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

DALIAN, China, Jan. 13, 2012 /PRNewswire-Asia/-- China Sun Group High-Tech Co., Ltd. (OTC Bulletin Board: CSGH) ("China Sun Group" or the "Company"), a supplier of cathode materials for rechargeable Lithium–ion (Li-ion) batteries in China, today announced its financial results for the quarter ended November 30, 2011.

Second Quarter Fiscal Year 2012 Financial Results Highlights

• Second quarter fiscal 2012 revenue declined by 15% to $10.7 million compared to $12.6 million for the comparable period in fiscal 2011
• Gross profit decreased by 12% to $3.6 million compared to $4.1 million for the comparable period in fiscal 2011
• Gross profit margin increased by 1.4% to 33.6% compared to 32.2% for the comparable period in fiscal 2011
• Income from operations increased by 72% to $3.1 million compared to $1.8 million for the comparable period in fiscal 2011
• Net income increased by 148% to $2.3 million, or $0.04 per diluted share, compared to $0.94 million, or $0.02 per diluted share, for the comparable period in fiscal 2011

"During the second quarter of fiscal 2012, we continued to follow our strategy to increase production of our higher-margin lithium iron phosphate (LIP) product," commented Chief Executive Officer, Mr. Guosheng Fu. "LIP is quickly becoming the preferred cathode material for lithium ion batteries.  We are still in the process of converting our seventh and eighth production lines to the production of LIP and we expect the conversion to be completed in the third quarter of fiscal 2012.  We believe this will further enable us to expand our market share and enhance our overall profitability."

Fiscal Second Quarter 2012 Results

Net Revenue

Net revenue for the three months ended November 30, 2011 was $10.7 million, down 15% from $12.6 million for the comparable period in 2011. One hundred percent (100%) of the net revenue decrease was attributed to a decrease in sales of our older product cobaltosic oxide. Sales of cobaltosic oxide for the three months ended November 30, 2011 totaled 230 tons and $6,633,025, a decrease of 67.12 tons and $2,670,191, or 22% in quantity and 29% in dollar value, from 297.12 tons and $9,303,216 for the comparable period in 2010.  Sales of LIP for the three months ended November 30, 2011 totaled 213 tons and $4,079,972, an increase of 33 tons and $743,360, or 18% in quantity or 22% in dollar value, from 180 tons and $3,336,612 for the comparable period in 2010.

Gross Profit

Gross profit for the three months ended November 30, 2011 was $3.6 million, a decrease of 12% from $4.1 million for the comparable period in fiscal 2011. Overall gross margin for the three months ended November 30, 2011 was 33.6% compared to 32.2% for the same period in fiscal 2011, a 1.4% increase.  During the quarter, the gross profit margins for cobaltosic oxide and LIP were 22% and 53%, respectively compared to 26% and 50%, respectively for the comparable period in fiscal 2011. The 4% decrease in gross margin for cobaltosic oxide was primarily attributable to a reduction in the average selling price from $31,323 for the three months ended November 30, 2010, to $28,839 for the three months ended November 30, 2011.  The 3% increase in gross margin for LIP was primarily attributable to an increase in the average selling price from $18,536 for the three months ended November 30, 2010, to $19,155 for the three months ended November 30, 2011.

Sales and Marketing Expenses

Sales and marketing expenses for the three months ended November 30, 2011 were $43,840 compared to $37,447 for the comparable period, an increase of $6,393 or 17%.  The increase was primarily due to an increase in salaries paid to sales personnel.

Research and Development Expenses

Research and development expenses for the three months ended November 30, 2011 were $33,717 compared to $32,514 for the comparable period, an increase of $1,203 or 4%.

General and Administrative Expenses

General and administrative expenses for the three months ended November 30, 2011 were $0.4 million compared to $2.2 million for the comparable period, a decrease of $1.8 million or 81%. During the three months ended November 30, 2010, we recorded a stock-based consultancy fee of $1,783,500.  No such expense was incurred during the three months ended November 30, 2011.

Income from Operations

Income from operations for the three months ended November 30, 2011 was $3.1 million, an increase of $1.3 million or 72%, compared to $1.8 million for the three months ended November 30, 2010.  The increase was primarily attributable to a decrease of $1.8 million in general and administrative expenses.

Net Income

Net income for the three months ended November 30, 2011 was $2.3 million, an increase of $1.4 million or 148%, compared to net income of $0.9 million for the comparable period. The increase was primarily due to the decrease in general and administrative expenses.

Financial Condition

As of November 30, 2011, China Sun Group held cash and cash equivalents of $23.9 million, up from $21.8 million at May 31, 2011. The Company's working capital was $27.0 million as of November 30, 2011. Accounts receivable were $4.6 million and total current assets were $29.5 million. The Company had $2.5 million in current liabilities, no long-term debt, and stockholders' equity stood at $59.3 million. In the six months ended November 30, 2011, the Company generated $3.96 million in cash flow from operating activities.

The Company's decision to maintain high cash reserves was 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 and (2) 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 LIP 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 increasing sales and expanding production of LIP in the rest of fiscal 2012. In fiscal 2012, we expect sales of LIP 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 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.

See accompanying notes to condensed consolidated financial statements.

See accompanying notes to condensed consolidated financial statements.

SOURCE China Sun Group High-Tech Co.