Wonder Auto Tech (PINK:WATG)

On February 23, 2011, in connection with the preparation of its consolidated financial statements for the fiscal year ended December 31, 2010, Wonder Auto Technology, Inc. concluded, that its financial statements as of and for the years ended December 31, 2008 and 2009, included in its Annual Report on Form 10-K for the year ended December 31, 2009, as well as the financial statements included in its Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30 and September 30 during each of the years 2008 and 2009 should no longer be relied upon due to a cutoff error regarding timing of revenue in such periods. The Company is continuing to evaluate the impact of the cutoff errors on its quarterly reports on Form 10-Q for the periods ended March 31, June 30 and September 30, 2010. Although the Company has not completed its analysis, it currently is expected that the net effect of these adjustments on the Company’s financial statements will be an increase in revenues and income in 2008 and 2009 for the reasons described below.

Historically, the Company has disclosed in its Annual Report that “revenue from sales of its products is recognized when the significant risks and rewards of ownership have been transferred to the buyer at the time when the products are put into use by its customers, the sales price is fixed or determinable and collection is reasonably assured.” During 2008 and 2009, two of the company’s significant subsidiaries recorded period sales and cost of sales based on when usage reports were provided by the customers. The periods covered by the usage reports, however, did not always exactly correspond to the financial reporting periods. As a result of these cut-off errors, sales, cost of sales and net income for individual financial reporting periods (annually and quarterly) have been misstated. The Company and its subsidiaries are implementing accounting procedures designed to permit the Company to report its financial results consistent with U.S. Generally Accepted Accounting Principles (“GAAP”). As a result of these changes, the Company’s revenue for 2008 and 2009 is expected to increase from what previously was reported as a result of the shifting of revenue from 2009 to 2008 and from 2010 to 2009. The Company’s net income for 2009 and 2008 also are expected to increase as a result of these changes. In addition, the Company continues to expect to meet the previously announced guidance for revenue and profit in its press release dated November 9, 2010.

Highlights for the third quarter of 2010:

• Sales revenue increased 33.7% year-over-year to approximately $78.8 million;

• Gross profit rose 48.2% year-over-year to approximately $20.7 millionfrom approximately $14.0 million;

• Net income attributable to Wonder Auto increased 83.5% year-over-year to approximately$11.9 million;

• EPS was approximately $0.35, representing a 45.8% increase from approximately $0.24compared with the third quarter of 2009;

• Non-GAAP Net income attributable to Wonder Auto increased 108.6% year-over-year to approximately $13.6 million;

• Non-GAAP EPS was approximately $0.40, representing a 66.1% increase from approximately $0.24in the third quarter of 2009.| 

Business outlook:

"As the founder and CEO of WATG, I'm very glad that it has been growing rapidly and stably since it was listed on NASDAQ. The third quarter of 2010 is the 15th consecutive quarter of record results since the fourth quarter of 2006 excluding, the fourth quarter of 2008, which was affected by the financial crisis," said Mr. Qingjie Zhao. "In addition to the contribution from the acquisition of auto safety business in September, the increase in our sales revenue in the third quarter also benefited from a year-on-year increase of 18% organic growth despite the fact that July and August are usually low season months in the Chinese automobile market. Particularly, our rods and shafts business increased 97% in the third quarter year-on-year. This increase was mainly attributable to the increase in sales to our existing customers as a result of greater customer acceptance of our brand and products. Meanwhile, the integration of the newly acquired business is going well, better than we have expected. We believe Jinheng's auto safety business will be able to contribute more to the growth of WATG. Along with the penetration and increasing coverage of major customers and markets, the Company expects to further improve its scale advantage. We are very optimistic that in the following years WATG will continue to grow rapidly. We thank our shareholders who have provided WATG with strong support and benefitted from its rapid growth."

The Company raises guidance for full year 2010

• Sales revenue to $307 million from $300 million, 
• Net income to $37.5 million from $36 million, excluding the share-based compensation.

Highlights for the second quarter of 2010:

• Sales revenue increased 37.9% year-over-year to $68.5 million
• Non-GAAP net income attributable to Wonder Auto increased 54.0% year-over-year to $8.3 million
• Non-GAAP EPS was $0.24, representing a 22.7% increase from approximately $0.20 compared with the second quarter 2009;
     

For the third quarter of 2010, our sales revenue is expected to achieve $69.0 million or higher. We may update our revenue guidance for third quarter 2010 after we close the M&A project with Jinheng Automotive Safety Technology Holdings Limited ("Jinheng Holdings").

"We have experienced continuous growth of our revenue for the second quarter 2010," said Wonder Auto's Chairman and Chief Executive Officer Mr. Qingjie Zhao. "The Company increased the revenue not only from the existing customers, but also from new clients and new product models. Meanwhile, the increased sales revenue from outside China was also a growth driver to our robust top-line growth. We expect the Company will maintain its growth with its increased production capacity and by generating more new contracts."

Mr. Zhao, Chairman and CEO of Wonder Auto Technology, Inc. commented, 'Significant changes have taken place in the world economy during the process of fighting against the financial crisis globally. For example, China's economy is recovering steadily. There is no doubt that China's auto industry will be the world's leader. Therefore the US capital markets have begun to re-evaluate and focus on Chinese companies. The adjustments we made in our strategies to response to the financial crisis worked well as we expected. In a word, at the moment, our competitiveness is even greater than before the crisis.'

"Under current global recession, the auto industry in western countries dropped sharply, while in China and other emerging economies still remain growing. I foresee this momentum will continue. Wonder Auto is well positioned in this weather, and achieved remarkable results this quarter. To adapt to these changes, I believe new concepts, new valuation models and new investment strategies are essential for success.''

Guidance Update: (China)

WATG reduces guidance.

The updated guidance for year 2008:

 -- Sales revenue for 2008 is expected to be over $140 million, reflecting a 37% YoY increase.

The updated guidance for year 2009 reflects:

 -- Sales revenue for year 2009 is expected to be over $200 million, reflecting a 40% YoY increase.

 Mr. Qingjie Zhao, chairman and CEO of Wonder Auto Technology, Inc. stated that "The global economy has shown a downturn trend after the subprime mortgage crisis in 2008, which has led to a slowdown of the growth rate for China's domestic auto market and export market. Accordingly, the company has adjusted its perspective performance because of the weak fourth quarter financials affected by the changing environment, but we will still able to maintain a growth rate of 37% for the whole of 2008."

Source: PR Newswire (January 21, 2009)

The updated guidance for year 2008:

   -- The projected sales revenue for 2008 will be over $150 million.

 The guidance for year 2009:

   -- The targeted sales revenue for year 2009 will be between $220 million to $230 million.

'We are increasingly confident in our revenue outlook for the whole year of 2008 and 2009 as we are experiencing continuing strong demand for sales of alternator and starter products for mid- to small-displacement engines. With emphasis on research and development we are able to maintain a long-term collaborative relationship with our existing customers and win more new customers. We are also increasing sales to the international auto markets. Through our recent acquisition, we are expecting higher sales revenue for the coming years,' commented Mr. Qingjie Zhao, chief executive officer of Wonder Auto.

Source: PR Newswire (November 4, 2008)