omniture

China TMK Battery Systems Inc. Reports Third Quarter 2010 Financial Results

2010-11-17 20:08 1154

-- 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

 

Email: thaberfield@hcinternational.net

 
 



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
Consolidated Statements of Income
(Unaudited)
(In US Dollars)


 


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
Consolidated Statements of Cash Flows
(Unaudited)
(In US Dollars)


 


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


 

 
             


Source: China TMK Battery Systems Inc.
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