DFEL China TMK Battery Systems Inc (PK)

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 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.

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.