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China Wind Systems Announces Third Quarter 2007 Results

    Third Quarter 2007 Results

     -- Net revenues totaled $8.0 million, up 36.3% from the prior year
     -- Gross profit was $2.4 million, up 26.3% from the prior year
     -- Operating income was $2.1 million, up 42.1% from the prior year
     -- Net income was $8.1 million, up 714.6% from the prior year
     -- Non-GAAP net income was $1.3 million, up 35.4% from the prior year

    Recent Highlights

     -- Constructed new manufacturing facility, for which the company has
        begun the acquisition of necessary assets
     -- Completed reverse takeover transaction to become public company in
        November 2007
     -- Raised $5.5 million in private placement financing in the fourth
        quarter of 2007
     -- Began first phase of expansion plan

Projected Revenue and Net Income

China Wind Systems anticipates that for the 2007 fiscal year, it will end with approximately $23 million in revenues, $10.4 million in net income (which includes the effect of a one-time tax relief of $6.8 million in VAT and income taxes).

In addition, China Wind System projects that in the 2008 fiscal year, it may achieve an estimated $40 million in revenues, and $7 million in net income.

'We achieved double-digit growth in revenues in the third quarter of 2007 due to our focus on supplying forged rolled rings to the wind power and other heavy machinery industries. The wind power industry in China is experiencing significant growth and we are focused on addressing this need,' said Mr. Jianhua Wu, Chairman and CEO of China Wind Systems, Inc.

Third Quarter of 2007 Results

Net revenues for the third quarter of 2007 totaled $8.0 million, up 36.3% from $5.9 million in the same quarter of 2006. The increase in revenues was primarily due to the introduction of a new line of products, the release of which led to increased sales. These new products include forged rolled rings to the wind power and other heavy machinery industries.

Gross profit for the third quarter of 2007 totaled $2.4 million, an increase of 26.3% from $1.9 million in the same quarter of 2006. Gross profit margin was 29.6% for the third quarter of 2007, slightly down from 31.9% for the same quarter of 2006.

Operating expenses for the third quarter of 2007 were $0.3 million, down 29.5% from $0.4 million in the same quarter of 2006. This was primarily due to a decrease in bad debt expense of $0.2 million offset by increases in operating expenses such as travel and wages. Operating expenses were 3.7% of net revenues in the third quarter of 2007, down from 7.1% of net revenues in the same quarter of 2006.

Operating income for the third quarter of 2007 was $2.1 million, up 42.2% from $1.5 million in the third quarter of 2006. Operating margin was 25.9%, compared to 24.9% in the same quarter of 2006. The increase in operating margin was mainly due to the decrease in operating expenses as described above.

Net income for the third quarter of 2007 was $8.1 million, up 714.6% from net income of approximately $1.0 million in the third quarter of 2006.

Adjusted net income, adjusted for one-time tax relief, for the third quarter of 2007 was $1.3 million. Since the tax relief is a one-time event, it would be appropriate to evaluate the underlying performance of the company without the effect of the tax relief.

Nine Month Results

For the nine months ended September 30 2007, net revenues were $16.6 million, up 34.4% from $12.3 million for the same period prior year. Gross profit was $4.8 million, up 35.4% from $3.5 million for the same period prior year. Gross margin was 28.7%, slightly up from gross margin of 28.5% in the year ago period. Operating income was $4 million, up 45.2% from $2.7 million for the same period prior year, and operating margin was 24.0%, compared to 22.2% in the prior year. Net income increased 415.4% to $9.4 million from $1.8 million. Adjusting net income to exclude a one-time tax relief, the non- GAAP net income was $2.6 million in the first nine months of 2007, up 44.5% from $1.8 million for the same period prior year.

Financial Condition

As of September 30, 2007, the company had $0.6 million in cash and cash equivalents, $3.5 million in working capital and a current ratio of 1.73 to 1. The company had $0.6 million in short-term loans payable and $18.1 million in shareholders' equity. The company generated $6.2 million in cash flows from operating activities in the first nine months of 2007.

In July 2007, China Wind Systems agreed to acquire newly constructed buildings and land use rights from Wuxi Huyuang Boiler Company, Ltd. for $11.9 million. The company holds a 33.33% interest in Wuxi Huyuang Boiler Company, Ltd., and the remaining 66.7% is owned by family members of the company's CEO. The company intends to use the buildings and land use rights to expand its business. As of September 30, 2007 the company had made payments of $5.9 million, which are classified as deposits on long-term assets on the balance sheet. The remaining balance of $6.0 million is due in the first quarter of 2008.

In November 2007, the company completed a $5.5 million private placement financing of 3% convertible subordinated notes, the proceeds of which are not reflected on the financial statements as of September 30, 2007. In January 2008, the company purchased $4.13 million worth of equipment for the first phase of the company's expansion plan. At the end of the first phase of the expansion plan the company intends to manufacture rolled rings as well as other windmill component such as shafts.

Business Outlook

China Wind Systems is positioning itself to be a significant manufacturer of forged rolled rings and other wind energy components for the rapidly growing wind industry in China. In 2008, the company plans to use the proceeds from its recent private placement financing to purchase equipment and begin production of forged rolled rings as well as other wind energy components for the wind power industry.

For fiscal year 2007, the company anticipates net revenues of approximately $23 million and net income of approximately $10.4 million (including a one-time gain from the forgiveness of income and VAT taxes of $6.8 million). For 2008, China Wind Systems anticipates net revenues of approximately $40 million and net income of approximately $7 million.

'We are pleased to have completed our transition to become a public company and are now focusing our attention on our growth strategy. In the coming year, we plan to continue supplying forged rolled rings to various heavy manufacturing industries, including the wind power industry, and will begin manufacturing rolled rings and other wind energy components,' said Mr. Jianhua Wu, CEO of China Wind Systems. 'Given our extensive experience in manufacturing industrial equipment, our new state-of-the-art manufacturing facility and our prime location in the coastal region of China, we believe we are well positioned to succeed in the fast growing wind power industry in China,' added Mr. Jianhua Wu.

As of the date of this press release, the company has approximately 37 million shares of common stock outstanding. All currency amounts in this press release are reported in U.S. Dollars.

Additional information about China Wind Systems, Inc., including its financial statements for the period ended September 30, 2007, is available in the company's current report on Form 8-K filed with the Securities and Exchange Commission on February 1, 2008. All forward looking statements in this press release should be read in conjunction with the 'risk factors' set forth in the above-mentioned current report and in the other period reports of the company.

Use of Non-GAAP Financial Information

GAAP results for the third quarter and nine months ended September 30, 2007 include a one-time tax relief of $6.8 million. To supplement the company's condensed consolidated financial statements presented on a GAAP basis, the company has provided non-GAAP financial information excluding the impact of this item 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 adjustment to GAAP results appears in the table accompanying this press release. This additional non-GAAP information is not meant to be considered in isolation or 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.