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      New Energy Systems Group Reports Second quarter 2012 Financial Results

      Gross margin improved to 8% from 4% in Q1 2012


      News provided by

      New Energy Systems Group

      Aug 14, 2012, 04:30 ET

      Share this article

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      SHENZHEN, China, Aug. 14, 2012 /PRNewswire-Asia-FirstCall/ -- New Energy Systems Group (NYSE Amex: NEWN) ("New Energy" or the "Company"), a vertically integrated original design manufacturer and distributor of Anytone® and MeePower® branded consumer backup power systems for mobile devices and solar panels and related solar application products to service municipal power applications, today announced financial results for the second quarter ended June 30, 2012.

      Mr. Jack Yu, Chairman of New Energy stated, "We took additional actions we deemed necessary to make New Energy more focused and efficient. Since we divested our battery components business in the fourth quarter of last year, we have focused all of our efforts on growing the consumer products and solar businesses. This comprehensive transformation includes developing new products, expanding our distribution channels and consolidating our fixed overhead. While this will take several quarters to gain traction, we believe this is the right strategy to pursue in order to maximize shareholder value."

      For the Three Months Ended June 30,


      2012

      2011

      CHANGE

      Net Sales

      $3.6 million

      $11.1 million

      -68%

      Gross Profit

      $0.3 million

      $4.0 million

      -93%

      Net Income (Loss) from Continued Operations

      $(9.9) million

      $1.8 million

      N/A

      Adjusted Net Income (Loss)* from Continued Operations

      $(0.7) million

      $2.5 million

      N/A

      GAAP EPS (Diluted) from Continued Operations

      $(0.68)

      $0.12

      N/A

      Adjusted EPS (Diluted)* from Continued Operations

      $(0.05)

      $0.17

      N/A


      *Adjusted net income and adjusted EPS exclude $0.2 million of non-cash stock-based compensation expenses  and $0.5 million of amortization expenses during Q2 2012 and Q2 2011, respectively.  Q2 2012 reported net income and EPS includes a $8.4 million non-cash goodwill and intangible assets impairment charge. Fully diluted shares on June 30, 2012 were 14.6 million versus 14.6 million on June 30,2011.

      Revenues declined 68% year-over-year to $3.6 million due to lower demand for batteries in China and increased competition. Solar panel and related solar product sales were down 74% to $1.6 million due to the downturn pressure of the entire solar market and intense market competition.

      Cost of sales decreased 54% to $3.3 million  from $7.1 million in the second quarter of 2011 due to lower sales and production volumes. Gross profit in the second quarter of 2012 was $0.3 million compared to $4 million, a 93% decline compared to the same period last year. 

      Consolidated gross margin fell to 8% from 36% in the second quarter of  2011 as a result of higher raw materials and labor costs and a significant decrease in production and sales volumes. Gross margin improved sequentially from 4% in the first quarter of 2012.

      Selling, general and administrative expenses ("SG&A") for the three months ended June 30, 2012 were $1.9 million compared to $1.5 million in the same period last year. The increase was primarily a result of higher labor costs and marketing expenses.

      The Company incurred $0.2 million of non-cash stock-based compensation expenses and $0.5 million amortization expenses during the second three months of 2012 and 2011. New Energy recorded a non-cash goodwill and intangible assets impairment charge of $8.4 million in the second quarter of 2012 related to its Anytone and Kim Fai solar businesses. Excluding these expenses, operating loss was $0.7 million for the second quarter of 2012.

      Net income from continuing operations was a net loss of $9.9 million compared to net income of $1.8 million in the second quarter of 2011.  GAAP net loss per share was was $0.68 in the second quarter of 2012 compared to earnings per share of $0.12 in 2011. Non-GAAP adjusted net loss and net loss per share were $0.7 million and $0.05, respectively, in the second quarter of 2012.

      For the Six Months Ended June 30,


      2012

      2011

      CHANGE

      Net Sales

      $8.5 million

      $23.6 million

      -64%

      Gross Profit

      $0.5 million

      $9.3 million

      -94%

      Net Income (Loss) from Continued Operations

      $(11.5) million

      $4.4 million

      N/A

      Adjusted Net Income (Loss)* from Continued Operations

      $(1.7) million

      $5.8 million

      N/A

      GAAP EPS (Diluted) from Continued Operations

      $(0.79)

      $0.30

      N/A

      Adjusted EPS (Diluted)* from Continued Operations

      $(0.11)

      $0.40

      N/A


      *Adjusted net income and adjusted EPS exclude $0.4 million and 0.3 million of non-cash stock-based compensation expenses and $1.0 million and 1.0 million of amortization expenses during Q2 2012 and Q2 2011, respectively. Q2 2012 reported net income and EPS includes a $8.4 million non-cash goodwill and intangible assets impairment charge. Fully diluted shares on June 30, 2012 were 14.6 million versus 14.6 million on June 30,2011.

      Consolidated net sales for the six months ended June 30, 2012 were 8.5 million, a decrease of 64% compared to $23.6 million in the corresponding period in 2011. Sales of Anytone batteries and Kim Fai solar products were $4.9 million and $3.6 million, respectively, in the first half of  2012.

      Cost of sales was $8.0 million, down 44% from $14.3 million in the first six months of 2011. Gross profit and gross margin were $0.5 million and 6%, respectively, in the six months ended June 30, 2012.

      Selling, general and administrative expenses increased 22% to $4 million. Income from continuing operations was a net loss $11.5 million compared to a net income of $4.4 million in the same period a year ago.

      Non-GAAP adjusted net loss and EPS were $1.7 million loss and $0.11 loss per share in the first six months of 2012, respectively. The weighted average diluted shares outstanding were 14.6 million.

      Balance Sheet and Cash Flow Summary

      As of June 30, 2012, cash and equivalents of the Company stood at $9.0 million, up from $4.5 million as of December 31, 2011. Working capital was approximately $22.3 million at June 30, 2012; accounts receivable was $4.2 million, compared to $6.6 million as of December 31, 2011.  New Energy had cash outflows from operations of $0.1 million during the six months ended June 30, 2012 versus $6.6 million of inflows in the same period in 2011.

      Business Update:

      Effective on January 13, 2012, Kim Fai's business, including all the assets and liabilities, has been transferred into Shenzhen Anytone to maximize operations efficiency and save cost.  All of Kim Fai's products have been sold under "Anytone" brand name.

      Anytone signed an agreement with New Trent Corporation ("New Trent") to begin selling products in the U.S. starting in the second quarter of 2012. The agreement will initially focus on Anytone's mobile power products. The two parties expect this agreement to generate at least $1 million in sales during the first full year.

      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.mz-ir.com

      NEW ENERGY SYSTEMS GROUP AND SUBSIDIARIES

      CONSOLIDATED BALANCE SHEETS




      June 30, 2012 (Unaudited)


      December 31,

      2011

      Current assets





      Cash and equivalents


      $

      9,033,416


      $

      4,528,731

      Accounts receivable



      4,189,080



      6,614,814

      Inventory



      749,766



      1,661,515

      Prepayments



      116,687



      554,375

      Other receivables



      8,763,242



      13,550,209

      Taxes receivable



      236,070



      217,106

      Due from shareholders



      283,259



      284,337

      Deferred compensation



      696,475



      686,979








              Total current assets



      24,067,995



      28,098,066








      Noncurrent assets







      Property and equipment



      374,306



      208,271

      Deferred compensation - noncurrent



      85,993



      423,493

      Goodwill



      37,180,588



      39,888,807

      Intangible assets, net



      4,303,504



      11,051,910








              Total noncurrent assets



      41,944,391



      51,572,481








      Total assets


      $

      66,012,386


      $

      79,670,547








      Current liabilities







      Accounts payable


      $

      833,868


      $

      2,837,889

      Accrued expenses and other payables



      928,371



      818,452

      Taxes payable



      58,758



      21,103








      Total current liabilities



      1,820,997



      3,677,444








      Deferred tax liability



      2,505,439



      2,764,571








      Total Liabilities



      4,326,436



      6,442,015








      Commitments and Contingencies














      Stockholders' equity







      Preferred stock, $.001 par value, 60,000,000 shares authorized, 0 shares issued and outstanding



      -



      -

      Common stock, $.001 par value, 140,000,000 shares authorized, 14,591,731 and 14,571,731 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively



      14,591



      14,571

      Additional paid in capital



      74,298,859



      74,255,585

      Statutory reserves



      2,410,573



      2,410,573

      Other comprehensive income



      3,255,068



      3,292,074

      Accumulated deficit



      (18,293,141)



      (6,744,271)








      Total stockholders' equity



      61,685,950



      73,228,532








      Total liabilities and stockholders' equity


      $

      66,012,386


      $

      79,670,547

      NEW ENERGY SYSTEMS GROUP AND SUBSIDIARIES

      CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)




      Six Months Ended June 30,


      Three Months Ended June 30,




      2012

      2011

      2012


      2011




      (Unaudited)


      (Unaudited)


      NET SALES










      Battery


      $

      4,988,308


      $

      11,953,882


      $

      1,991,447


      $

      4,984,984


      Solar panel



      3,557,301



      11,675,972



      1,598,897



      6,161,054


        Total revenue



      8,545,609



      23,629,854



      3,590,344



      11,146,038
















      COST OF SALES














      Battery



      4,639,514



      5,745,805



      1,763,945



      2,466,610


      Solar panel



      3,390,119



      8,553,509



      1,527,426



      4,676,631


        Total cost of sales



      8,029,633



      14,299,314



      3,291,371



      7,143,241
















      GROSS PROFIT



      515,976



      9,330,540



      298,973



      4,002,797
















      OPERATING EXPENSE














      Selling



      718,733



      597,973



      323,378



      276,110


      General and administrative



      3,242,307



      2,656,014



      1,576,709



      1,273,582


      Impairment of goodwill and intangible assets



      8,420,096



      -



      8,420,096



      -


        Total operating expenses



      12,381,136



      3,253,987



      10,320,183



      1,549,692
















      INCOME (LOSS) FROM OPERATIONS



      (11,865,160)



      6,076,553



      (10,021,210)



      2,453,105
















      OTHER INCOME (EXPENSES)














      Other expense (income)



      (606)



      2,324



      (347)



      (290)


      Interest income



      17,283



      4,463



      10,105



      3,188


        Total other income, net



      16,677



      6,787



      9,758



      2,898
















      INCOME (LOSS) BEFORE INCOME TAXES



      (11,848,483)



      6,083,340



      (10,011,452)



      2,456,003
















      INCOME TAX BENEFIT (EXPENSE)



      299,613



      (1,656,055)



      114,884



      (668,954)
















      INCOME (LOSS) FROM CONTINUED OPERATIONS



      (11,548,870)



      4,427,285



      (9,896,568)



      1,787,049


      INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX



      -



      4,180,143



      -



      1,359,824
















      NET INCOME (LOSS)



      (11,548,870)



      8,607,428



      (9,896,568)



      3,146,873
















      OTHER COMPREHENSIVE INCOME (LOSS)














           Foreign currency translation



      (37,006)



      361,391



      (46,839)



      246,540
















      COMPREHENSIVE INCOME (LOSS)


      $

      (11,585,876)


      $

      8,968,819


      $

      (9,943,407)


      $

      3,393,413
















      WEIGHTED AVERAGE SHARES OUTSTANDING














      Basic



      14,573,599



      14,294,318



      14,575,467



      14,302,039


      Diluted



      14,574,316



      14,564,800



      14,576,900



      14,551,731
















      NET INCOME (LOSS) PER SHARE FROM CONTINUING OPERATIONS














      Basic


      $

      (0.79)


      $

      0.31


      $

      (0.68)


      $

      0.12


      Diluted


      $

      (0.79)


      $

      0.30


      $

      (0.68)


      $

      0.12
















      NET INCOME (LOSS) PER SHARE FROM DISCONTINUING OPERATIONS











      Basic


      $

      -


      $

      0.29


      $

      -


      $

      0.10


      Diluted


      $

      -


      $

      0.29


      $

      -


      $

      0.09
















      NET INCOME (LOSS) PER SHARE














      Basic


      $

      (0.79)


      $

      0.60


      $

      (0.68)


      $

      0.22


      Diluted


      $

      (0.79)


      $

      0.59


      $

      (0.68)


      $

      0.21


      NEW ENERGY SYSTEMS GROUP AND SUBSIDIARIES

      CONSOLIDATED STATEMENTS OF CASH FLOWS




      Six Months Ended June 30,



      2012



      2011



      (Unaudited)







      CASH FLOWS FROM OPERATING ACTIVITIES






      Net income (loss)


      $

      (11,548,870)



      $

      8,607,428

      Adjustments to reconcile net income (loss) to net cash








      provided by operating activities:








         Depreciation and amortization



      1,059,493




      1,544,712

         Changes in deferred taxes



      (259,132)




      (337,440)

         Deferred stock compensation



      345,404




      337,500

         Stock options and warrant expense



      25,894




      20,038

         Impairment of goodwill and intangible assets



      8,420,096




      -

      (Increase) / decrease in current assets:








         Accounts receivable



      2,556,709




      1,189,052

         Inventory



      907,956




      (1,567,548)

         Prepaid expenses, deposits and other receivables



      436,984




      (549,571)

      Increase/(decrease) in current liabilities:








         Accounts payable



      (2,148,198)




      (2,494,328)

         Accrued expenses and other payables



      110,571




      (233,546)

         Taxes payable



      17,998




      45,187









      NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES



      (75,095)




      6,561,484









      CASH FLOWS FROM INVESTING ACTIVITIES








         Cash from sale of disposed subsidiaries



      4,799,936




      -

         Acquisition of property and equipment



      (190,253)




      (12,964)









      NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES



      4,609,683




      (12,964)









      CASH FLOWS FROM FINANCING ACTIVITIES








         Repayment of acquisition liability for subsidiaries



      -




      (6,757,273)

         Cash from warrant exercise



      -




      87,500









      NET CASH USED IN FINANCING ACTIVITIES



      -




      (6,669,773)









      EFFECT OF EXCHANGE RATE CHANGE ON CASH AND EQUIVALENTS



      (29,903)




      302,182









      NET INCREASE IN CASH AND EQUIVALENTS



      4,504,685




      180,929









      CASH AND EQUIVALENTS, BEGINNING OF PERIOD



      4,528,731




      13,065,008









      CASH AND EQUIVALENTS, END OF PERIOD


      $

      9,033,416



      $

      13,245,937









      SUPPLEMENTAL DISCLOSURES:








      Cash paid during the period for:








           Income taxes


      $

      -



      $

      3,464,408

           Interest


      $

      -



      $

      -

      SOURCE New Energy Systems Group

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