SHENZHEN, China, May 27 /PRNewswire-Asia/ --
-- Q1 2010 revenues increased 34.0% to $13.3 million
-- Q1 2010 adjusted income from operations increased 50.3% to $2.7 million,
with adjusted operating margins of 20.2% compared to 18.0% in Q1 2009.
-- Q1 2010 adjusted net income increased 52.0% to $2.0 million, or $0.07
per diluted share
SHENZHEN, China, May 27 /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 three month period ended March 31, 2010.
First Quarter 2010 Results (USD) (unaudited)
Three months ended March 31, 2010 2009 CHANGE
Sales $13.3 million $9.9 million +34.0%
Gross Profit $3.2 million $2.4 million +31.0%
GAAP Net Income $0.3 million $1.3 million -80.6%
Adjusted Net Income $2.0 million(1) $1.4 million +52.0%
GAAP Net Income Per Share $0.01 $0.05 -80.0%
Adjusted Net Income Per Share $0.07(1) $0.05 +40.0%
(1) Q1 2010 adjusted net income and adjusted net income per share exclude
approximately $1.8 million in one-time merger costs incurred in the
first quarter of 2010.
Please note: For more information about the non-GAAP financial measures contained in this press release, please see "About Non-GAAP Financial Measures" below.
First Quarter ended March 31, 2010
For the first quarter of 2010, sales revenue increased 34.0% to $13.3 million, from $9.9 million in the first quarter of 2009. The increase in revenue was due mainly to increased demand for TMK's products, from both existing and new customers and as a result of expanded marketing efforts. International sales comprised 3.0% sales while 97% of sales emanated from China. TMK currently has a maximum capacity of 200,000 battery cells per day, with monthly output of 1,500,000 pieces, and is currently operating above 95% capacity. The Company plans to increase its production capacity by adding two additional Ni-MH production lines providing additional capacity of 110,000 units per day, with operations starting in July 2010.
Total cost of sales increased by $2.6 million, or 34.7%, to $10.1 million for the first quarter of 2010, compared to $7.5 million in the same period last year. The increase was primarily a result of the increase in sales and was relatively consistent with the increase in sales revenue.
The Company's gross profit increased $0.8 million, or 31.0%, to $3.2 million in the three months ended March 31, 2010 compared to $2.4 million in first-quarter 2009, with gross margin of 23.8% compared to 24.4% for the respective periods. The decrease in gross margin is mainly due to increased production costs.
Operating expenses for the first quarter of 2010 were approximately $2.2 million in comparison to $0.6 million in the first quarter of 2009. The increase was mainly due to a one-time merger cost of approximately $1.8 million in the first quarter of 2010, reflected primarily in higher general and administrative expenses which were $1.8 million in the first quarter of 2010 as compared to $0.3 million in the same period last year. Selling expenses were $0.2 million, as compared to $0.2 million in the respective periods. Adjusted income from operations was $2.7 million for the first quarter of 2010, an increase of 50.3% from $1.8 million in the same period last year. Operating margin was 20.2% for the first quarter 2010, compared to 18.0% in the equivalent quarter last year.
Net income for the Company in the first quarter of 2010 was approximately $0.3 million, a decrease of $1.0 million, or 80.6%, from $1.3 million in the equivalent quarter last year. The decrease was due to the one-time merger cost of approximately $1.8 million in the first quarter of 2010. Diluted net income per share for the first quarter of 2010 was $.01 based on 26.8 million weighted average shares outstanding, as compared to diluted net income per share of $.05 for the first quarter of 2009, based on 25.2 million weighted average shares outstanding. Excluding the one-time merger cost of approximately $1.8 million, adjusted net income for the first quarter of 2010 was $2.0 million, or $.07 per diluted share. (See Reconciliation of GAAP Net Income to Adjusted Net Income below.)
"During the first quarter of 2010 we continued to receive customer orders in excess of our capacity as demand continues to be driven by rapid growth in consumer products which utilize environmentally friendly rechargeable batteries," stated Henian Wu, Chairman and President of the Company. "This $5 billion plus market worldwide for Ni-MH batteries contributed to our robust revenue and earnings growth during the quarter. To capitalize on this growth opportunity and to gain further market share in 2010, we are increasing our production capacity to accommodate new products, such as intelligent battery solutions, which provide controlled back-up power and address new market verticals, such as traffic technology and the telecommunication infrastructure grid. In addition, we have entered into an MOU to purchase a manufacturer of lithium ion batteries as we prepare to launch new products addressing the cellular phone, electronic device and electric vehicle markets."
Balance Sheet and Cash Flow
Cash and cash equivalents as of March 31, 2010 totaled $0.3 million, compared to $0.2 million at December 31, 2009. Accounts receivable stood at $5.6 million, a 91% increase from $2.9 million reported as of December 31, 2009. Days sales outstanding stood at 38 days compared to 27 days at the end of last year. As of March 31, 2010, the Company had $1.8 million in long-term loans and $3.7 million in short term loans. Stockholder's equity increased 50.5% to $23.6 million as of March 31, 2010 as compared to $15.7 million as of December 31, 2009.
For the three months ended March 31, 2010, cash used in operations totaled $1.1 million as compared to $2.7 million cash provided for the first quarter in 2009, which was primarily due to an increase in accounts receivable and prepaid expenses of $1.0 million which will positively impact cash flow in the second quarter.
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 http://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. Accordingly, 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.
Reconciliation of GAAP Net Income to Adjusted Net Income (Unaudited)
First Quarter Ended March 31, 2010 2009
GAAP Net (loss) income $257,866 $1,331,646
GAAP Income from Operations $918,329 $1,786,548
Non-GAAP
One-time merger related costs $1,766,000 --
Adjusted Income from Operations $2,684,329 $1,786,548
Adjusted Net income $2,023,866 $1,331,646
Weighted Average Shares Outstanding 26,849,979 25,250,000
Adjusted Net income Per Share $0.07 $0.05
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.
For more information, please contact:
For the Company:
Mr. Jin Hu, CFO
Tel: +86-158-10431091
Email: jin.hu99@yahoo.com
Investor Relations:
HC International, Inc.
Ted Haberfield, Executive VP
Tel: +1-760-755-2716
Email: thaberfield@hcinternational.net
- FINANCIAL TABLES -
China TMK Battery Systems Inc. and Subsidiaries
Consolidated Balance Sheets
March 31, December 31,
2010 2009
(Unaudited)
Assets
Current Assets
Cash and cash equivalents $289,361 $185,590
Trade receivables, net 5,554,914 2,909,234
Advances to suppliers 346,342 215,689
VAT recoverable 115,938 34,660
Inventories, net 3,680,244 3,973,697
Due from related parties 15,213 15,204
Prepaid expenses and other
receivables 1,007,486 --
Restricted cash 438,840 438,780
Total current assets 11,448,338 7,772,854
Property, equipment and
construction in progress, net 11,241,793 11,039,703
Advances for property and equipment
purchase 19,292,743 16,930,020
Restricted cash 263,304 263,268
Other assets 109,323 50,804
Deposit for business acquisition 3,172,656 --
Total Assets $45,528,157 $36,056,649
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $3,342,730 $1,832,737
Accrued liabilities and other payable 308,204 519,129
Customer deposits 271,143 179,272
Wages payable 505,334 556,189
Corporate tax payable 235,207 216,443
Short-term bank loan 3,688,371 4,722,660
Current portion of long-term bank loans 1,843,165 2,451,700
Deferred revenue 27,644 36,854
Due to related parties 1,120,611 17,691
Total current liabilities 11,342,409 10,532,675
Long-term bank loans 9,969,611 9,236,953
Deferred tax liabilities 594,058 593,977
Total Liabilities 21,906,078 20,363,605
Stockholders' Equity
Preferred stock, $0.001 par value,
10,000,000 shares authorized, none
issued and outstanding at March 31,
2010 and December 31, 2009 -- --
Common stock, $0.001 par value,
300,000,000 shares authorized,
34,171,000 and 25,250,000 shares
issued and outstanding at March
31, 2010 and December 31, 2009,
respectively 34,171 25,250
Common stock subscribed, 2,717,250
shares at March 31, 2010 2,717 --
Additional paid-in capital 11,737,406 1,193,591
Accumulated other comprehensive
income 397,405 365,187
Subscription receivables (1,406,502) --
Statutory reserves 1,038,988 1,038,988
Retained earnings (unrestricted) 11,817,894 13,070,028
Total stockholders' equity 23,622,079 15,693,044
Total Liabilities & Stockholders'
Equity $45,528,157 $36,056,649
China TMK Battery Systems Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
For the Three Months Ended
March 31,
2010 2009
Revenue $13,264,472 $9,900,656
Cost of Goods Sold (10,105,697) (7,488,805)
Gross Profit 3,158,775 2,411,851
Operating Costs and Expenses
Selling expenses 234,718 191,388
Depreciation 17,505 52,780
General and administrative 1,822,979 269,126
Research and development 165,244 112,009
Total operating expenses 2,240,446 625,303
Income from operations 918,329 1,786,548
Other income (expenses):
Interest expense, net (241,907) (219,252)
Other expense, net (60,381) (597)
Total other expenses (302,288) (219,849)
Income before income taxes 616,041 1,566,699
Income taxes (358,175) (235,053)
Net income $257,866 $1,331,646
Earnings per share - basic $0.01 $0.05
Weighed-average shares
outstanding, basic 26,472,055 25,250,000
Earnings per share - diluted $0.01 $0.05
Weighed-average shares
outstanding, diluted 26,849,979 25,250,000
China TMK Battery Systems Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months Ended
March 31,
2010 2009
Cash Flows From Operating
Activities
Net income $257,866 $1,331,646
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation expense 17,505 52,780
Common stocks for services provided 856,250 --
Deferred income (9,238) --
Changes in operating assets and
liabilities:
Trade receivables (2,645,680) (258,247)
Advance to suppliers (130,653) (118,660)
Inventories, net 295,135 (431,414)
Account payable - trade 1,509,993 1,172,094
Accrued liabilities and other
payables (210,925) 486,490
Customer deposits 91,871 220,668
Other assets (58,519) --
Prepaid expenses and other
receivables (1,007,486) (20,550)
Wages payable (50,855) 43,966
Various taxes payable (62,514) 186,568
Net cash used in (provided by)
operating activities (1,147,250) 2,665,341
Cash Flows From Investing
Activities
Change in restricted cash (96) (298,360)
Purchases and advances of property
and equipment (2,701,485) (5,257,505)
Deposit for Hualian acquisition (3,172,656) --
Collection of advances/loans -
related parties -- 10,806
Advances/loans - related parties -- (153,277)
Collection of short-term loan
receivable -- 747,697
Net cash used in investing
activities (5,874,237) (4,950,639)
Cash Flows From Financing
Activities
Borrowing from bank notes -- 2,930,200
Repayment of bank notes -- (1,069,523)
Borrowing from bank loans 1,973,161 7,206,677
Repayment of bank loans (2,887,878) (3,925,527)
Common stock subscribed 1,989,748 --
Net proceeds from share issuance 6,302,953 --
Distribution to former owners (1,510,000) (1,476,622)
Proceeds from related parties 1,120,611 --
Repayment to related parties (17,691) --
Net cash provided by financing
activities 6,970,904 3,665,205
Effect of exchange rate changes on
cash 154,354 (276,092)
Net increase (decrease) in cash and
cash equivalents 103,771 1,103,815
Cash and cash equivalents,
beginning of period 185,590 186,463
Cash and cash equivalents, end of
period $289,361 $1,290,278
-- --
Supplemental disclosure information:
Income taxes paid $339,411 $460
Interest paid $241,907 $219,252
