EX-99.1 2 v113745_ex99-1.htm


PRESS RELEASE
 
China BAK Reports Second Quarter Fiscal 2008 Financial Results
 

Shenzhen, China - May 12, 2008– China BAK Battery, Inc. (“China BAK”, or “BAK”) (Nasdaq: CBAK), one of the largest lithium-ion battery cell manufacturers in the world, as measured by production output, today announced its financial results for the second quarter of fiscal year 2008 (“FY08”).

Recent Achievements and Highlights
 
 
·
Achieved near-record revenue in a quarter that included the long holiday of the Chinese Lunar New Year, as aluminum case cells and battery packs sales to Chinese customers for our OEM products continued to increase;
 
·
Revenue from cylindrical cells, used in laptop computers, more than doubled from last quarter’s levels and now accounts for 13% of our total revenues;
 
·
Continued to gain major customers for our cylindrical cell products, including one of the world largest notebook computer battery pack manufacturer Simplo Technology Co., Ltd (Taiwan: 6121);
 
·
Entered into settlements and mutual releases of all claims with certain investors relating to the private placement completed on January 20, 2005, putting a potentially distracting matter behind us.
 
Second Quarter FY08 Financial Results

Net revenues for the second quarter of FY08 were $51.3 million, down 2.8% from $52.8 million last quarter, but up 73.8% from $29.5 million in the same quarter of fiscal year 2007 (“FY07”).

Revenues from aluminum-case cells were $30.3 million, up 0.7% from $30.1 million last quarter and up 155.3% from $11.9 million in the second quarter of FY07. Revenues from steel case cells were $5.9 million, down 39.8% from $9.8 million last quarter, and down 22.6% from $7.6 million in the second quarter of FY07.

Revenues from cylindrical cells, used in notebook computers, were $6.7 million, up 161.2% from last quarter and up 1,467.0% from the second quarter of FY07.

Revenues from lithium polymer cells, used in personal electronic devices such as PDAs, MP3 players and Bluetooth devices, were $1.9 million in the second quarter of FY08, down 64.9% from last quarter, but up 301.4% from the second quarter of FY07.

 
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Revenues from battery packs were $6.6 million in the second quarter of FY08, up 31.4% from $5.0 million last quarter and up 404.9% from $1.3 million in the second quarter of FY07.
 
Gross profit for the second quarter of FY08 was $3.9 million, down 44.9% from $7.1 million last quarter and down 36.3% from $6.1 million in the second quarter of FY07. Gross margin was 7.6%, compared to 13.5% last quarter and 20.8% in the second quarter of FY07. The reduction in gross profit was mostly due to a significant increase in the purchase cost of raw materials, especially lithium cobalt dioxide, the main raw material in China BAK’s products, and higher overhead related to the expansion of China BAK’s manufacturing capabilities in FY07 and FY08.
 
Operating expenses totaled $7.6 million or 14.8% of revenues in the second quarter of FY08, as compared to $6.9 million or 13.1% of revenues last quarter and $4.1 million or14.0% of revenues in the same quarter of last year. Research and development expenses were $1.4 million or 2.7% of revenues, as compared to $1.3 million or 2.5% of revenues last quarter and $0.9 million or 3.2% of revenues in the same quarter of last year. Sales and marketing expenses were $1.4 million or 2.7% of revenues, as compared to $1.3 million, or 2.6% of revenues last quarter and $1.1 million or 3.6% of revenues in the same quarter of last year. General and administrative expenses were $4.8 million or 9.4% of revenues, as compared to $4.2 million or 8.0% of revenues last quarter and $2.2 million or 7.3% of revenues in the same quarter of last year.

Operating loss for the second quarter of FY08 was $3.7 million, as compared to operating income of $0.2 million last quarter and $2.0 million in the same quarter of last year.

Net loss was $6.2 million in the second quarter of FY08, as compared to net loss of $0.9 million last quarter and net income of $0.4 million in the same quarter of last year. Diluted earnings per share were negative $0.12 compared with negative $0.02 per diluted share last quarter and $0.01 per diluted share in the same quarter of last year.
 
Financial Condition

At March 31, 2008, China BAK had $36.9 million in cash and a negative working capital of $10.0 million, reflecting a current ratio of 0.95:1. Total liabilities at quarter end, including short-term bank loans, bills payable and long-term debt, was $238.7 million and stockholders’ equity totaled $145.4 million. China BAK had $95.2 million available for borrowing under its credit facilities.

Business Outlook

“During the second quarter of fiscal 2008, we continued to generate net revenues well in excess of prior year periods, reflecting strong growth in revenues from cylindrical cells and a sustained increase in revenues from aluminum case cells and battery packs. Our primary goal is to become profitable again in the coming quarters. To support this goal, we have made significant progress in the research and development of alternative raw materials for purposes of reducing our use of lithium cobalt dioxide, the price of which has continued to reach record highs. We also expect that the unit cost of cylindrical cells will be reduced accordingly in the coming quarters with more efficient use of our automated cylindrical production line. In addition, since April, we have raised the selling prices of some of our products. We therefore remain confident that we will achieve our FY08 revenue target of $210 million,” commented Mr. Xiangqian Li, CEO of China BAK.

 
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Conference Call

China BAK will host a conference call at 9:00 p.m. ET on Monday, May 12, 2008 to discuss results for the second quarter of FY08 ended March 31, 2008. Joining Xiangqian Li, China BAK's President and Chief Executive Officer on the call will be Tony Shen, Chief Financial Officer and Dr. Huanyu Mao, Chief Operating Officer and Chief Technology Officer. To participate in the conference call, please dial the following number approximately fifteen minutes prior to the scheduled conference call time: (888) 482-0024. International callers should dial (617) 801-9702. The pass code for the call is 64595429. If you are unable to participate in the call at this time, a replay will be available from 11:00 p.m. ET on Monday, May 12, 2008 through 11:00 p.m. ET Tuesday, May 27, 2008. To access the replay, please dial (888) 286-8010. International callers should dial (617) 801-6888. The conference ID number for the replay is 31152369. The conference call will be broadcast live over the Internet and can be accessed by all interested parties on the China BAK website at http://www.bak.com.cn. To listen to the live webcast, please go to the China BAK website at least fifteen minutes prior to the start of the call to register, download and install any necessary audio software. For those unable to participate during the live broadcast, shortly after the call a replay will be made available on China BAK's website for 90 days.

About China BAK Battery Inc.
China BAK Battery Inc. is one of the largest manufacturers of lithium-based battery cells in the world, as measured by production output. It produces battery cells that are the principal component of rechargeable batteries commonly used in cellular phones, notebook computers and portable consumer electronics, such as digital media devices, portable media players, portable audio players, portable gaming devices and PDAs (Personal Digital Assistants). China BAK Battery, Inc.'s 1.9 million square foot facilities are located in Shenzhen, PRC, and have been recently expanded to produce new products. China BAK Battery, Inc. is the largest manufacturer of lithium-ion battery cells for China's cellular phone replacement battery market.

Safe Harbor Statement
This press release contains forward-looking statements, which are subject to change. The forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All "forward-looking statements" relating to the business of China BAK Battery, Inc. and its subsidiary companies, which can be identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions, involve known and unknown risks and uncertainties which could cause actual results to differ. These factors include but are not limited to: risks related to China BAK’s business and risks related to operating in China. Please refer to China BAK’s Annual Reports on Form 10-K for the fiscal years ended September 30, 2006 and 2007, as well as China BAK’s Quarterly Reports on Form 10-Q for FY08, for specific details on risk factors. Given these risks and uncertainties, you are cautioned not to place undue reliance on forward-looking statements. China BAK's actual results could differ materially from those contained in the forward-looking statements. China BAK undertakes no obligation to revise or update its forward-looking statements in order to reflect events or circumstances that may arise after the date of this release.

-Financial Tables Follow-

 
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China BAK Battery Inc. and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income
For the Three and Six Months Ended March 31, 2007 and 2008
(Unaudited)
(Amounts in thousands, except per share data)

   
Three Months Ended March 31,
  
Six Months Ended March 31,
  
   
2007
  
2008
  
2007
  
2008
  
                   
Net Revenues
  
$
29,529
  
$
51,336
  
$
72,611
  
$
104,123
  
Cost of revenues
    
(23,383
)
  
(47,421
)
  
(58,268
)
  
(93,102
)
Gross profit
    
6,146
    
3,915
    
14,343
    
11,021
  
Operating expenses:
                          
Research and development costs
    
(928
)
  
(1,390
)
  
(1,565
)
  
(2,709
)
Sales and marketing expenses
    
(1,064
)
  
(1,403
)
  
(2,107
)
  
(2,751
)
General and administrative expenses
    
(2,152
)
  
(4,823
)
  
(5,113
)
  
(9,061
)
Total operating expenses
    
(4,144
)
  
(7,616
)
  
(8,785
)
  
(14,521
)
Operating income / (loss)
    
2,002
    
(3,701
)
  
5,558
    
(3,500
)
Finance costs, net
    
(1,164
)
  
(2,419
)
  
(2,065
)
  
(4,642
)
Government grant income
          
137
    
762
    
1,038
  
Other income / (expense)
    
(240
)
  
(81
)
  
(70
)
  
(40
)
Income / (loss) before income taxes
    
598
    
(6,064
)
  
4,185
    
(7,144
)
Income taxes (expenses) / benefit
    
(158
)
  
(119
)
  
(163
)
  
20
  
Net income / (loss)
  
$
440
  
$
(6,183
)
$
4,022
  
$
(7,124
)
Other comprehensive income
   
1,149
    
6,364
    
2,694
    
10,134
  
- Foreign currency translation adjustment
  
Comprehensive income
  
$
1,589
  
$
181
  
$
6,716
  
$
3,010
  
Net income / (loss) per share:
                          
Basic
 
$
0.01
  
$
(0.12
)
$
(0.08
)
$
(0.14
)
Diluted
 
$
0.01
  
$
(0.12
)
$
(0.08
)
$
(0.14
)
Weighted average shares outstanding:
                          
Basic
   
48,889
    
52,133
    
48,888
    
51,229
  
Diluted
   
49,419
    
52,133
    
49,074
    
51,229
  

 
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China BAK Battery Inc. and Subsidiaries
Consolidated Balance Sheets
As of September 30, 2007 and March 31, 2008
(Amounts in thousands)

   
September 30,
  
March 31,
  
   
2007
  
2008
  
       
(Unaudited)
  
Assets
              
Current assets
              
Cash and cash equivalents
  
$
14,197
  
$
36,883
  
Pledged deposits
    
4,595
    
4,357
  
Trade accounts receivable, net
    
63,151
    
78,934
  
Inventories
    
59,827
    
68,162
  
Prepayments and other receivables
    
1,656
    
7,993
  
Deferred tax assets
   
503
    
796
  
Total current assets
    
143,929
    
197,125
  
               
Property, plant and equipment, net
    
145,123
    
167,906
  
Lease prepayments, net
    
17,884
    
18,959
  
Intangible assets, net
    
121
    
143
  
Deferred tax assets
   
172
    
-
  
Total assets
  
$
307,229
  
$
384,133
  
               
Liabilities
             
Current liabilities
              
Short-term bank loans
  
$
89,871
  
$
116,826
  
Current maturities of long-term bank loans
    
-
    
8,548
  
Accounts and bills payable
    
45,589
    
63,236
  
Accrued expenses and other payables
 
 
15,466
 
 
18,483
 
Total current liabilities
    
150,926
    
207,093
  
Long-term bank loans, less current maturities
    
29,291
    
31,343
  
Deferred tax liabilities
    
280
    
292
  
Total liabilities
    
180,497
    
238,728
  
Commitments and contingencies
    
 
    
 
  
               
Shareholders’ equity:
              
Ordinary shares US$ 0.001 par value; 100,000,000 authorized; 49,250,853 and 53,223,633 issued and outstanding as of September 30, 2007 and March 31, 2008, respectively
    
48
    
52
  
Donation Shares
    
1
    
1
  
Additional paid-in-capital
    
74,311
    
89,970
  
Statutory reserves
    
6,427
    
6,518
  
Retained earnings
    
36,060
    
28,845
  
Accumulated other comprehensive income
    
9,885
    
20,019
  
Total shareholders’ equity
    
126,732
    
145,405
  
Total liabilities and shareholders’ equity
  
$
307,229
  
$
384,133
  

 
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China BAK Battery Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the six months ended March 31, 2007 and 2008
(Unaudited)
(Amounts in thousands)
 
   
Six months ended March 31,
  
   
2007
  
2008
  
           
Cash flow from operating activities
              
Net income / (loss)
  
$
4,022
  
$
(7,124
)
Adjustments to reconcile net income / (loss) to net cash provided by / (used in) operating activities:
              
Depreciation and amortization
    
4,257
    
6,018
  
Bad debt expense
    
(365
)
  
1,368
  
Provision for obsolete inventories
    
-
    
95
  
Share-based compensation
    
868
    
1,657
  
Deferred income taxes
   
(11
)
  
(77
)
Exchange loss
    
-
    
770
  
Loss on disposal of PPE
    
-
    
190
  
Changes in operating assets and liabilities:
             
Trade accounts receivable
    
9,607
    
(12,032
)
Inventories
    
(5,990
)
  
(4,032
)
Prepayments and other receivables
    
146
    
(5,990
)
Accounts and bills payable
    
(6,802
)
  
12,151
  
Accrued expenses and other payables
    
(383
)
  
794
  
Net cash provided by / (used in ) operating activities
 
$
5,349
  
$
(6,212
)
               
Cash flow from investing activities
              
Purchases property, plant and equipment
    
(22,886
)
  
(16,545
)
Payment of lease prepayment
    
(13,665
)
  
(21
)
Purchases of intangible assets
    
(5
)
  
(75
)
Proceeds from disposal of PPE
    
-
    
321
  
Net cash used in investing activities
  
$
(36,556
)
$
(16,320
)
               
Cash flow from financing activities
              
Proceeds from borrowings
    
65,750
    
55,493
  
Repayment of borrowings
    
(45,392
)
  
(27,404
)
Increase in pledged deposits
    
4,150
    
33
  
Proceeds from issuance of capital stock
    
-
    
14,006
  
Net cash provided by financing activities
  
$
24,508
  
$
42,128
  
               
Effect of exchange rate changes on cash and cash equivalents
    
439
    
3,091
  
 
Net (decrease) / increase in cash and cash equivalents
    
(6,260
)
  
22,687
  
 
Cash and cash equivalents at the beginning of year
    
21,100
    
14,196
  
 
Cash and cash equivalents at the end of year
  
$
14,840
  
$
36,883
  
 
 
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