SOURCE: New Energy Systems Group

New Energy Systems Group

November 16, 2012 08:00 ET

New Energy Systems Group Reports Third Quarter 2012 Financial Results

Cash and cash Equivalents Improved to $10.3 Million, or $0.71 per Share; Non-GAAP Adjusted Net Income and EPS of $0.8 Million and $0.06, Respectively

SHENZHEN, CHINA--(Marketwire - Nov 16, 2012) - New Energy Systems Group (NYSE MKT: 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 third quarter ended September 30, 2012.

Mr. Jack Yu, Chairman of New Energy, stated, "Over the past year, other than operations, we have generated $5.7 million of cash from selling non-core assets that were losing substantial amount of money. With over $10 million of cash, no debt and valuable intellectual property related to our Anytone consumer electronic and solar businesses, we are looking for those strategies to stable and regrow our shareholder value."

 
 
For the Three Months Ended September 30,
  2012 2011 CHANGE
Net Sales $3.6 million $6.7 million -46%
Gross Profit $0.2 million $1.2 million -80%
Net Income (Loss) from Continued Operations $(7.6) million ($0.5) million N/A
Adjusted Net Income (Loss)* from Continued Operations $0.8 million $0.2 million +455%
GAAP EPS (Diluted) from Continued Operations $(0.52) $(0.04) N/A
Adjusted EPS (Diluted)* from Continued Operations $0.06 $0.01 +452%
 
*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 Q3 2012 and Q3 2011, respectively. Q3 2012 reported net income and EPS includes a $7.7 million non-cash goodwill and intangible assets impairment charge. Fully diluted shares on September 30, 2012 were 14.6 million versus 14.6 million on September 30,2011.
 
 

Revenues declined 46% 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 62% to $1.9 million due to the downturn pressure of the entire solar market and intense market competition.

Cost of sales decreased 38% to $3.4 million from $5.5 million in the third quarter of 2011 due to lower sales and production volumes. Gross profit in the third quarter of 2012 was $0.2 million compared to $1.2 million, a 80% decline compared to the same period last year.

Consolidated gross margin fell to 7% from 18% in the third quarter of 2011 as a result of higher raw materials and labor costs and a significant decrease in production and sales volumes.

Selling, general and administrative expenses ("SG&A") for the three months ended September 30, 2012 were $1.8 million, essentially unchanged from the same period last year.

The Company incurred $0.2 million of non-cash stock-based compensation expenses and $0.5 million amortization expenses during the third quarter of 2012 and 2011. New Energy recorded a non-cash goodwill and intangible assets impairment charge of $7.7 million in the third quarter of 2012 related to its Anytone and Kim Fai solar businesses. Excluding these expenses, operating income was $0.8 million for the third quarter of 2012.

Net income from continuing operations was a net loss of $7.6 million compared to a net loss of $0.5 million in the third quarter of 2011. GAAP net loss per share was was $0.52 in the third quarter of 2012 compared to a net loss per share of $0.04 in 2011. Non-GAAP adjusted net income and earnings per share were $0.8 million and $0.06, respectively, in the third quarter of 2012.

For the Nine months Ended September 30,
  2012 2011 CHANGE
Net Sales $12.2 million $30.3 million -60%
Gross Profit $0.8 million $10.5 million -93%
Net Income (Loss) from Continued Operations $(19.1) million $3.9 million N/A
Adjusted Net Income (Loss)* from Continued Operations $(0.9) million $5.9 million N/A
GAAP EPS (Diluted) from Continued Operations $(1.31) $0.27 N/A
Adjusted EPS (Diluted)* from Continued Operations $(0.06) $0.41 N/A
 
*Adjusted net income and adjusted EPS exclude $0.5 million and 0.5 million of non-cash stock-based compensation expenses and $1.6 million and $1.5 million of amortization expenses during YTD 2012 and YTD 2011, respectively. YTD 2012 reported net income and EPS includes a $16.1 million non-cash goodwill and intangible assets impairment charge. Fully diluted shares on September 30, 2012 were 14.6 million versus 14.5 million on September 30,2011.
 
 

Consolidated net sales for the nine months ended September 30, 2012 were $12.2 million, a decrease of 60% compared to $30.3 million in the corresponding period in 2011. Sales of Anytone batteries and Kim Fai solar products were $6.7 million and $5.5 million, respectively, in the first nine months of 2012.

Cost of sales was $11.4 million, down 42% from $19.8 million in the first nine months of 2011. Gross profit and gross margin were $0.8 million and 6%, respectively, in the nine months ended September 30, 2012.

Selling, general and administrative expenses increased 13% to $5.7 million. Loss from continuing operations was a net loss $21.1 million compared to a net income of $5.5 million in the same period a year ago.

Non-GAAP adjusted net loss and EPS were $0.9 million loss and $0.06 loss per share in the first nine months of 2012, respectively. The weighted average diluted shares outstanding were 14.6 million.

Balance Sheet and Cash Flow Summary

As of September 30, 2012, New Energy Systems Group had cash and equivalents of approximately $10.3 million, up from $4.5 million as of December 31, 2011. The Company received $5.7 million for sale of disposed subsidiaries and generated $0.3 million of cash from operations.

Working capital was approximately $19.1 million at September 30, 2012; accounts receivable was $4.3 million compared to $6.6 million as of December 31, 2011.

Business Update:

During the last quarter, through reduced sales prices of certain products, continuing marketing efforts and exploration of other potential market, the Company managed to control the loss brought by piracy and counterfeit to our mobile power products. In addition to searching for potential partners in the global market, the Company also starts to sell its products directly on the large E-Commence websites such as Amazon and eBay. Also, the Company plans to sell its products directly from its official website to foreign customers in the near future. Moreover, the Company will aggressively participate in domestic and international trade shows for any potential business opportunity, including the recent solar energy show in South Africa and CES 2013 in Las Vegas. Finally, the Company has also developed compatible mobile power products for the popular consumer electronic products such as iPhone 5 and Galaxy S3.

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.

 
 
NEW ENERGY SYSTEMS GROUP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
    September 30,
2012
    December 31,
2011
 
ASSETS   (Unaudited)  
Current assets            
Cash and equivalents   $ 10,349,517     $ 4,528,731  
Accounts receivable     4,253,457       6,614,814  
Inventory     479,829       1,661,515  
Prepayments     50,946       554,375  
Other receivables     5,520,000       5,520,000  
Taxes receivable     -       217,106  
Due from shareholders     282,540       284,337  
Deferred compensation     607,087       686,979  
                 
  Total current assets     21,543,376       20,067,857  
                 
Noncurrent assets                
Property and equipment, net     330,465       208,271  
Other receivables     2,322,500       8,030,209  
Deferred compensation     -       423,493  
Goodwill     29,830,694       39,888,807  
Intangible assets, net     3,412,640       11,051,910  
                 
  Total noncurrent assets     35,896,299       59,602,690  
                 
TOTAL ASSETS   $ 57,439,675     $ 79,670,547  
                 
  LIABILITIES AND STOCKHOLDERS' EQUITY      
 
Current liabilities                
Accounts payable   $ 1,542,990     $ 2,837,889  
Accrued expenses and other payables     873,070       818,452  
Taxes payable     71,404       21,103  
                 
  Total current liabilities     2,487,464       3,677,444  
                 
Deferred tax liability     853,160       2,764,571  
                 
TOTAL LIABILITIES     3,340,624       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, 14,631,731 and 14,571,731 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively     14,631       14,571  
Additional paid in capital     74,298,859       74,255,585  
Statutory reserves     2,410,573       2,410,573  
Other comprehensive income     3,249,413       3,292,074  
Accumulated deficit     (25,874,425 )     (6,744,271 )
                 
TOTAL STOCKHOLDERS' EQUITY     54,099,051       73,228,532  
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 57,439,675     $ 79,670,547  
                 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
 
NEW ENERGY SYSTEMS GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
    Nine Months Ended September 30,     Three Months Ended September 30,  
    2012     2011     2012     2011  
                         
NET SALES                        
  Battery   $ 6,687,091     $ 13,657,611     $ 1,698,783     $ 1,703,729  
  Solar panel     5,494,777       16,649,096       1,937,476       4,973,124  
    Total sales     12,181,868       30,306,707       3,636,259       6,676,853  
                                 
COST OF SALES                                
  Battery     6,191,309       6,546,438       1,551,795       800,633  
  Solar panel     5,235,908       13,220,831       1,845,789       4,667,322  
    Total cost of sales     11,427,217       19,767,269       3,397,584       5,467,955  
                                 
GROSS PROFIT     754,651       10,539,438       238,675       1,208,898  
                                 
OPERATING EXPENSE                                
  Selling     892,253       881,257       173,520       283,284  
  General and administrative     4,839,943       4,197,889       1,597,636       1,541,875  
  Patent impairment     6,086,840       -       6,086,840       -  
  Goodwill impairment     10,058,113       -       1,638,017       -  
    Total operating expenses     21,877,149       5,079,146       9,496,013       1,825,159  
                                 
INCOME (LOSS) FROM OPERATIONS     (21,122,498 )     5,460,292       (9,257,338 )     (616,261 )
                                 
OTHER INCOME (EXPENSES)                                
  Other expense (income)     (810 )     1,983       (204 )     (341 )
  Interest income     26,288       10,254       9,005       5,791  
    Total other income, net     25,478       12,237       8,801       5,450  
                                 
INCOME (LOSS) BEFORE INCOME TAXES     (21,097,020 )     5,472,529       (9,248,537 )     (610,811 )
INCOME TAX BENEFIT (EXPENSE)     1,966,866       (1,570,786 )     1,667,253       85,269  
                                 
INCOME (LOSS) FROM CONTINUING OPERATIONS     (19,130,154 )     3,901,743       (7,581,284 )     (525,542 )
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX     -       (12,147,523 )     -       (16,327,666 )
                                 
NET LOSS     (19,130,154 )     (8,245,780 )     (7,581,284 )     (16,853,208 )
                                 
OTHER COMPREHENSIVE INCOME (LOSS)                                
  Foreign currency translation     (278,743 )     659,551       (241,737 )     298,160  
                                 
COMPREHENSIVE LOSS   $ (19,408,897 )   $ (7,586,229 )   $ (7,823,021 )   $ (16,555,048 )
                                 
WEIGHTED AVERAGE SHARES OUTSTANDING                                
  Basic     14,595,600       14,381,065       14,631,731       14,551,731  
  Diluted     14,595,600       14,548,462       14,631,731       14,551,731  
                                 
NET INCOME (LOSS) PER SHARE FROM CONTINUING OPERATIONS                                
  Basic   $ (1.31 )   $ 0.27     $ (0.52 )   $ (0.04 )
  Diluted   $ (1.31 )   $ 0.27     $ (0.52 )   $ (0.04 )
                                 
NET INCOME (LOSS) PER SHARE FROM DISCONTINUED OPERATIONS                          
  Basic   $ -     $ (0.84 )   $ -     $ (1.12 )
  Diluted   $ -     $ (0.83 )   $ -     $ (1.12 )
                                 
NET INCOME (LOSS) PER SHARE                                
  Basic   $ (1.31 )   $ (0.57 )   $ (0.52 )   $ (1.16 )
  Diluted   $ (1.31 )   $ (0.57 )   $ (0.52 )   $ (1.16 )
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
 
NEW ENERGY SYSTEMS GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
    Nine Months Ended September 30,  
    2012     2011  
             
CASH FLOWS FROM OPERATING ACTIVITIES            
  Net loss   $ (19,130,154 )   $ (8,245,780 )
  Adjustments to reconcile net loss to net cash provided by operating activities:                
    Depreciation and amortization     1,618,413       2,328,860  
    Changes in deferred taxes     (1,911,410 )     (509,557 )
    Deferred stock compensation     533,985       506,250  
    Stock options and warrant expense     29,534       33,828  
    Goodwill impairment     10,058,113       13,564,691  
    Patent impairment     6,086,840       -  
  (Increase) / decrease in current assets:                
    Accounts receivable     2,477,524       755,306  
    Inventory     1,175,628       (1,177,906 )
    Prepaid expenses, deposits and other receivables     502,024       (868,679 )
  Increase/(decrease) in current liabilities:                
    Accounts payable     (1,430,992 )     (1,736,844 )
    Accrued expenses and other payables     55,738       193,518  
    Taxes payable     267,180       (1,969,979 )
                 
NET CASH PROVIDED BY OPERATING ACTIVITIES     332,423       2,873,708  
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
    Cash from sale of disposed subsidiaries     5,728,957       -  
    Acquisition of property and equipment     (189,964 )     (84,771 )
                 
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES     5,538,993       (84,771 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
    Repayment of acquisition liability for subsidiaries     -       (6,802,616 )
    Cash from warrant exercise     -       87,500  
                 
NET CASH USED IN FINANCING ACTIVITIES     -       (6,715,116 )
                 
EFFECT OF EXCHANGE RATE CHANGE ON CASH AND EQUIVALENTS     (50,630 )     457,787  
                 
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS     5,820,786       (3,468,392 )
                 
CASH AND EQUIVALENTS, BEGINNING OF PERIOD     4,528,731       13,065,008  
                 
CASH AND EQUIVALENTS, END OF PERIOD   $ 10,349,517     $ 9,596,616  
                 
SUPPLEMENTAL DISCLOSURES:                
  Cash paid during the period for:                
    Income taxes   $ -     $ 4,745,614  
    Interest   $ -     $ -  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 

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