Net Revenue Up 88% to $28.6 million Net Income Up 96% to $3.3
million ZHENGZHOU, China, Nov. 16 /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 unaudited financial results for the third quarter
ended September 30, 2009. Third Quarter 2009 Financial Highlights
-- Total revenue increased by 88% year-over-year to US$28.6
million(1). -- Gross profit increased by 82% year-over-year to
US$4.8 million. Gross profit margin for the third quarter 2009 was
17%. -- Operating income was US$4.5 million, an increase of 83%
compared to the third quarter of 2008 -- Net income was US$3.3
million, an increase of 96% compared to the third quarter of 2008.
-- Net income margin for the third quarter of 2009 was 11.5%,
compared to 11.1% for the third quarter 2008. Recent Business
Highlights As previously announced on November 10, 2009, the
Company entered into an agreement with Xing Yang Security Service
Co., Ltd. ("Xing Yang Security"), a provider of personal,
logistics, and technology safety services, to provide GPS hardware
installation and monthly call center services. Pursuant to the
terms of the agreement, Xing Yang Security will pay RMB4,000,000,
or approximately US$585,000, to ZST upon entering into the
agreement and an additional annual service fee up to approximately
RMB500,000, or approximately US$73,000, each year. As part of the
agreement, ZST will supply and install GPS tracking units in Xing
Yang Security's armored trucks. As part of the service offering,
Xing Yang Security's trucks will have access to ZST's 24/7 call
center that provides direction, information and emergency support
for subscribers. On October 20, 2009, the Company completed a
public offering of its common stock pursuant to which 3,125,000
shares of ZST common stock were sold to the public at a price of
$8.00 per share, for gross proceeds of US$25 million. Mr. Bo Zhong,
Chairman and Chief Executive Officer of ZST, commented, "We are
very pleased to report a strong third quarter, our first results
since our successful public offering in October. Our results were
primarily driven by continued healthy demand for our IPTV set-top
and digital networking products boxes in Henan Province, the
largest province in China by population. This growth highlights
both the expanding cable TV and IPTV market opportunity in Henan
Province and demonstrates the quality, reliability and performance
of our products. "In addition, we recently announced the signing of
our first major contract for our newly launched GPS devices, a
product line which we view as a key future growth driver. Designed
for both commercial and personal use, our line of GPS devices offer
a web-based system which includes a number of features, including
real time GPS tracking and monitoring, WEBGIS platform with maps
updated on a daily basis, alternative positioning systems and A-GPS
capabilities. In addition to providing the hardware and
installation, we also offer ongoing support services, including
access to our 24/7 call center to provide real time assistance to
our customers. By providing both the systems and support, we
believe we can develop long-term relationships with customers and
generate recurring revenues beyond the initial product sales. We
are actively marketing our GPS products and services to commercial
enterprises throughout Henan Province, and we remain confident in
the long-term opportunity within this market. "In conclusion, we
are pleased with our continued execution and progress on 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, "We are pleased with our
third quarter financial performance in terms of our growth momentum
and margin enhancement. Our results reflect the solid demand across
our product lines, such as for our IPTV set-top boxes digital
networking equipment. In addition, the improvement in margins
demonstrates a vigilant approach to costs even as we continue to
make investments to support the growth of our business. Looking
ahead, we will continue to maintain our strategic and operational
focus to capitalize on the robust growth opportunities in our end
markets with the goal of creating long-term shareholder value."
Third Quarter 2009 Unaudited Financial Highlights Revenue Revenue
for the third quarter 2009 was US$28.6 million, representing an
increase of 21% from US$23.7 million in the second quarter 2009,
and an increase of 88% from 15.2 million in the third 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 experienced unusually
high demand for its digital networking products, sales of which
fluctuate quarter to quarter based on customer upgrade requests.
Gross Profit and Gross Profit Margin Gross profit for the third
quarter 2009 was US$4.8 million, representing a 34% sequential
increase and an 82% year-over-year increase. Gross profit margin
for the third quarter 2009 was 17%, up from 15% in the second
quarter 2009. Operating Expenses General and administrative
expenses (G&A) for the third quarter 2009 were US$0.22 million,
up 69% sequentially from US$0.13 million, and up 15% from US$0.20
million in the third quarter 2008. The rise in G&A expenses was
mainly attributable to the Company's expanded operations and
revenue base. Research and development expenses (R&D) for the
third quarter were US$0.11 million, compared to nil for the second
quarter 2009 and the third quarter 2008. Accordingly, total
operating expenses for the third quarter 2009 were US$0.35 million,
representing an increase of 104% from US$0.17 million in the second
quarter 2009 and an increase of 65% from US$0.21 million in the
third quarter 2008. Income Tax Income tax expense for the third
quarter 2009 was US$1.1 million, compared to US$0.6 million in the
third quarter 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$4.5 million in the third
quarter 2009, representing a sequential increase of 31% compared to
an operating income of US$3.4 million in the second quarter 2009,
and an increase of 83% compared to operating income of US$2.4
million in the third quarter 2008, respectively. Net income for the
third quarter 2009 was US$3.3 million, which is a sequential
increase of 28% from US$2.6 million in the second quarter 2009 and
is a year-over-year increase of 96% from US$1.7 million. Net margin
was 11.5% for the third quarter 2009, up slightly from 10.8% in the
second quarter 2009 and 11.1% in the third quarter 2008. Diluted
net income per share was US$0.39 in the third quarter 2009,
compared to US$0.29 for the third quarter 2008. Balance Sheet Cash
and cash equivalents totaled to US$1.4 million as of September 30,
2009, primarily attributable to improvement in the Company's cash
collection cycle and the closing of the recent private offering in
the first half of 2009. As of September 30, 2009, total trade
receivables increased by US$0.9 million, or 4%, to US$25.6 million
from US$24.8 million as of June 30, 2009, primarily due to the
increased revenue base. As of September 30, 2009, inventories
increased by US$0.9 million, or 153%, to US$1.5 million from US$0.6
million as of June 30, 2009, primarily due to the increased revenue
base. Fourth Quarter 2009 Outlook - Based on the current estimates,
the Company approximates that revenue for the fourth quarter 2009
will range between US$26 million and US$29 million. The Company
also estimates that net income for the fourth quarter 2009 will
range between US$3.0 million and US$3.5 million. Conference Call
The Company's management team will conduct a conference call on
Monday, November 16, 2009 at 11:00 am (US Eastern Standard Time) /
8:00 am (US Pacific Standard Time) / 12:00 am (HK / Beijing Time)
to discuss its third quarter 2009 financial results and recent
business activity. The conference call may be accessed by calling
+1-866-519-4004 (for callers in the US), +8008-190-121 (for callers
in China), +8-0093-0346 (for callers in Hong Kong), +0808-234- 6646
(for callers in United Kingdom) or +65-6735-7955 (for other
international callers) and entering pass code 41640280. Please dial
in approximately 10 minutes before the scheduled time of the call.
A recording of the conference call will be available through
December 15, 2009, by calling +1-866-214-5335 (for callers in the
US) or +61-2-8235-5000 (for callers outside the US) and entering
pass code 41640280. (1) The Company's reporting currency is
Renminbi ("RMB"). The translation of amounts from RMB to United
States dollars is solely for the convenience of the reader. RMB
numbers included in this press release have been translated into
U.S. dollars at the noon buying rate for U.S. Dollars in effect on
September 30, 2009 in the City of New York for cable transfers in
RMB per U.S. dollar as certified for customs purposes by the
Federal Reserve Bank of New York, which was US$1.00=RMB6.8376. No
representation is made that RMB amounts could have been, or could
be, converted into U.S. Dollars at that rate or at any other rate
on September 30, 2009. 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: Investor Relations (US): BPC Financial Marketing John
Baldissera Tel: +1-800-368-1217 Investor Relations (US): Taylor
Rafferty, LLC Mahmoud Siddig Tel: +1-212-889-4350 Email: Web:
http://www.taylor-rafferty.com/ Investor Relations (HK): Taylor
Rafferty, LLC Lisa Zheng Tel: +852-3196-3712 Email: Web:
http://www.taylor-rafferty.com/ ZST DIGITAL NETWORKS, INC. AND
SUBSIDIARIES Consolidated Balance Sheets (In U.S. Dollars)
September 30, December 31, 2009 2008 (unaudited) Assets Current
assets Cash and cash equivalents $1,394,458 $1,134,954 Trade
receivables, net 25,634,262 12,322,099 Employee advances 5,280
6,307 Inventories, net 1,494,599 775,185 Advances to suppliers
3,442,808 3,024,668 Prepaid expenses and other receivables 56,545
6,968 Total current assets 32,027,952 17,270,181 Property and
equipment, net 338,585 34,148 Intangible asset, net 613,122 --
Total assets $32,979,659 $17,304,329 Liabilities and Stockholders'
Equity Current liabilities Accounts payable - trade $8,141,403
$1,270,096 Customer deposit -- 1,467 Accrued liabilities and other
payable 230,037 501,176 Various taxes payable 331,749 188,539
Short-term loans 1,454,244 3,931,991 Employee security deposit
payable 10,312 8,911 Wages payable 63,750 59,501 Corporate tax
payable 434,388 -- Due to related parties -- 2,359,728 Total
current liabilities 10,665,883 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 September 30, 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 September 30, 2009
and December 31, 2008, respectively. Liquidation preference and
redemption value of $4,976,953 at September 30, 2009 126 -- Common
stock $0.0001 par value, 100,000,000 shares authorized, 7,091,103
and 5,896,723 shares issued and outstanding at September 30, 2009
and December 31, 2008, respectively 709 590 Additional paid-in
capital 8,270,475 1,488,924 Accumulated other comprehensive income
39,783 590,839 Statutory surplus reserve fund 1,491,963 1,491,963
Retained earnings (unrestricted) 12,510,720 5,410,604 Total
stockholders' equity 22,313,776 8,982,920 Total Liabilities and
Stockholders' Equity $32,979,659 $17,304,329 ZST DIGITAL NETWORKS,
INC. AND SUBSIDIARIES Consolidated Statements of Operations (In
U.S. Dollars) (Unaudited) For the Three Months Ended For the Nine
Months Ended September 30, September 30, 2009 2008 2009 2008
Revenue $28,627,644 $15,209,026 $70,067,184 $40,987,329 Cost of
goods sold (23,823,013) (12,566,220) (58,773,620) (33,563,129)
Gross profit 4,804,631 2,642,806 11,293,564 7,424,200 Operating
costs and expenses Selling expenses -- 1,165 35,334 107.235
Depreciation 17,954 15,937 27,641 33,637 General and administrative
223,600 195,093 725,054 614,063 Research and development 109,068 --
109,068 -- Merger cost -- -- 566,654 -- Total operating costs and
expenses 350,622 212,195 1,463,751 754,935 Income from operations
4,454,009 2,430,611 9,829,813 6,669,265 Other income (expenses)
Interest income 26 185 43,819 14,777 Interest expense (55,799)
(147,190) (140,693) (261,154) Imputed interest -- (22,518) (31,417)
(49,005) Sundry income (expense), net -- 32 (7,682) (1,018) Total
other income (expenses) (55,773) (169,491) (135,973) (296,400)
Income before income taxes 4,398,236 2,261,120 9,693,840 6,372,865
Income taxes (1,106,409) (579,554) (2,593,724) (1,565,994) Net
income $3,291,827 $1,681,566 $7,100,116 $4,806,871 Basic earnings
per share $0.46 $0.29 $1.01 $0.82 Weighted average shares
outstanding, basic 7,091,103 5,896,723 7,056,103 5,896,723 Diluted
earnings per share $0.39 $0.29 $0.86 $0.82 Weighted average shares
outstanding, diluted 8,525,455 5,896,723 8,265,403 5,896,723 ZST
DIGITAL NETWORKS, INC. AND SUBSIDIARIES Statements of Cash Flows
(In U.S. Dollars) (Unaudited) For The Nine Months Ended September
30, 2009 2008 Cash Flows From Operating Activities Net Income
$7,100,116 $4,806,871 Adjustments to reconcile net income to net
cash provided (used) by operating activities: Imputed interest
31,417 49,005 Depreciation 27,641 33,637 Amortization 32,250 --
Changes in operating assets and liabilities: Account
receivable-trade (13,312,163) (8,794,444) Contract receivable --
(6,816) Prepaid expenses and other receivables (49,577) (141,598)
Inventories, net (719,414) 5,097,700 Advances (418,140) -- Accounts
payable and accrued liabilities 6,600,168 4,445,730 Deposits and
other payables (66) (28,717) Billings in excess of costs on
uncompleted projects -- 12,915 Various taxes payable and taxes
recoverable 143,210 (386,947) Wages payable 4,249 27,020 Corporate
tax payable 434,388 269,223 Net cash provided by (used in)
operating activities (125,921) 5,383,579 Cash Flows From Investing
Activities Purchases of property and equipment (324,726) --
Purchases of intangible assets (644,966) -- Net cash used in
investing activities (969,692) -- Cash Flows From Financing
Activities Proceeds from (Repayment of) short-term demand loans
receivable 1,027 761,911 (Proceeds from) Repayment of short-term
demand loans payable (2,477,747) (4,016,643) Net proceeds from sale
of preferred stocks 3,533,955 -- Due from related parties and
affiliated companies -- 61,233 Due to related parties and
affiliated companies -- (3,520) Dividend paid -- (2,624,266) Net
cash provided by (used in) financing activities 1,057,235
(5,821,285) Effect of exchange rate changes on cash 297,882 158,766
Net increase in cash and cash equivalents 259,504 (278,940) Cash
and cash equivalents, beginning of period 1,134,954 1,125,804 Cash
and cash equivalents, end of period 1,394,458 846,864 Supplemental
disclosure information: Interest expense paid 140,693 261,154
Income taxes paid 2,159,336 1,296,771 Non cash investing and
financing activities: Shares issued for related parties' debt
2,359,728 -- DATASOURCE: ZST Digital Networks, Inc. CONTACT:
Company Contact: ZST Digital Networks, Inc., John Chen, Chief
Financial Officer, ; or Investor Relations (US): BPC Financial
Marketing, John Baldissera, or +1-800-368-1217; or Investor
Relations (US): Taylor Rafferty, LLC, Mahmoud Siddig,
+1-212-889-4350, or ; Investor Relations (HK): Taylor Rafferty,
LLC, Lisa Zheng, or +852-3196-3712, or Web site:
http://www.shenyangkeji.com/ http://www.taylor-rafferty.com/
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