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New Energy Systems Group Reports Record 2009 Results
Apr 15, 2010 (04:04 PM EDT)


GAAP Net Income of $5.8 Million or $0.82 per Diluted Share

2009 Adjusted Net Income of $6.4 Million or $0.89 per Diluted Share

Reaffirms 2010 Adjusted EPS Guidance of $1.23, Representing 38% Projected EPS Growth

NEW YORK and SHENZHEN, China, April 15 /PRNewswire-Asia-FirstCall/ -- New Energy Systems Group (OTC Bulletin Board: NEWN), a vertically integrated original design manufacturer and distributor of lithium ion batteries and backup power systems, today announced financial results for the full year ended December 31, 2009.

    Full Year 2009 Highlights:
    -- Revenue increased 33.8% to $26.4 million
    -- Gross margin improved 156 basis points to 30.5%
    -- GAAP net income, including certain non-cash items, increased 31.1% to
       $5.8 million, or $0.82 per diluted share
    -- Adjusted net income of $6.4 million, or $0.89 per diluted share,
       excluding $251,507 of non-cash stock compensation expense and $275,000
       of amortization expense
    -- Ended year with $3.7 million of cash following a $3 million prepayment
       in 2009 for the NewPower acquisition that closed after the year end

Mr. Fushun Li, Chief Executive Officer, commented, "We are extremely pleased with our results for 2009, which were in line with our expectations. Moreover, we view 2009 as a transitional year since late in the year we announced two large and highly accretive acquisitions that dramatically changed our business and whose contributions are largely not reflected in our 2009 results. For the full year, New Energy Systems Group reported revenue of $26.4 million versus $19.7 million in 2008 achieving top-line growth of approximately 34%. At the same time, gross margins improved over 156 basis points to 30.5% as a result of an improved product mix. Our 2009 GAAP net income was $5.8 million, however, this figure includes certain non-cash expenses for stock compensation and amortization, so we are also providing our adjusted net income figures which we believe more accurately reflect our overall profitability. Our 2009 adjusted net income was $6.4 million or $0.89 per fully diluted share. We expect our revenue, adjusted net income and adjusted EPS all to increase significantly in 2010 as a result of growth in our legacy business as well as the inclusion of New Power's and Anytone's growing operations. We currently have a healthy balance sheet and excess manufacturing capacity so we do not need to raise additional equity to achieve our 2010 earnings guidance.

"In 2009 we experienced strong battery segment growth of 35% with revenue rising to $19.9 million compared to $14.8 million in 2008. We also experienced solid battery shell and cover segment growth of 30%, with revenue rising to $6.5 million. This growth in both of our business segments is due to strong demand from our growing end markets. It also reflects the success of the first step in our vertical integration strategy, initiated in the second half of 2008, to expand from battery shell and cover manufacturing into full battery assembly and distribution."

Commenting on the recent acquisitions, Mr. Li noted, "We moved to implement the second phase of our vertical integration strategy in late 2009 by acquiring Anytone and NewPower. I am pleased to report the integration of the two acquisitions is progressing seamlessly. In December 2009, we completed the acquisition of Anytone, a leading manufacturer of backup power systems, which provides us with the ability to touch the end-user customer in China with branded products, thus broadening our product offering and expanding our distribution channels. Anytone's significant R&D capabilities and its ability to rapidly innovate to meet changing needs in the marketplace help position us to rapidly gain market share in the direct-to-consumer market. In January 2010 we completed the acquisition of NewPower. NewPower, a Chinese manufacturer of lithium ion batteries, is a captive source for components for finished battery products that will enable us to keep costs below competitors' and improve margins in our own finished battery distribution business."

2010 Guidance and Objectives

Mr. Li continued, "We are encouraged by both the near- and long-term outlook for the business. With an addressable lithium ion battery market exceeding $4 billion in China alone, we will continue to benefit from underlying strong demand in China coupled with significant global growth potential. As we head into 2010, we are now focused on growing the combined businesses and executing on an international expansion strategy that includes expanding into major markets outside China. We expect to benefit from an improving cost position, increased revenue from each of our segments, improving gross margins and significant operating leverage. We continue to expect that our adjusted 2010 net income will be at least $15.6 million, or $1.23 per diluted share, based on 12.6 million projected fully diluted shares. This would represent approximately 38% growth in adjusted diluted EPS. We are also making progress on our previously announced plans to uplist to a senior national exchange and will keep investors updated regarding our progress."

Table 1: Reconciliation of 2009 Reported Net Income and Adjusted Net Income and Net Income per Diluted Share:

The Company defines adjusted net income as earnings before non-cash compensation and amortization expense. Adjusted net income is not a measure of performance calculated in accordance with accounting principles generally accepted in the United States ("GAAP"), and should not be considered in isolation of, or as a substitute for, earnings as an indicator of operating performance or cash flows from operating activities as a measure of liquidity. The Company believes the presentation of adjusted net income is relevant and useful by enhancing the readers' ability to understand the Company's operating performance. The Company's management utilizes adjusted net income as a means to measure performance. The Company's measurements of adjusted net income may not be comparable to similar titled measures reported by other companies. The table below reconciles adjusted net income, a non-GAAP measure, to net income for the twelve months ended December 31, 2009.



    ($ in MM. except per share amounts)

                                                      2009A
    Net income                                        $5.84
    Add back: non-cash, stock based
     compensation expense                             $0.25
    Add back: amortization expense                    $0.28
                Adjusted net income                   $6.36

    Reported net income per diluted share             $0.82
    Adjusted net income per diluted share             $0.89

Revenue increased 33.8% to $26.4 million for the twelve months ended December 31, 2009, as compared to $19.7 million in 2008. Revenue consisted of $19.9 million in battery revenue and $6.5 million in battery shell and cover revenue, as compared to $14.7 million and $5 million, respectively, in 2008. The improvement in revenue reflects a full year of revenue from the battery distribution business initiated in the second half of 2008 and increased demand for battery shells and caps. Revenue in 2009 also includes 24 days of revenue, or $3.4 million, from Anytone following completion of the acquisition on December 7, 2009, and does not include any revenue contribution from NewPower, which was acquired on January 13, 2010.

Gross profit for 2009 was $8.0 million, or 30.5% of net revenue, as compared to $5.7 million, or 28.9% of net revenue, for 2008. The improvement in both gross profit and gross margin was primarily due to the Company's increased revenues from the battery segment. Compared to the existing battery shell and cover business, the battery segment generates higher gross margins due to the lower cost of sales.

In 2009, general and administrative expense included $251,507 of non-cash, stock-based compensation expense and $275,000 of non-cash amortization expense. Operating income was $6.7 million for 2009, as compared to $5 million for 2008.

For 2009, GAAP net income rose 31.1% to $5.8 million, or $0.82 per diluted share, from $4.5 million, or $0.72 per diluted share, in 2008. Excluding non-cash stock-based compensation expense and amortization expense, adjusted net income for 2009 was $6.4 million, or $0.89 per diluted share.

As of December 31, 2009, New Energy Systems Group had cash and cash equivalents of $3.7 million following a $3.0 million cash prepayment in 2009 related to the 2010 NewPower acquisition. In addition, included in the Company's accounts payables is a $5 million liability, which is scheduled to be paid in cash by June 30, 2010, as a final payment related to the acquisition of Anytone which was completed in December 2009.

Conference Call

New Energy Systems Group will also host a conference call at 8:00 a.m. Eastern Time on Friday, April 16, 2010. During the call, Mr. Fushun Li, Chief Executive Officer and Mr. Junfeng Chen, Chief Financial Officer will discuss the Company's quarterly performance and financial results.

The telephone number for the conference call is (877) 407-8033 (U.S. callers) or (201) 689-8033 (international callers). A live webcast of the call will also be available on the Company's website http://www.newenergysystemsgroup.com . To listen to the live call online, please visit the site at least 10 minutes early to register, download and install any necessary audio software.

The webcast will be archived on the website and investors will be able to access an encore recording of the conference call through midnight Friday April 23, 2010 by calling (877) 660-6853 (U.S. callers) or (201) 612-7415 (international callers) and entering account #286 and conference ID #349256. The encore recording will be available two hours after the conference call has concluded.

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, greater production capacity and higher profit margins in 2010. Additional information about the company is available at: http://www.newenergysystemsgroup.com .

Forward Looking Statements

Except for the historical information, the matters discussed in this news release may contain forward-looking statements, including, but not limited to, factors relating to future results. These forward-looking statements may involve a number of risks and uncertainties. Actual results may differ materially based on a number of factors, including, but not limited to, uncertainties in product demand, risks related to doing business in China, the impact of competitive products and pricing, changing economic conditions around the world, release and sales of new products and other risk factors detailed in the Company's most recent annual report on Form 10-K and quarterly reports on Form 10-Q and other filings with the U.S. Securities and Exchange Commission.

    For more information, please contact:

    Crescendo Communications, LLC
    David Waldman or John Quirk
    Tel:   +1-212-671-1020
    Email: newn@crescendo-ir.com

                              (tables to follow)




                    NEW ENERGY SYSTEMS GROUP AND SUBSIDIARIES
         (FORMERLY, CHINA DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES)
                           CONSOLIDATED BALANCE SHEETS


                   ASSETS                December 31, 2009 December 31, 2008
    Current assets
    Cash and equivalents                        $3,651,990        $6,969,454
    Accounts receivable                          9,776,041         7,407,371
    Inventory                                      502,702           759,477
    Prepaid expenses                               262,379                --
    Other receivables                              433,804                --
            Total current assets                14,626,916        15,136,302

    Plant, property & equipment, net               699,790           859,232

    Other assets
    Prepayment for Newpower acquisition*         2,999,473                --
    Deposits                                        37,626                --
    Goodwill                                    19,244,036                --
    Intangible assets, net                      15,772,344           880,920
            Total other assets                  38,053,479           880,920

    Total assets                               $53,380,185       $16,876,454

          LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities
    Accounts payable and accrued expenses       $9,095,623        $3,467,324
    Taxes payable                                  762,430           399,519
    Loan payable                                        --         2,200,500
    Loan payable to related party                  527,225           174,600
    Total current liabilities                   10,385,278         6,241,943

    Deferred tax liability                       3,001,584                --

    Total Liabilities                           13,386,862         6,241,943

    Stockholders' equity
    Preferred stock, $.001 par value,
     7,575,757 shares authorized,
     7,575,757 shares issued and
     outstanding                                     7,576             7,576
    Common stock, $.001 par value,
     140,000,000 shares authorized,
     11,863,390 and 5,446,105
     shares issued and outstanding at
     December 31, 2009 and 2008,
     respectively                                   11,863             5,446
    Additional paid in capital                  42,165,281        16,999,362
    Statutory reserve                            2,070,081           593,445
    Other comprehensive income                   1,225,986         1,144,170
    Accumulated deficit                         (3,038,971)       (8,115,488)
    Less: deferred compensation                 (2,448,493)               --

    Total stockholders' equity                  39,993,323        10,634,511

    Total liabilities and stockholders'
     equity                                    $53,380,185       $16,876,454

    *Acquisition closed Jan 13, 2010



                    NEW ENERGY SYSTEMS GROUP AND SUBSIDIARIES
         (FORMERLY, CHINA DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES)
           CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

                                             Year Ended        Year Ended
                                          December 31, 2009 December 31, 2008

    Revenue, net
          Battery                              $19,918,846       $14,748,595
          Battery shell and cover                6,457,044         4,967,813
                  Total revenue                 26,375,890        19,716,408

    Cost of sales
          Battery                               13,735,160         9,851,127
          Battery shell and cover                4,596,379         4,158,868
                  Total cost of revenue         18,331,539        14,009,995

          Gross profit                           8,044,351         5,706,413

    Operating expenses
          Selling expenses                         124,845           135,456
          General and administrative
           expenses                              1,213,783           586,433
                  Total operating
                   expenses                      1,338,628           721,889

          Income from operations                 6,705,723         4,984,524

    Other expenses
          Miscellaneous expense                     (5,794)          (40,257)
          Interest expense                         (49,436)          (38,525)
                  Total other expenses             (55,230)          (78,782)

          Income before income taxes             6,650,493         4,905,742

    Provision for income taxes                    (813,098)         (454,670)

    Net income                                   5,837,395         4,451,072

    Other comprehensive income
               Foreign currency
                translation                         81,816           289,772

    Comprehensive income                        $5,919,211        $4,740,844

    Net income per share
          Basic                                      $0.91             $0.82
          Diluted                                    $0.82             $0.72

    Weighted average number of shares
     outstanding:
          Basic                                  6,393,067         5,446,105
          Diluted                                7,150,642         6,203,638



                    NEW ENERGY SYSTEMS GROUP AND SUBSIDIARIES
         (FORMERLY, CHINA DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                               Year ended        Year ended
                                               December 31,      December 31,
                                                   2009              2008

    CASH FLOWS FROM OPERATING ACTIVITIES
        Net Income                              $5,837,395        $4,451,072
        Adjustments to reconcile net
         income to net cash
        provided by operating activities:
        Depreciation and amortization              468,514           308,786
        Deferred tax liability                     (31,916)               --
        Non-cash, stock compensation               251,507                --
        Loss on disposal of subsidiary               7,794                --
        (Increase) / decrease in current
         assets:
           Accounts receivable                  (1,730,909)       (7,011,157)
           Inventory                             2,572,107           186,132
           Other receivable                          1,670                --
           Prepaid expenses                             --             1,726
           Deposits                                     --             8,530
        Increase/(Decrease) in current
         liabilities:
           Accounts payable and accrued
            expenses                            (3,326,375)        2,654,437
           Taxes payable                           515,157           585,006

        Net cash provided by operating
         activities                              4,564,944         1,184,532

    CASH FLOWS FROM INVESTING ACTIVITIES
        Acquisition of Anytone                  (5,000,000)               --
        Cash acquired in acquisition             2,401,140                --
        Prepayment for Newpower
         acquisition                            (2,998,244)               --
        Acquisition of property &
         equipment                                  (1,068)           (6,025)

        Net cash used in investing
         activities                             (5,598,172)           (6,025)

    CASH FLOWS FROM FINANCING ACTIVITIES
        Payment on loan payable                 (2,195,872)               --
        Receivables from related party             (74,857)               --
        Proceed from loan payable                       --         2,162,250

        Net cash provided by (used in)
         financing activities                   (2,270,729)        2,162,250

        Effect of exchange rate changes
         on cash and cash equivalents              (13,507)         (165,429)

        Net (decrease) increase in cash
         and equivalents                        (3,317,464)        3,175,328

        Cash and equivalents, beginning
         balance                                 6,969,454         3,794,126

        Cash and equivalents, ending
         balance                                $3,651,990        $6,969,454

    SUPPLEMENTAL DISCLOSURES:

        Cash paid during the year for:

             Income tax payments                  $748,306          $454,670

             Interest payments                     $91,260           $38,525

SOURCE New Energy Systems Group