China TMK Battery Systems Inc. Reports Second Quarter 2011 Financial Results; Increased Full Year 2011 Revenue and Net Income Guidance

-- Q2 2011 revenue increased 50% to $25.1 million

-- Q2 2011 Gross Margins increased 290 basis points to 23.1%, Operating Margins up 800 basis points to 18.1%

-- Q2 2011 adjusted Net Income increased 190% to$3.5 million with adjusted EPS of $0.10

-- 1H 2011 adjusted Net Income increased 113% to $6.5 million with adjusted EPS up 690% to $0.19

-- Raised full year 2011 guidance: Above $84 million in revenues and above $11 million in adjusted net income

-- Management to host earnings conference call on Wednesday, August 17 at 10:00am ET

Aug 16, 2011, 09:37 ET from China TMK Battery Systems Inc.

SHENZHEN, China, Aug. 16, 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 second quarter ended June 30, 2011.

Second Quarter 2011 Results (USD) (unaudited)

Three months ended June 30            

2011

2010

CHANGE

Sales

$25.1 million

$16.8 million

+50%

Gross Profit

$5.8 million

$3.4 million

+71%

Net Income

$3.7 million

$2.3 million

+62%

Adjusted Net Income(1)

$3.5 million

$1.2 million

+190%

EPS

$0.10

$0.06

+67%

Adjusted EPS(1)

$0.10

$0.03

+188%

(1) Please see non-GAAP reconciliation below.

Second Quarter ended June 30, 2011

"We delivered solid growth during our second quarter of 2011 which was driven by balanced demand across each of our product lines," stated Henian Wu, Chairman and President of TMK. "Increased production and sales of consumer electronics, household products, and power tools in China and globally is driving demand for rechargeable batteries. Our capacity expansion has enabled us to meet incremental customer demand and capture additional market share. The Hualian acquisition will enable us to capitalize on the rapid growth in the Lithium ion battery market, and additionally expand our diverse product line."

For the second quarter of 2011, revenues increased 50% to $25.1 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 44% to $19.3 million for the second quarter of 2011, compared to the same period in 2010. Gross profit increased 71% to $5.8 million with gross margin of 23.1% in the second quarter, compared to $3.4 million and gross margin of 20.2% in 2010.

Operating expenses for the second quarter of 2011 were approximately $1.2 million in comparison to $1.7 million in the second quarter of 2010. Selling expenses decreased 8% to $0.5 million. The major reason was that the company had a one-time welfare paid to employees, excluding management level, as a consideration of their efforts to the Company's going public activity in second quarter of 2010.

Income from operations was $4.5 million for the second quarter of 2011, up 169% from $1.7 million from the prior year's period and operating margins were 18.1% compared to 10.1% in 2010.

Net income for TMK in the second quarter of 2011 was approximately $3.7 million, up from $2.5 million in the same period last year. Adjusted net income for the quarter was $3.5 million, up 190% from $1.2 million in 2010. Excluding changes in the fair value of derivative liabilities, adjusted diluted earnings per share were $0.10 and $0.03 in the second quarter of 2011 and 2010, respectively, based on 36.9 million and 36.6 million weighted average shares outstanding.  

Six Months ended June 30, 2011

Six Months 2011 Results (USD) (unaudited)

Six months ended June 30            

2011

2010

CHANGE

Sales

$45.4 million

$30.0 million

+51%

Gross Profit

$10.6 million

$6.5 million

+63%

Net Income

$7.1 million

$0.8 million

+779%

Adjusted Net Income(1)

$6.5 million

$3.0 million

+113%

EPS

$0.19

$0.02

+690%

Adjusted EPS(1)

$0.18

$0.09

+96%

(1) Please see non-GAAP reconciliation below.

For the second half of 2011, revenues increased 51% to $45.4 million due primarily to the increase in customer demand, supported by higher production capacity. Total cost of sales increased by 48% to $34.7 million for the first second half of 2011, compared to $23.5 million in the same period in 2010. Gross profit increased 63% to $10.6 million with gross margin of 23.5% in the second half of 2011, compared to $6.5 million and gross margin of 21.8% in 2010.

Operating expenses for the six months ended June 30, 2011 were approximately $2.3 million in comparison to $3.9 million in the second half 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 $8.4 million for the second half of 2011, up 221% from $2.6 million from the prior year's period and operating margins were 18.5% compared to 8.7% in 2010. Excluding the one-time reverse merger expenses, operating margins were 13.9% in the six months ended June 30, 2010.

Net income for TMK in the first half of 2011 was $7.1 million, up from $0.8 million in the same period last year. Adjusted net income for the six months was $6.5 million, up 113% from $3.0 million in 2010, excluding changes in the fair value of derivative liabilities and merger cost. Adjust diluted earnings per share were $0.18 and $0.09 in the first half of 2011 and 2010, respectively.

Balance Sheet and Cash Flow

Cash and cash equivalents as of June 30, 2011 totaled $8.9 million compared to $0.4 million at December 31, 2010. Accounts receivable increased in direct relation to increased sales volumes and totaled $15.0 million at June 30, 2011 versus $12.4 million at year-end 2010.

TMK used approximately $3.1 million of cash flow from operations in the first six months of 2011. At June 30, 2011, the Company had $28.7 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 increased guidance and now expects revenues of $84 million and net income of $11 million.

Business Update

On August 16th, TMK announced it completed a share purchase agreement with Loyal Top Capital Investment Limited ("Loyal Top") on August 13 for the purchase of Shenzhen Dongfang Hualian Technology Co., Ltd. ("Dongfang Hualian"), a lithium battery producer which design, manufacture and sell lithium ion batteries. Under the terms of the purchase agreement, 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. The audited financial statements reported that Dongfang Hualian generated approximately $41 million in revenue and approximately $5.5 million in net income during 2010. With a state-of-the-art production facility built in 2008 and 20 patents related to lithium ion battery technologies, Hualian provides TMK with an entry into a multi-billion dollar, rapidly growing global market opportunity.

Separately, On May 28, 2011 and June 20, 2011, the Company signed separate purchase agreements with China Development Industrial Bank and ZTE Energy Co., Ltd., respectively, for the two investors to purchase an aggregate of 8,000,000 shares of the Company's preferred stock convertible at $2 per share.

In the fourth quarter of 2011, TMK expects to commence road testing for its hybrid electric vehicle (HEV) battery pack 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.

Conference Call

Conference Call

Date:

Wednesday, August 17, 2011

Time:

10:00 am Eastern Time, US

Conference Line Dial-In (U.S.):

+1-877-317-6776

International Dial-In:

+1-412-317-6776

Asia Dial-In:

Northern China: 10-800-712-2304 Southern China: 10-800-120-2304 Hong Kong: 800-962475

Conference ID:

TMK Battery’s Second Quarter 2011 Conference Call

Webcast link:

http://webcast.mz-ir.com/publico.aspx?codplataforma=3101

Please note: Due to the pending registration statement, the Company’s attorneys have advised management to not hold a question and answer session after management’s prepared remarks. Instead, the Company is asking all investors to submit any questions they have regarding their operations and/or financial results for the second quarter results by the end of the day Tuesday, August 16th at midnight US EDT. The Company will consolidate the applicable questions and include these responses in the earnings call scheduled for 10:00 a.m. ET on Wednesday, August 17, 2011. Please send questions via email to Ted Haberfield of MZ-HCI at thaberfield@hcinternational.net.  Management appreciates your understanding for the protocol covering this call.

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 June 30

Q2 2011

Q2 2010

GAAP Net (loss) income                         

$3,666,190

$2,269,945

Non-GAAP

Change in fair value of derivative liability

(154,758)

(1,060,860)

Adjusted Net income                             

$3,511,432

$1,209,085

Weighted Average Shares Outstanding

36,888,000

36,551,841

Adjusted Net income Per Share                             

$0.10

$0.03

Six Months Ended June 30

1H 2011

1H2010

GAAP Net (loss) income                         

$7,052,162

$802,578

Non-GAAP

One Time Merger related cost

1,566,000

Change in fair value of derivative liability

(578,001)

664,373

Adjusted Net income                             

$6,474,161

$3,032,951

Weighted Average Shares Outstanding

36,888,000

33,833,547

Adjusted Net income Per Share                             

$0.18

$0.09

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:

MZ-HCI

Ted Haberfield, President

Tel: +1-760-755-2716

Email: thaberfield@hcinternational.net

-- FINANCIAL TABLES –

China TMK Battery System Inc.

Consolidated Balance Sheets

(Stated in US dollars)

June 30, 2011

December 31, 2010

(Unaudited)

ASSETS

Current assets

Cash and cash equivalents

$ 8,900,046

$ 356,871

Short-term investment

9,043,761

1,512,400

Trade receivables, net

14,955,130

12,351,588

VAT recoverable

380,754

276,768

Inventories, net

13,321,602

4,973,989

Due from related parties

65,139

2,269

Prepaid expenses and other receivables

5,640,983

45,372

Advances to suppliers

1,112,149

528,509

Restricted cash

1,546,500

1,270,416

Deposit for business acquisition

10,491,290

9,397,891

Total Current Assets

65,457,354

30,716,073

Property, equipment and construction in

progress, net

18,569,887

17,239,438

Advance for property and equipment

purchase

14,912,883

13,849,212

Restricted cash

742,320

-

Other assets

47,434

46,516

TOTAL ASSETS

$ 99,729,878

$ 61,851,239

LIABILITIES & SHAREHOLDERS' EQUITY

Current Liabilities

Accounts payable

$ 7,198,882

$ 4,437,186

Accrued liabilities and other payable

2,596,300

576,164

Customer deposits

2,121,052

493,256

Wages payable

253,879

398,699

Corporate tax payable

761,097

210,717

Short-term loan

1,268,130

2,571,080

Current portion of long-term bank loans

6,742,153

5,159,422

Property purchase payable

510,600

499,342

Derivative liability

563,117

1,141,118

Due to related parties

15,606

19,695

Reigstration rights liability

411,450

411,450

Total Current Liabilities

22,442,266

15,918,129

Long-term bank loans

20,733,490

12,710,430

Deferred tax liability

603,997

598,520

Due to related parties

1,498,069

1,465,420

TOTAL LIABILITIES

$ 45,277,822

$ 30,692,499

SHAREHOLDERS' EQUITY

Preferred stock, $0.001 par value,

10,000,000 shares authorized, 5,000,000 shares

and none issued and outstanding at June 30,

2011 and December 31, 2010, respectively

$ 5,000

$  -

Preferred stock subscribed

3,000

-

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

shares authorized, 36,888,000 shares issued

and outstanding at June 30, 2011 and December

31, 2010, respectively

36,888

36,888

Common stock subscribed

-

253

Additional paid-in capital

26,510,662

11,024,449

Accumulated other comprehensive income

1,954,389

1,207,195

Statutory reserves

1,038,988

1,038,988

Retained earnings (unrestricted)

24,903,129

17,850,967

TOTAL SHAREHOLDERS' EQUITY

54,452,056

31,158,740

EQUITY

$ 99,729,878

$ 61,851,239

China TMK Battery System Inc.

Consolidated Statements of Income

(Unaudited)

(Stated in US dollars)

For the Six Months Ended June 30,

For the Three Months Ended June 30,

2011

2010

2011

2010

Sales revenue

$ 45,364,436

$ 30,019,190

$ 25,071,628

$ 16,754,718

Cost of

(34,714,962)

(23,481,135)

(19,288,162)

(13,375,438)

goods sold

Gross profit

10,649,474

6,538,055

5,783,466

3,379,280

Operating costs

and expenses

Selling

828,261

732,806

456,273

498,088

expenses

Depreciation

122,297

66,579

61,578

49,074

Other

933,830

2,634,622

516,116

811,643

general and

administrative

expenses

Research and

384,097

493,394

203,411

328,150

development

Total

2,268,485

3,927,401

1,237,378

1,686,955

operating costs

and expenses

Income from

8,380,989

2,610,654

4,546,088

1,692,325

operations

Interest

(679,865)

(486,790)

(384,944)

(244,883)

expense, net

Change in

578,001

(664,373)

154,758

1,060,860

fair value of

derivative

liability

Other

(6,472)

(60,355)

(1,783)

26

income (expense),

net

Total

(108,336)

(1,211,518)

(231,969)

816,003

other income

(expenses)

Income before

8,272,653

1,399,136

4,314,119

2,508,328

income tax

Income Tax

(1,220,491)

(596,558)

(647,929)

(238,383)

Expense

Net Income

$ 7,052,162

$ 802,578

$ 3,666,190

$ 2,269,945

Earnings per

0.19

0.02

0.10

0.06

share - basic

Weighted-average

36,888,000.00

33,175,227

36,888,000.00

36,111,714

shares

outstanding,

basic

Earnings per

0.19

0.02

0.10

0.06

share - diluted

Weighted-average

36,888,000.00

33,833,547

36,888,000.00

36,551,841

shares

outstanding,

diluted

China TMK Battery System Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(Stated in US dollars)

For the Six Months Ended June 30,

2011

2010

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$ 7,052,162

$ 802,578

Adjustments to reconcile net income to net

cash provided by operating activities:

Depreciation expense

522,979

405,482

Deferred tax benefit

(7,917)

-

Change in fair value of derivative

(578,001)

664,373

liability

Common stocks for service provided

-

856,250

Deferred income

-

(18,350)

Changes in operating assets and

liabilities:

Trade receivable-trade

(2,295,735)

(4,119,385)

Advance to suppliers

(564,515)

(33,242)

Inventories, net

(8,131,623)

(1,690,159)

Accounts payable - trade

2,614,869

2,129,399

Accrued liabilities and other payable

1,966,567

(195,174)

Customer deposit

1,596,290

87,575

Prepaid expenses and other receivable

(5,534,003)

(99,137)

Wage payable

(151,870)

(74,667)

Various taxes payable

442,236

(658,849)

Other assets

129

(47,895)

Due from/to Related Parties

(68,835)

-

CASH USED IN OPERATING ACTIVITIES

(3,137,267)

(1,991,201)

CASH FLOWS FROM INVESTING ACTIVITIES

Change in restricted cash

(977,280)

349,560

Purchase and advances for of property,

(2,171,616)

(2,626,277)

plant, and equipment

Deposit for Hualian acquisition

(870,390)

(3,185,452)

Collection of advance/loans - related

2,291

15,204

parties

Proceeds from maturity of certificate

1,512,832

-

of deposit

Short-term investments

(9,070,507)

-

CASH USED IN INVESTING ACTIVITIES

(11,574,670)

(5,446,965)

CASH FLOWS FROM FINANCING ACTIVITIES

Borrowing from bank loans

14,964,600

3,157,422

Repayment of bank loans

(7,221,520)

(4,624,782)

Net proceeds from issuance of common

-

9,699,203

stock

Net proceeds from issuance of

10,000,000

-

preferred stock

Net proceeds from subscription of

6,000,000

-

preferred stock

Distribution to owners

-

(1,504,180)

Proceeds from related parties

-

1,421,235

Repayment to related parties

-

(17,691)

Refund related to cancellation of

(506,040)

-

subscription agreement

CASH PROVIDED BY FINANCING ACTIVITIES

23,237,040

8,131,207

Effect of exchange rate changes on cash and

18,072

48,155

cash equivalents

NET INCREASE IN CASH

8,543,175

741,196

CASH AND CASH EQUIVALENTS AT BEGINNING OF

$ 356,871

$ 185,590

CASH AND CASH EQUIVALENTS AT END OF YEAR

$ 8,900,046

$ 926,786

Supplementary Disclosures for Cash Flow

Information

Interest expense paid

$ 668,751

$ 486,920

Income taxes paid

$ 680,022

$ 784,297

SOURCE China TMK Battery Systems Inc.



RELATED LINKS

http://www.tmk-battery.com