SHARING ECONOMY INTERNATIONAL INC. - FORM 8-K - EX-99.1 - May 18, 2011

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Exhibit 99.1
For more information, please contact:
    
     
Company Contact:
  
Investor Relations Contact:
  Mr. Fernando Liu
  
  Mr. Athan Dounis
  Chief Financial Officer
  
  CCG Investor Relations
  China Wind Systems, Inc.
  
  Tel:   +1-646-213-1916
  Tel:   + 86-13761347367
  
  Email: athan.dounis@ccgir.com
  Email: fol@chinawindsystems.com
  
  Web: www.ccgirasia.com
  Web: www.chinawindsystems.com
    


China Wind Systems, Inc. Reports First Quarter 2011 results

 
·
Net income increased 37% year-over-year to $2.7 million, or $0.10 per diluted share

 
Wuxi, Jiangsu Province, China – May 16, 2011 – China Wind Systems, Inc. (NASDAQ: CWS), (“China Wind Systems” or the “Company”), a leading supplier of forged rolled rings and other forged components to the wind power and other industries and industrial equipment primarily to the textile industry in China, today announced its financial results for the three months ended March 31, 2011.
 
First Quarter 2011 Financial Highlights
 
 
·
Revenue increased 4.3% year-over-year to $17.6 million
 
·
Revenue from the sale of forged products to the wind power and other industries increased 13.2% year-over-year to $13.4 million, or 76.4% of revenue
 
·
Revenue from the sale of forged products exclusively to the wind power industry increased 46.5% year-over-year to $10.2 million, or 58.0% of revenue
 
·
Operating income increased 24.1% year-over-year to $3.6 million
 
·
Net income increased 36.9% to $2.7 million, or $0.10 per diluted share
 
“During the first quarter of 2011, sales to the wind power industry increased as we expanded our customer base and delivered large scale orders of forging equipment used in the wind power industry. As a result of our increased focus on the wind power segment, sales of our forging equipment to other industries continued to soften. In addition, the decrease in revenue from the sale of dyeing and finishing equipment reflects the business cycle as well as delays in purchasing new equipment designed to
meet stricter environmental standards imposed by the Chinese government as textile manufacturers evaluate both their projected business in uncertain economic times and new equipment designed to meet the new standards.  Longer-term, we believe the new policies will generate a demand for our next generation dye machine models that were introduced in November 2010, which we believe meets the new standards,” commented Mr. Jianhua Wu, Chairman and Chief Executive Officer of China Wind Systems. “During the quarter, we continued our efforts to capitalize on the attractive growth opportunities in the clean energy sector. We recently received two follow-on purchase orders of solar chamber subassemblies worth $1.1 million.”
 
 
 
 
First Quarter 2011 Results
 
Revenue for the first quarter of 2011 increased 4.3% to $17.6 million, compared to $16.8 million in the same period of 2010. The increase was attributable to the increase in revenue from forged rolled rings and related products segment, partially offset by a decline in revenue from the dyeing and finishing equipment segment.  This decline was largely due to the business cycle and customer delays in purchasing new equipment designed to meet the PRC government’s mandatory environmental protection policies, which require companies in the textile industry to use more energy efficient machinery with lower carbon emissions.
 
Revenue from the sale of forged rolled rings to the wind power industry and other industries grew 13.2% to $13.4 million, or 76.4% of revenue, compared to $11.8 million, or 70.4% of net revenue, in the same period last year.
 
Revenue from the sale of forged rolled rings exclusively to the wind power industry rose 46.5% to $10.2 million, representing 58.0% of revenue, compared to $7.0 million, or 41.3% of revenues in the comparable period last year.
 
Revenue from the sale of forged rolled rings to other industries decreased 33.9% to $3.2 million, or 18.4% of revenue, compared with $4.9 million for the comparable period of the prior year.
 
Revenue from the Company’s dyeing and finishing equipment segment decreased 16.9% to $4.1 million, or 23.6% of net revenues, compared to $5.0 million, or 29.6% of revenue, for the first quarter of 2010.
 
Gross profit for the first quarter of 2011 increased 3.1% to $4.6 million, compared to $4.4 million for the same period in 2010. Gross margin slightly decreased to 25.9% during the first quarter of 2011 compared to 26.2% for the same period a year ago. The decline in gross margin was mainly due to an increase in costs of raw materials and labor, which could not be fully passed on to the Company’s customers in a timely manner. Gross margins for the Company’s forged rolled rings and other components and dyeing and finishing equipment were 27.4% and 21.1%, respectively, during the first quarter of 2011.
 
 
 
 
Operating expenses decreased 38.5% to $0.9 million, compared to $1.5 million in the comparable period last year, as a result of lower selling, general, and administrative expenses related to a bad debt recovery and decreased stock-based compensation.
 
Operating income increased 24.1% to $3.6 million, compared to $2.9 million for the same period of 2010. Operating margin was 20.7% compared to 17.4% in the first quarter last year.
 
Net income increased 36.9% to $2.7 million, compared to $1.9 million in the comparable period last year. Basic earnings per share in 2011 and 2010 were $0.14 and $0.11, respectively. Basic earnings per share were calculated using basic weighted average shares of 18,925,959 and 17,252,799 for the three months ended March 31, 2011 and 2010, respectively. Diluted earnings per share were $0.10, compared to $0.08 in the same period of 2010. Diluted earnings per share were calculated using diluted weighted average shares of 25,655,436 and 25,395,026 for the three months ended March 31, 2011 and March 31, 2010, respectively.
 
Financial Condition

As of March 31, 2011, China Wind Systems held cash and cash equivalents of $1.3 million, up from $0.9 million at December 31, 2010.  Accounts receivable were $6.2 million and total current assets of $15.5 million. The Company had $1.2 million in short-term loans payable, no long-term debt and stockholders’ equity stood at $66.0 million. In the three months ended March 31, 2011, the Company generated $3.4 million in cash flow from operations.

The Company’s planned capital expenditures for 2011 mainly relate to purchase of manufacturing equipment for its new solar segment and maintenance expenditures for its forged rolled rings and dying equipment segment.  The Company plans to finance these expenditures with cash flow from operations.
 
Business Outlook
 
China Wind Systems delivered sample product units used in the solar power industry over the past few months. Following successful inspection and approval by its customer, the Company received a total of two purchase orders for approximately $1.1 million from its customer to deliver solar chamber subassemblies. The Company will supply these units of solar chamber subassemblies by June 2011.

The Company is currently producing subassemblies for equipment used in the wafer production of multi crystalline silicon products and plans to roll out products used for mono crystalline silicon products over the next few months. The Company expects the market for the mono crystalline silicon products to present a significant growth opportunity in the next 12-18 months time frame. In 2011, the Company plans to purchase new manufacturing equipment to enhance efficiency and ramp up production of its solar segment.

 
 
 
“We are confident that sales of our next generation air dyeing machines, which meet the PRC government’s environmental standards, will continue to grow. In the coming quarters, we expect to see increased sales of our new dye machine models,” commented Mr. Wu. “We will continue to focus on the wind energy sector and work with our existing and potential customers to maintain our market position despite the difficult pricing environment. We are also pleased with our co-operation with our first customer in the solar industry and are excited about the growing opportunities in the clean energy sector both domestically and internationally.”
 
Conference Call
 
China Wind Systems will conduct a conference call at 8:00 a.m. Eastern Time on Tuesday, May 17, 2011 to discuss results for the first quarter and fiscal year 2011.

To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: (866) 759-2078. International callers should dial (706) 643-0585. When prompted, please enter conference passcode: 65642121.

If you are unable to participate in the conference call at this time, a replay will be available for 14 days starting on May 17, 2011 at 11:00 a.m. ET. To access the replay, dial (800) 642-1687. International callers dial (706) 645-9291, and enter passcode: 65642121.
 
About China Wind Systems, Inc.

China Wind Systems, Inc. is a profitable, rapidly growing supplier of precision forged components primarily to the wind industry in China - the world's leading wind-power market. The Company also supplies forged and other components and fabricated products to other industries. For more information on the Company, visit http://www.chinawindsystems.com. Information on the Company's Web site or any other Web site does not constitute a portion of this release.
 
Safe Harbor Statement
 
This release contains certain "forward-looking statements" relating to the business of the Company and its subsidiary and affiliated companies. These forward looking statements are often identified by the use of forward-looking terminology such as "believes,” “expects" or similar expressions. Such forward looking statements involve known and unknown risks and uncertainties that may cause actual results to be materially different from those described herein as anticipated, believed, estimated or expected. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company’s periodic reports that are filed with the Securities and Exchange Commission and available on its website, including factors described in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Form 10-K for the year ended December 31, 2010 and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Form 10-Q for the quarter ended March 31, 2011. All forward-looking statements attributable to the Company or to persons acting on its behalf are expressly qualified in their entirety by these factors other than as required under the securities laws. The Company does not assume a duty to update these forward-looking statements.
 

 
- Financial Tables Follow-
 
 
 
 

CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

   
March 31,
2011
    
December 31,
2010
  
   
(Unaudited)
    
(Audited)
  
ASSETS
            
             
CURRENT ASSETS:
            
    Cash and cash equivalents
  
$
1,252,597
    
$
947,177
  
    Notes receivable
    
213,087
      
50,593
  
    Accounts receivable, net of allowance for doubtful accounts
    
6,175,107
      
8,207,797
  
    Inventories, net of reserve for obsolete inventory
    
4,577,077
      
3,371,128
  
    Advances to suppliers
    
625,902
      
333,923
  
    Prepaid VAT on purchases
    
2,521,987
      
2,759,763
  
    Prepaid expenses and other
    
140,325
      
36,338
  
                 
        Total Current Assets
    
15,506,082
      
15,706,719
  
                 
PROPERTY AND EQUIPMENT - net
    
56,764,932
      
54,742,993
  
                 
OTHER ASSETS:
                
   Land use rights, net
    
3,768,575
      
3,767,159
  
                 
        Total Assets
  
$
76,039,589
    
$
74,216,871
  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
                
                 
CURRENT LIABILITIES:
                
    Loans payable
  
$
1,217,637
    
$
1,814,937
  
    Accounts payable
    
6,640,657
      
7,660,768
  
    Accrued expenses
    
662,519
      
526,006
  
    VAT and service taxes payable
    
-
      
81,614
  
    Advances from customers
    
314,468
      
236,004
  
    Income taxes payable
    
1,157,599
      
1,331,713
  
                 
        Total Current Liabilities
    
9,992,880
      
11,651,042
  
                 
STOCKHOLDERS' EQUITY:
                
    Preferred stock $0.001 par value (60,000,000 shares authorized, all of which  were designated
                
       as series A convertible preferred, 15,622,625 and 16,205,268 shares issued and outstanding
                
       at March 31, 2011 and December 31, 2010, respectively)
    
15,622
      
16,205
  
    Common stock ($0.001 par value; 150,000,000 shares authorized;
                
       19,123,392 and 18,751,128 shares issued and outstanding
                
       at March 31, 2011 and December 31, 2010, respectively)
    
19,123
      
18,751
  
    Additional paid-in capital
    
26,989,156
      
26,579,053
  
    Retained earnings
    
31,736,903
      
29,264,152
  
    Statutory reserve
    
1,850,606
      
1,658,197
  
    Accumulated other comprehensive gain - foreign currency translation adjustment
    
5,435,299
      
5,029,471
  
                 
        Total Stockholders' Equity
    
66,046,709
      
62,565,829
  
                 
        Total Liabilities and Stockholders' Equity
  
$
76,039,589
    
$
74,216,871
  


 
 
 

CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 
`
  
For the Three Months Ended
  
   
March 31,
  
   
2011
    
2010
  
   
(Unaudited)
    
(Unaudited)
  
REVENUES
  
$
17,566,380
    
$
16,840,682
  
                 
COST OF REVENUES
    
13,013,774
      
12,423,987
  
                 
GROSS PROFIT
    
4,552,606
      
4,416,695
  
                 
OPERATING EXPENSES:
                
     Depreciation
    
80,587
      
82,955
  
     Selling, general and administrative
    
831,801
      
1,401,376
  
                 
        Total Operating Expenses
    
912,388
      
1,484,331
  
                 
INCOME FROM OPERATIONS
    
3,640,218
      
2,932,364
  
                 
OTHER INCOME (EXPENSE):
                
     Interest income
    
712
      
1,244
  
     Interest expense
    
(29,702
)
    
(74,919
)
     Foreign currency loss
    
(1,457
)
    
(1,859
)
     Other income
    
8,650
      
-
  
                 
        Total Other Income (Expense)
    
(21,797
)
    
(75,534
)
                 
INCOME BEFORE INCOME TAXES
    
3,618,421
      
2,856,830
  
                 
INCOME TAXES
    
953,261
      
910,293
  
                 
NET INCOME
  
$
2,665,160
    
$
1,946,537
  
                 
COMPREHENSIVE INCOME:
                
      NET INCOME
  
$
2,665,160
    
$
1,946,537
  
                 
      OTHER COMPREHENSIVE INCOME:
                
           Unrealized foreign currency translation gain
    
405,828
      
7,270
  
                 
      COMPREHENSIVE INCOME
  
$
3,070,988
    
$
1,953,807
  
                 
NET INCOME PER COMMON SHARE:
                
    Basic
  
$
0.14
    
$
0.11
  
    Diluted
  
$
0.10
    
$
0.08
  
                 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
                
    Basic
    
18,925,959
      
17,252,799
  
    Diluted
    
25,655,436
      
25,395,026
  
 

 
 
 

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

   
For the Three Months Ended
March 31,
  
   
2011
    
2010
  
   
(Unaudited)
    
(Unaudited)
  
CASH FLOWS FROM OPERATING ACTIVITIES:
            
Net income
  
$
2,665,160
    
$
1,946,537
  
Adjustments to reconcile net income from operations to net cash
                
provided by operating activities:
                
Depreciation
    
1,177,002
      
584,646
  
Amortization of debt discount to interest expense
    
-
      
44,993
  
Amortization of land use rights
    
22,428
      
21,618
  
(Decrease) Increase in allowance for doubtful accounts
    
(7,145
)
    
251,496
  
Stock-based compensation expense
    
84,892
      
286,320
  
Changes in assets and liabilities:
                
Notes receivable
    
(161,698
)
    
102,808
  
Accounts receivable
    
2,085,825
      
(1,075,263
)
Inventories
    
(1,181,083
)
    
(1,095,615
)
Prepaid value-added taxes on purchases
    
254,544
      
(489,189
)
Prepaid and other current assets
    
(103,842
)
    
137,756
  
Advances to suppliers
    
(289,011
)
    
(110,779
)
Accounts payable
    
(1,065,108
)
    
1,141,572
  
Accrued expenses
    
133,298
      
(212,230
)
VAT and service taxes payable
    
(81,892
)
    
78,994
  
Income taxes payable
    
(182,032
)
    
(67,074
)
Advances from customers
    
76,741
      
185,517
  
                 
NET CASH PROVIDED BY OPERATING ACTIVITIES
    
3,428,079
      
1,732,107
  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
                
Purchase of property and equipment
    
(2,846,586
)
    
(2,810,860
)
                 
NET CASH USED IN INVESTING ACTIVITIES
    
(2,846,586
)
    
(2,810,860
)
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
                
Proceeds from loans payable
    
758,794
      
-
  
Repayment of loans payable
    
(1,365,830
)
    
(330,000
)
Proceeds from sale of common stock
    
125,000
      
-
  
Proceeds from exercise of warrants
    
200,000
      
1,600,000
  
                 
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
    
(282,036
)
    
1,270,000
  
                 
EFFECT OF EXCHANGE RATE ON CASH AND CASH EQUIVALENTS
    
5,963
      
360
  
                 
NET INCREASE IN CASH AND CASH EQUIVALENTS
    
305,420
      
191,607
  
                 
CASH AND CASH EQUIVALENTS - beginning of year
    
947,177
      
2,278,638
  
                 
CASH AND CASH EQUIVALENTS - end of period
  
$
1,252,597
    
$
2,470,245
  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
                
Cash paid for:
                
Interest
  
$
29,702
    
$
32,069
  
Income taxes
  
$
1,135,294
    
$
977,367
  
                 
NON-CASH INVESTING AND FINANCING ACTIVITIES:
                
Series A preferred converted to common shares
  
$
936
    
$
-
  
Common stock issued for prior and future service
  
$
-
    
$
7,470
  
 
###
 
 
 
 

SHARING ECONOMY INTERNATIONAL INC. Reports