China TMK Battery Systems Inc. Reports Record 2010 Financial Results

SHENZHEN, China, April 1, 2011 /PRNewswire-Asia/ -- China TMK Battery Systems Inc. (OTC Bulletin Board: DFEL) ("TMK" or the "Company") (formerly, Deerfield Resources, Ltd.), a Chinese manufacturer and distributor of customized rechargeable battery solutions to global consumer product companies, today announced the Company's financial results for the fourth quarter and full year ended December 31, 2010.

Fourth Quarter ended December 31, 2010

For the fourth quarter of 2010, revenues increased 38.8% to $19.9 million, as expanded sales efforts drove increased demand for TMK's products from both existing and new customers. An improved product mix and higher prices drove revenues during the quarter. The Company is currently operating with a maximum production capacity of 300,000 battery cells per day, as a result of the recent addition of two production lines.

Total cost of sales increased by 43.9% to $15.3 million for the fourth quarter of 2010, compared to the same period in 2009. Gross profit increased 24.7% to $4.7 million, with gross margin of 23.6% in the fourth quarter, compared to $3.8 million and gross margin of 26.6% in 2009.

Operating expenses this quarter were approximately $1.1 million, in comparison to $0.9 million in the fourth quarter of 2009, while selling expenses rose 25.1% to $0.4 million.

Income from operations increased 22.7% to $3.6 million for the fourth quarter of 2010, and operating margins were 17.9%, compared to 20.2% in 2009.

Net income for the Company in the fourth quarter of 2010 was approximately $2.4 million, an increase of 1.6% from the previous year.

Diluted net income per share for the fourth quarter of 2010 was $0.07, based on 36.9 million weighted average shares outstanding, as compared to diluted net income per share of $0.09 for the fourth quarter of 2009, based on 25.3 million weighted average shares outstanding. The higher share count resulted from the Company's 2010 capital raise.

Sales for the 12 months ended December 31, 2010 were a record $66.4 million, compared to $48.6 million in the same period in 2009, representing a 36.6% year-over-year increase. Higher production capacity and increased volumes were responsible for the increase. Approximately 94.6% of sales during the 2010 period were from the domestic market, with a majority of domestic customers being exporters, and 5.4% were from international markets.

Cost of sales for fiscal year 2010 increased by 40.4% to approximately $51.1 million, compared to approximately $36.5 million for the same period in 2009. Gross profit increased by 26.3% to approximately $15.3 million, compared to approximately $12.1 million for the same period in 2009, representing gross margins of approximately 23.0% and 24.9%, respectively.

Operating expenses for fiscal year 2010 were approximately $6.0 million, compared to $2.9 million for the same period in 2009, with $1.8 million in one-time merger costs impacting the 2010 results. The additional increase was mainly due to an increase in research and development expenses and a one-time bonus payment to employees during the period.

Income from operations increased slightly to $9.2 million and operating margins were 13.9%, compared to 19.0% in 2009.

GAAP net income for 2010 was approximately $6.3 million, a decrease of 15.6% from $7.5 million in 2009. Diluted net income per share for full year 2010 was $0.18, based on 35.1 million weighted average shares outstanding, as compared to diluted net income per share of $0.30 for 2009, based on 25.3 million weighted average shares outstanding. Adjusted net income, after deducting non-cash and one-time charges for 2010, was $9.9 million, or $0.28 per diluted share. (See Reconciliation of GAAP Net Income to Adjusted Net Income below.)

Balance Sheet and Cash Flow

Cash and cash equivalents as of December 31, 2010 totaled $0.4 million. Accounts receivable increased in direct relation to increased sales volumes and totaled $12.4 million at December 31, 2010, versus $2.9 million at the 2009 year-end.

Net cash used in investing activities for the 12 months ended December 31, 2010 was $14.2 million and included the deposit for the pending acquisition of the lithium battery manufacturer, Hualian, and property, plant and equipment purchases to expand production capacity.  The Company had $17.9 million in long term debt as of December 31, 2010 through several loans held from various banks which can be utilized for both working capital and capital expenditures. Total shareholders' equity was approximately $31.2 million as at December 31, 2010, with total assets of $61.9 million versus total liabilities of $30.7million.

Business Review

The Company successfully completed a reverse merger and a $6.9 million private placement in February 2010.

In January 4, 2010 the Company entered into a Memorandum of Understanding (MOU) with Shenzhen DongFang Hualian Technology Ltd. ("Hualian") to acquire Hualian, a leading manufacturer of lithium ion batteries used in consumer electronics products such as PCs and mobile devices in China. During 2010, the Company paid a $9.4 million good faith deposit towards the acquisition, which is fully refundable if Hualian does not meet the Company's financial and operating criteria. The Company has completed its due diligence of Hualian's financials and is in the process of completing a full review of its operations and facilities. Management expects to complete the acquisition by the end of the 2011 third quarter.

In July, the Company signed a 5-year exclusive distribution agreement with US based Alexis Power Supply, Inc. Production has commenced and the Company expects to ship initial orders for 480 rechargeable Ni-MH battery packs, to be used as back-up power supply sources in telecommunications infrastructure, during April 2011.

In the wake of the Company successful development of a working prototype of a hybrid electric vehicle (HEV) battery pack, during the 2010 third quarter the Company entered into letters of intent with two automobile companies in China for sales of the new product.

To better reflect the nature of the Company's business as a producer of high rate discharge Nickel Metal Hydride ("Ni-MH") multi-cell batteries, the Company changed its name to China TMK Battery Systems Inc.

"2010 was a fruitful year for TMK," remarked Henian Wu, the Company's Chairman and President. "We are becoming an emerging player in the $5 billion global Ni-MH battery market, which we believe is expanding due to strong demand for rechargeable consumer devices. With greater production capacity, an expanded R&D team focused on new product introductions and an enhanced sales and marketing staff, we are well positioned to benefit from both domestic and global demand."

About China TMK Battery Systems Inc.

Based in Shenzhen, PRC and founded in 1999, TMK manufactures and distributes high rate discharge Nickel Metal Hydride ("Ni-MH") multi-cell batteries in its manufacturing facility located in Shenzhen, China. TMK maintains a diverse roster of large, consumer-focused clients with major production facilities in China. The Company works with its clients throughout the product design cycle to develop and integrate reliable and long-lasting rechargeable power solutions for widely used consumer products, which include home appliances, cordless power tools, medical devices, multiple personal communication devices and electric bicycles segments. The Company is also focused on becoming a supplier of back-up power solutions to the telecommunications industry and for traffic lighting applications. Corporate Information can be found at www.tmk-battery.com and investor information can be found at http://ir.stockpr.com/tmk-battery/  

About Non-GAAP Financial Measures

The following table excludes from net income certain items related to the cost of the share exchange agreement China TMK Battery Systems Inc. entered into with Leading Asia on February 10, 2010, which was treated as a reverse acquisition. The Company believes that these non-GAAP financial measures are useful to investors because they exclude non-cash charges that management excludes when it internally evaluates the performance of the Company's business and makes operating decisions, including internal budgeting, and performance measurement, because these measures provide a consistent method of comparison to historical periods. Moreover, management believes these non-GAAP measures reflect the essential operating activities of China TMK Battery Systems Inc. As such, management excludes these items when making operational decisions. The Company believes that providing to its investors the non-GAAP measures that management uses is useful to investors for a number of reasons. The non-GAAP measures provide a consistent basis for investors to understand the Company's financial performance in comparison to historical periods. In addition, it allows investors to evaluate the Company's performance using the same methodology and information as that used by our management. Non-GAAP measures are subject to inherent limitations because they do not include all of the expenses included under GAAP and because they involve the exercise of judgment of which charges are excluded from the non-GAAP financial measure. However, our management compensates for these limitations by providing the relevant disclosure of the items excluded.

Cautionary Statement Regarding Forward Looking Information

This press release may contain certain "forward-looking statements" relating to the business of China TMK Battery Systems Inc., and its subsidiary companies. All statements, other than statements of historical fact included herein are "forward-looking statements" including statements regarding: the impact of the increase in the revenue and adjusted net income of the Company on the Company's business and operations; the general ability of the Company to achieve its commercial objectives; the business strategy, plans and objectives of the Company and its subsidiaries; and any other statements of non-historical information. These forward-looking statements are often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions, involve known and unknown risks and uncertainties. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. 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 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.

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