SHENZHEN, China, May 17, 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 first quarter ended March 31, 2011.

First Quarter 2011 Results (USD) (unaudited)

Three months ended December 31            

2011

2010

CHANGE

Sales

$20.3 million

$13.3 million

+53%

Gross Profit

$4.9 million

$3.2 million

+54%

Net Income

$3.4 million

($1.5) million

N/A

Adjusted Net Income(1)

$3.0 million

$1.8 million

+63%

EPS

$0.09

($0.05)

N/A

Adjusted EPS(1)

$0.08

$0.06

33%

(1) Please see non-GAAP reconciliation below.





First Quarter ended March 31, 2011

"We are pleased to report a solid first quarter," stated Henian Wu, Chairman and President of TMK. "Demand is strong across each of our product lines and our recent capacity additions will allow us to capture incremental market share over the next few quarters and meet enhanced customer demand. We believe the Hualian acquisition will take us to the next level in terms of expanding our product portfolio, customer base, and production capabilities. We look forward to closing this transaction in the near term which will enable us to capitalize on rapid growth in the Lithium ion battery market."

For the first quarter of 2011, revenues increased 53% to $20.3 million due primarily to the increase was due to an increase of new customers, increased demand from existing customers, and increased production. Total cost of sales increased by 53% to $15.4 million for the first quarter of 2011, compared to $10.1 million in the same period in 2010. Gross profit increased 54% to $4.9 million with gross margin of 24.0% in the first quarter, compared to $3.2 million and gross margin of 23.8% in 2010.

Operating expenses this quarter were approximately $1.0 million in comparison to $2.2 million in the first quarter of 2010. Selling expenses increased 58% to $0.4 million due to higher salaries and commissions related to higher sales. Excluding one-time expenses related to the Company's reverse merger in the first quarter of 2010, general and administrative expenses were $0.4 million.

Income from operations was $3.8 million for the first quarter of 2011 with operating margins were 18.9% compared to 6.9% in 2010. Excluding the one-time reverse merger expenses, operating margins were 20.2% in the three months ended March 31, 2010.

Net income for TMK in the first quarter of 2011 was approximately $3.4 million, up from a net loss of $1.5 million in the same period last year, or $2.2 million on an adjusted basis. Diluted net income per share was $0.09 based on 36.9 million weighted average shares outstanding, as compared to diluted net loss per share of $0.05 for the first quarter of 2010, based on 30.2 million weighted average shares outstanding.  Excluding one-time reverse merger expenses and changes in the fair value of derivative liabilities, earnings per share were $0.08 and $0.06 in the first quarter of 2011 and 2010, respectively.

Balance Sheet and Cash Flow

Cash and cash equivalents as of March 31, 2011 totaled $0.7 million compared to $0.4 million at December 31, 2010. Accounts receivable increased in direct relation to increased sales volumes and totaled $13.9 million at March 31, 2011 versus $12.4 million at year-end 2010.

TMK generated approximately $1.1 million of cash flows from operations in the first three months of 2011. The Company incurred minimal capital expenditures and spent $0.9 million for a deposit related to the pending Hualian acquisition. At March 31, 2011, the Company had $18.7 million bank loans outstanding. Additionally, the Company received approximately a $1.5 million line of credit from the Shenzhen branch of DBS Bank in April 2011.

Business Review

In January 4, 2010 the Company entered into a Memorandum of Understanding (MOU) with Shenzhen DongFang Hualian Technology Ltd. ("Hualian"). Hualian is a leading manufacturer of lithium ion batteries used in consumer electronics products such as PCs and mobile devices. The Company paid a $9.4 million deposit during 2010 and a $0.9 million deposit in the first quarter of 2011, which are fully refundable if Hualian does not meet the Company's financial and operating criteria. The Company has completed its due diligence of Hualian's operations, while an audit of the financials by a PCAOB certified firm were also completed. Management is working through the final contract and expects to complete the acquisition by the end of May 2011.

The Company shipped to US based Alexis Power Supply, Inc. its first order of rechargeable Ni-MH battery packs used in telecommunications infrastructure applications and expects to increase sales in the next few months. The market opportunity to replace existing battery technology for back-up power is significant as Alexis Power expands its sales and marketing efforts.

In the third quarter of 2010, TMK successfully developed a working prototype of a hybrid electric vehicle (HEV) battery pack and expects to commence road testing in the second half year of 2011, 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.

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.

Reconciliation of GAAP Net Income to Adjusted Net Income (Unaudited)



Three Months Ended March 31

Q1 2011

Q1 2010

GAAP Net (loss) income                         

$ 3,385,972

($ 1,467,367)

Non-GAAP





One-time merger related cost               



1,566,000

Change in fair value of derivative liability

423,243

1,725,233

Adjusted Net income                             

$2,962,729

$1,823,866

Weighted Average Shares Outstanding

36,888,000

30,206,111

Adjusted Net income Per Share                             

$0.08

$0.06







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: +18688977631



Investor Relations:



HC International, Inc.

Ted Haberfield, Executive VP

Tel: +1-760-755-2716

Email: thaberfield@hcinternational.net





-- FINANCIAL TABLES –

China TMK Battery System Inc.





Consolidated Balance Sheets





(Stated in US dollars)







March 31, 2011

December 31, 2010



(Unaudited)









ASSETS





Current assets





Cash and cash equivalents

$658,598

$356,871

Short-term investment

-

1,512,400

Trade receivables, net

13,861,533

12,351,588

VAT recoverable

376,285

276,768

Inventories, net

6,262,645

4,973,989

Due from related parties

-

2,269

Prepaid expenses and other receivables

298,200

45,372

Advances to suppliers

561,056

528,509

Restricted cash

365,280

1,270,416

Deposit for business acquisition

10,325,084

9,397,891

Total Current Assets

32,708,681

30,716,073







Property, equipment and construction in

17,120,157

17,239,438

progress, net





Advances for property and equipment purchase

13,937,119

13,849,212

Other assets

46,682

46,516







TOTAL ASSETS

$63,812,639

$61,851,239

LIABILITIES & SHAREHOLDERS' EQUITY





Current Liabilities





Accounts payable

$4,278,295

$4,437,186

Accrued liabilities and other payable

1,181,487

576,164

Customer deposits

688,864

493,256

Wages payable

355,282

398,699

Corporate tax payable

658,894

210,717

Short-term loan

1,369,800

2,571,080

Current portion of long-term bank loans

7,032,069

5,159,422

Property purchase payable

502,511

499,342

Derivative liability

717,875

1,141,118

Due to related parties

15,987

19,695

Registration rights liability

411,450

411,450

Total Current Liabilities

17,212,514

15,918,129







Long-term bank loans

10,306,682

12,710,430

Deferred tax liability

598,374

598,520

Due to related parties

1,474,719

1,465,420

TOTAL LIABILITIES

$29,592,289

$30,692,499







SHAREHOLDERS' EQUITY





Preferred stock, $0.001 par value, 10,000,000 shares





authorized, none issued and outstanding at March 31,





2011 and December 31, 2010

$        -

$        -

Common stock, $0.001 par value, 300,000,000 shares





authorized, 36,888,000 shares issued and outstanding





at March 31, 2011 and December 31, 2010

36,888

36,888

Common stock subscribed

-

253

Additional paid-in capital

10,518,662

11,024,449

Accumulated other comprehensive income

1,388,873

1,207,195

Statutory reserves

1,038,988

1,038,988

Retained earnings (unrestricted)

21,236,939

17,850,967

TOTAL SHAREHOLDERS' EQUITY

34,220,350

31,158,740







TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$63,812,639

$61,851,239





China TMK Battery System Inc.

Consolidated Statements of Operations and Other Comprehensive Income

(Unaudited)

(Stated in US dollars)



For the three months ended March 31,



2011

2010







Sales revenue

$20,292,808

$13,264,472

Cost of goods sold

(15,426,800)

(10,105,697)

Gross profit

4,866,008

3,158,775

Operating costs and expenses





Selling expenses

371,988

234,718

Depreciation

60,719

17,505

Other general and administrative

417,714

1,822,979

expenses





Research and development

180,686

165,244

Total operating costs and expenses

1,031,107

2,240,446

Income from operations

3,834,901

918,329

Interest income

43

-

Interest expense

(294,964)

(241,907)

Change in fair value of derivative

423,243

(1,725,233)

liability





Other expense, net

(4,689)

(60,381)

Total other income (expenses)

123,633

(2,027,521)

Income (loss) before income taxes

3,958,534

(1,109,192)

Income taxes

(572,562)

(358,175)







Net income (loss)

$3,385,972

$(1,467,367)







Other comprehensive income





Foreign currency translation adjustments

181,678

32,218

Total Comprehensive income (loss)

$3,567,650

$(1,435,149)







Earnings (loss) per share - basic

$0.09

$(0.05)







Weighted-average shares outstanding,

36,888,000

30,206,111

basic











Earnings (loss) per share - diluted

$0.09

$(0.05)







Weighted-average shares outstanding,

36,888,000

31,310,314

diluted









China TMK Battery Systems Inc. and Subsidiaries





Consolidated Statements of Cash Flows





(Unaudited)





(In US Dollars)







For the Three Months Ended



March 31,



2011

2010







Cash Flows From Operating Activities











Net income (loss)

$3,385,972

$(1,467,367)

Adjustments to reconcile net income (loss) to net





cash provided by (used in) operating activities:





Depreciation

259,831

17,505

Deferred income

-

(9,238)

Deferred tax benefit

(3,935)

-

Change in fair value of derivative liability

(423,243)

1,725,233

Common stocks for service provided

-

856,250

Changes in operating assets and liabilities:





Accounts receivable

(1,427,781)

(2,645,680)

Advances to suppliers

(29,116)

(130,653)

Other receivable

(103,871)

-

Inventories, net

(1,253,780)

295,135

Accounts payable

(186,565)

1,509,993

Accrued liabilities and other payable

600,085

(210,925)

Customer deposits

191,971

91,871

Prepaid expenses and other receivables

(194,055)

(1,007,486)

Other assets

129

(58,519)

Wages payable

(45,827)

(50,855)

Various taxes payable

348,162

(62,514)

Net cash provided by (used in) operating activities

1,117,977

(1,147,250)







Cash Flows From Investing Activities





Change in restricted cash

910,800

(96)

Purchases and advances for property and equipment

(31,722)

(2,701,485)

Deposit for business acquisition

(865,260)

(3,172,656)

Collection of advances/loans - related parties

2,277

-

Proceeds from maturity of certificate of deposit

1,512,832

-

Net cash provided by (used in) investing activities

1,528,927

(5,874,237)







Cash Flows From Financing Activities





Borrowing from bank loans

1,214,400

1,973,161

Repayments of bank loans

(3,071,638)

(2,887,878)

Net proceeds from share issuance

(506,040)

6,302,953

Proceeds from common stock subscription

-

1,989,748

Distribution to former owners

-

(1,510,000)

Proceeds from related parties

37,562

1,120,611

Repayment to related parties

(41,288)

(17,691)

Net cash provided by(used in) financing activities

(2,367,004)

6,970,904





SOURCE China TMK Battery Systems Inc.

Copyright 2011 PR Newswire

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