Wonder Auto Technology, Inc. Reports Record Second Quarter 2007 Results

JINZHOU CITY, China, Aug. 7 /Xinhua-PRNewswire/ -- Wonder Auto Technology, Inc., (BULLETIN BOARD: WATG) ("Wonder Auto" or the "Company"), a China- based manufacturer of automotive electrical parts, today announced its financial results for the quarter ended June 30, 2007.

Second Quarter 2007 Highlights -- Revenues increased 25.2% year-over-year to a record $23.6 million -- Gross margin was 24.0% -- Net income was $3.8 million, up 84.2% year-over-year from net income of -- $2.1 million in the second quarter of 2006, up 46.4% before government grant income of $0.8 million for net income of $3.0 million. Net income also reflects the benefit of a $0.4 million tax refund in the quarter -- Export sales revenue increased to 11.6% of total revenue

Revenue for the second quarter of 2007 increased to a record $23.6 million, up 25.2% from $18.8 million in the second quarter of 2006. The quarter was favorably impacted by the Company's April acquisition of the remaining 79.6% of Jinzhou Wanyou Mechanical Parts Co., Ltd. ("Wanyou") and its subsequent consolidation with Wonder Auto's financial results, which contributed $1.6 million to revenues during the quarter. Gross profit for the quarter was $5.7 million, up 69.6% from gross profit of $3.3 million in the comparable quarter a year ago. Net income in the second quarter of 2007 increased to $3.8 million, up 84.2%, from $2.1 million in the second quarter of 2006.

Basic and diluted earnings per share for the quarter were $0.16 compared to basic and diluted earnings per share of $0.12 in the same quarter a year ago.

"We are pleased with our results for the second quarter. We continued making good progress in research and development, market expansion, cost control and other key areas. Meanwhile, the Wanyou acquisition began contributing to the overall business. The Wanyou acquisition is contributing to both our top and bottom line results and increasing our penetration into overseas markets," said Chairman and CEO, Mr. Qingjie Zhao.

Wonder Auto's strong revenue growth over the same quarter last year was driven by a combination of increased market demand from new and existing clients and the Wanyou acquisition in April of 2007. Leading customers Beijing Hyundai Motor Company, Harbin Dongan Auto Engine Co., Ltd., and Shenyang Aerospace Mitsubishi Motors Engine Manufacturing Co., Ltd. represented 11.0%, 19.6% and 15.2% of total revenues for the quarter, respectively. Revenues from exports increased to 11.6% of total revenue from 3.6% in the same period a year ago. A significant amount of export sales resulted from the Wanyou acquisition which derived a substantial portion of its revenues from international markets.

For the second quarter of 2007, gross profit was $5.7 million for a year- over-year increase of 69.6% from $3.3 million in the second quarter of 2006. Gross margin increased to 24.0% in the quarter, up from 17.7% in the same period last year. The increase in gross margin is a result of management implementing cost control measures and improved technology that offset increases in the price of copper wire. The Company's gross margin also continues to benefit from the consolidation of Jinzhou Dongwoo, a supplier to Wonder Auto, in November of 2006.

Operating expenses were $1.8 million, or 7.8% of revenue, up 94.4% from $940,843, or 5.0% of revenue, in the second quarter of 2006. The increase in operating expenses was primarily due to higher consulting fees for compliance with Sarbanes-Oxley Act of 2002, salaries for independent directors and insurance for directors and officers.

Income from operations for the second quarter of 2007 was $3.8 million, up 59.9% from $2.4 million in the comparable quarter a year ago. Operating margin increased to 16.2% from 12.7%.

Net income was $3.8 million, up 84.2% from net income of $2.1 million, in the second quarter of 2006. Net income increased to $3.0 million before the inclusion of $0.8 million of government grant income. Taxation for the quarter, a credit of $34,090, benefited from a $426,325 tax refund in respect of capital equipment purchased.

Basic and diluted earnings per share in the second quarter of 2007 were $0.16 compared to basic and diluted earnings per share of $0.12 in the same period a year ago.

Financial Condition

As of June 30, 2007, Wonder Auto had $15.2 million in cash, cash equivalents and restricted cash, working capital of $34.1 million and $16.5 million of long-term debt. Shareholders' equity stood at $45.8 million, up from $38.2 million at December 31, 2006.

Recent Events

On August 3rd, 2007, Wonder Auto was approved to list its common stock on the NASDAQ Global Market. The Company expects to begin trading on or around August 9th, 2007 under the symbol "WATG".

On July 6th, 2007, Wonder Auto filed a registration statement on Form S-1 with the Securities and Exchange Commission for an offering of up to 6.5 million shares of common stock. The company intends to offer 5 million shares of common stock with the additional 1.5 million of common stock offered by an existing stockholder. The total shares outstanding after the offering will be 28,959,994. The Company has also granted the underwriters a 30-day option to purchase up to 975,000 additional shares of common stock to cover over allotments, if any.

Business Outlook

Added Mr. Zhao, "During the quarter, we reached close to full capacity with our alternator and starter production lines as a result of the growth we have experienced. We are alleviating our capacity constraints with new production lines that will start in the third quarter and look forward to being able to fulfill the current demand we are experiencing for our products."

Wonder Auto completed the installation of its new production lines in July 2007. The Company is in the final stages of testing the lines before it begins full production in the third quarter of 2007. The additional production lines will bring total capacity for alternators and starters to approximately 1.7 million and 1.8 million units, respectively.

Wonder Auto reaffirms its previous guidance for the full year of revenues of $100 million and net income of $13.5 million.

About Wonder Auto Technology, Inc.

Wonder Auto Technology, Inc., through its Chinese subsidiaries, designs, develops, manufactures and sells automotive electrical parts. The Company was ranked second in sales revenue in the China market for automotive alternators and starters in 2006. Its products are suitable for various types of automobiles and most of its products are used in passenger cars with smaller engines having displacement below 1.6 liters. Wonder Auto's customers include Beijing Hyundai Motor Company, Shenyang Aerospace Mitsubishi Motors Engine Manufacturing Co., Ltd., Harbin Harbin Dongan Automotive Engine Manufacturing Co., Ltd., and Tianjin FAW Xiali Automobile Co., Ltd. Wonder Auto Technology, Inc. is a Nevada corporation with its manufacturing subsidiaries and its corporate headquarters located in Jinzhou City, Liaoning Province, China.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, among others, those concerning our strategic and operational plans, future demands for the Company's products, timing for the launching of its production and related testing and anticipated financial results for 2007 as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and that a number of risks and uncertainties could cause actual results of the Company to differ materially from those anticipated, expressed or implied in the forward-looking statements. The words "believe," "expect," "anticipate," "project," "targets," "optimistic," "intend," "aim," "will" or similar expressions are intended to identify forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward- looking statements. Risks and uncertainties that could cause actual results to differ materially from those anticipated include risks related to new and existing products, product defects and any related product recall; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; uncertainties related to conducting business in China; any statements of belief or intention; any of the factors and risks mentioned in the "Risk Factors" section of our Annual Report on Form 10-K for the year ended December 31, 2006 and any subsequent SEC filings. The Company assumes no obligation and does not intend to update any forward-looking statements, except as required by law.

This press release constitutes the release of factual information and forward looking information as permitted under the U.S. securities laws. This press release does not constitute an offer to sell or the solicitation of an offer to buy any security.

Investor Relations Contact: Company Contact: Mark Collinson, Partner Xie Yuechun, Investor Relations Manager CCG Investor Relations Wonder Auto Technology, Inc. 310-477-9800, ext. 117 [phone]Financial Tables Below Wonder Auto Technology, Inc. Condensed Consolidated Statements of Income and Comprehensive Income For the three months ended June 30, 2007 and 2006 (Stated in US Dollars) Three months ended June 30 (unaudited) 2007 2006 Net sales $23,555,638 $18,813,107 Cost of sales 17,899,115 15,478,235 Gross profit 5,656,523 3,334,872 Operating expenses Administrative expenses 910,106 297,160 Research and development costs 214,174 99,327 Selling expenses 704,999 544,356 1,829,279 940,843 Income from operations 3,827,244 2,394,029 Interest income 38,068 8,487 Other income 15,531 116,684 Government grant 786,154 - Finance costs (592,890) (195,593) Income before income taxes 4,074,107 2,323,607 Income taxes 34,090 (243,534) Minority interests (276,706) - Net income $3,831,491 $2,080,073 Other comprehensive income Foreign currency translation Adjustments 709,413 78,529 Comprehensive income $4,540,904 $2,158,602 Earnings per share: basic and diluted $0.16 $0.12 Weighted average number of shares outstanding: basic and diluted 23,959,994 17,893,079 Wonder Auto Technology, Inc. Condensed Consolidated Balance Sheets As of June 30, 2007 and December 31, 2006 (Stated in US Dollars) June 30, December 31, 2007 2006 (Unaudited) (Audited) ASSETS Current assets Cash and cash equivalents $9,719,619 $8,203,699 Restricted cash 5,437,191 4,876,879 Trade receivables (net of allowance of doubtful accounts of $42,124 in 2007 and $32,150 in 2006) 29,207,840 24,696,982 Bills receivable 10,042,945 3,098,314 Other receivables, prepayments and deposits 1,575,212 1,254,209 Inventories 14,590,021 13,689,374 Amount due from a related company 71,508 69,561 Deferred taxes 278,169 237,570 Total current assets 70,922,505 56,126,588 Intangible assets 9,634,218 4,250,800 Property, plant and equipment, net 15,585,589 13,945,846 Land use right 1,210, 766 1,203,256 Deposit for acquisition of property, plant and equipment 3,978,828 1,740,548 Investment in an unconsolidated affiliate - 527,627 Deferred taxes 232,424 205,475 TOTAL ASSETS $101,564,330 $78,000,140 Wonder Auto Technology, Inc. Condensed Consolidated Balance Sheets (Cont'd) As of June 30, 2007 and December 31, 2006 (Stated in US Dollars) June 30, December 31, 2007 2006 (Unaudited) (Audited) LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Current liabilities Trade payables $11,479,345 $9,631,537 Bills payable 9,731,000 8,628,078 Other payables and accrued expenses 4,706,964 3,121,533 Provision for warranty 972,641 1,049,344 Income tax payable 99,425 398,768 Amount due to an unconsolidated affiliate - 37,492 Dividend payable to minority stockholders 366,664 - Secured short-term bank loans 9,448,275 14,326,831 Total current liabilities 36,804,314 37,193,583 Secured long-term bank loans 16,474,321 - TOTAL LIABILITIES 53,278,635 37,193,583 COMMITMENTS AND CONTINGENCIES MINORITY INTERESTS 2,438,025 2,579,572 STOCKHOLDERS' EQUITY Preferred stock: par value $0.0001 per share; authorized 10,000,000 shares, none issued and outstanding - - Common stock: par value $0.0001 per share; authorized 90,000,000 shares, issued and outstanding 23,959,994 shares in 2007 and 2006 2,396 2,396 Additional paid-in capital 22,140,143 22,140,143 Statutory and other reserves 3,148,265 3,148,265 Accumulated other comprehensive income 2,528,880 1,452,138 Retained earnings 18,027,986 11,484,043 TOTAL STOCKHOLDERS' EQUITY 45,847,670 38,226,985 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $101,564,330 $78,000,140 Wonder Auto Technology, Inc. Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2007 and 2006 (Stated in US Dollars) Six months ended June 30 (Unaudited) 2007 2006 Cash flows from operating activities Net income $6,543,943 $3,489,306 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 929,352 664,243 Amortization of trademarks and patents 707 185 Amortization of land use right 25,793 13,391 Deferred taxes (56,238) 5,457 Gain on disposal of property, plant and equipment 15,636 - Provision for doubtful debts 8,923 - Recovery of obsolete inventories (57,493) (79,990) Exchange loss on translation of monetary assets and liabilities 100,764 - Equity net income of an unconsolidated affiliate (34,147) - Minority interests 486,077 - Changes in operating assets and liabilities: Trade receivables (3,214,204) (4,527,526) Bills receivable (6,669,000) (1,653,822) Other receivables, prepayments and deposits (94,889) (72,138) Inventories (195,332) (2,556,444) Trade payables 1,881,863 3,206,449 Bills payable 880,741 858,294 Other payables and accrued expenses 454,752 77,167 Provision for warranty (104,142) 366,729 Income tax payable (308,489) (14,150) Net cash flows provided by (used in) operating activities 594,617 (222,849) Cash flows from investing activities Payments to acquire trademarks and patents (326) (1,244) Payments to acquire and for deposit for acquisition of property, plant and equipment (3,247,305) (797,301) Proceeds from sales of property, plant and equipment 11,171 - Installment payment to acquire Jinzhou Dongwoo (2,420,000) - (Increase)/decrease in restricted cash (560,312) 347,860 Proceeds from sales of marketable securities - 37,317 Net cash paid to acquire Jinzhou Wanyou (3,426,485) - Cash acquired from the RTO - 419 Net cash flows used in investing activities $(9,643,257) $(412,949) Wonder Auto Technology, Inc. Condensed Consolidated Statements of Cash Flows (Cont'd) For the six months ended June 30, 2007 and 2006 (Stated in US Dollars) Six months ended June 30 (Unaudited) 2007 2006 Cash flows from financing activities Dividend paid to stockholders $- $(1,706,516) Dividend paid to minority stockholders (357,280) - Dividend paid to Winning (343,934) - New bank loans 18,939,379 - Repayment of bank loans (7,977,971) - Repayment to stockholders - (5,149) Net proceeds from issuance of shares - 10,142,020 Advance from a related company - 64,480 Net cash flows provided by financing activities 10,260,194 8,494,835 Effect of foreign currency translation on cash and cash equivalents 304,366 54,248 Net increase in cash and cash equivalents 1,515,920 7,913,285 Cash and cash equivalents - beginning of period 8,203,699 4,368,757 Cash and cash equivalents - end of period $9,719,619 $12,282,042 Supplemental disclosures for cash flow information: Non-cash investing and financing activities: Acquisition of Jinzhou Wanyou $2,840,317 $- Cash paid for: Interest $750,402 $434,868 Income taxes $493,508 $470,878