ZST Digital Networks, Inc. Announces Fourth Quarter and Fiscal Year 2009 Results
Net Revenue Up 81% from fiscal 2008 to 2009 to $100.4 million
Net Income Up 67% from fiscal 2008 to 2009 to $10.2 million
ZHENGZHOU, China, March 30 /PRNewswire-Asia-FirstCall/ -- ZST Digital Networks, Inc. (Nasdaq: ZSTN) (the "Company" or "ZST"), a major developer, manufacturer, and supplier of digital and optical network equipment to cable system operators in China, today announced its financial results for the fourth quarter and fiscal year ended December 31, 2009.
Fourth Quarter 2009 Financial Highlights
-- Total revenue was US$30.3 million, an increase of 110% compared to the
fourth quarter of 2008.
-- Gross profit for the fourth quarter 2009 was US$5.8 million, an
increase of 140% compared to the fourth quarter 2008. Gross profit
margin for the fourth quarter 2009 was 20%, compared to 17% for the
fourth quarter 2008.
-- Operating income for the fourth quarter 2009 was US$4.2 million, an
increase of 111% compared to the fourth quarter of 2008.
-- Net income for the fourth quarter 2009 was US$3.1 million, an increase
of 137% compared to the fourth quarter of 2008.
-- Net income margin for the fourth quarter of 2009 was 10%, compared to
9% for the fourth quarter 2008.
Fiscal Year 2009 Financial Highlights
Compared to fiscal year 2008 results:
-- Total revenue increased by 81% year-over-year to US$100.4 million.
-- Gross profit increased by 74% year-over-year to US$17.1 million. Gross
profit margin for fiscal 2009 was 17%, compared to 17.7% for fiscal
2008.
-- Operating income was US$14.0 million, an increase of 62% compared to
fiscal 2008.
-- Net income was US$10.2 million, an increase of 67% compared to fiscal
2008.
-- Net income margin for fiscal 2009 was 10%, compared to 11% for fiscal
2008.
Recent Business Highlights
-- On January 4, 2010, the Company announced that it was designated a Key
Enterprise by the Zhengzhou Municipal People's Government, primarily in
recognition of the Company's successful listing on the NASDAQ Global
Market. Under the terms of the official designation, ZST received a
grant of RMB2.6 million (approximately US$0.4 million) from the
Zhengzhou Municipal People's Government, which will be allocated
towards the Company's research and development efforts and general
corporate purposes.
Mr. Bo Zhong, Chairman and Chief Executive Officer of ZST, commented, "I am pleased to report a healthy set of results largely driven by continued robust demand for our IPTV set-top boxes. We continue to maintain our leading market share in the IPTV market in Henan Province, and we believe the outlook in this segment remains promising. In addition, I am pleased to report continued progress in the development of our GPS offering, as we have added an additional four customers since the announcement of our first sales and services contract in November 2009. The GPS segment remains a new and growing market for ZST, and while sales only accounted for a small percentage of our total revenue for the fourth quarter of 2009, we believe momentum will continue to build in 2010.
"Looking ahead, we believe demand in the IPTV and GPS markets remains strong, supported by increasing disposable income among consumers and ongoing government initiatives to modernize both the digital cable and logistics and transport industries. We will continue to capitalize on these favorable trends by executing our strategy to increase sales in the IPTV set-top box market, expand our products and services, especially within the GPS market, and continue to build our brand and technology platform."
John Chen, Chief Financial Officer of ZST, commented, "Our financial results reflect the continued growth in our core IPTV market, our primary revenue driver for the fourth quarter and full year 2009. As a newly public company, we experienced an expected increase in G&A expenses during the fourth quarter. However, we will continue to focus on maintaining effective cost control measures to enhance profitability. In addition, we believe there will be an overall improvement in both the gross and net margin in the fiscal year 2010 as we ramp up sales of our commercial line of GPS products and services. With strong demand in our core IPTV market and a growing opportunity in GPS, we believe we are well positioned to deliver healthy financial and operational gains in the coming year."
Fourth Quarter and Fiscal Year 2009 Unaudited Financial Highlights
Revenue
Revenue for the fourth quarter 2009 was US$30.3 million, representing an increase of 6% from US$28.6 million in the third quarter 2009, and an increase of 110% from US$14.4 million in the fourth quarter 2008. The reasons for the increase in revenue during the quarter are twofold. First, the Company experienced continued demand for its IPTV set-top boxes. In addition, the Company launched its commercial line of GPS products and services with the signing of its first major contract on November 10, 2009.
Revenue for fiscal 2009 increased 81% to US$100.4 million from US$55.4 million in fiscal 2008, primarily as a result of continued strong demand for the Company's IPTV set-top boxes.
Gross Profit and Gross Profit Margin
Gross profit for the fourth quarter 2009 was US$5.8 million, representing a 20% sequential increase and a 140% year-over-year increase. Gross profit margin for the fourth quarter 2009 was 19%, up from 17% in the fourth quarter 2008.
Gross profit increased by 74% to US$17.1 million for fiscal 2009, from US$9.8 million in fiscal 2008, primarily driven by the increase in revenue. Gross margin for fiscal 2009 was 17.0%, down slightly from 17.7% in fiscal 2008.
Operating Expenses
Total operating expenses for the fourth quarter 2009 were US$1.6 million, representing an increase of 280% from US$0.42 million in the fourth quarter 2008. For fiscal 2009, total operating expenses increased 160% to US$3.1 million from US$1.2 million in fiscal 2008. The year-over-year increase in operating expenses was a result of the Company's expanded operations and revenue base, reverse merger costs, as well as additional expenses incurred as a result of being a publicly reporting company in the United States.
General and administrative expenses (G&A) for the fourth quarter 2009 were US$1.1 million, up 203% from US$0.38 million in the fourth quarter 2008. The rise in G&A expenses was mainly attributable to the Company's expanded operations and revenue base as well as additional expenses incurred as a result of being a publicly reporting company in the United States. For fiscal 2009, G&A expenses increased 85% to US$1.9 million from US$1.0 million in fiscal 2008.
Research and development expenses (R&D) for the fourth quarter were US$0.11 million, compared to nil for the fourth quarter 2008. For fiscal 2009, R&D expenses were $0.22 million, compared to nil in fiscal 2008. The continued investment in R&D was driven primarily by capacity increases to accommodate GPS product development and continued development of IPTV set-top box products.
Income Tax
Income tax expense for the fourth quarter 2009 was US$1.5 million, compared to US$0.6 million in the fourth quarter 2008. This increase was mainly due to the Company's continued growth in pre-tax income.
Income tax expense for fiscal 2009 was US$4.1 million, compared to US$2.1 million for fiscal 2008. This increase was mainly due to the Company's continued growth in pre-tax income.
Income from Operations and Net Income
Income from operations was US$4.2 million in the fourth quarter 2009, representing a sequential decrease of 6% compared to an operating income of US$4.5 million in the third quarter 2009, and an increase of 111% compared to operating income of US$2.0 million in the fourth quarter 2008. For fiscal 2009, income from operations increased 62% to US$14.0 million, from US$8.7 million in fiscal 2008.
Net income for the fourth quarter 2009 was US$3.1 million, a sequential decrease of 7% from US$3.3 million in the third quarter 2009 and a year-over-year increase of 137% from US$1.3 million in the fourth quarter 2008. Net margin was 10% for the fourth quarter 2009, down slightly from 12% in the third quarter 2009 and up from 9.0% in the fourth quarter 2008. For fiscal 2009, net income increased 67% to US$10.2 million, from US$6.1 million for fiscal 2008. Net income margin decreased slightly to 10% for fiscal 2009, as compared to 11% in fiscal 2008.
Diluted net income per share was US$0.32 in the fourth quarter 2009, compared to US$0.28 for the fourth quarter 2008. For fiscal 2009, diluted net income per share was US$1.14, compared to US$1.04 for fiscal 2008.
Balance Sheet
Cash and cash equivalents totaled to US$13.6 million as of December 31, 2009, primarily attributable to the closing of the recent public offering in October 2009.
As of December 31, 2009, total trade receivables were US$24.9 million, an increase of 102% from US$12.3 million as of December 31, 2008, primarily due to the increased revenue base.
As of December 31, 2009, inventories increased by US$0.5 million, or 61%, to US$1.2 million from US$0.8 million as of December 31, 2008, primarily due to the increased revenue base.
First Quarter and Full Year 2010 Outlook - Based on the current estimates, the Company approximates that revenue for the first quarter 2010 will range between US$12 million and US$15 million. The Company also estimates that net income for the first quarter 2010 will range between US$1.4 million and US$1.6 million. For the full year 2010, the Company estimates that revenues will range between US$115 million and US$125 million, and net income will range between US$13 million and US$15 million. This represents the Company's current and preliminary view, which is subject to change.
Conference Call
The Company's management team will conduct a conference call on Tuesday, March 30, 2010 at 8:00 am (U.S. Pacific Time) / 11:00 am (U.S. Eastern Time) / 11:00 pm (HK / Beijing Time) to discuss its fourth quarter and fiscal year 2009 financial results and recent business activity. The conference call may be accessed by calling +1-866-519-4004 (for callers in the U.S.), +8008-190-121 (for callers in China), +800-930-346 (for callers in Hong Kong), +0808-234-6646 (for callers in United Kingdom) or +65-6723-9381 (for other international callers) and entering pass code 63153057. Please dial in approximately 10 minutes before the scheduled time of the call.
A recording of the conference call will be available through April 13, 2010, by calling +1-866-214-5335 (for callers in the U.S.) or +61-2-8235-5000 (for callers outside the U.S.) and entering pass code 63153057.
About ZST Digital Network, Inc.
ZST Digital Networks, Inc. (Nasdaq: ZSTN) is a China-based company, principally engaged in supplying digital and optical network equipment and providing installation services to cable system operators in China. The Company has developed a line of IPTV devices that are used to provide bundled cable television, Internet and telephone services to residential and commercial customers. The Company has assisted in the installation and construction of over 400 local cable networks in more than 90 municipal districts, counties, townships, and enterprises. For more information about ZST Digital Networks, Inc., please visit http://www.shenyangkeji.com .
Statement Regarding Unaudited Financial Information
The unaudited financial information set forth above is preliminary and subject to adjustments. Adjustments to the financial statements may be identified when audit work is performed for the year-end audit, which could result in significant differences from this preliminary unaudited financial information.
"Safe Harbor" Statement
This release contains certain "forward-looking statements" relating to the business of the Company and its subsidiary 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, including, but not limited to, our ability to maintain and increase revenues and sales of our products; our ability to develop and market new products; our strategic investments and acquisitions; compliance and changes in the laws of the People's Republic of China (the "PRC") that affect our operations; our ability to obtain all necessary government certifications and/or licenses to conduct our business; vulnerability of our business to general economic downturn, especially in the PRC; adverse capital and credit market conditions; our ability to meet liquidity needs; and other risk factors detailed in reports filed with the Securities and Exchange Commission from time to time. 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 the factors discussed above and in the Company's periodic reports that are filed with the Securities and Exchange Commission and available on its website (http://www.sec.gov). All forward- looking statements attributable 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 Contact:
ZST Digital Networks, Inc
John Chen, Chief Financial Officer
Email: [email protected]
Investor Relations (US):
BPC Financial Marketing
John Baldissera
Phone: +1-800-368-1217
Investor Relations (US):
Taylor Rafferty, LLC
Mahmoud Siddig
Phone: +1-212-889-4350
Email: [email protected]
Web: http://www.taylor-rafferty.com
Investor Relations (HK):
Taylor Rafferty, LLC
Lisa Zheng
Phone: +852-3196-3712
Email: [email protected]
Web: http://www.taylor-rafferty.com
ZST DIGITAL NETWORKS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In U.S. Dollars)
December 31, December 31,
2009 2008
Assets
Current assets
Cash and cash equivalents $13,627,992 $1,134,954
Trade receivables, net 24,885,497 12,322,099
Employee advances -- 6,307
Inventories, net 1,245,803 775,185
Advances to suppliers 7,399,141 3,024,668
Prepaid expenses and other receivables 1,064,499 6,968
Total current assets 48,222,932 17,270,181
Prepaid expenses and other receivables
- long term 858,609 --
Property and equipment, net 467,744 34,148
Intangible asset, net 579,184 --
Total assets $50,128,469 $17,304,329
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable - trade $700,940 $1,270,096
Deferred revenues 376,586 --
Customer deposit -- 1,467
Accrued liabilities and other payable 184,901 501,176
Various taxes payable 403,622 188,539
Short-term loans -- 3,931,991
Employee security deposit payable 67,815 8,911
Wages payable 66,370 59,501
Corporate tax payable 547,917 --
Due to related parties -- 2,359,728
Total current liabilities 2,348,151 8,321,409
Commitments and contingencies -- --
Stockholders' Equity
Preferred Stock, $0.0001 par value,
10,000,000 shares authorized, 6,250,000
shares undesignated, 0 shares issued
and outstanding at December 31, 2009
and December 31, 2008, respectively -- --
Preferred Stock Series A Convertible,
$0.0001 par value, 3,750,000 shares
authorized, 1,263,723 and 0 shares
issued and outstanding at December 31,
2009 and December 31, 2008, respectively.
Liquidation preference and redemption
value of $4,976,953 at December 31, 2009 126 --
Common stock $0.0001 par value, 100,000,000
shares authorized, 10,216,103 and
5,896,723 shares issued and outstanding at
December 31, 2009 and December 31, 2008,
respectively 1,022 590
Additional paid-in capital 30,677,949 1,488,924
Accumulated other comprehensive income 20,085 590,839
Statutory surplus reserve fund 3,328,345 1,491,963
Retained earnings (unrestricted) 13,752,791 5,410,604
Total stockholders' equity 47,780,318 8,982,920
Total Liabilities and Stockholders' Equity $50,128,469 $17,304,329
ZST DIGITAL NETWORKS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In U.S. Dollars)
For the Year Ended
December 31,
2009 2008
Revenue
Sales of goods $99,312,502 $55,430,819
Sales of services 1,101,613 --
Total Revenue 100,414,115 55,430,819
Cost of revenue
Cost of goods sold 83,277,087 45,594,243
Cost of service 55,595 --
Total cost of revenue (83,332,682) 45,594,243
Gross profit 17,081,433 9,836,576
Operating costs and expenses
Selling expenses 364,302 146,459
General and administrative 1,901,023 1,026,859
Research and development 221,467 --
Merger cost 566,654 --
Total operating costs
and expenses 3,053,446 1,173,318
Income from operations 14,027,987 8,663,258
Other income (expenses)
Interest income 59,161 9,753
Interest expense (187,137) (409,811)
Loss on disposal of assets -- (11,295)
Government grant 380,068 --
Sundry income (expense), net (16,202) (10,869)
Total other income (expenses) 235,890 (422,222)
Income before income taxes 14,263,877 8,241,036
Income taxes (Note 12) (4,085,308) (2,132,565)
Net income $10,178,569 $6,108,471
Basic earnings per share $1.32 $1.04
Weighted average shares
outstanding, basic 7, 689,925 5,896,723
Diluted earnings per share $1.14 $1.04
Weighted average shares
outstanding, diluted 8,967,027 5,896,723
ZST DIGITAL NETWORKS, INC. AND SUBSIDIARIES
Statements of Cash Flows
(In U.S. Dollars)
For the Year Ended
December 31,
2009 2008
Cash Flows From Operating Activities
Net Income $10,178,569 $6,108,471
Adjustments to reconcile
net income to net cash provided
(used) by operating activities:
Imputed interest 31,417 71,069
Stock option issued as
compensation 34,193 --
Depreciation 45,546 20.884
Amortization 64,319 --
Changes in operating
assets and liabilities:
Trades receivable (12,563,398) (2,903,070)
Contract receivable -- 101,499
Prepaid expenses and other
receivables (1,909,833) 5,962
Inventories, net (470,618) 4,713,609
Advances (4,374,473) (3,024,668)
Accounts payable and
accrued liabilities (885,431) (1,477,740)
Deposits and other
payables 57,437 (38,757)
Billings in excess of
costs on uncompleted
projects -- (18,635)
Taxes payable and
recoverable 763,000 (302,438)
Wages payable 6,869 35,611
Deferred revenue 376,586 --
Net cash provided by (used in)
operating activities (8,645,817) 3,303,092
Cash Flows From Investing Activities
Purchases of property and equipment (479,265) --
Purchases of intangible assets (643,538) --
Net cash used in
investing activities (1,122,803) --
Cash Flows From Financing
Activities
Proceeds from (Repayment of)
short-term demand loans receivable 1,027 763,548
(Proceeds from) Repayment of
short-term demand loans payable (3,931,991) (4,001,445)
Net proceeds from sale of
preferred stock 3,533,955 --
Net proceeds from sale of
common stock 22,234,924 --
Due from related parties and
affiliated companies -- 68,548
Due to related parties and
affiliated companies -- 2,336,323
Dividend paid -- (2,624,266)
Net cash provided by (used in)
financing activities 21,837,915 (3,457,292)
Effect of exchange rate
changes on cash 423,743 163,350
Net increase in cash and cash
equivalents 12,493,038 9,150
Cash and cash equivalents,
beginning of period 1,134,954 1,125,804
Cash and cash equivalents, end
of period $13,627,992 $1,134,954
Supplemental disclosure information:
Interest expense paid $155,720 $338,742
Income taxes paid $3,537,391 $2,132,565
Non cash investing and
financing activities:
Shares issued for related
parties' debt $2,359,728 $--
SOURCE ZST Digital Networks, Inc.
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