China TMK Battery Systems Inc. Reports Third Quarter 2011 Financial Results

SHENZHEN, China, Nov. 21, 2011 /PRNewswire-Asia-FirstCall/ -- China TMK Battery Systems Inc. (OTCQB: DFEL.OB) ("TMK" or "the Company"), a Chinese manufacturer and distributor of customized rechargeable battery solutions to global consumer product companies, today announced the Company's financial results for the third quarter ended September 30, 2011.

Third Quarter ended September 30, 2011

"During our third quarter of 2011 we continued to see solid revenue growth across our battery product lines," said Henian Wu, Chairman and President of TMK. "The demand for batteries to power consumer electronics, household products, and power tools in both China and globally continues to escalate. Our recent capacity expansion enables us to meet this robust demand while continuing to increase market share. We are also working closely with government to get approval on our acquisition of lithium battery producer Dongfang Hualian, which will expand our product line and enter a multi-billion dollar, rapidly growing global market."

For the third quarter of 2011, revenues increased 54% to $24.4 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 62% to $20.1 million for the third quarter of 2011, compared to the same period in 2010. Gross profit increased 30% to $5.3 million with gross margin of 20.8% in the third quarter, compared to $4.1 million and gross margin of 24.6% in 2010.

Operating expenses for the third quarter of 2011 were approximately $1.2 million in comparison to $1.0 million in the third quarter of 2010. Selling expenses remained consistent at $0.5 million compared to the previous year's period.

Income from operations was $4.1 million for the third quarter of 2011, up 35% from $3.0 million from the prior year's period and operating margins were 16.2% compared to 18.5% in 2010.

Net income for TMK in the third quarter of 2011 was approximately $3.7 million, up from $3.1 million in the same period last year. Adjusted net income for the quarter was $3.1 million, up 28% from $2.4 million in 2010. Excluding changes in the fair value of derivative liabilities, adjusted diluted earnings per share were $0.08 and $0.07 in the third quarter of 2011 and 2010, respectively, based on 36.9 million and 36.9 million weighted average shares outstanding.  

Nine Months ended September 30, 2011

For the nine months of 2011, revenues increased 52% to $70.7 million due primarily to the increase in customer demand, supported by higher production capacity. Total cost of sales increased by 53% to $51.8 million for the first nine months of 2011, compared to $35.9 million in the same period in 2010. Gross profit increased 50% to $15.9 million with gross margin of 22.5% in the nine months ending September 30, 2011, compared to $10.6 million and gross margin of 22.8% in 2010.

Operating expenses for the nine months ended September 30, 2011 were approximately $3.5 million in comparison to $4.9 million in the first nine months 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 $12.5 million for the first nine months of 2011, up 121% from $5.6 million from the prior year's period and operating margins were 17.7% compared to 12.2% in 2010. Excluding the one-time reverse merger expenses, operating margins were 15.5% in the nine months ended September 30, 2010.

Net income for TMK in the first nine months of 2011 was $10.7 million, up from $5.4 million in the same period last year. Adjusted net income for the nine months was $9.6 million, up 75% from $5.5 million in 2010, excluding changes in the fair value of derivative liabilities and merger cost. Adjust diluted earnings per share were $0.26 and $0.16 in the first nine months of 2011 and 2010, respectively.

Balance Sheet and Cash Flow

Cash and cash equivalents as of September 30, 2011 totaled $1.6 million compared to $0.4 million at December 31, 2010. Accounts receivable increased in direct relation to increased sales volumes and totaled $16.6 million at September 30, 2011 versus $12.4 million at year-end 2010.

TMK used approximately $1.5 million of cash flow from operations in the first nine months of 2011. At September 30, 2011, the Company had $29.0 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 reaffirms revenue guidance of $84 million and net income of $11 million. Guidance does not include contribution from proposed acquisition of Dongfang Hualian.

Business Update

In August 2011, TMK announced the acquisition of Dongfang Hualian, a leading manufacturer of lithium ion batteries used in consumer electronics products such as PCs and mobile devices, and in close proximity to TMK's existing facility. Upon government approval, 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. With a state-of-the-art production facility built in 2008 and 20 patents related to lithium ion battery technologies, Dongfang Hualian will expand TMK's product portfolio and customer base and provide economies of scale in terms of raw material purchasing and R&D.

The audited financial statements reported that Dongfang Hualian generated approximately $41 million in revenue and approximately $5.5 million in net income during 2010. Management expects Dongfang Hualian to achieve a net profit of approximately $9.3 million for the calendar year ending December 31, 2011.

Conference Call

TMK has rescheduled its third quarter 2011 financial results conference call to 10:00 am ET on Monday, November 21, 2011.

To attend the call, please use the information below for either dial-in access or webcast access. When prompted on dial-in, ask for "China TMK Battery Systems Third Quarter 2011 Conference Call".

Please dial in at least 10 minutes before the call to ensure timely participation. A playback will be available through November 30, 2011. To listen, please call +1-877-344-7529 within the United States or +1-412-317-0088 if calling internationally. Utilize the pass code 10006805 for the replay.

This call is being webcast by MZ Technologies and can be accessed by clicking on the following link: http://webcast.mz-ir.com/publico.aspx?codplataforma=3358.

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.

--FINANCIAL TABLES --

SOURCE China TMK Battery Systems Inc.