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

DALIAN, China, April 13, 2012 /PRNewswire-Asia/ -- China Sun Group High-Tech Co. (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 February 29, 2012.

Third Quarter Fiscal Year 2012 Financial Results Highlights

• Third quarter fiscal 2012 revenue declined by 16% to $11.3 million compared to $13.4 million for the comparable period in fiscal 2011
• Gross profit decreased by 15% to $3.9 million compared to $4.6 million for the comparable period in fiscal 2011
• Sales of cobaltosic oxide totaled 235 tons, a decrease of 69 tons or 23% compared to 304 tons and sales of LIP totaled 230 tons, an increase of 25 tons, or 12%, compared to 205 tons for the comparable period in fiscal 2011
• Gross profit margin increased slightly by 0.1% to 34.6% compared to 34.5% for the comparable period in fiscal 2011
• Income from operations decreased over 10% to $3.3 million compared to $3.7 million for the comparable period in fiscal 2011
• Net income decreased by 8% to $2.45 million, or $0.04 per diluted share, compared to $2.66 million, or $0.05 per diluted share, for the comparable period in fiscal 2011

"During the third 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, "We reduced our cobaltosic oxide production since the gross margin of cobaltosic oxide continued to decline. LIP is quickly becoming the preferred cathode material for lithium ion batteries worldwide.  We have completed converting our seventh and eighth production lines to the production of LIP in this quarter.  Our LIP production capacity reached 1,000 tons.  We believe this will further enable us to expand our LIP market share and enhance our overall profitability."

Fiscal Third Quarter 2012 Results

Net Revenue

Net revenue for the three months ended February 29, 2012 was $11.3 million, down 16% from $13.4 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 February 29, 2012 totaled 235 tons and $6.8 million, a decrease of 69 tons and $2.7 million, or 23% in quantity and 28% in dollar value, from 304 tons and $9.5 million for the comparable period in 2011. Sales of LIP for the three months ended February 29, 2012 totaled 230 tons and $4.4 million, an increase of 25 tons and $0.6 million, or 12% in quantity or 16% in dollar value, from 205 tons and $3.8 million for the comparable period in 2011.

Quarter ended February, tons sold	2012	2011
Cobaltosic oxide	235	304
Lithium iron phosphate	230	205

Gross Profit

Gross profit for the three months ended February 29, 2012 was $3.9 million, a decrease of 15% from $4.6 million for the comparable period in fiscal 2011. Overall gross margin for the three months ended February 29, 2012 was 34.6% compared to 34.5% for the same period in fiscal 2011, a 0.1% increase.  During the quarter, the gross profit margins for cobaltosic oxide and LIP were 22% and 54%, respectively compared to 26% and 55%, respectively for the comparable period in fiscal 2011. Although the gross margin for cobaltosic oxide decreased by 4%, the production volume of cobaltosic oxide also decreased and the volume of higher margin product LIP increased. Thus, we were still able to maintain the overall gross margin. The 4% decrease in gross margin for cobaltosic oxide was primarily attributable to a reduction in the average selling price from $31,354 per ton for the three months ended February 28, 2011, to $29,071 per ton for the three months ended February 29, 2012. There were no significant fluctuations in gross profit margins for LIP for the three months ended February 29, 2012 compared with the three months ended February 28, 2011. 

Sales and Marketing Expenses

Sales and marketing expenses for the three months ended February 29, 2012 were $41,624 compared to $47,493 for the comparable period, a decrease of $5,869 or 12%.

Research and Development Expenses

Research and development expenses for the three months ended February 29, 2012 were $33,798 compared to $33,838 for the comparable period, a decrease of $40 or 0.12%.

General and Administrative Expenses

General and administrative expenses for the three months ended February 29, 2012 were $0.5 million compared to $0.8 million for the comparable period, a decrease of $0.3 million or 38%.

Income from Operations

Income from operations for the three months ended February 29, 2012 was $3.3 million, a decrease of $0.4 million or 10%, compared to $3.7 million for the three months ended February 28, 2011.  The decrease was due to the decrease in gross profit in the Company's PRC subsidiaries.

Net Income

Net income for the three months ended February 29, 2012 was $2.4 million, a decrease of $0.2 million or 8%, compared to net income of $2.7 million for the comparable period. The decrease in net income resulted primarily from the decrease in gross profit.

Financial Condition

As of February 29, 2012, China Sun Group High-Tech Co. held cash and cash equivalents of $27.8 million, up from $21.8 million at May 31, 2011. The Company's working capital was $30.5 million as of February 29, 2012. Accounts receivable were $4.6 million and total current assets were $33.2 million. The Company had $2.7 million in current liabilities, no long-term debt, and stockholders' equity stood at $62.5 million. In the nine months ended February 29, 2012, the Company generated $8.0 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 in the rest of calendar year of 2012.

Fiscal Year 2012 Outlook

Mr. Fu commented, "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.

Company Contact: Mr. Guosheng Fu, Chief Executive Officer China Sun Group High-Tech Co. Tel: [phone] (China) Email: [e-mail] Website: www.chinasungrouphightech.com

CHINA SUN GROUP HIGH-TECH CO. CONDENSED CONSOLIDATED BALANCE SHEETS AS OF FEBRUARY 29, 2012 AND MAY 31, 2011 (Currency expressed in United States Dollars ("US$"), except for number of shares)
		February 29, 2012			May 31, 2011
		(Unaudited)			(Audited)
ASSETS
Current assets:
Cash and cash equivalents		$	27,796,238		$	21,810,394
Accounts receivable, trade			4,550,321			2,465,862
Inventories			841,589			610,025
Deposits and prepayments			4,228			1,026
Total current assets			33,192,376			24,887,307
Non-current assets:
Technical know-how, net			2,351,772			2,420,278
Property, plant and equipment, net			29,659,122			27,805,208
TOTAL ASSETS		$	65,203,270		$	55,112,793
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade		$	1,081,287		$	-
Income tax payable			539,315			536,647
Other payables and accrued liabilities			1,117,602			1,163,324
Total liabilities			2,738,204			1,699,971
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value; 2,000,000 shares      authorized; none of shares issued and outstanding			-			-
Common stock, $0.001 par value; 100,000,000 shares      authorized; 56,212,971 and 55,962,971 shares issued and      outstanding, respectively			56,213			55,963
Additional paid-in capital			11,858,039			11,790,789
Accumulated other comprehensive income			7,176,336			5,457,233
Statutory reserve			4,396,344			3,342,358
Deferred compensation			(96,000)			(96,000)
Retained earnings			39,074,134			32,862,479
Total stockholders' equity			62,465,066			53,412,822
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	65,203,270		$	55,112,793
See accompanying notes to condensed consolidated financial statements

 

CHINA SUN GROUP HIGH-TECH CO. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME FOR THE THREE AND NINE MONTHS ENDED FEBRUARY 29, 2012 AND FEBRUARY 28, 2011 (Currency expressed in United States Dollars ("US$"), except for number of shares) (Unaudited)
		Three months ended February							Nine months ended February
		29, 2012			28, 2011				29, 2012			28, 2011
Revenues, net		$	11,268,804		$	13,359,930			$	33,471,067		$	37,753,217
Cost of revenue (inclusive of   depreciation and amortization)			7,366,419			8,753,182				22,120,626			25,367,854
Gross profit			3,902,385			4,606,748				11,350,441			12,385,363
Operating expenses:
Sales and marketing			41,624			47,493				122,663			116,266
Research and development			33,798			33,838				101,470			87,285
General and administrative			529,005			858,580				1,379,469			3,454,394
Total operating expenses			604,427			939,911				1,603,602			3,657,945
INCOME FROM OPERATIONS			3,297,958			3,666,837				9,746,839			8,727,418
Other income:
Subsidy income			-			291				-			44,722
Interest income			20,550			14,240				54,111			38,091
INCOME BEFORE INCOME TAXES			3,318,508			3,681,368				9,800,950			8,810,231
Income tax expense			(869,765)			(1,021,688)				(2,535,309)			(2,779,817)
NET INCOME		$	2,448,743		$	2,659,680			$	7,265,641		$	6,030,414
Other comprehensive income:
- Foreign currency translation gain			678,626			650,847				1,719,103			1,702,407
COMPREHENSIVE INCOME		$	3,127,369		$	3,310,527			$	8,984,744		$	7,732,821
Net income per share – Basic and   diluted		$	0.04		$	0.05			$	0.13		$	0.11
Weighted average common stock   outstanding – Basic and diluted			55,998,685			55,639,638				55,974,964			54,693,341
See accompanying notes to condensed consolidated financial statements.

CHINA SUN GROUP HIGH-TECH CO. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED FEBRUARY 29, 2012 AND FEBRUARY 28, 2011 (Currency expressed in United States Dollars ("US$")) (Unaudited)
		Nine months ended February
		29, 2012			28, 2011
Cash flows from operating activities:
Net income		$	7,265,641		$	6,030,414
Adjustments to reconcile net income to net cash provided by    operating activities:
Depreciation of property, plant and equipment			1,679,459			1,223,915
Amortization of technical know-how			139,258			132,679
Shares issued for services, non-cash			67,500			2,064,125
Changes in operating assets and liabilities:
Accounts receivable, trade			(1,984,158)			(125,965)
Inventories			(210,471)			586,798
Deposits and prepayments			(3,129)			(536,805)
Accounts payable, trade			1,067,124			(1,999,474)
Customer deposits			-			187,520
Income tax payable			(13,254)			(892,542)
Other payables and accrued liabilities			(10,154)			(54,348)
Net cash provided by operating activities			7,997,816			6,616,317
Cash flows from investing activities:
Purchase of plant and equipment			(2,750,564)			(52,513)
Net cash used in investing activities			(2,750,564)			(52,513)
Effect of exchange rate changes on cash and cash equivalents			738,592			819,493
NET CHANGE IN CASH AND CASH EQUIVALENTS			5,985,844			7,383,297
CASH AND CASH EQUIVALENTS, BEGINNING OF    PERIOD			21,810,394			18,017,266
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	27,796,238		$	25,400,563
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes		$	2,548,564		$	3,742,036
Cash paid for interest		$	-		$	-
See accompanying notes to condensed consolidated financial statements

SOURCE China Sun Group High-Tech Co.

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