The Audit Committee commenced the investigation in response to a report alleging that the Company had engaged in several transactions without properly disclosing their related-party nature. Based on the information presently available to it, the Audit Committee expects that its investigation will continue at least through June 2011.
Although the Company's work on the restatement is not complete, at this time it is expected that the restatement will be due primarily to certain sales cut-off errors and the timing of expenses associated with stock option compensation. The restatement also includes adjustments to cost of sales associated with the sales cut-off error and other adjustments. None of the amounts have been finalized at this point as the restatement has not been completed. However, based on the information currently available, it is expected that the net effect of the restatement will be to increase reported net income in 2008 and 2009. The Company continues to expect to meet the previously announced guidance for revenue and profit in its press release dated November 9, 2010. No change to the Company's cash position is expected to result from the restatement.
The Company does not anticipate being in a position to file its delinquent filings until the investigation is complete. Based on the Audit Committee's expected timetable for the investigation, and the Company's expected timetable to complete the restatement, the Company estimates that the delinquent filings may be complete by the end of July. There can be no assurance, however, that any of these deadlines will be met, or that the scope or depth of the restatement or the investigation will not change in a material manner, which could result in further delays.
Nasdaq has informed the Company that it has suspended trading in the Company's common stock pending the Company's provision of a satisfactory Plan of Compliance to Nasdaq, which is due by May 23, 2011. The Company has been in communication with Nasdaq regarding the matters noted above and intends to provide its Plan of Compliance to Nasdaq no later than May 23, 2011.
Wonder Auto Technology today announced that its Audit Committee, with the assistance of professional advisors, has undertaken an internal investigation concerning certain investment and acquisition transactions.
As a result of the pending restatement of its financial statements for fiscal years 2008, 2009 and 2010, and for the quarters ended March 31, June 30 and September 30, 2009 and 2010, and the investigation, WATG has not filed its Form 10-K for the fiscal year ended December 31, 2010 and does not expect to be able to file its Form 10-Q for the quarter ended March 31, 2011 by the filing deadline of May 10, 2011. As previously announced, WATG has received a notice from The Nasdaq Stock Market as to its noncompliance with Nasdaq's continued listing standards as a result of the failure to file the 10-K in a timely manner. Nasdaq further has informed WATG that it has suspended trading in the company's common stock pending WATG's provision of a satisfactory Plan of Compliance to Nasdaq. WATG plans to provide its Plan of Compliance to Nasdaq on or about May 13th and in no event later than May 23, 2011. The company does not expect that its filings will be completed until the completion of the investigation.
The Company is continuing to evaluate the impact of the cutoff errors on its financial results for the year ended December 31, 2010 and on its internal control over financial reporting as of December 31, 2010. Subject to the evaluation described above, the Company continues to expect to meet the guidance for revenue and profit for the year ended December 31, 2010 previously announced in its press release dated November 9, 2010.
The Company intends to engage PricewaterhouseCoopers Zhong Tian CPAs Limited Company to re-audit the Company's consolidated financial statements for the years ended December 31, 2008 and 2009. ...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.
"We are working hard and are giving full cooperation to PwC Zhong Tian in order to ensure that the re-audit can be accomplished as quickly as possible, and we look forward to sharing our full-year results for 2010 fiscal year with our shareholders at the earliest possibility."
On December 20th, 2010, Wonder Auto Technology announced that it has launched a project to list its subsidiary Jinzhou Halla Electrical Equipment Co. on China's Shenzhen Stock Exchange (SZSE). As part of the Listing, the Company anticipates that Jinzhou Halla will conduct an initial public offering of its new shares on SZSE, and WATG's shareholders will still hold more than 73% of shares of Jinzhou Halla after the IPO. The purpose of the Listing is to maximize the Company's capital value by taking advantage of attractive valuations on the SZSE and to raise additional capital that can be used to grow the business. In advance of the Listing, WATG intends to reorganize several of its subsidiaries to consolidate in Jinzhou Hall its automotive engine parts business, including its starter and alternator business and engine valve and tappets business. These businesses are expected to account for 50% to 60% of the Company's projected net income in 2010.
"Since listing on Nasdaq, Wonder Auto has experienced rapid growth with the support from its investors. The Company and management team appreciate the investors' great support and acceptance. We believe that China's economy and automotive industry will continue to experience growth in the next few years, which provides WATG, as a leading supplier of China automotive parts, with great opportunities. We believe that we will be able to achieve better business performance if the Company gets additional capital support. According to our investigation, the SZSE has been providing attractive valuations to companies. For instance, the current PE ratio range of past IPOs in SZSE in 2010 was between approx 40-140 times. Accordingly, we believe that listing a portion of Jinzhou Halla will provide the Company the capital that it needs to leverage its opportunities for growth and also increase value for WATG's existing shareholders."
The Company cautions investors that listing on the SZSE is a complex process that involves a number of risks and uncertainties, including without limitation, approval of China's Securities Regulatory Commission, and there is no assurance that the listing of Jinzhou Halla on the SZSE will be completed.
On November 30, 2010, Wonder Auto Technology announced that Jinzhou Jinheng Automotive Safety System Co., a wholly owned subsidiary of the Company, will start to supply customized airbags to a world-class European OEM in volume shipment in the first half of 2011. "This is a milestone to the Company and means that Jinzhou Jinheng's product quality, product performance and manufacturing technology have been recognized by top-tier customers worldwide, which will certainly increase our future sales both domestically and internationally."
On November 23, 2010, Wonder Auto Technology announced that management estimates that its revenue for 2011 will be about $445 - $455 million. These estimates are based upon management's analysis of market trends and the audited financial statements of Wonder Auto's newly acquired subsidiary, Jinheng (BVI) Ltd. (Jinheng BVI) among other factors. "The acquisition of Jinheng BVI has provided Wonder Auto an opportunity to get access into the automotive safety industry, which requires higher technical abilities, but we believe offers greater development potential. We believe that the automotive safety business will support Wonder Auto for long term and solid growth and contribute positively to revenues for 2011."
The Company raises guidance for full year 2010 sales revenue to $307 million from $300 million, as well as the guidance for full year 2010 net income to $37.5 million from $36 million, excluding the share-based compensation. "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 discloses its guidance for fiscal year 2010, now estimating $300 million or higher in sales revenue, and $36 million or higher in Non-GAAP net income (Non-GAAP Net Income=GAAP Net Income + non-cash stock-based compensation of about $6.5 million), or GAAP net income of above $29.5 million.
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. "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."
China's auto industry entered into a fast-developing period with huge growth potential. In the following years and decades, some industrial leaders, such as Wonder Auto, are facing a lot of M&A opportunities. The strategic framework agreements with the commercial banks will lay a solid foundation for Wonder Auto's fast growth in the future as well as for the potential M&As.
Since Wonder Auto acquired Jinan Worldwide in October 2008, our engine valve business in China has been developing strongly. Its sales have increased 13% from $41.11 million in 2008 to $46.58 million in 2009. We expect that revenue from this business segment for the first half of 2010 will be approximately $32.0 million as compared with $19.85 million in the first half 2009, with an year-over-year increase rate of 60%. In the first half 2010, our engine valve business utilized production capacity was at its peak production level and that the newly increased production capacity will establish a solid foundation for our future business development in this business segment. After our successful acquisitions and the sharing of each other's customer base with our newly acquired companies like Jinan Worldwide, Wonder Auto has been able and will continue to further expand its customer base and penetrate new end markets significantly in the future. As a result of this and our other business acquisitions, we achieved around a 44% CAGR growth rate of our sales revenue for the last five years. Finally, the recent development and expansion of our engine valve business has validated our management team's business plan for making successful key strategic acquisitions in China in order to bring more value to Wonder Auto and its shareholders.