as
of March 31, 2010.
- 23
-
Wonder
Auto Technology, Inc.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
(Stated
in US Dollars)
15.
|
Commitments
and contingencies (Cont’d)
|
|
(c)
|
Guarantee
(cont’d)
|
All the
above guarantees have no recourse provision that would enable the Company to
recover from third parties of any amounts paid under the guarantees and any
assets held either as collateral or by third parties that the Company can obtain
or liquidate to recover all or a portion of the amounts paid under the
guarantees.
If the
third parties fail to perform under their contractual obligation, the Company
will make future payments including the contractual principal amounts, related
interests and penalties.
The
following table summarizes the Company’s maximum exposure as for March 31, 2010
in relation to the guarantee given to the third parties:-
Guarantee
|
Bank
facilities
date
|
Expiry
date
|
Interest
rate
(per
annum)
|
Loan/bills
amount
|
Principal
repaid
up to
March
31,
2010
|
Outstanding
as
of
March 31,
2010
|
Outstanding
interest
as of
March
31, 2010
|
Estimated
exposure
|
||||||||||||||||||||||||
Third
party A- Note
|
5.2009 | 5.2010 | 5.31 | % | $ | 2,934,000 | - | $ | 2,934,000 | $ | 25,966 | $ | 2,959,966 | |||||||||||||||||||
7.2009 | 7.2010 | 5.31 | % | 2,934,000 | - | 2,934,000 | 51,932 | 2,985,932 | ||||||||||||||||||||||||
12.2009 | 6.2010 |
Nil
|
1,467,000 | - | 1,467,000 | - | 1,467,000 | |||||||||||||||||||||||||
Third
party B- Note
|
6.2009 | 6.2010 | 5.31 | % | 4,401,000 | - | 4,401,000 | 58,423 | 4,459,423 | |||||||||||||||||||||||
5.2009 | 5.2010 | 5.31 | % | 2,934,000 | - | 2,934,000 | 25,966 | 2,959,966 | ||||||||||||||||||||||||
$ | 14,670,000 | - | $ | 14,670,000 | $ | 162,287 | $ | 14,832,287 | ||||||||||||||||||||||||
Maximum
exposure
|
$ | 14,832,287 |
Management
has assessed the fair value of the obligation arising from the above financial
guarantees and considered it is immaterial to the consolidated financial
statements. Therefore, no obligations in respect of the above guarantees were
recognized as of March 31, 2010.
The
Company has never incurred costs to settle liabilities in relation to these
guarantee agreements. As of March 31, 2010, the Company had not accrued a
liability for these guarantees because the likelihood of incurring a payment
obligation in connection with these guarantees is remote.
- 24
-
Wonder
Auto Technology, Inc.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
(Stated
in US Dollars)
16.
|
Defined
contribution plan
|
Pursuant
to the relevant PRC regulations, the Company is required to make contributions
at a rate of 30.6% to 45% of employees’ salaries and wages to a defined
contribution retirement scheme organized by a state-sponsored social insurance
plan in respect of the retirement benefits for the Company’s employees in the
PRC. The only obligation of the Company with respect to retirement
scheme is to make the required contributions under the plan. No
forfeited contribution is available to reduce the contribution payable in the
future years. The defined contribution plan contributions were charged to the
condensed consolidated statements of income. The Company contributed
$1,030,671 and $537,577 for the three months ended March 31, 2010 and 2009
respectively.
- 25
-
Wonder
Auto Technology, Inc.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
(Stated
in US Dollars)
17.
|
Segment
information
|
The
Company uses the “management approach” in determining reportable operating
segments. The management approach considers the internal organization
and reporting used by the Company’s chief operating decision maker for making
operating decisions and assessing performance as the source for determining the
Company’s reportable segments. Management, including the chief
operating decision maker, reviews operating results solely by monthly revenue of
alternators, starters and rods and shafts and operating results of the Company
and, as such, the Company has determined that the Company has four operating
segments as defined by ASC 280, “Segments Reporting” (previously SFAS 131):
Alternators, starters, rods and shafts and valves and tappets.
Alternators
|
Starters
|
Rods
and shafts
|
Valves
and Tappets
|
Total
|
||||||||||||||||||||||||||||||||||||
Three
months ended
|
Three
months ended
|
Three
months ended
|
Three
months ended
|
Three
months ended
|
||||||||||||||||||||||||||||||||||||
March
31,
|
March
31,
|
March
31,
|
March
31,
|
March
31,
|
||||||||||||||||||||||||||||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
||||||||||||||||||||||||||||||||||||
2010
|
2009
|
2010
|
2009
|
2010
|
2009
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||||||||||||||||||||
Revenue
from external customers
|
$ | 19,480,288 | $ | 14,381,141 | $ | 20,094,847 | $ | 13,292,274 | $ | 7,366,654 | $ | 4,987,442 | $ | 16,678,776 | $ | 7,315,163 | $ | 63,620,565 | $ | 39,976,020 | ||||||||||||||||||||
Interest
income
|
29,411 | 29,974 | 27,672 | 24,841 | 9,352 | 1,129 | 11,272 | 262,516 | 77,707 | 318,460 | ||||||||||||||||||||||||||||||
Interest
expenses
|
429,648 | 396,997 | 413,951 | 350,903 | 129,380 | 28,727 | 189,075 | 401,186 | 1,162,054 | 1,177,813 | ||||||||||||||||||||||||||||||
Amortization
|
32,744 | 32,744 | 31,660 | 31,346 | 278,322 | - | 29,496 | 29,475 | 372,222 | 93,565 | ||||||||||||||||||||||||||||||
Depreciation
|
402,541 | 362,118 | 463,366 | 332,013 | 169,495 | 106,324 | 596,126 | 540,469 | 1,631,528 | 1,340,924 | ||||||||||||||||||||||||||||||
Segment
profit
|
2,391,061 | 2,683,842 | 1,912,208 | 2,045,953 | 1,464,895 | 1,371,568 | 3,134,010 | 449,375 | 8,902,174 | 6,550,738 | ||||||||||||||||||||||||||||||
Expenditure
for segment assets
|
$ | 379,802 | $ | 378,810 | $ | 366,529 | $ | 437,062 | $ | 1,058,145 | $ | - | $ | 1,790,580 | $ | 113,232 | $ | 3,595,056 | $ | 929,104 |
Alternators
|
Starters
|
Rods
and shafts
|
Valves
and Tappets
|
Total
|
||||||||||||||||||||||||||||||||||||
March
31,
|
December
31,
|
March
31,
|
December
31,
|
March
31,
|
December
31,
|
March
31,
|
December
31,
|
March
31,
|
December
31,
|
|||||||||||||||||||||||||||||||
2010
|
2009
|
2010
|
2009
|
2010
|
2009
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||||||||||||||||||||
(Unaudited)
|
(Audited)
|
(Unaudited)
|
(Audited)
|
(Unaudited)
|
(Audited)
|
(Unaudited)
|
(Audited)
|
(Unaudited)
|
(Audited)
|
|||||||||||||||||||||||||||||||
Segment
assets
|
$ | 94,744,973 | $ | 99,396,049 | $ | 90,140,600 | $ | 90,140,219 | $ | 60,314,549 | $ | 61,480,760 | $ | 78,111,073 | $ | 71,258,841 | $ | 323,311,195 | $ | 322,275,869 |
- 26
-
Wonder
Auto Technology, Inc.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
(Stated
in US Dollars)
17.
|
Segment
information (Cont’d)
|
A
reconciliation is provided for unallocated amounts relating to corporate
operations which is not included in the segment information.
Three
months ended
|
||||||||
March
31,
|
||||||||
(Unaudited)
|
||||||||
2010
|
2009
|
|||||||
Total
consolidated revenue
|
$ | 63,620,565 | $ | 39,976,020 | ||||
Total
profit for reportable segments
|
$ | 8,902,174 | $ | 6,550,738 | ||||
Unallocated
amounts relating to operations:
|
||||||||
Interest
income
|
11,811 | 88 | ||||||
Equity in net income of an
non-consolidated affiliate
|
548,792 | - | ||||||
Finance costs
|
(230 | ) | (335 | ) | ||||
Amortization
|
(14,793 | ) | (5,283 | ) | ||||
Depreciation
|
(36,995 | ) | (32,815 | ) | ||||
Share-based
compensation
|
(1,634,895 | ) | - | |||||
Other general
expenses
|
(338,459 | ) | (197,329 | ) | ||||
Income
before income taxes and noncontrolling interests
|
$ | 7,437,405 | $ | 6,315,064 |
March
31,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
Assets
|
||||||||
Total
assets for reportable segments
|
$ | 323,311,195 | $ | 322,275,869 | ||||
Cash
and cash equivalents
|
24,947,333 | 28,037,032 | ||||||
Other
receivables
|
149,856 | 8,177,536 | ||||||
Deposit
for acquisition of property, plant and equipment
|
20,286 | 96,863 | ||||||
Inventories
|
184,908 | 185,354 | ||||||
Intangible
assets
|
374,138 | 383,719 | ||||||
Investment
in a non-consolidated affiliate
|
15,411,369 | - | ||||||
Land
use right
|
1,004,314 | 927,240 | ||||||
Property,
plant and equipment
|
2,310,411 | 2,168,542 | ||||||
$ | 367,713,810 | $ | 362,252,155 |
- 27
-
Wonder
Auto Technology, Inc.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
(Stated
in US Dollars)
17.
|
Segment
information (Cont’d)
|
All of
the Company’s long-lived assets are located in the PRC. Geographic
information about the revenues, which are classified based on the customers, is
set out as follows:
Three
months ended
|
||||||||
March
31,
|
||||||||
(Unaudited)
|
||||||||
2010
|
2009
|
|||||||
PRC
|
$ | 55,710,619 | $ | 36,976,425 | ||||
South
Korea
|
1,321,699 | 535,543 | ||||||
Brazil
|
2,007,497 | 1,549,252 | ||||||
Mexico
|
755,882 | 10,725 | ||||||
United
States
|
3,608,289 | 689,608 | ||||||
Others
|
216,579 | 214,467 | ||||||
Total
|
$ | 63,620,565 | $ | 39,976,020 |
18.
|
Related
parties transactions
|
Apart
from the information as disclosed in notes 2 and 13 to the financial statements,
the Company had no other material transactions with its related parties during
the periods.
19.
|
Subsequent
events
|
The
Company evaluated all events or transactions that occurred after March 31, 2010
and has determined that there is no material recognizable nor subsequent events
or transactions which would require recognition or disclosure in the financial
statements, other than noted herein.
- 28
-
ITEM 2. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Special
Note Regarding Forward-Looking Statements
This
Quarterly Report on Form 10-Q, including the following “Management’s Discussion
and Analysis of Financial Condition and Results of Operations,” contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Also, when we use any of the words “anticipate,”
“assume,” “believe,” “estimate,” “expect,” “intend,” or similar expressions, we
are making forward-looking statements. These forward-looking statements are not
guaranteed and are based on our present intentions and on our present
expectations and assumptions. These statements, intentions, expectations and
assumptions involve risks and uncertainties, some of which are beyond our
control, that could cause actual results or events to differ materially from
those we anticipate or project. These statements include, among other things,
statements relating to:
|
·
|
our
expectations regarding the market for our automotive
products;
|
|
·
|
our
expectations regarding the continued growth of the automotive
industry;
|
|
·
|
our
beliefs regarding the competitiveness of our automotive
products;
|
|
·
|
our
expectations regarding the expansion of our manufacturing
capacity;
|
|
·
|
our
expectations with respect to increased revenue and earnings growth and our
ability to increase our production
volumes;
|
|
·
|
our
future business development, results of operations and financial
condition;
|
|
·
|
competition
from other manufacturers of automotive electrical
products;
|
|
·
|
the
loss of any member of our management
team;
|
|
·
|
our
ability to integrate acquired subsidiaries and operations into existing
operations;
|
|
·
|
market
conditions affecting our equity
capital;
|
|
·
|
our
ability to successfully implement our selective acquisition
strategy;
|
|
·
|
changes
in general economic conditions; and
|
|
·
|
changes
in accounting rules or the application of such
rules.
|
Additional
disclosures regarding factors that could cause our results and performance to
differ from results or performance anticipated by this Report are discussed in
other reports that we file with the SEC, including without limitation our Annual
Report on Form 10-K for the fiscal year ended December 31, 2009, or the 2009
Form 10-K. Readers are urged to carefully review and consider the various
disclosures made by us in this Report and our other filings with the SEC. These
reports attempt to advise interested parties of the risks and factors that may
affect our business, financial condition and results of operations and
prospects.
Also,
forward-looking statements represent our estimates and assumptions only as of
the date of this report. You should not place undue reliance on these
forward-looking statements, as events described or implied in such statements
may not occur.
- 29
-
Except as
required by law, we assume no obligation to update any forward-looking
statements publicly, or to update the reasons actual results could differ
materially from those anticipated in any forward-looking statements, even if new
information becomes available in the future.
Certain
Terms
Except as
otherwise indicated by the context, references in this report to “Company,”
“WATG,” “we,” “us” and “our” are references to the combined business of Wonder
Auto Technology, Inc., a Nevada corporation, and its subsidiaries on a
consolidated basis. Unless the context otherwise requires, all references
to:
·
“Friend Birch” are references to Friend Birch Limited, a Hong Kong
company and a direct, wholly owned subsidiary of the Company;
·
“Fuxin Huirui” are references to Fuxin Huirui Mechanical Co., Ltd., a
corporation incorporated in the People’s Republic of China and an indirect,
wholly owned subsidiary of the Company;
·
“Jinan Worldwide” are references to Jinan Worldwide Auto Accessories Co.,
Ltd., a corporation incorporated in the People’s Republic of China and an
indirect, wholly owned subsidiary of the Company;
·
“Jinzhou Dongwoo” are references to Jinzhou Dongwoo Precision Co., Ltd.,
a corporation incorporated in the People’s Republic of China and an indirect,
50% owned subsidiary of the Company;
·
“Jinzhou Equipment” are references to Jinzhou Wonder Auto Electrical
Equipment Co., Ltd., a corporation incorporated in the People’s Republic of
China and an indirect, wholly owned subsidiary of the Company;
·
“Jinzhou Halla” are references to Jinzhou Halla Electrical Equipment Co.,
Ltd., a corporation incorporated in the People’s Republic of China and an
indirect, wholly owned subsidiary of the Company;
·
“Jinzhou Hanhua” are references to Jinzhou Hanhua Electrical System Co.,
Ltd., a corporation incorporated in the People’s Republic of China and an
indirect, 50% owned subsidiary of the Company;
·
“Jinzhou Karham” are references to Jinzhou Karham Electrical Equipment
Co., Ltd., a corporation incorporated in the People’s Republic of China and an
indirect, 65% owned subsidiary of the Company;
·
“Jinzhou Lida” are references to Jinzhou Lida Auto Parts Co., Ltd., a
corporation incorporated in the People’s Republic of China and an indirect, 50%
owned subsidiary of the Company;
·
“Jinzhou Motor” are references to Jinzhou Wonder Motor Co., Ltd., a
corporation incorporated in the People’s Republic of China and an indirect,
wholly owned subsidiary of the Company;
·
“Jinzhou Wanyou” are references to Jinzhou Wanyou Mechanical Parts Co.,
Ltd., a corporation incorporated in the People’s Republic of China and an
indirect, wholly owned subsidiary of the Company;
·
“Wonder Auto” are references to Wonder Auto Limited, a British Virgin
Islands company and a direct, wholly owned subsidiary of the
Company;
· “SEC”
are references to the United States Securities and Exchange
Commission;
· “Securities
Act” are references to Securities Act of 1933, as amended, and “Exchange Act”
are to the Securities Exchange Act of 1934, as amended.
- 30
-
·
“China” and “PRC” are references to People’s Republic of
China;
·
“RMB” are references to Renminbi, the legal currency of China;
and
·
“U.S. dollar,” “$” and “US$” are references to the legal currency of the
United States.
OVERVIEW
Wonder
Auto Technology, Inc. is a Nevada holding company whose China-based operating
subsidiaries are primarily engaged in business of designing, developing,
manufacturing and selling automotive electric parts, suspension products and
engine components. Our products include alternators, starters, engine valves and
tappets, and rods and shafts for use in shock absorber systems. We have been
producing alternators and starters in China since 1997, and according to the
China Association of Automobile Manufacturers, or CAAM, in 2009 we ranked second
and fourth in sales revenue in the Chinese market for automobile alternators and
starters, respectively. Our subsidiary Jinan Worldwide, which we acquired in
October 2008, has been producing engine valves and tappets for over 50 years. We
believe we are now one of the largest manufacturers of engine valves and tappets
in China in terms of sales volume as a result of the acquisition.
Our
products are used in a wide range of passenger and commercial automobiles, and
we are especially focused on the fast-growing small- to medium-engine passenger
vehicle market. We sell our products primarily within China to well-known
domestic and international automobile original equipment manufacturers, or OEMs,
engine manufacturers and automotive parts suppliers. We are increasingly
exporting our products to international markets.
First
Quarter Financial Performance Highlights
Despite
the overall economic slowdown in the global economy, we continued to experience
strong demand for our products during the first fiscal quarter of 2010, which
resulted in continued growth in our sales revenue and net income. The automobile
market in China, especially the market for small engine automobiles, continued
to expand in the first quarter of 2010 due, in part, to the implementation of
new PRC consumption tax regulations and the promulgation of new regulations
which urge government agencies to use tax breaks and incentives and preferential
oil-pricing policies to encourage consumers to buy low-emission automobiles. We
were able to capitalize on these policies and the overall growth trend in our
market segments during the first fiscal quarter of 2010.
In this
quarter, through two separate transactions, we acquired an aggregate of 38.36%
of equity interest in Applaud Group Limited (“Applaud”) for a total cash
consideration of HK$115.4 million. Applaud is a British Virgin Islands
corporation and has no assets other than its current ownership of 50.62% of
equity interest in Jinheng Automotive Safety Technology Holdings Limited
(“Jinheng Holding”). As a result of the acquisition, we became the
largest shareholder of Applaud and, thereby, owner of 19.42% of Jinheng Holdings
as of the date of this report. Jinheng Holdings is a high-tech automotive parts
supplier that is primarily engaged in developing, manufacturing and selling
components of automotive passive safety restraint systems (airbag and seatbelt),
automotive engine electronic injection management systems, and components of
diesel engines. Jinheng Holdings is listed on the Main Board of Hong Kong Stock
Exchange. Our CEO and chairman, Qingjie Zhao, is an executive director of
Jinheng Holdings. Please see our current report on Form 8-K filed on January 20,
2010 for more details.
- 31
-
The
following are some financial highlights for the first quarter of
2010:
|
·
|
Sales
revenue increased 59.1% year-over-year to approximately $63.6
million;
|
|
·
|
Gross
profit rose 54.8% year-over-year to approximately $15.6 million from
approximately $10.1 million;
|
|
·
|
Non-GAAP
Net income attributable to Wonder Auto increased 43.4% year-over-year to
approximately $7.4 million;
|
|
·
|
Non-GAAP
EPS was approximately $0.22, representing a 14.2% increase from
approximately $0.19 compared with first quarter
2009;
|
|
·
|
Sales
revenue from outside PRC increased approximately $4.9 million, or 163.7%
year-over-year, from approximately $3.0 million in the first quarter 2009,
or increased to 12.4% of total sales revenue from 7.5% in the first
quarter 2009.
|
Our net
income for the periods ended March 31, 2010 and 2009 was $5.8 million and $5.2
million, respectively. Our earnings per share for the periods ended March 31,
2010 and 2009 was $0.17 and $0.19, respectively. Our net income and earnings per
share were materially impacted by non-cash share-based employee compensation
recognized pursuant to Accounting Standard Codification (“ASC”) 718. On November
24, 2009, we granted options to purchase a total of 1,674,400 shares of our
common stock to certain officers, directors and employees with an exercise price
of $11.48 per share. As a result, we incurred a non-cash share-based employee
compensation of $1.6 million in the three months ended March 31, 2010. In the
table below, we have presented a non-GAAP financial disclosure to provide a
quantitative analysis of the impact of the non-cash employee compensation on our
net income and earnings per share. We caution readers that “Non-GAAP net income
attributable to the company” and “Non-GAAP EPS” are non-GAAP measures and do not
purport to be alternatives to operating income, net income or earnings per share
as a measure of operating performance. Management believes that these measures
are useful to investors and other users of our financial information in
evaluating operating profitability because non-cash shared-based employee
compensation does not require the use of current assets, management does not
include it in its analysis of our financial results or how we allocate our
resources. It is management’s intent to provide this non-GAAP financial
information to enhance understanding of our GAAP financial statements and it
should be considered by the reader in addition to, but not instead of, the
financial statements prepared in accordance with GAAP. The non-GAAP measure of
“Non-GAAP net income attributable to the company” and “Non-GAAP EPS” presented
herein may be determined or calculated differently by other
companies.
- 32
-
(all
amounts in thousands of U.S. dollars)
Three Months ended
March 31, 2010
|
Three Months ended
March 31, 2009
|
|||||||
Net
income attributable to Wonder Auto Technology, Inc. common
stockholders
|
$ | 5,781 | $ | 5,172 | ||||
Share-based
compensation
|
1,635 | - | ||||||
Non-GAAP
net income attributable to Wonder Auto Technology, Inc. common
stockholders
|
$ | 7,416 | $ | 5,172 | ||||
GAAP
EPS
|
$ | 0.17 | $ | 0.19 | ||||
Non-GAAP
EPS
|
$ | 0.22 | $ | 0.19 |
Results
of Operations
Three
Months Ended March 31, 2010 Compared to Three Months Ended March 31,
2009
The
following table sets forth key components of our results of operations for the
periods indicated, in dollars and as a percentage of sales revenue.
(All
amounts, other than percentages, in thousands of U.S. dollars)
Item
|
3-Month Period Ended
March 31, 2010
(Unaudited)
|
3-Month Period Ended
March 31, 2009
(Unaudited)
|
||||||||||||||
|
In
thousands
|
As a
percentage of
sales revenue
|
In
thousands
|
As a
percentage of
sales revenue
|
||||||||||||
Sales
revenue
|
$
|
63,621
|
100.0
|
%
|
$
|
39,976
|
100.0
|
%
|
||||||||
Cost
of sales
|
47,995
|
75.4
|
%
|
29,882
|
74.7
|
%
|
||||||||||
Gross
profit
|
15,626
|
24.6
|
%
|
10,094
|
25.3
|
%
|
||||||||||
Operating
expenses
|
||||||||||||||||
Administrative
expenses (included share-based compensation of $1,478 in 2010, $0 in
2009)
|
5,079
|
8.0
|
%
|
2,316
|
5.8
|
%
|
||||||||||
Research
and development costs (included share-based compensation of $92 in 2010,
$0 in 2009)
|
1,350
|
2.1
|
%
|
456
|
1.1
|
%
|
||||||||||
Selling
expenses (included share-based compensation of $65 in 2010, $0 in
2009)
|
2,408
|
3.8
|
%
|
1,213
|
3.0
|
%
|
||||||||||
Total
operating expenses
|
8,837
|
13.9
|
%
|
3,985
|
10.0
|
%
|
||||||||||
Income
before income taxes and non-controlling interests
|
7,437
|
11.7
|
%
|
6,315
|
15.8
|
%
|
||||||||||
Income
taxes
|
1,448
|
2.3
|
%
|
920
|
2.3
|
%
|
||||||||||
Net
income attributable to non-controlling interests
|
208
|
0.3
|
%
|
223
|
0.6
|
%
|
||||||||||
Net
Income attributable to Wonder Auto Technology, Inc. common
stockholders
|
5,781
|
9.1
|
%
|
5,172
|
12.9
|
%
|
Sales
Revenue. Our sales revenue is generated from sales of our alternator and
starter products, rods and shafts, and engine valves and tappets. Sales revenue
increased by approximately $23.6 million, or 59.1%, to approximately $63.6
million for the three months ended March 31, 2010, compared with approximately
$40.0 million for the same period last year. This increase was mainly
attributable to the higher sales volume resulting from the increased market
demand for our products in and outside China.
- 33
-
Sales
revenue from China increased by approximately $18.7 million, or 50.7%, to
approximately $55.7 million in the first quarter of 2010, as compared to
approximately $37.0 million for the same period last year. This increase was
mainly attributable to the higher sales volume driven by the increased market
demand for our products in expanded automobile market. Sales revenue outside
China increased by approximately $4.9 million, or 163.7%, to approximately $7.9
million in the first quarter of 2010, compared with approximately $3.0 million
for the same period last year. This increase was mainly attributable to the
recovery of international automobile market. Export sales accounted for
approximately 12.4% of our total sales revenue in this quarter.
Sales
Revenue by Product Segments
(all
amounts, other than percentages, in thousands of U.S. dollars)
Three
Months Ended March 31,
|
Percent
change
|
|||||||||||
Components
of Sales Revenue
|
2010
|
2009
|
2010 v. 2009 | |||||||||
Alternator
|
$ | 19,480 | $ | 14,381 | 35.5 | % | ||||||
Starter
|
20,095 | 13,292 | 51.2 | % | ||||||||
Rod
and shaft
|
7,367 | 4,987 | 47.7 | % | ||||||||
Engine
valve and tappet
|
16,679 | 7,315 | 128.0 | % | ||||||||
Total
sales revenue
|
63,621 | 39,976 | 59.1 | % |
Revenue
By Geographic Areas
(all
amounts in thousands of U.S. dollars)
Three
Months Ended
December
31,
|
||||||||
2010
|
2009
|
|||||||
PRC
|
$ | 55,711 | $ | 36,976 | ||||
South
Korea
|
1,322 | 536 | ||||||
Brazil
|
2,007 | 1,549 | ||||||
Mexico
|
756 | 11 | ||||||
United
States
|
3,608 | 690 | ||||||
Others
|
217 | 214 | ||||||
Total
|
63,621 | 39,976 |
Sales
revenue from alternators and starters was $19.5 million and $20.1 million
respectively, in the three months ended March 31, 2010, as compared to $14.4
million and $13.3 million in the same quarter last year, respectively. Sales in
China continue to be our major source of sales revenue. Sales revenue from sales
of alternators and starter in China increased by approximately $10.2 million or
37.8% to approximately $37.3 million in the three months ended March 31, 2010
from $27.1 million of the same quarter in 2009. The increase mainly resulted
from the overall growth in the automobile market in China, especially the market
for mid-to-small engine automobiles.
Sales
revenue from rods and shafts was $7.4 million in the three months ended March
31, 2010, an increase of $2.4 million from the same period last year. The
increase was mainly due to export sales increase of approximately $1.5 million.
Sales of engine valve and tappet were approximately $16.7 million in the first
quarter of 2010, up $9.4 million from the same period last year. This increase
was mainly attributable to an approximately $7.7 million increase in domestic
sales driven by increased sales volume.
- 34
-
Cost of
Sales. Our cost
of sales is primarily comprised of the costs of our raw materials, labor and
overhead. Our cost of sales increased by approximately $18.1 million, or 60.6%,
to approximately $48.0 million for the three months ended March 31, 2010 from
approximately $29.9 million during the same period in 2009. This
increase was mainly due to the increase of our sales volume. As a percentage of
sales revenue, the cost of sales increased slightly by approximately 0.7%
to 75.4 % during the three months ended March 31, 2010 from 74.7 % for the same
period of 2009. The slight percentage increase in the first quarter of 2010 was
due to fact that a large portion of our total sales revenue was generated from
alternators and starters with mid-to-small displacement as compared to the same
period last year. Our alternators and starters with small displacement generally
have a lower margin than our alternators and starters with larger
displacement.
Gross
Profit. Our gross
profit is equal to the difference between our sales revenue and our cost of
sales. Our gross profit increased by approximately $5.5 million, or 54.8 %, to
approximately $15.6 million for the three months ended March 31, 2010, compared
with approximately $10.1 million for the same period in 2009 as a result of
increased sales volume driving by the strong market demand for our
products. Gross margin was 24.6 % for the three-month period ended
March 31, 2010, as compared to 25.3 % of the same period last
year. Such slight decrease was mainly due to the increase of the cost
of sales on a percentage basis as discussed above.
Total Operating
Expenses. Our
total operating expenses increased by approximately $4.9 million, or 121.7 %, to
approximately $ 8.8 million for the three months ended March 31, 2010, as
compared to approximately $4.0 million for the same period in 2009. As a
percentage of sales revenue, our total expenses increased to 13.9% for the three
months ended March 31, 2010, compared from 10.0% for the same period last year.
The percentage increase was primarily attributable to the increase of non-cash
share-based compensation, selling expenses and research and development expenses
as discussed below.
Administrative
Expenses. Administrative expenses
consist of the costs associated with staff and support personnel who manage our
business activities, and professional fees paid to third parties. Our
administrative expenses increased by approximately $2.8 million, or 119.3%, to
approximately $5.1 million for the three months ended March 31, 2010, from
approximately $2.7 million for the same period last year. As a percentage of
sales revenue, administrative expenses increased to 8.0% for the three month
ended March 31, 2010, from 5.8% for same period last year. The increases were
mainly due to the non-cash share-based compensation of approximately $1.5
million incurred this quarter as a result of the employee stock option grant
made in November 2009, with the remainder being mostly attributable to
consolidation of the operating results of Friend Birch and the increased
professional expenses related to our investment in Applaud Group
Limited.
Research
and Development Expenses. Research and development
expenses consist of amounts spent on developing new products and enhancing our
existing products, and expenses of the R&D staff and support personnel. Our
research and development expenses increased by $893,297, or 195.8%, to
approximately $1.3 million for the three months ended March 31, 2010, from
$456,232 for the same period last year. As a percentage of sales revenue,
research and development expenses increased to 2.1% for three month ended March
31, 2010, from 1.1% for the same period last year. The increases were mainly due
to the increased expenses associated with development of alternative energy
vehicle components, and a non-cash share-based compensation of $91,782 as a
result of the employee stock option grant made in November
2009.
- 35
-
Selling
Expenses. Selling expenses
include the cost of salaries and fringe benefits of sales personnel, provision
for products warranties, freight, warehouse expenses, advertising and
promotional materials, sales commissions and other sales related costs. Our
selling expenses increased by approximately $1.2 million, or 98.6%, to
approximately $2.4 million for the three months ended March 31, 2010, from
approximately $1.2 million for the same period last year. As a percentage of
sales revenue, selling expenses increased to 3.8% for three months ended March
31, 2010, from 3.0% for the same period last year. The increase in percentage
was mainly due to the increase in salaries resulting from the increased sales
personnel. We also incurred more costs for advertising and promotional
activities in effort to expand market share. The increases in amount was mainly
due to the non-cash share-based compensation of $65,419 as a result of the
employee stock option grant made in November 2009, with the remainder being
mostly attributable to the increased provision for product warranties and
freight resulting from the increased sales volume, as well as the increased
salary and costs associated with advertising and promotional activities as
discussed above.
Net finance
costs. Net finance costs include interest income, interest expenses, bill
discounting charges and net exchange (gain) loss. Our net finance cost increased
by $546,839, or 651.1% to $630,828 for the three months ended on March 31, 2010
from $83,989 for the same period last year. The increase of net finance cost was
mainly due to the increase in the interest expenses which resulted from the
increased bank loans of approximately $18.1 million as of March 31, 2010, and
the decrease in interest income resulting from the decrease of restricted cash
in this quarter.
Income before
Income Taxes and Non-controlling Interests. Income before income taxes
and non-controlling interests increased by approximately $1.1 million or 17.8 %,
to approximately $7.4 million during the three months ended March 31, 2010 from
approximately $6.3 million during the same period in 2009. Income
before income taxes as a percentage of sales revenue increased to 11.7 % during
the three months ended March 31, 2010, as compared to 15.8% for the same period
last year due to the factors described above.
Income taxes.
Our income taxes increased by $528,085, or 57.4%, to approximately $1.4
million for the three months ended March 31, 2010 from $920,005 for the same
period last year. Our effective income tax rate was approximately 19.5% for the
first quarter in 2010, as compared to 14.6% for the same period last
year.
Net Income
attributable to Non-controlling Interests. Our financial statements
reflect an adjustment to our consolidated group net income, and our net income
attributable to non-controlling interests decreased $15,197, or 6.8% to $208,238
for the first quarter in 2010 from $223,435 for the same period last year,
reflecting the net income attributable to non-controlling interests held by
third parties in Jinzhou Dong Woo, Jinzhou Hanhua and Jinzhou
Karham.
Net Income
attributable to Wonder Auto Technology, Inc. common stockholders. Our net
income attributable to Wonder Auto Technology, Inc. common stockholders
increased by approximately $609,453, or 11.8%, to
approximately $5.8 million during the three months ended March 31, 2010 from
approximately $5.2 million during the same period last year, as a result of the
factors described above.
Business
Segment Information
Our
business operations can be categorized into four segments based on the type of
products we manufacture and sell, specifically (i) alternators, (ii) starters,
(iii) rods and shafts, and (iv) engine valves and tappets.
- 36
-
We
manufacture and sell both our alternators and starters using largely the same
facilities, personnel and other resources in our subsidiary Jinzhou Halla. Rods
and shafts are mainly manufactured by our subsidiary Jinzhou Wanyou. Valves and
tappets are manufactured by our subsidiary Jinan Worldwide.
Additional
information regarding our products can be found at Note 17 in our unaudited
consolidated financial statements contained under Part I, Item I “FINANCIAL
STATEMENTS” above.
Liquidity
and Capital Resources
As of
March 31, 2010, we had cash and cash equivalents of approximately $68.5 million
and restricted cash of $11.8 million. The following table sets forth a summary
of our cash flows for the periods indicated:
Statement
of Cash Flow
(All
amounts in thousands of U.S. dollars)
|
Three Months
Ended
|
|||||||
|
March 31,
|
|||||||
|
2010
|
2009
|
||||||
|
|
|
||||||
Net
cash (used in) provided by operating activities
|
$
|
(534
|
)
|
$
|
8,636
|
|||
Net
cash (used in) investing activities
|
$
|
(10,248
|
)
|
$
|
(3,615
|
)
|
||
Net
cash (used in) provided by financing activities
|
$
|
(3,083
|
)
|
$
|
451
|
|||
Effect
of foreign currency translation on cash and cash
equivalents
|
$
|
$
|
||||||
Net
cash flow
|
$
|
(13,866
|
)
|
$
|
5,472
|
Operating Activities: Net
cash used in operating activities was approximately $534,316 for the three-month
period ended March 31, 2010 compared to approximately $8.6 million of net
cash provided by operating activities for the same period in 2009. The most
significant reason for the change in operating activities for the three months
ended March 31, 2010 as compared to the three months ended March 31, 2009 was an
increase of $8.1 million in bills receivable whereas it decreased $2.2 million
in the same quarter last year.
Investing
Activities:
Our main
uses of cash for investing activities during the three months ended March 31,
2010 were for the acquisition of property, plant and equipment and the
acquisition of Applaud.
Net cash
used in investing activities for the three months ended March 31, 2010 was
approximately $10.2 million as compared to approximately $3.6 million in the
same period in 2009. We paid approximately $14.9 million related to the
investment in Applaud in the first quarter of 2010.
- 37
-
Financing Activities:
Our
financing activities include new bank loans, repayment of bank loans, settlement
of bills payable, and pledges of restricted cash for issuing bills
payable.
Net cash
used in financing activities was approximately $3.1 million for the first
quarter of 2010 as compared to $452,160 of net cash provided by financing
activities for the first quarter of 2009. As a result of the proceeds from our
public offering closed in November 2009, we have adequate capital and reduced
our capital raising activities in the three months ended March 31,
2010.
Our
debt-to-equity ratio was 40.4% as of March 31, 2010. We plan to maintain our
debt-to-equity ratio below 60%, increase the long-term loans, and decrease the
short-term loans. We believe we currently maintain a good business relationship
with many banks.
As of
March 31, 2010, the amount, maturity date and term of each of our bank loans are
as follows.
(All
amounts in millions of U.S. dollars)
Banks
|
Amounts
|
Maturity Date
|
Term
|
||||||
Bank
of China*
|
$ | 2.9 |
August
16, 2010
|
1
year
|
|||||
Bank
of China*
|
4.4 |
November
26, 2010
|
1
year
|
||||||
Bank
of China*†
|
9.4 |
June
28, 2014
|
5
years
|
||||||
Bank
of China*
|
2.9 |
April
28, 2010
|
1
year
|
||||||
Bank
of China*
|
1.5 |
May
19, 2010
|
1
year
|
||||||
Bank
of China*†
|
5.9 |
December
31, 2014
|
5
years
|
||||||
Bank
of China*
|
1.0 |
April
28, 2010
|
1
year
|
||||||
China
CITIC Bank*
|
8.8 |
April
26, 2010
|
1
year
|
||||||
China
construction Bank*
|
5.9 |
April
12, 2010
|
1
year
|
||||||
China
construction Bank*
|
2.6 |
October
29, 2010
|
1
year
|
||||||
China
construction Bank*
|
1.5 |
January
31, 2011
|
1
year
|
||||||
Huaxia
Bank
|
2.9 |
June
30, 2010
|
1
year
|
||||||
DEG
- Deutsche Investitions und
Entwicklungsgesellschaft
MBH **
|
9.7 |
October
15, 2013
|
7
years
|
||||||
Bank
of Jinzhou*
|
0.2 |
August
31, 2010
|
1
year
|
||||||
Bank
of Jinzhou*
|
0.4 |
September
23, 2010
|
1
year
|
||||||
China
CITIC Bank*
|
5.9 |
June
28, 2010
|
1
year
|
||||||
Bank
of Jinan *
|
2.9 |
May
15, 2010
|
1
year
|
||||||
Huaxia
Bank*
|
2.9 |
June
22, 2010
|
1
year
|
||||||
SZD
Bank*
|
3.7 |
March
17, 2011
|
1
year
|
||||||
China
CITIC Bank*
|
2.9 |
October
21, 2010
|
1
year
|
||||||
Huaxia
Bank*
|
1.5 |
January
27, 2011
|
1
year
|
||||||
Jinan
Changqing*
|
1.0 |
August
17, 2017
|
6
years
|
||||||
Total
|
$ | 80.8 |
- 38
-
* The loans are denominated in RMB, we used the exchange rate of $1 =
RMB6.8166
** The
loans are denominated in Euro, we used the exchange rate of 1 Euro = RMB9.1982
and repayment in semi-annual installment.
†
Repayment in annual installment.
We repaid
four bank loans in the total amount of approximately $5.8 million in the first
quarter of 2010. We plan to replace these loans with new bank loans in
approximately the same aggregate amounts. We believe that we maintain good
relationships with the banks we deal with and our current available working
capital, after receiving the aggregate proceeds of the capital raising
activities and bank loans referenced above, should be adequate to sustain our
operations at our current levels through at least the next twelve
months.
Obligations
under Material Contract
Below is a table setting forth our contractual obligations as of March
31, 2010:
(All
amounts in thousands of U.S. dollars)
Total
|
Less than
1 year
|
1-3 years
|
3-5 years
|
More than
5 years
|
||||||||||||||||
Long
term debt obligations
|
$ | 22,252 | $ | $ | 13,846 | $ | 7,551 | $ | 855 | |||||||||||
Capital
commitment
|
4,177 | 4,177 | - | - | - | |||||||||||||||
Operating
lease obligations
|
- | - | - | - | ||||||||||||||||
Purchase
obligations
|
- | - | - | - | - | |||||||||||||||
Total
|
$ | 26, 429 | $ | 4,177 | $ | 13,846 | $ | 7,551 | $ | 855 |
Critical Accounting
Policies
Our
discussion and analysis of our financial condition and results of operations is
based upon our condensed consolidated financial statements, which have been
prepared in accordance with GAAP. The preparation of these condensed
consolidated financial statements requires us to make estimates, judgments and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses, and the related disclosure of contingent assets and liabilities.
We base our estimates on historical experience and on various other assumptions
that we believe are reasonable under the circumstances. Our estimates form the
basis for our judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from
these estimates.
An
accounting policy is considered to be critical if it requires an accounting
estimate to be made based on assumptions about matters that are highly uncertain
at the time the estimate is made, and if different estimates that reasonably
could have been used, or changes in the accounting estimate that are reasonably
likely to occur, could materially impact the condensed consolidated financial
statements. We believe that our critical accounting policies reflect the more
significant estimates and assumptions used in the preparation of the condensed
consolidated financial statements.
- 39
-
For a
discussion of our critical accounting policies and estimates, see “Critical
Accounting Policies and Estimates” included in our Annual Report on Form 10-K
for the year ended December 31, 2009 under the caption “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.” We
have made no significant changes to our critical accounting estimates since
December 31, 2009.
Recently
issued accounting pronouncement
See Note
5, Summary of significant accounting policies, for a discussion of the Company’s
recently issued accounting pronouncements.
Off-Balance Sheet Arrangements
We do not
have any off-balance arrangements.
Seasonality
Our
operating results and operating cash flows historically have not been subject to
seasonal variations. This pattern may change, however, as a result of new market
opportunities or new product introduction.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
Interest
Rate Risk
We are
exposed to interest rate risk primarily with respect to our short-term bank
loans and long-term bank loans. Although the interest rates, which are based on
the banks’ prime rates with respect to our short-term loans are fixed for the
terms of the loans, the terms are typically three to twelve months for
short-term bank loans and interest rates are subject to change upon
renewal. There were no material changes in interest rates for
short-term bank loans renewed during the three months ended March 31,
2010.
A
hypothetical 1.0% increase in the annual interest rates for all of our credit
facilities under which we had outstanding borrowings at March 31, 2010, would
decrease net income before provision for income taxes by approximately $0.8
million for the twelve months ended March 31, 2010. Management
monitors the banks’ prime rates in conjunction with our cash requirements to
determine the appropriate level of debt balances relative to other sources of
funds. We have not entered into any hedging transactions in an effort
to reduce our exposure to interest rate risk.
Foreign
Exchange Risk
While our
reporting currency is the U.S. Dollar, all of our consolidated revenues and
consolidated costs and expenses are denominated in Renminbi. All of
our assets are denominated in RMB except for cash. As a result, we
are exposed to foreign exchange risk as our revenues and results of operations
may be affected by fluctuations in the exchange rate between U.S. Dollars and
RMB. If the RMB depreciates against the U.S. Dollar, the value of our
RMB revenues, earnings and assets as expressed in our U.S. Dollar financial
statements will decline. Assets and liabilities are translated at
exchange rates at the balance sheet dates and revenue and expenses are
translated at the average exchange rates and shareholders’ equity is translated
at historical exchange rates. Any resulting translation adjustments
are not included in determining net income but are included in determining other
comprehensive income, a component of shareholders’
equity.
- 40
-
The value
of the Renminbi against the U.S. dollar and other currencies is affected by,
among other things, changes in China’s political and economic conditions. Since
July 2005, the Renminbi has not been pegged to the U.S. dollar. Although the
People’s Bank of China regularly intervenes in the foreign exchange market to
prevent significant short-term fluctuations in the exchange rate, the Renminbi
may appreciate or depreciate significantly in value against the U.S. dollar in
the medium to long term. Moreover, it is possible that in the future,
PRC authorities may lift restrictions on fluctuations in the Renminbi exchange
rate and lessen intervention in the foreign exchange market.
Inflation
Inflationary
factors such as increases in the cost of our product and overhead costs may
adversely affect our operating results. Although we do not believe
that inflation has had a material impact on our financial position or results of
operations to date, a high rate of inflation in the future may have an adverse
effect on our ability to maintain current levels of gross margin and selling,
general and administrative expenses as a percentage of net revenues if the
selling prices of our products do not increase with these increased
costs.
ITEMS
4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls
and Procedures. We maintain a system of disclosure controls and
procedures. The term “disclosure controls and procedures,” as defined by
regulations of the SEC, means controls and other procedures that are designed to
ensure that information required to be disclosed in the reports that we file or
submit to the SEC under the Exchange Act, is recorded, processed, summarized and
reported, within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by us in
the reports that we file or submit to the SEC under the Exchange Act is
accumulated and communicated to the our management, including our principal
executive officer and our principal financial officer, or persons performing
similar functions, as appropriate to allow timely decisions to be made regarding
required disclosure. Each of Qingjie Zhao, our President and Chief Executive
Officer, and Meirong Yuan, our Chief Financial Officer, have evaluated the
design and operating effectiveness of our disclosure controls and procedures as
of March 31, 2010. Based upon their evaluation, these executive officers have
concluded that our disclosure controls and procedures are effective as of March
31, 2010.
Changes in Internal Control over
Financial Reporting. There has been no change to our internal
control over financial reporting during the quarter ended March 31, 2010 that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
- 41
-
PART
II
OTHER
INFORMATION
ITEM
1. LEGAL PROCEEDINGS
From time
to time, we may become involved in various lawsuits and legal proceedings which
arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business. We are currently not aware
of any such legal proceedings or claims that we believe will have a material
adverse affect on our business, financial condition or operating
results.
ITEM
1A. RISK FACTORS
There are
no material changes from the risk factors previously disclosed in Part I, Item
1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December
31, 2009, filed with the SEC on March 4, 2010.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During
the three-month period ended March 31, 2010, we made no unregistered sales of
our equity securities.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4. (REMOVED AND RESERVED)
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
EXHIBITS.
31.1*
|
Certification
of Principal Executive Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31.2*
|
Certification
of Principal Financial Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
32.1*
|
Certification
of Principal Executive Officer furnished pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
32.2*
|
Certification
of Principal Financial Officer furnished pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
* Filed
herewith.
- 42
-
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
DATED:
May 10, 2010
WONDER
AUTO TECHNOLOGY, INC.
|
||
By:
|
/s/ Meirong Yuan
|
|
Meirong
Yuan
|
||
Chief
Financial Officer
|
||
(On
behalf of the Registrant and as
|
||
Principal
Financial Officer)
|
- 43
-
EXHIBIT
INDEX
Exhibit
|
||
Number
|
Description
|
|
31.1*
|
Certification
of Principal Executive Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31.2*
|
Certification
of Principal Financial Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
32.1*
|
Certification
of Principal Executive Officer furnished pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
32.2*
|
Certification
of Principal Financial Officer furnished pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
* Filed
herewith.
- 44
-