New Energy Systems Group Reports Second Quarter 2011 Financial Results

SHENZHEN, China, Aug. 16, 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 second quarter ended June 30, 2011.

Second quarter 2011 Financial Highlights

• Total revenues essentially flat year-over-year at $23.1 million
• Kim Fai solar panels generated $6.2 million in sales
• Gross profit increased 5% to $6.5 million
• Adjusted net income $4.1 million with $0.28 EPS

Mr. Jack Yu, Chairman of New Energy stated, "Like many other electronic brands, counterfeiting of our products has been an unwanted distraction to our operations and negatively affected sales volumes and margins during the quarter. We have promptly and aggressively addressed the issue with the authorities, while pinpointing culprits who have subsequently been notified by our attorneys and local authorities. Ultimately, new product development is what stymies counterfeit products and we are confident our continued emphasis on R&D and our ability to launch new Anytone® products with enhanced functionality and designs will reinvigorate consumer and distributor purchases. By acting quickly to address the commercial needs of our distribution base, we have built trust and ensured the integrity of our brand. We were also pleased with Kim Fai's results, which are on track for to exceed our original forecast for 2011."

Revenues declined 1% year-over-year to $23.1 million for the quarter. Revenue growth was primarily affected by the Company's battery sales divisions which include Anytone® battery recharging and remote power consumer products, NewPower battery packs and E'Jenie battery components. As reported on the Company's first quarter 2011 conference call, counterfeiting of certain Anytone® products caused a temporary slowdown in sales. The Company is pleased to report that a combination of legal action and sales efforts with distributor partners to identify counterfeits have gradually restored distributor confidence. Sales of Anytone® products were down 15% to 670,000 units from 730,000 in the first quarter of 2011. In July, the Company witnessed an increase in sales as distributors began placing restocking orders. As of July 31, the Company reported 200,000 units were purchased and anticipates higher figures for August and September. Anytone® R&D departments are aggressively repacking certain SKU's with different designs and introducing new models to distributors to further differentiate original, Anytone®-branded products to their distributors and consumers.

Also contributing to the downturn in sales growth in the segment were product line rationalizations in both NewPower and E'Jenie product lines, where legacy products were voluntarily delisted due to margin profiles below the Company's targets. While the Company will continue to service its long-standing customers with these two product categories, management anticipates lower sales in future quarters as it focuses resources on higher margin Anytone®, MeePower® and Kim Fai solar products.

The acquisition of Kim Fai, completed in the fourth quarter of  2010, added approximately $6.2 million of sales in the three months ended June 30, 2011, up 13% from the first quarter of 2011, and 54% compared to the year ago quarter. Kim Fai sales were most pronounced to municipalities that purchase panels to power street lighting, traffic signals and emergency mobile communication towers.

Gross profit was $6.5 million compared to $6.1 million, a 5% increase compared to the same period last year. Consolidated gross margin expanded 170 basis points to 28% due to product line rationalizations in NewPower and E'Jenie product segments, Anytone®-branded consumer goods and high-margin Kim Fai solar panels sold as part of government tenders to municipalities.

Operating expenses for the three months ended June 30, 2011 were $2.2 million compared to $1.6 million. The increase was primarily a result of higher sales and marketing expenses and some legal costs to combat counterfeiters.

The Company incurred $0.2 million of non-cash stock-based compensation during the second quarter of 2011 and also recorded $0.7 million of amortization charges in the quarter. GAAP net income for the quarter was $3.1 million, down 12% from $3.6 million for the three months ended June 30, 2010. Non-GAAP adjusted earnings exclude non-cash stock based compensation and amortization. Adjusted net income was $4.1 million and $0.28 in earnings per share based on 14.5 million shares outstanding on June 30, 2011.

Total net revenue increased 9% in the first six months of 2011 to $50.2 million. Sales were primarily driven by higher unit sales of Anytone® products and Kim Fai solar panels. Combined, Anytone® and Kim Fai solar sales accounted for 56% of sales in the first half of 2011.

Gross profit increased 27% to $15.9 million, with gross margin of 31.7% compared to 27.4% in the comparable period.

Selling, general and administrative expenses were $4.4 million compared to $3.1 million a year ago. Operating income increased 22% to $11.5 million. Excluding $0.2 million of non-cash stock compensation expenses and $0.7 million of non-cash amortization expenses, adjusted operating income was $12.4 million.

GAAP net income and earnings per diluted share were $8.6 million and $0.59, respectively. Adjusted net income, excluding non-cash expenses, was $10.4 million and adjusted EPS were $0.72 in the first six months of 2011.

Balance Sheet and Cash Flow Summary

As of June 30, 2011, cash and equivalents of the Company stood at $13.2 million, up slightly from $13.1 million as of December 31, 2010. Working capital was approximately $21.7 million at June 30, 2011; accounts receivable was $10.3 million, compared to $11.2 million as of December 31, 2010. The Company had $0.6 million of debt. New Energy generated $6.6 million of cash flow from operations during the six months ended June 30, 2011 versus $6.5 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, August 16th, 2011 at 8:00 am ET to discuss the results for the three and six months ended June 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 Second Quarter 2011 Conference Call".

Please dial in at least 10 minutes before the call to ensure timely participation. A playback will be available through August 24, 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 10003229 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=3094

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.

SOURCE New Energy Systems Group

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