‘During the first quarter, our sales volume increased 21% over the first quarter in fiscal 2008 as a result of continued growth in the renewable energy sector,’ said Jiada Hu, China Ritar’s chairman and chief executive officer. ‘Moreover, we continued to ramp up production at our new facilities in Hengyang Industrial Park for our battery and lead plate production. Lead plates represented about 70.2% of the cost of our batteries for the quarter. As we increase the volume of lead plates manufactured internally, we expect to realize an improvement in our gross margins by 3%-5% over the next few years.’
The decrease in revenue was mainly attributable to a decline in the average selling price (ASP) as a result of about 40% drop in the price of lead. The decline in ASP was offset by a 21% increase in sales volume. Moreover, the first quarter is typically the company’s slowest quarter as a result of a slowdown in customers’ orders due to the Chinese New Year holiday. Batteries used for telecom, uninterruptible power supply (UPS), renewable energy storage and light electronic vehicles (LEV) accounted for 33%, 31%, 25% and 11% of total sales of the first quarter of 2009, respectively. International sales represented 73% of total sales with domestic sales representing the balance of 27%.
Gross profit for the quarter decreased 18.3% to $3.3 million from $4.0 million in the same period of 2008. Gross margin for first quarter of 2009 was 18.8% compared to 21.0% in the first quarter of 2008. The decline in gross margin was mainly the result of a sales promotion offered to current customers during the quarter and the increased overhead cost at the Hengyang factory. China Ritar’s long-term gross margin target is 20.5%.
Operating expenses were $2.5 million or 14.3% of sales, compared to $2.7 million or 14.1% of sales in the first quarter of 2008. Adjusting for $0.96 million in non-cash, stock-based compensation recognized under salaries in the first quarter of 2008, non-GAAP operating expenses were $1.7 million or 9.0% of sales. The non-cash, stock-based compensation relates to the release of shares of the company’s common stock to the company’s CEO from escrow pursuant to a make good agreement to meet the net income target for 2008 of $8.2 million entered into by the company in connection with its private placement financing in February 2007. The increase in operating expenses is primarily due to an increase in sales commission which represented 4.3% of total sales compared to 0.9% of total sales in the first quarter of 2008. The increase in sales commission is due to increased marketing efforts.
Operating income for the first quarter was $0.79 million compared to $1.3 million in the first quarter of 2008. Adjusting for the previously mentioned non-cash, stock-based compensation, non-GAAP operating income was $2.3 million in the first quarter of 2008.
Excluding the non-cash, stock-based compensation, non-GAAP net income for the first quarter of 2008 was $1.5 million. Non-GAAP fully diluted earnings per share for the first quarter of 2008 were $0.08.
Financial Condition:
As of March 31, 2009, China Ritar had $11.8 million in cash and equivalents and restricted cash, $24.0 million in working capital and $30 million in total liabilities. Net cash provided by operating activities for the period was $1.7 million. Shareholders’ equity stood at $35.0 million, up from $34.4 million at year end 2008.
Business Outlook:
In 2008, China Ritar completed its new manufacturing complex in Hengyang City, Hunan Province. The complex has five lead acid battery production lines with designed production capacity of about 1.25 million kilowatt-hours and a lead plate production line with designed annual production capacity of 15,000 tons, per eight hour shift. The battery production lines are currently operating at about 60% utilization rate and are expected to reach 80% to 85% by the second or third quarter of 2009. With 19 production lines in operation, the company believes that it has sufficient capacity to support its growth plans for 2009 and does not have plans for any capital expenditures at this time.
China Ritar has qualified to be a battery supplier for China’s build out of the country’s 3G mobile telecommunications networks and is in the final stage of the contract biding process. The company expects the biding process will be completed by mid-June.
‘We are very excited about the growth prospects for 2009, specifically in the domestic market as the Chinese government has committed significant resources to the advancement of its telecommunication and renewable energy industries,’ Hu commented. ‘While demand for our lead acid batteries used for telecommunication and renewable energy applications remains healthy in both international and domestic markets, we are concentrating the majority of our marketing efforts on the domestic market which is expected to increase to about 40% of total sales by the end of the year.’
