New Energy Systems Group Reports First Quarter 2011 Financial Results

SHENZHEN, China, May 20, 2011 /PRNewswire-Asia-FirstCall/ -- New Energy Systems Group (NYSE Amex: NEWN) ("New Energy" or the "Company"), a vertically integrated original design manufacturer and distributor of lithium ion batteries and backup power systems, today announced financial results for the first quarter ended March 31, 2011.

First quarter 2011 Financial Highlights

• Total revenues from all four divisions increased 20% to $27.1 million
• Anytone sold 799,600 units, a 27% increase from Q1 2010
• Gross profit increased 47% to $9.4 million
• Adjusted net income increased 37% to $6.4 million

Mr. Jack Yu, Chairman of New Energy stated, "We made further progress in transforming New Energy to an efficient, consumer-driven battery solutions company. Our proactive reorganization of our wholesale batteries businesses has already produced cost savings. Meanwhile, our new product pipeline for Anytone is as robust as it has been since we acquired the business. We also expect solid top and bottom line contribution from Kim Fai as we integrate our sales and marketing and R&D efforts. All of these developments in our business make us extremely confident in our long term growth outlook."

*Adjusted net income and adjusted EPS exclude $0.2 million and $0.1 million of non-cash stock-based compensation expenses and $0.7 million and $0.7 million of amortization expenses in Q1 2011 and Q1 2010, respectively. Fully diluted shares on March 31, 2011 were 14.6 million versus 12.6 million on March 31, 2010.

Revenues increased 20% year-over-year to $27.1 million. Growth in the Anytone battery business was offset by Management's deliberate strategy to reduce sales of lower-margin battery shells. The acquisition of Kim Fai in the fourth quarter of 2010 added approximately $5.5 million of sales in the three months ended March 31, 2011, meeting Management's forecast.

Anytone® consumer products division sold 799,600 units in the first quarter of 2011, up 27% from the same period last year. Anytone introduced three new products during the quarter, including products for laptops, iPhone 4 and iPad.

Gross profit in the first quarter of 2011 was $9.4 million compared to $6.4 million, a 47% increase compared to the same period last year.  Consolidated gross margin expanded 22% to 35% due to cost savings from the E'Jenie battery cell production consolidation and higher growth in the high-margin Anytone® products.  Gross profit margins typically range between 30%-31% for Anytone®, 14%-16% for E'Jenie and 29%-31% for Kim Fai.

Operating expenses for the three months ended March 31, 2011 were $2.1 million representing approximately 8% of sales compared to $1.5 million and 7% of sales in the same period last year. The increase was primarily a result of higher sales and marketing expenses. The Kim Fai acquisition also added $0.1 million of general and administrative expenses.

The Company incurred $0.2 million of non-cash stock-based compensation during the first three months of 2011. Excluding these expenses, operating income was $7.5 million, representing operating margins of 27.7%.

Net income for the quarter was $5.5 million, a 44% increase to $3.8 million for the three months in 2010.  GAAP earnings per share were $0.38 compared to $0.30 based on 14.6 million and 12.6 million diluted shares outstanding in the first quarter of 2011 and 2010, respectively. Non-GAAP adjusted earnings and EPS were $6.4 million and $0.44 in the first three months of 2011, respectively.

Balance Sheet and Cash Flow Summary

As of March 31, 2011, cash and equivalents of the Company stood at $10.1, down from $13.1 million as of December 31, 2010. Working capital was approximately $17.6 million at March 31, 2011; accounts receivable was $17.2 million, compared to $11.2 million as of December 31, 2010.  The Company had $0.5 million of debt.  New Energy generated $3.6 million of cash flow from operations during the three months ended March 31, 2011 versus $6.6 million in the same period a year ago. The Company obtained approximately $9.2 million of credit lines in April 2011.

Business Update:

New Energy continues to make additional progress improving its operating efficiencies and expanding its product portfolio. In the first quarter of 2011, the Company completed the integration of their finished battery pack and battery cells businesses. The benefits are twofold: E'Jenie has a fully integrated battery component manufacturer capable of producing battery shells, battery caps and battery cells, making the Company more competitive with larger customers looking for one integrated provider of battery solutions. Secondly, the integration has already generated meaningful cost savings, as reflected in the margin expansion during the first quarter of 2011.

The Anytone consumer products division is focused on expanding its distribution and growing its brand recognition. By introducing compelling and differentiated new products such as the iPhone 4 battery charger, more distributors are selling Anytone's line of mobile and PC batteries to their customers.  

In addition, Management is focused on building its own online and retail distribution. The Company plans to open approximately 30 franchised stores in China during 2011 to increase its brand recognition and maintain more control over its marketing. Anytone expects to incur minimal capital investment since the franchisees will be responsible for the opening and operating the stores. The Company is working with several famous online retailers in China to roll out its owned franchised online marketplace. This will allow Anytone to significantly expand its direct distribution to consumers while improving its working capital efficiencies. The online store is expected to be online at the beginning of July 2011.  

2011 Guidance

Management is reiterating its 2011 guidance as follows:

The Company recently became aware of counterfeit products using Anytone's brand name being sold to distributors and online. Management has contacted regulators and taken legal actions against several perpetrators involved with manufacturing and selling counterfeit products. While the Company believes these and other actions will significantly curtail the amount of counterfeit products, Anytone's consumer product sales may be impacted in the short term.

Since closing the Kim Fai acquisition in November 2010, Management has been successful in signing new customers and expanding its portfolio of higher-margin solar application products. Based on the strong pipeline of orders and requests for proposals Kim Fai has, the Company is confident in at least meeting and potentially exceeding the prior forecast of $24 million of revenues and $5 mill of net income contribution from Kim Fai in 2011.  

Conference Call

To attend the call, please use the dial-in information below.  When prompted, ask for the "New Energy Call " and/or be prepared to provide the conference ID.

Please dial in at least 10 minutes before the call to ensure timely participation. A playback will be available through May 27, 2011. To listen, please call 1-877-870-5176 within the United States or 1-858-384-5517 if calling internationally. Utilize the pass code 4440646 for the replay.

About New Energy Systems Group

New Energy Systems Group is a vertically integrated original design manufacturer and distributor of lithium ion batteries and backup power systems for mobile phones, laptops, digital cameras, MP3s and a variety of other portable electronics. The company's end-user consumer products are sold under the Anytone® brand in China, and the company has begun expanding its international sales efforts. The fast pace of new mobile device introductions in China combined with a growing middle class make it fertile ground for New Energy's end-user consumer products, as well as its high powered, light weight lithium ion batteries. In addition to historically strong organic growth, New Energy is expected to benefit from economies of scale, broader distribution, and higher production capacity and higher profit margins. Additional information about the company is available at: www.newenergysystemsgroup.com.

Forward Looking Statements

This release contains certain "forward-looking statements" relating to the business of the Company and its subsidiary and affiliated companies. These forward looking statements are often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions. Such forward looking statements involve known and unknown risks and uncertainties that may cause actual results to be materially different from those described herein as anticipated, believed, estimated or expected. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company's periodic reports that are filed with the Securities and Exchange Commission and available on its website (www.sec.gov). All forward-looking statements attributable to the Company or to persons acting on its behalf are expressly qualified in their entirety by these factors other than as required under the securities laws. The Company does not assume a duty to update these forward-looking statements.

For more information, please contact:

COMPANY

New Energy Systems Group
Ken Lin, VP of Investor Relations
Tel:   +1-917-573-0302
Email: klin1330@hotmail.com

INVESTOR RELATIONS

John Mattio, SVP
HC International, Inc.
Tel: US +1-212-301-7130
Email: john.mattio@hcinternational.net
Web: http://www.hcinternational.net