China TMK Battery Systems Inc. Reports Second Quarter 2011 Financial Results; Increased Full Year 2011 Revenue and Net Income Guidance

SHENZHEN, China, August 16, 2011 /PRNewswire-Asia-FirstCall/ -- 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 second quarter ended June 30, 2011.

Second Quarter ended June 30, 2011

"We delivered solid growth during our second quarter of 2011 which was driven by balanced demand across each of our product lines," stated Henian Wu, Chairman and President of TMK. "Increased production and sales of consumer electronics, household products, and power tools in China and globally is driving demand for rechargeable batteries. Our capacity expansion has enabled us to meet incremental customer demand and capture additional market share. The Hualian acquisition will enable us to capitalize on the rapid growth in the Lithium ion battery market, and additionally expand our diverse product line."

For the second quarter of 2011, revenues increased 50% to $25.1 million due primarily due to an increase of new customers, increased demand from existing customers, supported by increased production. Total cost of sales increased by 44% to $19.3 million for the second quarter of 2011, compared to the same period in 2010. Gross profit increased 71% to $5.8 million with gross margin of 23.1% in the second quarter, compared to $3.4 million and gross margin of 20.2% in 2010.

Operating expenses for the second quarter of 2011 were approximately $1.2 million in comparison to $1.7 million in the second quarter of 2010. Selling expenses decreased 8% to $0.5 million. The major reason was that the company had a one-time welfare paid to employees, excluding management level, as a consideration of their efforts to the Company's going public activity in second quarter of 2010.

Income from operations was $4.5 million for the second quarter of 2011, up 169% from $1.7 million from the prior year's period and operating margins were 18.1% compared to 10.1% in 2010.

Net income for TMK in the second quarter of 2011 was approximately $3.7 million, up from $2.5 million in the same period last year. Adjusted net income for the quarter was $3.5 million, up 190% from $1.2 million in 2010. Excluding changes in the fair value of derivative liabilities, adjusted diluted earnings per share were $0.10 and $0.03 in the second quarter of 2011 and 2010, respectively, based on 36.9 million and 36.6 million weighted average shares outstanding.

Six Months ended June 30, 2011

For the second half of 2011, revenues increased 51% to $45.4 million due primarily to the increase in customer demand, supported by higher production capacity. Total cost of sales increased by 48% to $34.7 million for the first second half of 2011, compared to $23.5 million in the same period in 2010. Gross profit increased 63% to $10.6 million with gross margin of 23.5% in the second half of 2011, compared to $6.5 million and gross margin of 21.8% in 2010.

Operating expenses for the six months ended June 30, 2011 were approximately $2.3 million in comparison to $3.9 million in the second half of 2010. The decrease is primarily due to $1.77 million of merger cost incurred in second quarter in 2010 in connection with the Company's reverse acquisition.

Income from operations was $8.4 million for the second half of 2011, up 221% from $2.6 million from the prior year's period and operating margins were 18.5% compared to 8.7% in 2010. Excluding the one-time reverse merger expenses, operating margins were 13.9% in the six months ended June 30, 2010.

Net income for TMK in the first half of 2011 was $7.1 million, up from $0.8 million in the same period last year. Adjusted net income for the six months was $6.5 million, up 113% from $3.0 million in 2010, excluding changes in the fair value of derivative liabilities and merger cost. Adjust diluted earnings per share were $0.18 and $0.09 in the first half of 2011 and 2010, respectively.

Balance Sheet and Cash Flow

Cash and cash equivalents as of June 30, 2011 totaled $8.9 million compared to $0.4 million at December 31, 2010. Accounts receivable increased in direct relation to increased sales volumes and totaled $15.0 million at June 30, 2011 versus $12.4 million at year-end 2010.

TMK used approximately $3.1 million of cash flow from operations in the first six months of 2011. At June 30, 2011, the Company had $28.7 million bank loans outstanding. The Company received approximately a $1.5 million line of credit from the Shenzhen branch of DBS Bank in April 2011. Additionally, the Company completed a $16 million preferred stock financing in May and June of 2011.

Guidance

For the full year ending December 31, 2011, management increased guidance and now expects revenues of $84 million and net income of $11 million.

Business Update

On August 16th, TMK announced it completed a share purchase agreement with Loyal Top Capital Investment Limited ("Loyal Top") on August 13 for the purchase of Shenzhen Dongfang Hualian Technology Co., Ltd. ("Dongfang Hualian"), a lithium battery producer which design, manufacture and sell lithium ion batteries. Under the terms of the purchase agreement, the Company will acquire 100% equity interest in Dongfang Hualian in exchange for a cash payment of approximately $11 million and 8.1 million shares of the Company's common stock. The audited financial statements reported that Dongfang Hualian generated approximately $41 million in revenue and approximately $5.5 million in net income during 2010. With a state-of-the-art production facility built in 2008 and 20 patents related to lithium ion battery technologies, Hualian provides TMK with an entry into a multi-billion dollar, rapidly growing global market opportunity.

Separately, On May 28, 2011 and June 20, 2011, the Company signed separate purchase agreements with China Development Industrial Bank and ZTE Energy Co., Ltd., respectively, for the two investors to purchase an aggregate of 8,000,000 shares of the Company's preferred stock convertible at $2 per share.

In the fourth quarter of 2011, TMK expects to commence road testing for its hybrid electric vehicle (HEV) battery pack which will center on both safety and functionality. It is estimated that growth in HEV batteries will be one of the major contributors to increased Ni-MH consumption and TMK is focused on participating in this opportunity.

Conference Call

Please note: Due to the pending registration statement, the Company's attorneys have advised management to not hold a question and answer session after management's prepared remarks. Instead, the Company is asking all investors to submit any questions they have regarding their operations and/or financial results for the second quarter results by the end of the day Tuesday, August 16th at midnight US EDT. The Company will consolidate the applicable questions and include these responses in the earnings call scheduled for 10:00 a.m. ET on Wednesday, August 17, 2011. Please send questions via email to Ted Haberfield of MZ-HCI at thaberfield@hcinternational.net. Management appreciates your understanding for the protocol covering this call.

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 proceeds from the private placement on the Company's short term business and operations, including the ability of the Company to significantly increase its Ni-MH battery manufacturing capacity and meet its current backlog of orders; the ability of the Company to introduce new battery types into its product portfolio while developing Lithium-Ion battery production capabilities, sustain aggressive growth in the coming years relative to its peers and position the Company a vertically integrated rechargeable battery supply solution provider; the general ability of the Company to achieve its commercial objectives, including the ability of the Company to sustain growth; 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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