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CELM...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 millionfor 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.

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