China Wind Systems, Inc. Reports Fourth Quarter and Full Year 2007 Results

WUXI, Jiangsu Province, China, April 9 /Xinhua-PRNewswire-FirstCall/ -- China Wind Systems, Inc. (OTC Bulletin Board: CWSI) ("China Wind Systems" or the "Company"), which through its variable interest entities manufactures and sells industrial machines for use in the textile and energy related industries in the People's Republic of China, today announced its financial results for the fourth quarter and fiscal year ended December 31, 2007.

    Fourth Quarter 2007 Highlights
    -- Net revenues increased 33.7% year-over-year to $7.8 million
    -- Gross profit increased 19.1% year-over-year to $2.3 million
    -- Net income totaled $0.9 million, or $0.02 per diluted share
    -- Net income adjusted for non-cash interest expenses relating to
       convertible debt issuance was $1.3 million, or $0.03 per diluted share
    Fiscal Year 2007 Highlights
    -- Net revenues increased 34.2% to $24.4 million
    -- Gross profit increased 29.6% to $7.1 million
    -- Operating income increased 21.0% to $5.7 million
    -- Net income increased 229.3% to $10.3 million, or $0.27 per diluted
       share
    -- Net income adjusted for non-cash interest expenses relating to
       convertible debt issuance was $4.0 million, or $0.10 per diluted share
    -- Completed a reverse acquisition transaction to become a publicly traded
       company in November 2007
    -- Completed a $5.5 million private placement financing in November 2007
    -- Constructed new manufacturing facility and began first phase of
       expansion plan

"Last year was an exciting time for China Wind Systems as our stock became publicly traded in the United States, we commenced the first phase of our expansion plan and began to supply equipment to the wind power industry in China," said Mr. Jianhua Wu, Chairman and CEO of China Wind Systems. "We are delighted with our top line growth in 2007 and we are exciting about the launch of our wind power business. We expect that products such as rolled rings from the wind power business will account for a significant portion of our revenue and profit generation from the electric power equipment segment in the future."

Fourth Quarter 2007 Results

Net revenues for the fourth quarter of fiscal 2007 were $7.8 million, up 33.7% from $5.9 million in the fourth quarter of fiscal 2006. The increase in net revenues was driven by the increased sales of dyeing machinery. The dyeing and finishing equipment segment generated $5.3 million in revenue, up 95% from the fourth quarter of 2006 and accounted for 67.8% of net revenues. The electric power equipment segment generated $2.5 million in revenue, down 19.5% from the fourth quarter of 2006 and accounted for 32.2% of net revenues. Electric power sales were down in fourth quarter 2007 due to the timing in the shipment of our products. Wind power equipment is part of the electric power equipment segment.

Gross profit for the fourth quarter of fiscal 2007 was $2.3 million, up 19.1% from $1.9 million in the same period a year ago. Gross margin was 29.3% in the fourth quarter of fiscal 2007, compared to 32.9% in the same quarter last year. The decrease in gross margin was due to normal operating fluctuations.

Operating expenses were $0.6 million in the fourth quarter of 2007, compared to $(7,589) in operating expenses in the fourth quarter of 2006. The negative operating expenses in the fourth quarter of 2006 mostly resulted from the reversal of a bad debt expense in the amount of $0.2 million, which was taken in the third quarter of 2006. Operating expenses were 7.9% of net sales in the fourth quarter of fiscal 2007.

Net income was $0.9 million for the fourth quarter of 2007, down 43.3% from $1.3 million during the fourth quarter of 2006. Diluted earnings per share were $0.02 in the fourth quarter of 2007, compared to $0.04 per diluted share in the same quarter last year. Adjusting net income for non-cash interest expense related to the Company's convertible debt, net income was $1.3 million, or $0.03 per diluted share for the fourth quarter of 2007. Earnings per share were calculated using a diluted weighted share count of 50.3 million shares for the fourth quarter of 2007 and 36.6 million shares for the fourth quarter of 2006. The increase in diluted weighted average shares includes the impact of the reverse merger transaction and private placement in November 2007.

Full Year 2007 Results

During the fiscal year ended December 31, 2007, net revenues increased 34.2% to $24.4 million from $18.2 million in 2006. The dyeing and finishing equipment segment generated $19.8 million in revenue, up 33.0% from 2006 and accounted for 81% of net revenues. The electric power equipment segment generated $4.6 million in revenue, up 39.3% from 2006 and accounted for 19% of net revenues. Wind power revenues included the electric power equipment segment. Gross profit in 2007 was $7.1 million, an increase of 29.6% from $5.4 million a year ago. Gross margin was 28.9% in 2007, compared to 29.9% in 2006. Operating income increased 21.0% to $5.7 million from $4.7 million the prior year. Operating margin during fiscal 2007 was 23.2%, down from 25.7% a year ago. Net income for fiscal 2007 was $10.3 million or $0.27 per diluted share, an increase of 229.3% from $3.1 million, or $0.09 per diluted share in 2006. The increase in net income was primarily the result of a one-time gain of $6.7 million from the forgiveness of VAT and income taxes, which was partially offset by $0.4 in non-cash interest expense related to the Company's convertible debt. Net income, adjusted for the one-time tax relief and interest expense, was $4.0 million or $0.10 per diluted share for 2007. Earnings per share were calculated using a diluted weighted share count of 38.7 million shares for 2007 and 36.6 million shares for 2006. The increase in diluted weighted average shares includes the impact of the reverse merger transaction and private placement in November 2007.

Financial Condition

As of December 31, 2007, the Company had cash and cash equivalents of $5.0 million and working capital of $3.2 million. Accounts receivable were $2.2 million, and days sales outstanding were 32 days for the year versus 47 days for the prior year. At December 31, 2007, the Company had $4.1 million in short-term debt and stockholders' equity of $21.3 million. In 2007, the Company generated $9.0 million in cash flows from operating activities.

In order to expand its business, China Wind Systems agreed to acquire newly constructed buildings and land use rights from Wuxi Huyuang Boiler Company, Ltd. ("Boiler"), an affiliated company, for $12.2 million in July 2007. Through May 2007, the Company held a 33.3% interest in Wuxi Huyuang Boiler Company, Ltd., and the remaining 66.7% is owned by family members of the Company's CEO. As of December 31, 2007, the Company had made payments of $10.9 million, which are classified as deposits on long-term assets on the balance sheet. The purchase price was reduced by approximately $1.3 million, representing appreciation in the long-term assets attributable to Boiler prior to the China Wind System's sale of its 33% interest in Boiler in May 2007. The remaining balance of $86,000 will be paid in the second quarter of 2008.

In January 2008, the Company used the proceeds from its private placement financing to purchase $4.1 million of equipment for the first phase of its expansion plan. At the end of the first phase of the expansion plan, the Company intends to manufacture rolled rings as well as other auxiliary wind components for shafts.

Business Outlook

"In 2008, we expect to grow our business. We plan to leverage our expertise in the manufacture of equipment in our legacy business to expand into the wind power industry. We plan to complete the first phase of our expansion plan in October 2008 using the proceeds from our recent private placement financing," said Mr. Wu.

Use of Non-GAAP Financial Measures

GAAP results for the year ended December 31, 2007 include a one-time, non-cash gain from the forgiveness of VAT and income taxes that occurred in the third quarter of 2007, and non-cash interest expenses related to the Company's convertible debt. To supplement the Company's condensed consolidated financial statements presented on a GAAP basis, the Company has provided non-GAAP financial information excluding the impact of these items in this release. The Company's management believes that this non-GAAP measure provides investors with a better understanding of how the results relate to the Company's historical performance. A reconciliation of the adjustments to GAAP results appears in the table accompanying this press release. This additional non-GAAP information is not meant to be considered as a substitute for GAAP financials. The non-GAAP financial information that the Company provides also may differ from the non-GAAP information provided by other companies.

About China Wind Systems, Inc.

China Wind Systems, through its affiliates, Huayang Dye Machine and Huayang Electrical Power Equipment, manufactures and sells industrial equipment for use in the textile and energy related industries in China. Since August 2007, the Company has shifted its strategy to focus on the growing wind energy industry in China, and has begun to supply high precision rolled rings to companies in the wind power energy industry.

Safe Harbor Statement

This release contains certain "forward-looking statements" relating to the business of the Company and its subsidiary 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 (http://www.sec.gov). All forward-looking statements attributable to the Company or to persons acting on its behalf are expressly qualified in their entirety by these factors other than as required under the securities laws. The Company does not assume a duty to update these forward-looking statements.

                          -Financial Tables Follow-
                    CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                             For the Quarter Ended      For the Year Ended
                                  December 31,             December 31,
                                2007        2006        2007         2006
    NET REVENUES             $7,828,910  $5,854,415  $24,418,385  $18,198,810
    COST OF SALES             5,534,454   3,927,124   17,366,000   12,758,065
    GROSS PROFIT              2,294,456   1,927,291    7,052,385    5,440,745
    OPERATING EXPENSES:
         Depreciation and
          amortization           74,922      43,698      282,797      267,130
         Selling, general
          and administrative    541,187     (51,287)   1,107,293      494,237
            Total Operating
             Expenses           616,109      (7,589)   1,390,090      761,367
    INCOME FROM OPERATIONS    1,678,347   1,934,880    5,662,295    4,679,378
    OTHER INCOME (EXPENSE):
         Interest income          2,570         182        2,942        8,141
         Interest expense      (435,344)       (132)    (466,704)     (13,606)
         Debt issuance costs     (3,571)         --       (3,571)          --
         Other income from
          forgiveness of
          income and VAT
          taxes                 (61,431)         --    6,710,011           --
         Other income            57,198          --       57,198           --
            Total Other
             Income (Expense)  (440,578)         50    6,299,876       (5,465)
    INCOME BEFORE INCOME
     TAXES                    1,237,769   1,934,930   11,962,171    4,673,913
    INCOME TAXES                334,336     628,994    1,649,430    1,542,391
    NET INCOME                  903,433  $1,305,936  $10,312,741   $3,131,522
    COMPREHENSIVE INCOME:
          NET INCOME            903,433  $1,305,936  $10,312,741   $3,131,522
          OTHER
           COMPREHENSIVE
           INCOME:
               Unrealized
                foreign
                currency
                translation
                gain            489,749      (3,615)   1,013,735      223,055
          COMPREHENSIVE
           INCOME            $1,393,182  $1,302,321  $11,326,476   $3,354,577
    NET INCOME PER COMMON
     SHARE:
        Basic                     $0.02       $0.04        $0.28        $0.09
        Diluted                   $0.02       $0.04        $0.27        $0.09
    WEIGHTED AVERAGE COMMON
     SHARES OUTSTANDING:
        Basic                36,998,534  36,577,704   36,683,776   36,577,704
        Diluted              50,288,916  36,577,704   38,706,225   36,577,704
                    CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                                        December 31,
                                                   2007              2006
                   ASSETS
    CURRENT ASSETS:
        Cash and cash equivalents               $5,025,434          $421,390
        Accounts receivable, net of
         allowance for doubtful accounts         2,158,412         2,344,005
        Inventories, net of reserve for
         obsolete inventory                      1,929,796         1,529,378
        Advances to suppliers                      938,331         1,556,554
        Prepaid expenses and other                 378,429            88,429
            Total Current Assets                10,430,402         5,939,756
    PROPERTY AND EQUIPMENT - Net                 6,525,986         6,678,629
    OTHER ASSETS:
       Deposit on long-term assets -
        related party                           10,863,706                --
       Intangible assets, net of
        accumulated amortization                   502,634           480,490
       Investment in cost method investee           34,181            95,939
       Due from related parties                    139,524         1,054,954
            Total Assets                       $28,496,433       $14,249,768
    LIABILITIES AND STOCKHOLDERS' EQUITY
    CURRENT LIABILITIES:
        Loans payable                             $820,333          $383,754
        Convertible debt, net of discount
         on debt                                 3,261,339                --
        Accounts payable                         1,845,769           619,966
        Accrued expenses                           198,542           142,773
        VAT and service taxes payable              434,839         1,840,995
        Advances from customers                     77,357           179,698
        Due to related party                        98,541                --
        Income taxes payable                       508,407         2,910,063
            Total Current Liabilities            7,245,127         6,077,249
    STOCKHOLDERS' EQUITY:
        Common stock ($0.001 par value;
         150,000,000 shares authorized;
         37,384,295 and 36,577,704
         shares issued and outstanding
         at December 31, 2007 and 2006,
         respectively)                              37,385            36,578
        Additional paid-in capital               3,488,896         1,737,392
        Retained earnings                       16,074,270         5,935,832
        Statutory reserve                          305,472           131,169
        Other comprehensive gain -
         cumulative foreign currency
         translation adjustment                  1,345,283           331,548
            Total Stockholders' Equity          21,251,306         8,172,519
            Total Liabilities and
             Stockholders' Equity              $28,496,433       $14,249,768
                    CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                     For the Year Ended
                                                        December 31,
                                                    2007             2006
    CASH FLOWS FROM OPERATING ACTIVITIES:
      Net income                                $10,312,741       $3,131,522
      Adjustments to reconcile net income
       from operations to net cash
       provided by operating activities:
        Depreciation and amortization               608,999          569,541
        Increase in allowance for doubtful
         accounts                                   377,608           65,949
        Increase (decrease) in reserve for
         inventory obsolescence                    (244,981)              --
        Other income from forgiveness of
         income and VAT taxes                    (6,710,011)              --
        Amortization of debt discount to
         interest expense                           377,277               --
        Amortization of debt offering costs           3,571               --
        Stock based compensation expense            139,373               --
      Changes in assets and liabilities:
        Accounts receivable                         (44,492)         572,128
        Inventories                                 (38,432)      (1,053,552)
        Prepaid and other current assets           (273,312)         (84,788)
        Advanced to suppliers                       696,492       (1,326,587)
        Accounts payable                          1,160,691         (552,010)
        Accrued expenses                             23,103       (2,505,993)
        VAT and service taxes payable             1,472,360          949,200
        Income taxes payable                      1,267,374        1,560,971
        Advances from customers                    (110,144)        (816,728)
    NET CASH PROVIDED BY OPERATING ACTIVITIES     9,018,217          509,653
    CASH FLOWS FROM INVESTING ACTIVITIES:
        Decrease in due from related parties        948,722        1,149,001
        Deposit on long-term assets -
         related party                          (10,339,525)              --
        Purchase of property and equipment          (10,566)         (69,321)
    NET CASH PROVIDED BY (USED IN)
     INVESTING ACTIVITIES                        (9,401,369)       1,079,680
    CASH FLOWS FROM FINANCING ACTIVITIES:
        Proceeds from (payments on) loans
         payable                                    393,846          (81,434)
        Gross proceeds from convertible debt      5,525,000               --
        Payment of placement fees                   (30,000)              --
        Payment of costs and fees in
         connection with recapitalization        (1,040,000)              --
        Proceeds from (payments on)
         related party advances                      94,620       (1,328,006)
    NET CASH PROVIDED BY (USED IN)
     FINANCING ACTIVITIES                         4,943,466       (1,409,440)
    EFFECT OF EXCHANGE RATE ON CASH                  43,730           11,318
    NET INCREASE IN CASH                          4,604,044          191,211
    CASH  - beginning of year                       421,390          230,179
    CASH - end of year                           $5,025,434         $421,390
    SUPPLEMENTAL DISCLOSURE OF CASH FLOW
     INFORMATION:
      Cash paid for:
          Interest                                  $68,708          $13,606
          Income taxes                              $85,120          $62,104
    NON-CASH INVESTING AND FINANCING ACTIVITIES:
      Debt discount for beneficial
       conversion feature reflected in
       paid-in capital                           $2,610,938              $--
      Common stock issuable for future
       services                                     $48,000              $--
                    CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
              RECONCILIATION OF NON-GAAP NET INCOME AND DILUTED EPS
                                       For the Three Months Ended, December 31
                                               2007               2006
                                                    Diluted            Diluted
                                         Net Income   EPS   Net Income   EPS
    Adjusted Amount                      $1,284,281  $0.03  $1,305,936  $0.04
    Adjustment
       Other Expenses related to
        issuance of debt (1)               (380,848) (0.01)         --     --
    Amount per consolidated statement of
     operations                            $903,433  $0.02  $1,305,936  $0.04
       (1) Includes $377,277 in amortization of debt discount and $3,571 in
           amortization of debt offering costs
           Weighted average diluted shares, 50,288,916 for Q4 2007 and
           36,577,704 million for Q4 2006
                                          For the Years Ended, December 31,
                                               2007               2006
                                                    Diluted            Diluted
                                         Net Income   EPS   Net Income   EPS
    Adjusted Amount                      $3,983,578  $0.10  $3,131,522  $0.09
    Adjustment
       Other expenses related to
        issuance of debt (1)               (380,848) (0.01)         --     --
       Other income from forgiveness of
        VAT and income taxes (2)          6,710,011   0.17          --     --
    Amount per consolidated statement
     of operations                      $10,312,741  $0.27  $3,131,522  $0.09
       (1) Includes $377,277 in amortization of debt discount and $3,571 in
           amortization of debt offering costs
       (2) One-time tax relief in VAT and income taxes, Q3 2007
           Weighted average diluted shares, 38,706,255 for FY 2007 and
           36,577,704 million for FY 2006
    For more information, please contact:
    CCG Elite Investor Relations
     Mr. Crocker Coulson
     President
     Tel:   +1-646-213-1915
     Email: crocker.coulson@ccgir.com