-- Q3 2010 revenues increased 26.5% to $16.5 million
-- Q3 2010 net income increased 52.5% to $3.1 million, or $0.08 per share
-- Introduces hybrid electric vehicle (HEV) battery pack prototype
SHENZHEN, China, Nov. 17, 2010 /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 three month period ended September 30, 2010.
Third Quarter 2010 Results (USD) (unaudited) |
||||
Three months ended September 30 |
2010 |
2009 |
CHANGE |
|
Sales |
$16.5 million |
$13.0 million |
+26.5% |
|
Gross Profit |
$4.1 million |
$3.1 million |
+29.2% |
|
Net Income |
$3.1 million |
$2.0 million |
+52.5% |
|
Net Income Per Share |
$.08 |
$.08 |
-- |
|
Third Quarter ended September 30, 2010
For the third quarter of 2010, revenues increased 26.5% to $16.5 million, from $13.0 million in the third quarter of 2009. Increased demand for TMK's products, from both existing and new customers resulted from the Company's expanded sales and marketing efforts. The Company has a maximum production capacity of 300,000 battery cells per day, which was recently expanded through the addition of two production lines.
Total cost of sales increased by 25.7%, to $12.4 million for the third quarter of 2010, compared to the same year ago period. The Company's gross profit increased 29.2% to $4.1 million with gross margin of 24.6% in the third quarter, compared to $3.1 million and gross margin of 24.1% in same year ago period.
Operating expenses for the third quarter of 2010 were approximately $1.0 million in comparison to $0.8 million in the third quarter of 2009. Selling expenses were $0.4 million, as compared to $0.3 million in the respective periods.
Income from operations increased 27.4%, to $3.0 million for the third quarter of 2010 and operating margins were 18.5% compared to 18.3% in the year ago period. Other income of $0.6 million related to a non cash gain for a change in derivative liability benefited the quarter with no such gain or charge in the year ago period.
Net income for the Company in the third quarter of 2010 was approximately $3.1 million, an increase of $1.1 million, or 52.5%, over the same year ago period. Diluted net income per share for the third quarter of 2010 was $0.08 based on 36.9 million weighted average shares outstanding, as compared to diluted net income per share of $0.08 for the third quarter of 2009, based on 25.3 million weighted average shares outstanding. The effective tax rate for the Company for the three months ended September 30, 2010 and 2009 was 8.9% and 14.5%, respectively.
"The secular growth for consumer products which utilize environmentally friendly rechargeable batteries continues to benefit our Company. Robust growth during the third quarter was driven by market share gains in China through larger orders from several existing customers and new customers," stated Henian Wu, Chairman and President of the Company. "We expect to receive our first order of TMK 'intelligent battery' packs from our partner Alexis Power in December 2010 and ship to the States during the first quarter of 2011, who is marketing this product for various industrial applications, including telecommunications, solar, railroad and traffic control systems in both the US and abroad. With additional capacity recently coming online, we are optimistic about this and other new products driving incremental organic growth during 2011. In addition, we are working diligently to launch new products such as battery packs for HEVs which address large and rapidly growing markets."
Nine Months 2010 Financial Results
Nine Months 2010 Results (USD) (unaudited) |
||||
Nine months ended September 30 |
2010 |
2009 |
CHANGE |
|
Sales |
$46.5 million |
$34.3 million |
+35.6% |
|
Gross Profit |
$10.6 million |
$8.3 million |
+27.0% |
|
Net Income |
$3.9 million |
$5.1 million |
-24.3% |
|
Adjusted Net Income |
$6.9 million |
$5.1 million |
+28.0% |
|
GAAP Net Income Per Share |
$.11 |
$.20 |
-45.0% |
|
Adjusted Net Income Per Share |
$.19 |
$.20 |
-11.7% |
|
Please note: For more information about the non-GAAP financial measures contained in this press release, please see "About Non-GAAP Financial Measures" below. |
||||
Sales for the first nine months of 2010 were $46.5 million compared to $34.3 million in the same period in 2009, an increase of $12.2 million, or 35.6%, and was driven by higher production to meet customer and growing market demand. 94% of the sales were domestic and 6% were international, while a majority of domestic customers are export oriented.
Cost of sales for the nine months ended September 30, 2010 increased 38.3% to approximately $35.9 million, and included a one-time bonus of $0.7 million to employees during the second quarter. Gross profit was $10.6 million for the nine months ended September 30, 2010 as compared to approximately $8.3 million for the same period in 2009, representing gross margins of approximately 22.8% and 24.3%, respectively.
Operating expenses for the first nine months of 2010 were approximately $4.9 million in comparison to $2.0 million in the first nine months 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 $3.0 million in the first nine months of 2010 as compared to $0.9 million in the same period last year.
Income from operations decreased 10.7%, to $5.6 million for the first nine months of 2010 and operating margins were 12.2% compared to 18.5% in the year ago period. On an adjusted basis, operating income would have increased 29.6% year-over-year to $8.7 million, with operating margins of 17.4%.
GAAP Net income for the first nine months of 2010 was approximately $3.9 million, a decrease of 24.3% from $5.1 million in the equivalent nine months last year, and was directly related to the one-time merger cost of approximately $1.8 million in the first quarter of 2010. GAAP diluted net income per share for the first nine months of 2010 was $0.11 based on 34.7 million weighted average shares outstanding, as compared to diluted net income per share of $0.20 for the first nine months of 2009, based on 25.3 million weighted average shares outstanding. Adjusted net income, excluding the one-time merger costs and one time bonus, for the first nine months of 2010 was $6.4 million, or $0.18 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 September 30, 2010 totaled $5.4 million. Accounts receivable increased to support higher sales volumes and totaled $7.8 million at September 30, 2010 versus $2.9 million at year-end 2009. Days Sales Outstanding for the period was 45 days compared to 23 days in the year ago period. On an operating basis, the Company was cash flow neutral for the first nine month period. Net cash used in investing activities for the nine months ended September 30, 2010 was $6.2 million and included the deposit paid on the pending acquisition of the lithium battery manufacturer, Hualian, and property, plant and equipment purchases to expand capacity. TMK had $17.6 million in long term debt on September 30, 2010 through several loans held from various banks which can be utilized for both working capital and capital expenditures. Total shareholders' equity was approximately $27.9 million at September 30, 2010, with total assets of $54.6 million versus total liabilities of $26.7 million.
Business Update
We have successfully developed a working prototype of a hybrid electric vehicle (HEV) battery pack and are producing sample cells for testing. To expand our business into clean vehicle markets, we plan to establish an advanced power battery research and development center in the future, which will include a battery-production base for small scale testing and production. Our goal is to complete a successful demonstration point with one to three vehicle producers to lay a solid foundation for the approval of the project and for the support of the government, where significant funding is being allocated in the PRC.
We are also actively seeking opportunities to expand into the Lithium-Ion battery space where we can leverage our lithium battery patent and production capabilities to meet the demand of existing customers who purchase large quantities of both types of batteries.
We are pursuing opportunities to design and distribute batteries for use in telecommunications, traffic control, and traffic lighting applications. We have developed working prototypes of both nickel-metal hydride and Lithium-Ion battery specifically for these applications and have already shipped samples to several customers who are currently testing.
To support this growth opportunity, TMK entered into an MOU in January of this year with Shenzhen DongFang Hualian Technology Ltd. ("Hualian"), a Lithium-Ion battery producer with approximately $30 million in annual revenues. The Company made a $3.2 million refundable deposit and expects to complete due diligence by the end of this year. If the net income of Hualian does not surpass $4.1 million TMK can terminate the agreement and receive its deposit back in full.
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. 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) |
|||
Nine Months Ended September 30, |
2010 |
2009 |
|
GAAP Net (loss) income |
$ 3,853,393 |
$ 5,093,083 |
|
Non-GAAP |
|||
One-time merger related cost |
$1,765,805 |
-- |
|
One-time employee incentive related cost |
$1,504,220 |
-- |
|
Change in derivative liability |
$36,570 |
-- |
|
Income tax reduction related to employee incentive compensation |
$(225,633) |
-- |
|
Adjusted Net income |
$ 6,934,355 |
$5,093,083 |
|
Weighted Average Shares Outstanding |
36,913,320 |
25,250,000 |
|
Adjusted Net income Per Share |
$0.19 |
$0.20 |
|
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: +186-88977631 |
|
Investor Relations: |
|
HC International, Inc. |
|
Ted Haberfield, Executive VP |
|
Tel: +1-760-755-2716 |
|
China TMK Battery Systems Inc. and Subsidiaries Consolidated Balance Sheets |
|||||||
September 30, |
December 31, |
||||||
2010 |
2009 |
||||||
(Unaudited) |
|||||||
Assets |
|||||||
Current Assets |
|||||||
Cash and cash equivalents |
$ |
5,416,248 |
$ |
185,590 |
|||
Trade receivables, net |
7,750,879 |
2,909,234 |
|||||
VAT recoverable |
146,625 |
34,660 |
|||||
Inventories, net |
4,423,742 |
3,973,697 |
|||||
Due from related parties |
- |
15,204 |
|||||
Prepaid expenses and other receivables |
59,785 |
- |
|||||
Advances to suppliers |
1,110,087 |
215,689 |
|||||
Restricted cash |
895,800 |
438,780 |
|||||
Total current assets |
19,803,166 |
7,772,854 |
|||||
Property, equipment and construction in progress, net |
16,149,587 |
11,039,703 |
|||||
Advances for property and equipment purchase |
14,932,564 |
16,930,020 |
|||||
Restricted cash |
358,320 |
263,268 |
|||||
Deposit for business acquisition |
3,238,157 |
- |
|||||
Other assets |
96,853 |
50,804 |
|||||
Total Assets |
$ |
54,578,647 |
$ |
36,056,649 |
|||
Liabilities and Shareholders' Equity |
|||||||
Current Liabilities |
|||||||
Accounts payable |
$ |
2,348,691 |
$ |
1,832,737 |
|||
Accrued liabilities and other payable |
327,913 |
519,129 |
|||||
Customer deposits |
1,480,948 |
179,272 |
|||||
Wages payable |
471,330 |
556,189 |
|||||
Corporate tax payable |
- |
216,443 |
|||||
Short-term loan |
- |
4,722,660 |
|||||
Current portion of long-term bank loans |
630,494 |
2,451,700 |
|||||
Property purchase payable |
492,936 |
- |
|||||
Deferred revenue |
9,405 |
36,854 |
|||||
Due to related parties |
1,447,110 |
17,691 |
|||||
Total current liabilities |
7,208,827 |
10,532,675 |
|||||
Long-term bank loans |
17,640,442 |
9,236,953 |
|||||
Deferred tax liabilities |
606,323 |
593,977 |
|||||
Derivative liability |
1,255,314 |
- |
|||||
Total Liabilities |
26,710,906 |
20,363,605 |
|||||
Stockholders' Equity |
|||||||
Preferred stock, $0.001 par value, 10,000,000 shares |
|||||||
authorized, none issued and outstanding at September 30, 2010 |
|||||||
and December 31, 2009 |
- |
- |
|||||
Common stock, $0.001 par value, 300,000,000 shares authorized, |
|||||||
36,888,000 and 25,250,000 shares issued and outstanding |
|||||||
at September 30, 2010 and December 31, 2009, respect |
36,888 |
25,250 |
|||||
Common stock subscribed, |
- |
- |
|||||
Additional paid-in capital |
10,518,662 |
1,193,591 |
|||||
Accumulated other comprehensive income |
859,782 |
365,187 |
|||||
Distribution to owners |
(2,986,622) |
(1,476,622) |
|||||
Statutory reserves |
1,038,988 |
1,038,988 |
|||||
Retained earnings (unrestricted) |
18,400,043 |
14,546,650 |
|||||
Total stockholders' equity |
27,867,741 |
15,693,044 |
|||||
Total Liabilities & Stockholders' Equity |
$ |
54,578,647 |
$ |
36,056,649 |
|||
China TMK Battery Systems Inc. and Subsidiaries |
|||||||||||||
For the Three Months Ended |
For the Nine Months Ended |
||||||||||||
September 30, |
September 30, |
||||||||||||
2010 |
2009 |
2010 |
2009 |
||||||||||
Revenue |
$ |
16,460,230 |
$ |
13,008,546 |
$ |
46,479,420 |
$ |
34,286,978 |
|||||
Cost of Goods Sold |
(12,407,686) |
(9,872,563) |
(35,888,821) |
(25,950,963) |
|||||||||
Gross Profit |
4,052,544 |
3,135,983 |
10,590,599 |
8,336,015 |
|||||||||
Operating Costs and Expenses |
|||||||||||||
Selling expenses |
435,879 |
257,409 |
1,168,685 |
653,713 |
|||||||||
Depreciation |
64,927 |
28,601 |
131,506 |
86,999 |
|||||||||
General and administrative |
356,844 |
325,739 |
2,991,466 |
890,921 |
|||||||||
Research and development |
156,729 |
140,110 |
650,123 |
377,870 |
|||||||||
Total operating expenses |
1,014,379 |
751,859 |
4,941,780 |
2,009,503 |
|||||||||
Income from operations |
3,038,165 |
2,384,124 |
5,648,819 |
6,326,512 |
|||||||||
Other income (expenses): |
|||||||||||||
Interest expense |
(318,540) |
(91,983) |
(805,330) |
(404,148) |
|||||||||
Change in fair value of derivative liability |
627,803 |
- |
(36,570) |
- |
|||||||||
Other expense, net |
(168) |
(58,930) |
(60,523) |
(59,608) |
|||||||||
Gain on acquisition of business |
- |
106,350 |
- |
106,350 |
|||||||||
Total other income (expenses) |
309,095 |
(44,563) |
(902,423) |
(357,406) |
|||||||||
Income before income taxes |
3,347,260 |
2,339,561 |
4,746,396 |
5,969,106 |
|||||||||
Income taxes |
(296,445) |
(338,633) |
(893,003) |
(876,023) |
|||||||||
Net income |
$ |
3,050,815 |
$ |
2,000,928 |
$ |
3,853,393 |
$ |
5,093,083 |
|||||
Earnings per share - basic |
$ |
0.08 |
$ |
0.08 |
$ |
0.11 |
$ |
0.20 |
|||||
Weighted-average shares outstanding, basic |
36,888,000 |
25,250,000 |
34,426,418 |
25,250,000 |
|||||||||
Earnings per share - diluted |
$ |
0.08 |
$ |
0.08 |
$ |
0.11 |
$ |
0.20 |
|||||
Weighted-average shares outstanding, diluted |
$ |
36,913,320 |
25,250,000 |
$ |
34,669,132 |
25,250,000 |
|||||||
China TMK Battery Systems Inc. and Subsidiaries |
|||||||
For the Nine Months Ended |
|||||||
September 30, |
|||||||
2010 |
2009 |
||||||
Cash Flows From Operating Activities |
|||||||
Net income |
$ |
3,853,393 |
$ |
5,093,083 |
|||
Adjustments to reconcile net income to net cash provided by operating activities: |
|||||||
Depreciation expense |
530,056 |
291,017 |
|||||
Gain on business acquisition |
- |
(106,321) |
|||||
Gain on assets impairment adjustment |
- |
(77,178) |
|||||
Deferred tax benefit |
- |
(5,067) |
|||||
Change in fair value of derivative liability |
36,570 |
||||||
Common stocks for service provided |
856,250 |
- |
|||||
Deferred income |
(27,799) |
(7,387) |
|||||
Changes in operating assets and liabilities: |
|||||||
Account receivable-trade |
(4,710,724) |
634,695 |
|||||
Advance to suppliers for purchases |
(876,802) |
(225,660) |
|||||
Inventories, net |
(362,038) |
(699,156) |
|||||
Account payable - trade |
470,819 |
659,247 |
|||||
Accrued liabilities and other payables |
(199,029) |
147,112 |
|||||
Customer deposits |
1,278,824 |
300,514 |
|||||
Prepaid expense and other receivables |
(58,904) |
- |
|||||
Other Payable |
- |
(396,711) |
|||||
Wages payable |
(94,999) |
244,953 |
|||||
Various taxes payable |
(327,291) |
165,861 |
|||||
Other Assets |
(44,330) |
7,530 |
|||||
Net cash used in operating activities |
323,996 |
6,026,532 |
|||||
Cash Flows From Investing Activities |
|||||||
Change in restricted cash |
(529,560) |
150,546 |
|||||
Purchases and advance for property and equipment |
(2,538,393) |
(13,421,614) |
|||||
Purchase of Borou, net of cash acquired |
- |
(3,059,310) |
|||||
Deposit for Hualian acquisition |
(3,190,441) |
- |
|||||
Collection of advances/loans - related parties |
15,204 |
10,806 |
|||||
Advances/loans - related parties |
- |
(15,210) |
|||||
Collection of short-term loan receivable |
- |
1,172,720 |
|||||
Net cash used in investing activities |
(6,243,190) |
(15,162,062) |
|||||
Cash Flows From Financing Activities |
|||||||
Borrowing from bank notes |
- |
2,931,800 |
|||||
Repayment of bank notes |
- |
(4,001,907) |
|||||
Borrowing from bank loans |
10,786,027 |
17,083,449 |
|||||
Repayments of bank loans |
(9,289,887) |
(5,733,650) |
|||||
Net proceeds from share issuance |
9,699,203 |
- |
|||||
Distribution to former owners |
(1,481,557) |
(1,476,622) |
|||||
Proceeds from related parties |
1,446,725 |
396,586 |
|||||
Repayment to related parties |
(17,691) |
(8,610) |
|||||
Net cash provided by financing activities |
11,142,820 |
9,191,046 |
|||||
Effect of exchange rate changes on cash |
7,032 |
78,864 |
|||||
Net increase (decrease) in cash and cash equivalents |
5,230,658 |
134,380 |
|||||
Cash and cash equivalents, beginning of period |
185,590 |
186,463 |
|||||
Cash and cash equivalents, end of period |
$ |
5,416,248 |
$ |
320,843 |
|||
Supplemental disclosure information: |
|||||||
Income taxes paid |
$ |
1,109,446 |
$ |
737,400 |
|||
Interest paid |
$ |
805,504 |
$ |
404,158 |
|||