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      New Energy Systems Group Reports First Quarter 2011 Financial Results

      Anytone® unit sales and Kim Fai Solar panels drive revenue growth of 20%

      Generated $3.6 million in cash from operations

      Reaffirmed 2011 guidance: $130 million to $135 million in revenues, adjusted net income of $24.5 million to $25.5 million and adjusted EPS of $1.69 to $1.75


      News provided by

      New Energy Systems Group

      May 19, 2011, 06:00 ET

      Share this article

      Share this article


      SHENZHEN, China, May 19, 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."

      For the 3 Months Ended March 31


      Q1 2011

      Q1 2010

      CHANGE

      Net Sales

      $27.1 million

      $22.5 million

      +20%

      Gross Profit

      $9.4 million

      $6.4 million

      +47%

      Net Income

      $5.5 million

      $3.8 million

      +44%

      Adjusted Net Income*

      $6.4 million

      $4.6 million

      +37%

      GAAP EPS (Diluted)

      $0.38

      $0.30

      +25%

      Adjusted EPS (Diluted)*

      $0.44

      $0.37

      +19%



      *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:

      Revenue:

      $130 to $135 million

      Adjusted Net Income:

      $24.5 million to $25.5 million

      Adjusted EPS:

      $1.69 to $1.75



      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.


      Date:

      May 20th, 2011

      Time:

      9:00 a.m. Eastern Time, US.

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

      1-877-941-1427

      International Dial-In:

      1-480-629-9664

      Conference ID:

      4440646  "New Energy Systems Call"

      Webcast link:

      http://viavid.net/dce.aspx?sid=00008669




      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: [email protected]

      INVESTOR RELATIONS

      John Mattio, SVP
      HC International, Inc.
      Tel: US +1-212-301-7130
      Email: [email protected]
      Web: http://www.hcinternational.net


      NEW ENERGY SYSTEMS GROUP AND SUBSIDIARIES

      CONSOLIDATED BALANCE SHEETS










      March 31,

      2011


      December 31,

      2010



      (Unaudited)


      (Restated)






      Current assets





      Cash and equivalents


      $

      10,121,795


      $

      13,065,008

      Accounts receivable



      17,169,890



      11,192,150

      Inventory



      4,795,771



      2,420,009

      Other receivables



      46,934



      47,249

      Due from shareholders



      273,257



      270,522

      Deferred compensation



      675,000



      675,000








              Total current assets



      33,082,647



      27,669,938








      Noncurrent assets







      Plant, property & equipment, net



      1,115,997



      1,134,029

      Deferred compensation - noncurrent



      929,743



      1,098,493

      Goodwill



      60,863,441



      60,555,607

      Intangible assets, net



      19,247,770



      19,969,021








              Total noncurrent assets



      82,156,951



      82,757,150








      Total assets


      $

      115,239,598


      $

      110,427,088








      Current liabilities







      Accounts payable


      $

      11,066,372


      $

      6,655,592

      Accrued expenses and other payables



      1,193,653



      1,127,133

      Payable for Kimfai acquisition



      -



      6,325,985

      Taxes payable



      2,703,568



      1,553,206

      Loan payable to related party



      549,082



      543,585








             Total current liabilities



      15,512,675



      16,205,501








      Deferred tax liability



      4,631,181



      4,798,822








      Total Liabilities



      20,143,856



      21,004,323








      Stockholders' equity







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



      2,553



      2,553

      Common stock, $.001 par value, 140,000,000 shares authorized, 14,296,428 and 14,278,928 shares issued and outstanding as of March 31, 2011 and December 31, 2010, respectively



      14,296



      14,279

      Additional paid in capital



      74,137,861



      73,171,435

      Statutory reserves



      2,436,761



      2,323,603

      Other comprehensive income



      1,949,192



      1,834,341

      Retained earnings



      16,555,079



      12,076,554








      Total stockholders' equity



      95,095,742



      89,422,765








      Total liabilities and stockholders' equity


      $

      115,239,598


      $

      110,427,088















      The accompanying notes are an integral part of these consolidated financial statements.





      NEW ENERGY SYSTEMS GROUP AND SUBSIDIARIES

      CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

      THREE MONTHS ENDED MARCH 31, 2011 AND 2010 (UNAUDITED)















      2011


      2010





      (Restated)






      Revenue, net





      Battery


      $

      20,052,391


      $

      19,399,150

      Battery shell and cover



      1,518,822



      3,053,513

      Solar panel



      5,514,918



      -

      Total revenue



      27,086,131



      22,452,663








      Cost of sales







      Battery



      12,710,728



      14,073,985

      Battery shell and cover



      1,053,855



      1,953,393

      Solar panel



      3,876,878



      -

      Total cost of sales



      17,641,461



      16,027,378








      Gross profit



      9,444,670



      6,425,285








      Operating expenses







      Selling



      364,180



      125,974

      General and administrative



      1,755,619



      1,374,155

      Total operating expenses



      2,119,799



      1,500,129








      Income from operations



      7,324,871



      4,925,156








      Other income







      Other income



      5,379



      8,287

      Interest income



      8,033



      21,289

      Total other income, net



      13,412



      29,576








      Income before income taxes



      7,338,283



      4,954,732








      Provision for income taxes



      (1,877,728)



      (1,172,866)








      Net income



      5,460,555



      3,781,866








      Other comprehensive income







                 Foreign currency translation



      114,851



      4,210








      Comprehensive income


      $

      5,575,406


      $

      3,786,076








      Net income per share







      Basic


      $

      0.38


      $

      0.32

      Diluted


      $

      0.38


      $

      0.30








      Weighted average number of shares outstanding:







                Basic



      14,286,511



      11,863,390

                Diluted



      14,558,566



      12,623,895








      The accompanying notes are an integral part of these consolidated financial statements.




      NEW ENERGY SYSTEMS GROUP AND SUBSIDIARIES

      CONSOLIDATED STATEMENTS OF CASH FLOWS

      THREE MONTHS ENDED MARCH 31, 2011 AND 2010 (UNAUDITED)



      2011


      2010





      (Restated)






      CASH FLOWS FROM OPERATING ACTIVITIES





      Net Income


      $

      5,460,555


      $

      3,781,866

      Adjustments to reconcile net income to net cash







      provided by operating activities:







         Depreciation and amortization



      768,370



      760,851

         Deferred tax liability



      (167,641)



      (134,717)

         Deferred compensation expense



      168,750



      168,750

         Loss on disposal of fixed asset



      -



      121

         Warrants expense



      10,071



      -

      (Increase) / decrease in current assets:







         Accounts receivable



      (5,840,687)



      1,646,089

         Inventory



      (2,341,718)



      (847,367)

         Prepaid expenses, deposits and other receivables



      790



      433,887

      Increase/(Decrease) in current liabilities:







         Accounts payable



      4,325,793



      2,169,271

         Accrued expenses and other payables



      61,580



      (2,265,368)

         Taxes payable



      1,131,689



      875,670








      Net cash provided by operating activities



      3,577,552



      6,589,053








      CASH FLOWS FROM INVESTING ACTIVITIES







      Cash acquired in acquisition



      -



      24,550

      Proceeds from sale of property and equipment



      -



      66

      Acquisition of property and equipment



      (12,456)



      (3,844)








      Net cash provided by (used in) investing activities



      (12,456)



      20,772








      CASH FLOWS FROM FINANCING ACTIVITIES







      Repayment of acquisition liability for Subsidiaries



      (6,714,060)



      (1,000,000)

      Cash proceeds from warrant exercise



      87,500



      -

      Repayment to related party



      -



      (732,397)








      Net cash used in financing activities



      (6,626,560)



      (1,732,397)








      Effect of exchange rate changes on cash and equivalents



      118,251



      1,449








      Net increase (decrease) in cash and equivalents



      (2,943,213)



      4,878,877








      Cash and equivalents, beginning of the period



      13,065,008



      3,651,990








      Cash and equivalents, ending of the period


      $

      10,121,795


      $

      8,530,867








      SUPPLEMENTAL DISCLOSURES:














      Cash paid during the year for:














           Income taxes


      $

      1,396,883


      $

      556,427








           Interest


      $

      -


      $

      -








      The accompanying notes are an integral part of these consolidated financial statements.



      SOURCE New Energy Systems Group

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