China Sun Group High-Tech Co. Announces First Quarter Fiscal Year 2012 Results

DALIAN, China, Oct. 14, 2011 /PRNewswire-Asia/ -- China Sun Group High-Tech Co., Ltd. (OTC Bulletin Board: CSGH) ("China Sun Group" or the "Company"), a vertically integrated supplier of raw materials for rechargeable Lithium–ion (Li-ion) batteries in China, today announced its financial results for the quarter ended August 31, 2011.

First Quarter Fiscal Year 2012 Financial Results Highlights

• First quarter fiscal year 2012 revenue declined by 2.2% to $11.5 million compared to $11.8 million for the comparable period in fiscal 2011
• Gross profit increased by 3.9% to $3.9 million compared to $3.7 million for the comparable period in fiscal 2011
• Income from operations increased by 2.5% to $3.3 million with an operating margin of 29.0%
• Net income increased by 2.2% to $2.5 million, or $0.04 per diluted share, compared to $2.4 million, or $0.05 per diluted share, for the comparable period in fiscal 2011
• In July 2011, China Sun Group launched its new corporate and investor relations web site to strengthen its communication with customers and investors

"During the first quarter of fiscal 2012, we sold lower volumes of our cobaltosic oxide and higher volumes of our higher-margin lithium iron phosphate (LIP). The change in our product mix is largely due to our focus on expanding sales and increasing production of our higher profit margin and increasingly popular LIP product," commented Chief Executive Officer, Mr. Guosheng Fu. "LIP is quickly becoming the preferred cathode material for lithium ion batteries and we plan to continue to increase our LIP production capacity by converting two additional production lines to the production of LIP. We believe this will enable us to expand our market share and will enhance our overall profitability."

Fiscal First Quarter 2012 Results

Net Revenue

Net revenue for the three months ended August 31, 2011 was $11.5 million, down 2.2% from $11.8 million for the comparable period in 2011. The decline in revenue for the first fiscal quarter was due to reduced sales of cobaltosic oxide, partly offset by a significant increase in sales of lithium iron phosphate. In addition, typically the first and fourth fiscal quarter marks a period of lower demand for the Company's cobaltosic oxide, which is primarily used in mobile phone batteries, as many consumers purchase mobile phones in advance of the Chinese Spring Festival. On a quarter over quarter basis, net revenue for the first quarter of fiscal 2012 increased 6.2% compared to the fourth quarter of fiscal 2011, due to increased sales of lithium iron phosphate.

Gross Profit

Gross profit for the three months ended August 31, 2011 was $3.9 million, an increase of 3.9% from $3.7 million for the comparable period in fiscal 2011. The increase in gross profit was due to increased sales of the Company's higher-margin product, lithium iron phosphate. Gross margin for the quarter ended August 31, 2011 was 33.5% compared to 31.5% for the same quarter in fiscal 2011. During the quarter, the gross profit margins for cobaltosic oxide and lithium iron phosphate were 23% and 52%, respectively.  

Sales and Marketing Expenses

Sales and marketing expenses for the three months ended August 31, 2011 increased to $0.04 million compared to $0.03 million for the comparable period in fiscal 2011 primarily as a result of an increase in compensation paid to sales personnel.

Research and Development Expenses

Research and development expenses for the three months ended August 31, 2011 increased to $0.03 million compared to $0.02 million for the comparable period in fiscal 2011 primarily as a result of an increase in compensation paid to research and development personnel.

General and Administrative Expenses

General and administrative expenses for the quarter ended August 31, 2011 increased 10.8% to $0.44 million compared to $0.40 million for the comparable period in fiscal 2011. The increase in general and administrative expenses is attributable to increase in expenses related to consulting services and director fees.

Income from Operations

Income from operations for the three months ended August 31, 2011 was $3.34 million, up 2.5% from $3.25 million for the comparable period in fiscal 2011.

Net Income

Net income for the three months ended August 31, 2011 was $2.5 million, or $0.04 per diluted share, up 2.2% from $2.4 million, or $0.05 per diluted share, for the comparable period in fiscal 2011. The Company's basic and diluted shares outstanding were 56.0 million for the quarter ended August 31, 2011 compared to 53.4 million for the comparable period in fiscal 2011.

Financial Condition

As of August 31, 2011, China Sun Group held cash and cash equivalents of $22.7 million, up from $21.8 million at May 31, 2011. The Company's working capital was $26.7 million as of August 31, 2011. Accounts receivable were $4.7 million and total current assets were $28.6 million. The Company had $1.9 million in current liabilities, no long-term debt and stockholders' equity stood at $56.9 million. In the three months ended August 31, 2011, the Company generated $0.5 million in cash flow from operating activities.

The Company's decision to maintain high cash reserves is mainly due to (1) the projected need for new manufacturing equipment for LIP production in fiscal year 2012 estimated to cost approximately $7.44 million, (2) the projected conversion of two additional LIP production lines during the second quarter of fiscal year 2012 and the relevant capital expenditure forecasted to cost approximately $8.0 million, and (3) the projected purchase of new R&D equipment for approximately $3.0 million. The Company believes it has sufficient cash resources to fund the expansion of its lithium iron phosphate annual production capacity from 700 tons to 1,000 tons.

Fiscal Year 2012 Outlook

Mr. Fu commented, "We will continue to maintain our focus on expanding sales and increasing production of LIP in fiscal year 2012. We plan to increase the manufacturing capacity for LIP by converting two additional production lines, if market conditions allow. In fiscal 2012, we expect sales of cobaltosic oxide to remain stable and sales of lithium iron phosphate to continue to grow as our new LIP product further penetrates into the market. We believe that sales from LIP will continue to represent a larger percentage of our revenues and gross margins in the near future."

About China Sun Group High-Tech Co.

China Sun Group High-Tech Co. ("China Sun Group") produces cathode materials used in lithium ion batteries. Through its wholly-owned operating subsidiary, Dalian Xinyang High-Tech Development Co. Ltd ("DLX"), the Company primarily produces cobaltosic oxide and lithium ion phosphate. According to the China Battery Industry Association, DLX has the second largest cobalt series production capacity in the People's Republic of China. Through its research and development division, DLX owns a proprietary series of nanometer technologies that supply state-of-the-art components for advanced lithium ion batteries. Leveraging its state-of-the-art technology, high-quality product line and scalable production capacity, the Company diversified into the manufacture of LIP. For more information, visit http://www.chinasungrouphightech.com.

Safe Harbor Statement

The statements contained herein that are not historical facts are considered "forward-looking statements." Such forward-looking statements may be identified by, among other things, the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. The forward-looking statements involve risks and uncertainties, including, but not limited to, the effect of political, economic, and market conditions and geopolitical events; legislative and regulatory changes that affect our business; the availability of funds and working capital; the actions and initiatives of current and potential competitors; investor sentiment; and our reputation. We do not undertake any responsibility to publicly release any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this report. Additionally, we do not undertake any responsibility to update you on the occurrence of any unanticipated events, which may cause actual results to differ from those expressed or implied by any forward-looking statements. The factors discussed herein are expressed from time to time in our filings with the Securities and Exchange Commission available at http://www.sec.gov.

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SOURCE China Sun Group High-Tech Co.