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FOR IMMEDIATE RELEASE
CHINA ELECTRIC MOTOR ANNOUNCES RESULTS FOR
THE FIRST QUARTER OF FISCAL YEAR 2010
Total revenue and net income results for the first quarter
in line with previously issued guidance
SHENZHEN, CHINA — May 14, 2010 — China Electric Motor, Inc. (NASDAQ: CELM, “China Electric” or “the Company”), a Delaware corporation and China-based company that engages in the design, production, marketing and sale of micro-motor products through its subsidiary Shenzhen YuePengCheng Motor Co., Ltd. (“Shenzhen YPC”), today announced its financial results for the first quarter ended March 31, 2010.
First Quarter 2010 Financial Highlights
| • | Total revenue increased by 13.9% year-over-year to $21.5 million, compared to $18.9 million in the first quarter of 2009. |
| § | 63.5% of revenue was from sales to original equipment manufacturers (“OEMs”). |
| • | Gross profit increased by 16.0% year-over-year to $6.2 million versus $5.4 million in the first quarter of 2009. |
| • | Operating income was $3.9 million, a 3.4% increase over operating income of $3.8 million in the first quarter of 2009. |
| • | Net income was $3.0 million, compared to net income of $3.0 million in the first quarter of 2009. |
| • | Basic and diluted earnings per share were $0.16 based on 17,977,374 and 18,046,653 weighted average shares outstanding, respectively, versus basic and diluted earnings per share of $0.27 in the first quarter of 2009, based on 11,069,260 weighted average shares outstanding. |
Mr. Yue Wang, Chief Executive Officer of China Electric, said, “Our first quarter results were in line with guidance and demonstrate progress on our strategy to grow revenue and income by focusing on higher margin sales and initiatives to grow our customer base. While we did sell a higher volume of our lower-priced products in the quarter, the average selling price increased compared to last year. Sales to OEMs continued to grow as a percentage of sales, contributing to margin expansion. This quarter, G&A expenses were exceptionally high due to expenses related to our IPO, and we expect this line item to decrease as the year continues.
“We are confirming our full year guidance as we are confident our ability to produce micro-motor products that continue to meet growing customer demand in China and internationally.”
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First Quarter 2010 Financial Results
Revenues
Total revenues for the first quarter 2010 increased year-over-year by 13.9% to $21.5 million, due in large part to an increase in the average selling price of units sold during the period. However, the Company’s sales mix changed during the period, whereby the Company sold a higher volume of its lower-priced products than its higher-priced products, which include its numerical control motor products.
63.5% of first quarter 2010 revenue from OEM customers, versus 54.3% in the same period last year. As a percentage of total revenue, sales of the Home Appliance, Auto Part and Digital Motor product series in the first quarter of 2010 were 67.3%, 20.9% and 11.8%, respectively, compared to 67.5%, 21.5% and 11.1%, respectively, in the first quarter of 2009. Roughly 59.4% of first quarter 2010 sales were to customers in China, versus 55.6% in the same period last year.
Cost of Goods Sold
Cost of goods sold in the first quarter 2010 increased year-over-year by $1.8 million, or 13.0%, to $15.3 million. The change in cost of goods sold was driven primarily by an increase in the prices of raw materials, particularly lacquered wire, and an increase in production of units with a higher selling price.
Gross Profit and Gross Margin
Gross profit for the first quarter of 2010 increased year-over-year by 16.0% to $6.2 million versus $5.4 million in the same period last year. Gross margin for the first quarter 2010 was 28.9%, up from 28.3% in the first quarter 2009. This increase in gross margin versus last quarter was due to an increase in sales of the Company’s higher selling price products.
Operating Expenses
Research and development (“R&D”) expenses for the first quarter 2010 increased year-over-year by 5.3% to $0.4 million, or 1.8% of revenues, compared to $0.4 million, or 2.0% of revenues, in the comparable period in 2009. The R&D expenses in the first quarter were focused on new product initiatives.
Selling expenses for the first quarter 2010 increased year-over-year by 6.0% to $0.9 million, compared to $0.9 million in the first quarter 2009. The slight change was primarily a result of increased sales activity. As a percentage of revenues, first quarter 2010 selling expenses were relatively stable at 4.4%, compared to 4.7% in the first quarter 2009.
General and administrative (“G&A”) expenses for the first quarter 2010 increased year-over-year to $0.9 million, compared to $0.3 million in the first quarter 2009. As a percentage of revenues, first quarter 2010 G&A expenses increased to 4.2% from 1.7% in the first quarter of 2009, largely due to increases in professional and office expenses. Following the Company’s initial public offering in the first quarter of 2010, it expects the level of G&A expenses to increase as a result of the additional professional fees that it will occur; however, it expects G&A expenses for the each of the second through fourth quarters of the year to be less than were incurred in the first.
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Accordingly, total operating expenses for the first quarter 2010 increased year-over-year by 46.3%, to $2.3 million.
Earnings
Operating income for the first quarter 2010 was $3.9 million, compared to $3.8 million in the first quarter of 2009.
Net income in the first quarter 2010 was $3.0 million, compared to a net income of $3.0 million for the first quarter of 2009.
Basic and diluted earnings per share for the first quarter 2010 were $0.16, based on 17,977,374 and 18,046,653 weighted average shares outstanding, respectively, versus basic and diluted earnings per share of $0.27 in the first quarter of 2009, based on 11,069,260 weighted average shares outstanding.
Balance Sheet
Cash and cash equivalents were $33.4 million as of March 31, 2010, compared to $10.6 million as of December 31, 2009, primarily attributable to the increase of funds from the Company’s private placement.
Total accounts receivable as of March 31, 2010 were $9.6 million, compared to $8.5 million as of December 31, 2009. Inventories as of March 31, 2010 amounted to $5.6 million, compared to $7.2 million as of December 31, 2009.
Business Outlook
The Company believes that strong gross domestic product growth in China and recovering export markets, combined with rising disposable income and the extension of the Chinese government’s stimulus package relating to subsidies for home appliance and vehicle purchases will continue to support increased demand for micro-motor products. The Company’s goal is to become a global leader in the development and manufacture of micro-motor products. R&D investments are focused on products that address industry trends to reduce noise, vibration and energy consumption. China Electric continues its initiatives to increase higher-margin direct sales to domestic OEMs as a proportion of total revenue and has devoted resources to increase brand awareness and product recognition and heighten customer loyalty.
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As of May 13, 2010, the Company reports that there are 2.4 million AC motor units with an average selling price of $3.25 in the backlog; these products are mainly used for home appliance motors.
Management estimates that revenue for the second quarter of 2010 will be in the range of $20.0 million to $23.3 million. Management expects net income for the second quarter of 2010 to be in the range of $3.0 million to $3.5 million. Management estimates that basic and diluted earnings per share for the second quarter of 2010 will be between $0.141 and $0.165, based on 21,244,743 shares outstanding (on a fully diluted basis).
Management confirms that it expects revenue for fiscal year 2010 to be in the range of $110 million to $120 million and net income for fiscal 2010 to be in the range of $17.1 million and $19.8 million.
The construction of new equipment, which will be capable of producing 24 million units annually at full capacity, is continuing on schedule and the testing process has begun. Management expects the new facility to be fully operational by the end of June. The Company estimates that the capital expenditure allocated to the project is in the approximate range of $8 million to $10 million.
Conference Call and Webcast
China Electric senior management will host a conference call at 7:00 am (Pacific) / 10:00 am (Eastern) / 10:00 pm (Beijing/Hong Kong) on Friday, May 14, 2010 to discuss its 2010 first quarter financial results and recent business activity. To access the live teleconference, please dial +1 866 730 5763 (US) or +1 857 350 1587 (International), and enter the passcode 55295362. Please dial in approximately 10 minutes before the scheduled time of the call.
A replay of the conference call will be available from 1:00 pm (Eastern) on Friday, May 14, 2010, by dialing +1 888 286 8010 (US) or +1 617 801 6888 (International) and entering the passcode 70590756.
A live webcast of the conference call and replay will also be available on the investor relations page of the Company’s website at: http://szmotor.investorroom.com ..
About China Electric Motor, Inc.
China Electric Motor, Inc. (Nasdaq: CELM) is a China-based company that engages in the design, production, marketing and sale of micro-motor products through its subsidiary Shenzhen YPC. The Company’s products are incorporated into consumer electronics, automobiles, power tools, toys and household appliances, and are sold under its “Sunna” brandname. The Company provides micro-motor products that meet the growing demand for efficient, quiet and compact motors from manufacturers of consumer electronics, automobiles, power tools, toys and household appliances. China Electric Motor, Inc. sells its products directly to original equipment manufacturers and to distributors and resellers both domestically in the People’s Republic of China and internationally to customers in Korea and Hong Kong. The Company’s manufacturing facilities are located in Shenzhen, Guangdong.
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Forward-looking Statements
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Certain of the statements made in the press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the use of forward-looking terminology such as "believe," "expect," "may," "will," "should," "project," "plan," "seek," "intend," or "anticipate" or the negative thereof or comparable terminology. Such statements typically involve risks and uncertainties and may include financial projections or information regarding the progress of new product development. Actual results could differ materially from the expectations reflected in such forward-looking statements as a result of a variety of factors, including our ability to maintain and increase revenues and sales of our products, our ability to develop and market new products, our strategic investments and acquisitions, compliances and changes in the laws of the People’s Republic of China (the “PRC”) that affect our operations, and vulnerability of our business to general economic downturn, especially in the PRC, and other risk factors detailed in reports filed with the Securities and Exchange Commission from time to time.
| Investor Contacts: | |
Dexter Fong China Electric Motor, Inc. +86 (755) 8278 6083 dexterfong@gmail.com | Simon Ze China Electric Motor, Inc. +86 (755) 8257 7750 ze_simon@hotmail.com |
Investor Relations (HK): Ruby Yim Taylor Rafferty +852 3196 3712 ChinaElectricMotor@Taylor-Rafferty.com | Investor Relations (US): Delia Cannan Taylor Rafferty +1 (212) 889-4350 ChinaElectricMotor@Taylor-Rafferty.com |
Media Contact: | |
Jason Marshall Taylor Rafferty +1 (212) 889-4350 ChinaElectricMotor@Taylor-Rafferty.com |
– FINANCIAL TABLES TO FOLLOW –
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China Electric Motor, Inc. and Subsidiaries
Consolidated Balance Sheets
(In U.S. Dollars)
| March 31, | December 31, | |||||||
| 2010 | 2009 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | 33,361,523 | 10,633,518 | ||||||
| Accounts receivable, net | 9,635,130 | 8,526,451 | ||||||
| Due from director | 1,020,416 | - | ||||||
| Taxes recoverable | 33,083 | - | ||||||
| Inventories, net | 5,613,509 | 7,194,656 | ||||||
| Total current assets | 49,663,661 | 26,354,625 | ||||||
| Property and equipment, net | 10,096,923 | 7,936,284 | ||||||
| Total Assets | 59,760,584 | 34,290,909 | ||||||
| Liabilities and Shareholders' Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | 1,971,331 | 2,217,702 | ||||||
| Accrued liabilities and other payable | 547,735 | 463,185 | ||||||
| Various taxes payable | - | 28,962 | ||||||
| Wages payable | 415,377 | 465,119 | ||||||
| Corporate tax payable | 958,196 | 878,305 | ||||||
| Due to related party | - | 1,581,376 | ||||||
| Due to affiliated companies | - | 334,977 | ||||||
| Total current liabilities | 3,892,639 | 5,969,626 | ||||||
| Total Liabilities | 3,892,639 | 5,969,626 | ||||||
| Commitments and Contingencies | ||||||||
| Shareholders' Equity | ||||||||
| Preferred stock, $0.0001 par value, 10,000,000 shares authorized, none issued | ||||||||
| Common stock, $0.0001 par value, 100,000,000 shares authorized, | ||||||||
| 20,744,743 and 14,083,030 shares issued and outstanding at | ||||||||
| March 31, 2010 and December 31, 2009, respectively. | 2,074 | 1,408 | ||||||
| Additional paid-in capital | 28,625,293 | 3,899,125 | ||||||
| Accumulated other comprehensive income | 746,996 | 889,668 | ||||||
| Statutory surplus reserve fund | 1,177,075 | 1,177,075 | ||||||
| Retained earnings (unrestricted) | 25,316,507 | 22,354,007 | ||||||
| Total Shareholders' Equity | 55,867,945 | 28,321,283 | ||||||
| Total Shareholders' Liabilities & Equity | 59,760,584 | 34,290,909 | ||||||
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China Electric Motor, Inc. and Subsidiaries
Consolidated Statements of Operations
(In U.S. Dollars)
(Unaudited)
| For Three Months Ended | ||||||||
| March 31, | ||||||||
| 2010 | 2009 | |||||||
| Revenue | $ | 21,511,319 | $ | 18,893,146 | ||||
| Other Sales | - | |||||||
| Cost of Goods Sold | (15,299,520 | ) | (13,539,505 | ) | ||||
| Gross Profit | 6,211,799 | 5,353,641 | ||||||
| Selling Expenses | 937,116 | 883,870 | ||||||
| Other Operating Expenses | ||||||||
| Research and development | 388,291 | 368,580 | ||||||
| Depreciation | 4,638 | 5,421 | ||||||
| Loss on disposal of assets | 65,006 | - | ||||||
| Other general and administrative | 907,225 | 315,384 | ||||||
| Total operating expenses | 2,302,276 | 1,573,255 | ||||||
| Income from operations | 3,909,523 | 3,780,386 | ||||||
| Other income (expenses) | ||||||||
| Interest income | 13,597 | 6,037 | ||||||
| Imputed interest | - | (16,971 | ) | |||||
| Total other income (expenses) | 13,597 | (10,934 | ) | |||||
| Income (loss) before income taxes | 3,923,120 | 3,769,452 | ||||||
| Income taxes | (960,620 | ) | (757,309 | ) | ||||
| Net income | $ | 2,962,500 | $ | 3,012,143 | ||||
| Basic earnings per share | $ | 0.16 | $ | 0.27 | ||||
| Weighed-average shares outstanding, Basic | 17,977,374 | 11,069,260 | ||||||
| Diluted earnings per share | $ | 0.16 | $ | 0.27 | ||||
| Weighed-average shares outstanding, Diluted | 18,046,653 | 11,069,260 | ||||||
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China Electric Motor, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Decrease) Increase in Cash
(In U.S. Dollars)
(Unaudited)
| For Three Months Ended | ||||||||
| March 31, | ||||||||
| 2010 | 2009 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net Income (loss) | $ | 2,962,500 | $ | 3,012,143 | ||||
| Adjustments to reconcile net income to net cash | ||||||||
| provided by operating activities: | ||||||||
| Loss on disposal of assets | 65,006 | - | ||||||
| Imputed interest expense | - | 16,971 | ||||||
| Depreciation | 203,294 | 148,826 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| (Increase) decrease in: | ||||||||
| Accounts receivable, net | (1,108,679 | ) | (2,089,282 | ) | ||||
| Inventories, net | 1,581,147 | (157,024 | ) | |||||
| Taxes recoverable | (33,083 | ) | ||||||
| Prepaid expenses and other receivables | - | 13,283 | ||||||
| Increase (decrease) in: | ||||||||
| Accounts payable | (246,370 | ) | 619,737 | |||||
| Accrued liabilities and other payable | 84,550 | - | ||||||
| Various taxes payable | (28,962 | ) | (113,189 | ) | ||||
| Wages payable | (49,742 | ) | 71,476 | |||||
| Corporate tax payable | 79,891 | 287,874 | ||||||
| Net cash provided by (used in) operating activities | 3,509,552 | 1,810,815 | ||||||
| Cash Flows From Investing Activities | ||||||||
| Purchases of property and equipment | (2,703,203 | ) | (62,120 | ) | ||||
| Proceeds from disposal of fixed assets | 274,264 | - | ||||||
| Additional payment to related parties | (1,654,976 | ) | (121,897 | ) | ||||
| Net cash used in investing activities | (4,083,914 | ) | (184,017 | ) | ||||
| Cash Flows From Financing Activities | ||||||||
| Net proceeds from issuance of shares | 23,444,943 | - | ||||||
| Proceeds from exercise of warrants | 97 | - | ||||||
| Net cash provided by (used in) financing activities | 23,445,040 | - | ||||||
| Effect of exchange rate changes on cash | (142,672 | ) | 66,826 | |||||
| Net increase (decrease) in cash and cash equivalents | 22,728,006 | 1,693,624 | ||||||
| Cash and cash equivalents, beginning of period | 10,633,518 | 2,655,808 | ||||||
| Cash and cash equivalents, end of period | $ | 33,361,524 | $ | 4,349,432 | ||||
| Supplemental disclosure information: | ||||||||
| Interest expense paid | $ | - | $ | - | ||||
| Income taxes paid | $ | 880,406 | $ | 1,226,684 | ||||
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