WEB NEWS Investor Alert
Mr. Yue Wang has resigned his positions as President and Chief Executive Officer of the Company and as a member of the Board of Directors of the Company (the "Board"), and Mr. Fugui Wang has resigned his position as Chairman and a member of the Board.
The Board has appointed Mr. Xiaohui Li to serve as President and Chief Executive Officer of the Company and as Chairman of the Board, effective immediately;
The Board has appointed a Special Litigation Committee to investigate the claims in the shareholder derivative suit recently brought against certain of the Company's former and current officers and directors and make a recommendation as to whether it is in the best interests of the Company to pursue, dismiss or consensually resolve the claims. The Special Litigation Committee currently consists solely of the newly appointed independent director, Ms. Xiaoying Zhou . See more.
Investor Alert
As reported in our current report on Form 8-K filed on May 20, 2011, China Electric Motor, Inc. (the “Company”) received a letter dated May 17, 2011 from the Nasdaq staff advising the Company that the staff had determined to delist the Company’s common stock. On May 24, 2011, the Company submitted a request for a written hearing before a Nasdaq Hearings Panel. On June 10, 2011, after further consideration, the Company withdrew the request for a hearing. The Company’s decision to withdraw its request for a hearing is not, and should not be construed as, an admission, concession or statement with respect to any of the assertions or matters set forth in the aforesaid letter dated May 17, 2011 from the Nasdaq staff. On June 13, 2011 , the Company received a letter from the Nasdaq staff advising the Company that the Company’s shares will be suspended effective at the open of business on Tuesday, June 14, 2011 and that Nasdaq will thereafter file a Form 25 Notification of Delisting with the Securities and Exchange Commission.
Investor Alert
On June 3, 2011, Mr. Tony Shen
submitted his resignation from our Board of Directors, effective immediately. Mr. Shen was an independent director and chairman of our Audit Committee. In his resignation, Mr. Shen stated that he
did not agree with the approach taken by the Company’s management in addressing the allegation made by our former independent auditors, Malone Bailey, and the subsequent SEC and Nasdaq inquiries.
Investor Alert
On June 1, 2011, China Electric Motor, Inc. (the “Company”) received a
notice of resignation dated May 31, 2011 from MaloneBailey (“Resignation Letter”) indicating that it is terminating its engagement with the Company, effective immediately. MaloneBailey informed the Company that the resignation was due to, as described in the Resignation Letter, discrepancies noted in the Company’s bank records during MaloneBailey’s 2010 audit, the dismissal of PricewaterhouseCoopers’ forensic audit, and the accompanying dissolution of the Special Committee of the Company’s Board of Directors and the resignation of at least one member of the Board of Directors. The Resignation Letter indicated that MaloneBailey believed that the bank discrepancies may be an indication that the accounting records of the Company have been falsified, which would constitute an illegal act. MaloneBailey indicated that the Company’s management has not provided it with a satisfactory explanation of the discrepancies.
CFO Trail
On May 31, 2011, Mr. Heung Sang Fong
submitted his resignation as Chief Financial Officer and Director of the Board of Directors of the Company effective as of 11:30 AM Pacific Standard Time on May 31, 2011. In submitting his resignation, Mr. Fong did not cite any material disagreements with the Company or its Board of Directors with respect to the Company’s operations or public disclosures.
Investor Alert
As previously reported, the China Electric Motor, Inc. (the “Company”) Board of Directors (the “Board”) formed a Special Committee on March 31, 2011 to investigate possible discrepancies concerning the Company’s banking statements identified by the Company’s auditors. On May 24, 2011, all of the members of the Special Committee (James M. Lee, Tony Shen and Liang Tang) informed the Board that each such member had
resigned, effective immediately , from the Special Committee. The Special Committee was allowed to and did conduct a preliminary investigation, which included being allowed to obtain official bank statements directly from the bank where the Company keeps its account, to conduct, through counsel, preliminary interviews with certain key executives and employees, who made themselves available for the preliminary interviews, and to retain forensic consultants. However, Messrs. Lee, Shen and Tang
disagreed with certain Company officers and directors as to the appropriate scope of the investigation going forward (those officers viewing the scope as too wide and the estimated fees as too high), and this disagreement was the reason for their resignations from the Special Committee. As of May 26, 2011, each of Messrs. Lee, Shen, and Tang remain on the Company’s Board of Directors.
Investor Alert
During the three months ended March 31, 2010, we
incorrectly transferred approximately $1.3 million to an account controlled by Jianrong Li (the “Transfer”). Ms. Li is our former director, the wife of the Company’s Chairman of the Board, the mother of its Chief Executive Officer, a director and officer of several of our subsidiaries and the President of Attainment and Luck Loyal. These funds were transferred to Ms. Li to facilitate a deposit payment related to a contemplated acquisition by the Company. The acquisition was abandoned and in April 2010 the full balance of these funds was returned to the Company. In addition to the Transfer, there were several unrelated transfers to and from Ms. Li. Prior to the Transfer, the outstanding balance to Ms. Li was an accounts receivable of Ms. Li. After the Transfer, the balance became an accounts payable to Ms. Li. Management subsequently evaluated these transactions and determined that the transfers violated Section 402 of the Sarbanes-Oxley Act of 2002. No further transfers, loans, advances or similar arrangements will be made by the Company or any of its subsidiaries to Ms. Li or any of our officers or directors or any of their family members. As a result of the transfers by us to Ms. Li, we and/or our Chief Executive Officer and Chairman of the Board
could become subject to sanctions, penalties, investigations or other proceedings.
Deal Flow
Pursuant to Rule 477 promulgated under the Securities Act of 1933, as amended, China Electric Motor, Inc. hereby respectfully requests withdrawal of the above-referenced registration statement on Form S-3, together with all exhibits and amendments thereto (collectively, the “Registration Statement”) on the grounds that such withdrawal is consistent with the public interest and the protection of investors as contemplated by paragraph (a) of Rule 477.
Investor Alert
On March 31, 2011, China Electric Motor, Inc. issued a
press release announcing the filing of a Form 12b-25 with the Securities and Exchange Commission to extend the filing of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010. The Company is unable to file its Annual Report on Form 10-K for the year ended December 31, 2010, within the prescribed time period due to possible discrepancies concerning the Company’s banking statements that were very recently identified by the Company’s auditors in the course of their audit of the Company’s consolidated financial statements for the fiscal year ended December 31, 2010. The Company and its advisors are working expeditiously to resolve the issues discovered during the audit. The Company, at this time, is unable to determine when it will file its Annual Report on Form 10-K for the year ended December 31, 2010.
Investor Alert
CELM is no longer a GeoBargain because of mismatched SAIC filings.
See GeoAlert .
Acquisitions
SHENZHEN, China, January 25, 2011 -- China Electric Motor, Inc. today announced that Luck Loyal International Investment Limited, an indirect wholly owned subsidiary of the Company, entered into an Equity Transfer Contract with New-Metal Technology Limited on January 21, 2011. Under the terms of the Agreement, Luck Loyal will purchase 100% of the equity interests of Shenzhen Guofa Optoelectronics Co.Ltd.,a wholly foreign owned enterprise incorporated in China, held by the Seller, for an aggregate purchase price of RMB42.7 million (or approximately US$6.5 million, based on the exchange rate as of January 21, 2011)
With this acquisition, the Company will acquire new production lines and expertise focused on high-end DC micro motors used in products like digital cameras, cell phones, electronic door locks, and other similar products. Guofa’s products are sold to clients representing high-end OEM companies which include Ricoh, Toshiba, Philips, OMRON, Panasonic, OLYMPUS, and Taiwan Asia Optical. In 2010, Guofa Optoelectronics recognized RMB83.4 million (or approximately US$12.7 million) in revenue and RMB8.7 million (or approximately US$1.3 million) in net income.
Acquisitions
SHENZHEN, China, Jan. 6, 2011 /PRNewswire-Asia-FirstCall / -- China Electric Motor, Inc. today announced that its indirect wholly owned subsidiary, Shenzhen YuePengCheng Motor Co., Ltd. entered into a Property Purchase Agreement with Shenzhen Jianhuilong Industry Co., Ltd. ("Jianhuilong") pursuant to which YuePengCheng agreed to purchas the remainder of the Shenzhen-based "Sunna Industrial Park" it did not previously own, for approximately RMB170.9 million (or approximately US$25.8 million ). The total amount is expected to be paid in a series of installments by January 31, 2011. The closing of the Transaction is expected to take place within 30 days following the date of the Agreement, subject to government approvals.
Mr. Yue Wang, Chief Executive Officer of China Electric, stated, "Our recent purchase of the Sunna Industrial Park facility represents a cost-effective, long-term investment for China Electric that will increase the stability of our operations and allow us to better forecast expenses. We believe the purchase of this facility will also improve overall efficiency as we consolidate existing operations and future acquisitions into this centralized facility. After a review of our 2011 budget, and in light of a proposed rental increase of almost 50% for our Sunna Industrial Park leased facility, we determined that purchasing the entire facility for our current and future production plans was in the best interest of the Company and the most cost-effective alternative. This facility will serve as our core production hub and will provide China Electric with additional production capacity, paving the way for our future expansion plans."
Wang continued, "We expect to fund this transaction through a combination of existing cash on our balance sheet and cash flow generated from operations in 2011. After the purchase, we will be able to collateralize the purchased property if we were to apply for any bank loans to help fund our operations. We look forward to a more stable manufacturing environment for our business and believe this acquisition provides us with a great opportunity to expand our market position and improve the profitability of our business over time."
Deal Flow
We may offer, issue and sell shares of our common stock , preferred stock, warrants and units from time to time, or any combination of these securities, in one or more issuances. This prospectus provides a general description of offerings of these securities that we may undertake. The aggregate public offering price of securities being offered will not exceed $50,000,000.
Comments & Business Outlook
Third Quarter 2010 Financial Highlights
Total revenue increased by 48.9% year-over-year to $32.9 million .
Gross profit increased by 44.9% year-over-year to $9.4 million .
Operating income, including the stock-based compensation expense, was $4.2 million , a 3 . 8% year-over-year increase .
Non-GAAP operating income, which excludes a stock-based compensation expense of $2.4 million , was $6.7 million .
Net income, including the stock-based compensation expense of $ 2.4 million , was $2.7 million , a 15.6% year-over-year decrease .
Non-GAAP net income, which excludes a stock-based compensation expense of $2.4 million , was $5.1 million , a 61.0% increase .
Basic and diluted earnings per share were $0.13 each, based on 20,908,863 and 20,947,303 weighted average shares outstanding, respectively.
Non-GAAP basic and diluted earnings per share, which excludes a stock-based compensation expense of $2.4 million , were $0.25 each, based on 20,908,863 and 20,947,303 weighted average shares outstanding, respectively. In the third quarter of 2009, basic and diluted earnings per share were $ 0.25 and $0.24 , respectively, based on 12,926,571 and 13,553,465 weighted average shares outstanding, respectively.
Mr. Yue Wang, Chief Executive Officer of China Electric, said, "During the quarter, we granted 1.2 million China Electric shares to key employees, and we believe that this grant will help us to build loyalty among our high-quality employee base, and to assist in our recruiting efforts. This grant resulted in an approximately $2.4 million stock-based compensation expense for the quarter. We are pleased to have exceeded our revenue guidance for the quarter, as we continued our initiative to focus on sales of our higher-priced products. Our average selling price in the quarter increased by 12.6% over the third quarter of 2009. Our focus on higher-margin sales in China and to OEMs was again successful; however, the positive margin implications of these sales on our net income were partially offset by the $2.4 million non-cash stock-based compensation expense. Without this non-cash expense, we would have exceeded our net income and earnings per share guidance for the quarter."
He continued, "We believe that our investments to increase our manufacturing capacity and modernize our factory equipment in a phased manner will play a major role in the successful execution of our strategy to broaden and deepen our market penetration. During the quarter, we made solid headway on our capacity expansion plans. We completed the installation of two new coreless motor and two new AC motor production lines and we now are offering a new product series for consumer electronics and toys to the market. We have received positive and encouraging feedback thus far on our new products. Our new factory in Zhejiang , equipped with two AC motor production lines, was fully up and running in September and two more AC motor lines were added in October. Production of the two new lines will begin in late November.
"As we approach the end of the year, we are tightening our revenue guidance range for 2010, and have updated our net income guidance to include stock-based compensation expenses related to our employee share grant. We continue to believe that market demand for our products is sustainable, and we are implementing our strategy to leverage this demand and build our leadership position in the market," Mr. Wang concluded.
Business Outlook
The Company believes that strong gross domestic product growth in China and recovering export markets, combined with rising disposable income and the Chinese government's stimulus package relating to subsidies for home and kitchen appliances 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.
Guidance for Fourth Quarter and Fiscal Year 2010
Fourth quarter of 2010
Revenue in the range of $38.0 million to $39.5 million .
Net income in the range of $5.4 million to $5.6 million , including a non-cash stock-based compensation expense of $0.4 million for the fourth quarter of 2010.
Basic and diluted earnings per share are expected to be between$0.24 and $0.25 , based on 21,942,243 shares outstanding on a fully diluted basis.
Fiscal year 2010
Revenue to be in the range of $117 million to $119 million
Net income for fiscal 2010 to be in the range of $14.9 million and $15.3 million , including the non-cash stock-based compensation expense of $28.7 million for 2010 full year.
Basic and diluted earnings per share for 2010 will be between $0.74 and $0.75 , based on 20,467,329 shares outstanding on a fully diluted basis.
Deal Flow
On November 6, 2010, Ningbo Heng Bang Long Electrical Equipment Co., Ltd. (“Ningbo Electrical”), an indirect wholly-owned entity of China Electric Motor, Inc. entered into an
Asset and Business Purchase Agreement with Ningbo Bang Shi Da Electrical Equipment Co., Ltd. and Fan Wenda pursuant to which Ningbo Electrical agreed to purchase the assets and business of Seller for an aggregate purchase price of RMB
49,322,100 (or approximately US$7.4 million , based on the exchange rate as of November 6, 2010) (the “Acquisition”). The purchase price will be paid by Ningbo Electrical in a series of installments, and will be subject to certain adjustments, as described in the Agreement. The Agreement contains customary representations, warranties and covenants, and also provides for a sell back option, exercisable by Ningbo Electrical for up to three years following the closing of the Acquisition, upon the occurrence of certain third party claims against the purchased assets or business, or the inability of Ningbo Electrical to operate the purchased business due to Seller’s material violation of the Agreement. The closing of the Acquisition is expected to take place within 15 business days following the signing date, although there can be no assurance that the Acquisition will be completed on the proposed terms or at all. Each party’s obligation to complete the transaction remains subject to the satisfaction or waiver of various conditions. Ningbo Electrical and Seller may terminate the Agreement prior to closing in certain circumstances.
Comments & Business Outlook
Second Quarter 2010 Financial Highlights
Total revenue increased by 13.3% year-over-year to $25.3 million , compared to $22.3 million in the second quarter of 2009. Net income was $4.1 million, a 93.2% increase compared to net income of $2.1 million in the second quarter of 2009. Basic and diluted earnings per share were $0.20 versus basic and diluted earnings per share of $0.18 and $0.17 in the second.
Mr. Yue Wang, Chief Executive Officer of China Electric, said, "Our strong second quarter results, which exceeded our guidance, were fueled by growing demand for our products and for home appliance motors in particular. We were able to convert favorable industry trends and a robust macroeconomic environment into a larger customer base, and I am pleased to report that we are executing sales and attracting new customers in an increasingly efficient manner. Our intention is to build the proportion of higher-margin sales in China and to original equipment manufacturers ("OEMs") in our sales mix. Our second quarter results demonstrate that we have been able to achieve this yet again."
He continued, "We believe that the strength of market demand is sustainable, and that the quality and flexibility of our products give us the opportunity to gain share and build a leadership position in the market. Therefore, we are building capacity in a phased manner in order to continue to expand our product offering and capture favorable trends in new industry verticals.
"Due to a delay in the expected government approval of our application for a tax reduction in 2010, we have updated our net income outlook for the year. We are confirming our full year revenue guidance ," Mr. Wang concluded.
Financials
Second Quarter 2010 Financial Highlights :13.3% year-over-year to $25.3 million ,$4.1 million, a 93.2% increase compared to net income of$0.20 based on 20,744,743 and 20,832,957 weighted average shares outstanding, respectively, versus0.18 and $0.17 in the second12,510,623 weighted average
Mr. Yue Wang, Chief Executive Officer of China Electric, said, "Our strong second quarter results, which exceeded our guidance , were fueled by growing demand for our products and for home appliance motors in particular. We were able to convert favorable industry trends and a robust macroeconomic environment into a larger customer base, and I am pleased to report that we are executing sales and attracting new customers in an increasingly efficient manner. Our intention is to build the proportion of higher-margin sales in China and to original equipment manufacturers ("OEMs") in our sales mix. Our second quarter results demonstrate that we have been able to achieve this yet again."
He continued, "We believe that the strength of market demand is sustainable , and that the quality and flexibility of our products give us the opportunity to gain share and build a leadership position in the market. Therefore, we are building capacity in a phased manner in order to continue to expand our product offering and capture favorable trends in new industry verticals."
Third Quarter Guidance:
Revenue will be in the range of $30.0 million to $31.5 million . Management expects
Net income to be in the range of $4.3 million to $4.725 million . Management estimates that
Basic and diluted earnings per share will be between $0.20 and $0.22 , based on 21,409,960 shares outstanding on a fully diluted basis.
2010 Year End Guidance : ("Due to a delay in the expected government approval of our application for a tax reduction in 2010, we have updated our net income outlook for the year. We are confirming our full year revenue guidance.")
Revenue to be in the range of $110 million to $120 million .
Net income to be in the range of $17.2 million and $18.5 million , primarily due to a delay in the government approval of the Company's tax reduction application in 2010.
No te that the company did not issued full year EPS guidance.
Comments & Business Outlook
The Company estimates that for the second quarter of 2010
Revenue will be in the range of $22.1 million to $24.0 million.
Net income for the second quarter of 2010 to be in the range of $3.4 million to $3.7 million.
Basic and diluted earnings per share for the second quarter of 2010 will be between $0.16 a nd $0.18 , based on 20,832,957 shares outstanding (on a fully diluted basis).
Management had previously estimated
Revenue in the range of $20.0 million to $23.3 million
Net income for the second quarter of 2010 would be in the range of $3.0 million to $3.5 million.
Basic and diluted earnings per share for the second quarter of 2010 to be between $0.141 and $0.165, based on 21,244,743 shares outstanding (on a fully diluted basis).
The Company is constructing new production equipment, which management believes should be capable of producing up to approximately 24 million units annually at full capacity. The testing process for the new production equipment construction is underway. Management expects the first phase of the construction to be completed by the end of July 2010; the delay of roughly one month is the result of strong micro motor demand, which created backlog with equipment providers. Management expects the second phase of construction to be completed before the end of October 2010, and the new production equipment should be fully operational by March 2011.
Mr. Yue Wang, Chief Executive Officer of China Electric, said, "Our revised estimates for the second quarter reflect sustained strong demand for home appliance motors, as well as successful execution of our plan to grow our customer base. We also benefited from an increase in the average selling price during the quarter, particularly in motors used in home appliances. While we expect the strength in the market for home appliance motors to be sustainable, the second quarter is typically one of the strongest for our company and the industry from a demand perspective."
Source: PR Newswire (July 28, 2010 )
Comments & Business Outlook
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 in our ability to produce micro-motor products that continue to meet growing customer demand in China and internationally."
Management estimates for second quarter 2010:
Revenue: Range $20.0 million to $23.3 million.
Net income: Range of $3.0 million to $3.5 million.
Basic and diluted earnings per share: Between $0.141 and $0.165, based on 21,244,743 shares outstanding (on a fully diluted basis).
Management estimates for 2010:
Revenue: Range of $110 million to $120 million
Net income: Range of $17.1 million and $19.8 million.
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.
Share Structure
Post IPO Share structure as a result of a reverse merger transaction on March 3, 2009, private placement transactions and subsequent IPO on February 3, 2010.
4,612,662: Pre reverse merger outstanding shares
4,612,662: Pre reverse merger warrants outstanding shares
3,260,659: Shares cancelled as part of the Share Exchange
3,985,768: Warrants cancelled as part of the Share Exchange (626,894 remain issued)
500,000: Warrants issued to underwriter
288,000: Conversion of debt by director into common stock
10,679,260: Newly issued revese merger shares of Common Stock
2,051,767: Private placement shares
5,000,000; Newly issued shares of common stock in IPO
750,000: Underwriter over allotment option
GeoTeam® best effort calculation of total post reverse merger outstanding shares assuming full conversions: 21,247,924
