omniture

New Energy Systems Group Reports Third Quarter 2011 Financial Results

2011-11-15 19:06 996

SHENZHEN, China, November 15, 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, backup power consumer products and solar panels, today announced financial results for the third quarter ended September 30, 2011.

For the 3 Months Ended September 30


Q3 2011

Q3 2010

CHANGE

Net Sales

$15.3 million

$26.4 million

-42%

Gross Margin

($0.5) million

$7.2 million

-107%

Net Income (Loss)

($16.9) million

$4.3 million

-463%

Adjusted Net Income*

($2.4) million

$5.1 million

-147%

GAAP EPS (Diluted)

($1.16)

$0.34

-441%

Adjusted EPS (Diluted)*

($0.17)

$0.41

-141%

*Adjusted net income and adjusted EPS exclude $0.2 million of non-cash stock-based compensation expenses during Q3 2011, $0.7 million of amortization expenses and a $13.6 million impairment of goodwill.



Revenues declined 42% year-over-year to $15.3 million for the quarter, due primarily to lower sales in the Company's battery sales divisions, which include Anytone® mobile power consumer products, NewPower battery packs and E'Jenie battery components. In addition to an overall slowdown in the battery market, the Company's deliberate focus on the higher margin businesses resulted in lower sales of battery shells and covers. During the third quarter of 2011, the Company lowered prices for certain products in order to remain competitive with pirated products in the market, which management is rigorously combating.

Battery sales decreased by $14.3 million, from $24.1 million in the third quarter of 2010 to $9.8 million in the three months ended September 30, 2011. Since the beginning of 2010, the Company started to integrate the supply chain and optimize the internal and external resources to improve productivity, which included integrating the battery production of E'Jenie with the battery cell production of NewPower. The acquisition of Kim Fai in November 2010 brought $5.0 million in solar panel sales during the third quarter of 2011. Sales of Anytone's branded products for the three months ended September 30, 2011 was $6.7 million compared to $11 million for the 2010 period, a decrease of $4.3 million, or 39%.

Mr. Jack Yu, Chairman of New Energy stated, "We had a challenging quarter in several subsidiaries, including E'Jenie and Anytone. The weak overall battery pack market forced other companies to seek more profitable products such as mobile power products. This resulted in a significant increase in the number of competitors for Anytone's products, including a few large competitors with greater scale than Anytone. We have lost some orders to these competitors, resulting in reduced sales starting near the end of second quarter. We also made a strategic decision to selectively reduce prices of several Anytone products in order to be combat pirated products."

Gross margin was a $0.5 million loss during the third quarter compared to the gross profit of $7.2 million in the same period last year due to an increase in the cost of revenue for the battery segment due to the decrease of sales, production volume and switching of battery production of E'Jenie with the battery cell production of NewPower to improve production efficiency.

Operating expenses for the three months ended September 30, 2011 were $16.8 million compared to $1.6 million. The increase was primarily due to the impairment of goodwill of $13.6 million and a $0.3 million increase in operating expenses from our newly acquired subsidiary.

NewPower was served a notice of lawsuit in November 2011, for breaching a Sales Agreement, dated May 9, 2011 between NewPower and Shenzhen Zhongte Industry and Trade Co., Ltd. ("SZIT"), by not accepting returns of purported faulty products from SZIT. SZIT seeks monetary damages including SZIT's costs and expenses incurred in connection with the action. Accordingly, the Company accrued $1.5 million during the third quarter of 2011 for this lawsuit, of which, $1.2 million was for return of the products and $0.3 million was for the loss incurred from faulty products. Management believes these claims are without merit and intends to fight them rigorously.

The Company incurred $0.2 million of non-cash stock-based compensation during the third quarter of 2011. GAAP net loss for the quarter was $16.9 million, down from net income of $4.3 million for the three months ended September 30, 2010. Non-GAAP adjusted earnings exclude impairment of goodwill, non-cash stock based compensation and amortization. Adjusted net loss was $2.4 million and $0.17 in earnings per share based on 14.6 million shares outstanding on September 30, 2011.

Mr. Yu continued, "We expect to stabilize margins by introducing new, innovative products that carry higher margins. In addition, we have started to identify areas within our selling, general and administrative expenses where we can become more efficient. Finally, we have engaged branding strategy and financial consultants to help evaluate and execute marketing, product development and strategic alternatives. However, we expect sales and margins to remain below our historical averages until our competitive position improves."

For the 9 Months Ended September 30


YTD 2011

YTD 2010

CHANGE

Net Sales

$65.4 million

$72.2 million

-9%

Gross Profit

$15.4 million

$19.8 million

-22%

Net Income (Loss)

($8.2) million

$11.6 million

-171%

Adjusted Net Income*

$8.1 million

$14.2 million

-43%

GAAP EPS (Diluted)

($0.57)

$0.92

-162%

Adjusted EPS (Diluted)*

$0.55

$1.13

-51%

*Adjusted net income and adjusted EPS exclude $0.5 million of non-cash stock-based compensation expenses during nine months end of September 30, 2011, $2.2 million of amortization expenses and a $13.6 million impairment of goodwill.



Total net revenue decreased 29% in the first nine months of 2011 to $65.4 million. Battery sales decreased 29% year-over-year to $45.5 million. The Kim Fai acquisition added approximately $16.6 million of net revenue for the first nine months of 2011.

Gross profit decreased 22% to $15.4 million, with gross margin of 23.5% compared to 27.4% in the comparable period.

Selling, general and administrative expenses were $7.6 million compared to $4.7 million a year ago. Operating loss for the nine months ending September 30,2011 was $5.8 million compared to operating income of $15.1 million for the previous period 0f 2010.

GAAP net loss and earnings per diluted share were $8.2 million and $0.57, respectively. Adjusted net income, excluding non-cash expenses and impairment of goodwill, was $8.1 million and adjusted EPS were $0.55 in the first nine months of 2011.

Balance Sheet and Cash Flow Summary

As of September 30, 2011, cash and equivalents of the Company stood at $9.6 million, compared to $13.1 million as of December 31, 2010. Working capital was approximately $19.4 million at September 30, 2011. Accounts receivable was $10.9 million, compared to $11.2 million as of December 31, 2010. The Company had $0.6 million of debt. New Energy generated $2.9 million of cash flow from operations during the nine months ended September 30, 2011 versus $11.5 million in the same period a year ago. The Company has approximately $9.2 million of unused credit lines.

Conference Call

Management will host a conference call on Tuesday, November 15th, 2011 at 8:00 am ET to discuss the results for the three and nine months ended September 30, 2011. To attend the call, please use the information below for either dial-in access or webcast access. When prompted on dial-in, ask for "New Energy Systems Group Third Quarter 2011 Conference Call".



Date:

Thursday, November 17, 2011


Time:

8:00 am Eastern Time, US


Conference Line Dial-In (U.S.):

+1-877-317-6776


International Dial-In:

+1-412-317-6776


Conference ID:

New Energy


Webcast link:

http://webcast.mz-ir.com/publico.aspx?codplataforma=3363






Please dial in at least 10 minutes before the call to ensure timely participation. A playback will be available through November 22, 2011. To listen, please call +1-877-344-7529 within the United States or +1-412-317-0088 if calling internationally. Utilize the pass code 10006920 for the replay.

This call is being webcast by MZ Technologies and can be accessed by clicking on the following link: http://webcast.mz-ir.com/publico.aspx?codplataforma=3363

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


MZ Group


Tel: US +1-212-301-7130


Email: john.mattio@hcinternational.net


Web: http://www.mzgroup.com.







NEW ENERGY SYSTEMS GROUP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS






September 30,
2011 (Unaudited)


December 31,
2010 (Restated)





Current assets




Cash and equivalents

$

9,596,616


$

13,065,008

Accounts receivable


10,891,541



11,192,150

Inventory


3,726,328



2,420,009

Prepayment


322,498



-

Other receivables


614,914



47,249

Tax receivables


397,237



-

Due from shareholders


281,922



270,522

Deferred compensation


675,000



675,000







Total current assets


26,506,056



27,669,938







Noncurrent assets






Plant, property & equipment, net


1,144,341



1,134,029

Deferred compensation - noncurrent


592,243



1,098,493

Goodwill


47,294,151



60,555,607

Intangible assets, net


17,783,357



19,969,021







Total noncurrent assets


66,814,092



82,757,150







Total assets

$

93,320,148


$

110,427,088







Current liabilities






Accounts payable

$

5,160,247


$

6,655,592

Accrued expenses and other payables


1,346,278



1,127,133

Payable for Kimfai acquisition


-



6,325,985

Taxes payable


-



1,553,206

Loan payable to related party


566,492



543,585







Total current liabilities


7,073,017



16,205,501







Deferred tax liability


4,289,266



4,798,822







Total Liabilities


11,362,283



21,004,323







Commitments and Contingency












Stockholders' equity






Preferred stock, $.001 par value, 2,553,030 shares authorized, 0 and 2,553,030 shares issued and outstanding as of September 30, 2011 and December 31, 2010, respectively


-



2,553

Common stock, $.001 par value, 140,000,000 shares authorized, 14,551,731 and 14,278,928 shares issued and outstanding as of September 30, 2011 and December 31, 2010, respectively


14,552



14,279

Additional paid in capital


74,163,916



74,040,307

Statutory reserves


2,410,573



2,323,603

Other comprehensive income


2,493,892



1,834,341

Retained earnings


2,874,932



11,207,682







Total stockholders' equity


81,957,865



89,422,765







Total liabilities and stockholders' equity

$

93,320,148


$

110,427,088






NEW ENERGY SYSTEMS GROUP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)




Nine Months Ended
September 30,


Three Months Ended
September 30,



2011



2010


2011



2010












Revenue, net











Battery


$

45,498,684



$

64,414,149


$

9,777,572



$

24,083,496

Battery shell and cover



3,279,948




7,804,386



502,685




2,277,037

Solar panel



16,649,096




-



4,973,124




-

Total revenue



65,427,728




72,218,535



15,253,381




26,360,533
















Cost of sales















Battery



34,371,287




47,079,061



10,705,241




17,496,266

Battery shell and cover



2,574,434




5,353,483



528,396




1,652,966

Solar panel



13,089,801




-



4,536,292




-

Total cost of sales



50,035,522




52,432,544



15,769,929




19,149,232
















Gross profit (loss)



15,392,206




19,785,991



(516,548)




7,211,301
















Operating expenses















Selling



1,196,044




369,251



444,818




123,435

General and administrative



6,424,474




4,319,026



2,816,714




1,484,039

Impairment of goodwill



13,564,691




-



13,564,691




-

Total operating expenses



21,185,209




4,688,277



16,826,223




1,607,474
















Income (loss) from operations



(5,793,003)




15,097,714



(17,342,771)




5,603,827
















Other income (expenses)















Other income (expenses)



10,361




7,031



2,487




(510)

Interest income



36,981




63,824



16,528




18,660

Total other income, net



47,342




70,855



19,015




18,150
















Income (loss) before income taxes



(5,745,661)




15,168,569



(17,323,756)




5,621,977
















Provision (benefit) for income taxes



2,500,119




3,545,827



(470,549)




1,350,075
















Net income (loss)



(8,245,780)




11,622,742



(16,853,207)




4,271,902
















Other comprehensive income















Foreign currency translation



659,551




391,661



298,160




294,854
















Comprehensive income (loss)


$

(7,586,229)



$

12,014,403


$

(16,555,047)



$

4,566,756
















Net income per share















Basic


$

(0.57)



$

0.98


$

(1.16)



$

0.36

Diluted


$

(0.57)



$

0.92


$

(1.16)



$

0.34
















Weighted average number of shares outstanding:













Basic



14,381,065




11,863,390



14,551,731




11,863,390

Diluted



14,548,462




12,623,411



14,551,731




12,622,276





NEW ENERGY SYSTEMS GROUP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



Nine Months Ended September 30,



2011


2010






CASH FLOWS FROM OPERATING ACTIVITIES




Net Income (Loss)


$

(8,245,780)


$

11,622,742

Adjustments to reconcile net income to net cash





provided by operating activities:







Depreciation and amortization



2,328,860



2,278,815

Deferred taxes



(509,557)



(405,336)

Deferred stock compensation



506,250



506,250

Loss on disposal of fixed asset



-



674

Stock and warrants expense



33,828



67,333

Impairment of goodwill



13,564,691



-

(Increase) / decrease in current assets:







Accounts receivable



755,306



(5,834,898)

Inventory



(1,177,906)



(1,275,317)

Prepaid expenses, deposits and other receivables



(868,679)



548,502

Increase/(Decrease) in current liabilities:







Accounts payable



(1,736,844)



2,643,732

Accrued expenses and other payables



193,518



45,288

Taxes payable



(1,969,979)



1,291,215








Net cash provided by operating activities



2,873,708



11,489,000








CASH FLOWS FROM INVESTING ACTIVITIES





Cash acquired in acquisition



-



24,550

Proceeds from sale of property and equipment



-



624

Acquisition of property and equipment



(84,771)



(34,702)








Net cash used in investing activities



(84,771)



(9,528)








CASH FLOWS FROM FINANCING ACTIVITIES





Repayment of acquisition liability for Subsidiaries



(6,802,616)



(5,000,000)

Cash proceeds from warrant exercise



87,500



-

Repayment to related party



-



(1,366,281)








Net cash used in financing activities



(6,715,116



(6,366,281)








Effect of exchange rate changes on cash and equivalents



457,787



132,865








Net increase in cash and equivalents



(3,468,392)



5,246,056








Cash and equivalents, beginning of the period



13,065,008



3,651,990








Cash and equivalents, ending of the period


$

9,596,616


$

8,898,046








SUPPLEMENTAL DISCLOSURES:














Cash paid during the period for:














Income taxes


$

4,745,614


$

3,298,884








Interest


$

-


$

-




Source: New Energy Systems Group
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