China Sun Group High-Tech Co. Announces Fourth Quarter and Fiscal Year 2011 Results

DALIAN, China, Aug. 29, 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 fourth quarter and fiscal year ended May 31, 2011 results.

Fourth Quarter Ended May 31, 2011 Financial Results Highlights

• Fourth quarter revenue decreased by 1.3% to $10.8 million compared to $11.0 million for the comparable period in 2010
• Gross profit increased by 5.1% to $3.8 million compared to $3.6 million for the comparable period in 2010
• Net income increased by 2.9% to $2.4 million, or $0.044 per diluted share, compared to $2.3 million, or $0.043 per diluted share, for the comparable period in 2010

Fiscal Year Ended May 31, 2011 Financial Results Highlights

• Fiscal year 2011 revenue increased by 17.9% to $48.6 million compared to $41.2 million in fiscal year 2010
• Gross profit increased by 23.7% to $16.1 million compared to $13.1 million in fiscal year 2010
• Net income decreased by 2.1% to $8.4 million, or $0.15 per diluted share, compared to $8.6 million, or $0.16 per diluted share, in fiscal year 2010
• Non-GAAP net income, excluding $1.8 million of one-time share-based consultancy fees incurred during the second fiscal quarter, as previously disclosed, increased by 18.6% to $10.2 million or $0.18 per diluted share

"During fiscal 2011, we experienced strong growth in revenue and gross profit as a result of increasing demand and sales of our lithium iron phosphate (LIP). Our LIP product recorded an attractive gross margin of 52% for fiscal year 2011 and we continue to benefit from the increasing demand for that product," commented Chief Executive Officer, Mr. Guosheng Fu. "We also expanded our sales and marketing efforts and focused on investing in the renovation of our equipment to make room for mass-production of lithium iron phosphate in the second quarter of fiscal 2011. At the end of fiscal 2011, six of our prior cobaltosic oxide product lines had been converted into lithium iron phosphate lines and we continue to use four other lines for cobaltosic oxide production."

Fiscal Fourth Quarter 2011 Results

Net Revenue

Net revenue for the three months ended May 31, 2011 was $10.8 million, down 1.3% from $11.0 million for the comparable period in 2010. The decline in revenue for the fourth fiscal quarter was attributable to reduced sales volume of cobaltosic oxide, which was partly offset by significant increase in sales volume of the Company's new lithium iron phosphate products. On a quarter on quarter basis, net revenue for the fourth quarter of fiscal 2011 declined 19.0% compared to the third quarter of fiscal 2011, also due to lower cobaltosic oxide sales volumes. The Company decided to sell fewer tons due to the potential pressure on selling prices and focused its efforts on expanding its LIP production. In addition, historically, the fourth fiscal quarter marks a period of lower demand for the Company's cobaltosic oxide, which is used in batteries for such products as mobile phones, as many consumers purchase mobile phones in advance of the Chinese Spring Festival.

Fourth quarter ended May 31, tons sold	2011	2010
Cobaltosic oxide	211	285
Lithium iron phosphate	212	104

Gross Profit

Gross profit for the three months ended May 31, 2011 was $3.8 million, an increase of 5.1% from $3.6 million for the comparable period in 2010. The increase in gross profit was attributable to increased sales of the Company's higher-margin product, lithium iron phosphate. Gross margin for the quarter ended May 31, 2011 was 34.8% compared to 32.7% for the same quarter in 2010.

Sales and Marketing Expenses

Sales and marketing expenses for the three months ended May 31, 2011 were $0.03 million, compared to $0.02 million for the comparable period in 2010.

Research and Development Expenses

Research and development expenses for the three months ended May 31, 2011 were $0.03 million compared to $0.04 million for the comparable period in 2010.

General and Administrative Expenses

General and administrative expenses for the quarter ended May 31, 2011 totaled $0.5 million compared to $0.4 million for the quarter ended May 31, 2010.

Income from Operations

Income from operations for the three months ended May 31, 2011 was $3.2 million, up 2.6% from $3.1 million in the prior year period. The increase in operating income was mainly due to increased revenue contribution from increase of production volume of the Company's high-margin lithium iron phosphate product.

Net Income

Net income for the three months ended May 31, 2011 was $2.4 million, or $0.044 per diluted share, up 2.9% from $2.3 million, or $0.043 per diluted share, in the prior year period.

Fiscal Year 2011 Financial Results

Revenue for fiscal year 2011 increased 17.9% to reach $48.6 million compared to revenue of $41.2 million for fiscal year 2010. Such increase in revenue was largely attributable to continued increase in demand and sales of the Company's lithium iron phosphate (LIP). Gross profit for fiscal year 2011 was $16.1 million with gross margin of 33.3% compared to gross profit of $13.1 million and gross margin of 31.7% in fiscal 2010. The increase in gross margin was largely due to the increase in sales of the Company's high-margin product, lithium iron phosphate. For the full fiscal year of 2011, the gross profit margin from LIP was approximately 52% and the gross profit margin from cobaltosic oxide was 26%.

Fiscal year ended May 31, tons sold	2011	2010
Cobaltosic oxide	1102	1056
Lithium iron phosphate	734	215

Operating income for fiscal year 2011 was $11.9 million, up 3.4% from $11.5 million in fiscal 2010. Net income for fiscal year 2011 was $8.4 million, or $0.15 per diluted share, compared to $8.6 million, or $0.16 per diluted share in fiscal 2010. Non-GAAP net income, excluding $1.8 million of one-time share-based consultancy fees incurred during the second fiscal quarter, as previously disclosed, increased by 18.6% to $10.2 million or $0.18 per diluted share.

Fiscal Year 2012 Outlook

Mr. Fu commented, "Looking ahead, in fiscal year 2012, we will convert two additional LIP production lines to expand our LIP production capacity to 1000 tons from the current capacity of 700 tons. We plan to begin converting work and complete this project in the second fiscal quarter of 2012. As a result, we expect to reach a total production capacity of 2500 tons, including our LIP and cobaltosic oxide products."

Additional Disclosure

"We have recently taken several measures, including the launch of our new corporate website and including extracts from our 2010 SAIC report in the form 10-K filed with the securities and exchange commission to ensure high levels transparency and corporate governance," added Mr. Fu. "We believe these measures distinguish China Sun within the investment community for the openness and clarity of our communication."

Use of Non-GAAP Financial Measures

This press release contains non-GAAP financial measures that exclude the cost of share-based consultancy fees consisting of common stock issued to certain consultants for advisory and professional services. To supplement the Company's consolidated financial statements presented on a GAAP basis, the Company has provided non-GAAP financial information excluding the impact of this item in this release. The Company's management believes that these non-GAAP measures provide investors with a better understanding of how the results relate to the Company's historical performance. A reconciliation of the adjustments to GAAP results appears in the table accompanying this press release. This additional non-GAAP information is not meant to be considered in isolation or as a substitute for GAAP financials. The non-GAAP financial information that the Company provides also may differ from the non-GAAP information provided by other companies.

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. In particular, statements regarding the Company's ability to become a leading cathode material supplier for Li-ion batteries used in the new energy automobile industry are examples of such forward-looking statements. The forward-looking statements include 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.

Company Contact: Mr. Guosheng Fu, Chief Executive Officer China Sun Group High-Tech Co. Tel: [phone] (China) Email: [e-mail] Website: www.chinaSungrouphightec.com	Investor Relations Contact: Mr. Mark Collinson, Partner CCG Investor Relations Tel: [phone] Email: [e-mail] Website: www.ccgirasia.com

FINANCIAL TABLES FOLLOW

CHINA SUN GROUP HIGH-TECH CO. CONSOLIDATED BALANCE SHEETS AS OF MAY 31, 2011 AND 2010 (Currency expressed in United States Dollars ("US$"), except for number of shares)
		As of May 31,
		2011			2010
ASSETS
Current assets:
Cash and cash equivalents		$	21,810,394		$	18,017,266
Accounts receivable, trade			2,465,862			2,793,038
Inventories			610,025			1,218,336
Deposits and prepayments			1,026			3,049
Total current assets			24,887,307			22,031,689
Non-current assets:
Technical know-how, net			2,420,278			2,475,298
Property, plant and equipment, net			27,805,208			20,567,954
TOTAL ASSETS		$	55,112,793		$	45,074,941
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade		$	-		$	2,127,244
Income tax payable			536,647			1,488,619
Other payables and accrued liabilities			1,163,324			984,189
Total liabilities			1,699,971			4,600,052
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value; 2,000,000 shares authorized; none of shares issued and outstanding, respectively			-			-
Common stock, $0.001 par value; 100,000,000 shares authorized; 55,962,971 shares and 53,422,971 shares issued and outstanding, as of May 31, 2011 and 2010			55,963			53,423
Additional paid-in capital			11,790,789			9,585,204
Accumulated other comprehensive income			5,457,233			3,043,344
Statutory reserve			3,342,358			2,277,365
Deferred compensation			(96,000)			-
Retained earnings			32,862,479			25,515,553
Total stockholders' equity			53,412,822			40,474,889
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	55,112,793		$	45,074,941

CHINA SUN GROUP HIGH-TECH CO. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME FOR THE YEARS ENDED MAY 31, 2011 AND 2010 (Currency expressed in United States Dollars ("US$"), except for number of shares)
		Years ended May 31,
		2011			2010
Revenues, net		$	48,568,339		$	41,189,122
Cost of revenue (inclusive of depreciation and amortization)			(32,419,062)			(28,134,650)
Gross profit			16,149,277			13,054,472
Operating expenses:
Sales and marketing			148,383			77,870
Research and development			120,434			121,825
General and administrative			3,944,131			1,311,598
Total operating expenses			4,212,948			1,511,293
INCOME FROM OPERATIONS			11,936,329			11,543,179
Other income:
Interest income			54,317			35,067
Other income			45,009			-
INCOME BEFORE INCOME TAXES			12,035,655			11,578,246
Income tax expense			(3,623,736)			(2,982,584)
NET INCOME		$	8,411,919		$	8,595,662
Other comprehensive income (loss):
- Foreign currency translation gain (loss)			2,413,889			(24,205)
COMPREHENSIVE INCOME		$	10,825,808		$	8,571,457
Net income per share – Basic and diluted		$	0.15		$	0.16
Weighted average common shares outstanding – Basic and diluted			54,989,110			53,422,971

CHINA SUN GROUP HIGH-TECH CO. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED MAY 31, 2011 AND 2010 (Currency expressed in United States Dollars ("US$"))
		Years ended May 31,
		2011			2010
Cash flows from operating activities:
Net income		$	8,411,919		$	8,595,662
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment			1,639,573			1,369,824
Amortization of technical know-how			178,038			130,161
Shares issued for services, non-cash			2,112,125			-
Changes in operating assets and liabilities:
Accounts receivable, trade			459,273			(1,213,221)
Inventories			654,143			436,714
Value-added tax receivable			-			391,661
Deposits and prepayments			2,125			435,697
Accounts payable, trade			(2,180,301)			1,279,095
Income tax payable			(1,002,687)			13,980
Other payables and accrued liabilities			(83,240)			(304,563)
Net cash provided by operating activities			10,190,968			11,135,010
Cash flows from investing activities:
Purchase of plant and equipment			(7,442,431)			(1,300,564)
Payment on construction in progress			-			(1,024,906)
Net cash used in investing activities			(7,442,431)			(2,325,470)
Effect of exchange rate changes on cash and cash equivalents			1,044,591			(2,227)
NET CHANGE IN CASH AND CASH EQUIVALENTS			3,793,128			8,807,313
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR			18,017,266			9,209,953
CASH AND CASH EQUIVALENTS, END OF YEAR		$	21,810,394		$	18,017,266
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes		$	4,626,424		$	2,127,504
Cash paid for interest		$	-		$	-

Reconciliation of Net Income to Non-GAAP Net Income (Amounts expressed in US$)
	For the Fiscal Year Ended May 31,
	2011	2010
Net Income	8,411,919	8,595,662
Add: share based consulting fees	1,783,500	-
Non-GAAP Net Income	10,195,419	8,595,662

SOURCE China Sun Group High-Tech Co., Ltd.

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