China Sun Group High-Tech Co. Announces Fiscal 2011 Q2 Results

Q2 revenue grew 25.0% to $12.6 million
Q2 Non-GAAP adjusted net income rose 35.0% to $2.7 million

DALIAN, China, Jan. 14, 2011 /PRNewswire-Asia/ -- China Sun Group High-Tech Co. (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 reported fiscal 2011 Q2 financial results.

Fiscal Q2 Highlights

• Q2 revenue was $12.6 million, increasing 25.0% year-over-year.
• Q2 gross profit was $4.1 million increasing 34.3% year-over-year.
• Q2 net income was $0.9 million, or $0.02 per diluted share.
• Q2 non-GAAP net income, excluding share-based consultancy fees, was $2.7 million, or $0.05 per diluted share, increasing 35.0% year-over-year.

"China Sun Group's Q2 performance was strongly driven by an increase in customer demand for our products, primarily our new higher margin product, lithium iron phosphate," commented China Sun Group's Chief Executive Officer, Mr. Guosheng Fu. "During the quarter, we signed a contract to supply 470 tons of lithium iron phosphate (LIP) to Henan Huanyu Sai Er New Energy Technology Co., Ltd. during calendar 2011.  We believe that we will continue to see significant opportunity for our new LIP product in the quarters ahead given the rapid development of China's electric vehicle industry, and we are confident that we have the right strategy and operating systems in place to meet the growing demand for LIP."

Fiscal Q2 Results

For the three months ended November 30, 2010, total revenue was $12.6 million, an increase of 25.0% year over year.  The increase in revenue was primarily attributable to increased customer demand resulting in an increase in sales volume.

Gross profit in Q2 was $4.1 million, an increase of 34.3% year-over-year. The increase in gross profit was primarily due to increased sales of LIP as well as an increase in overall sales volume.

Sales and marketing expenses in Q2 were $37,447, an increase of 25.5% year-over-year.  The increase was mainly due to an increase in sales.

General and administrative expenses in Q2 were $2.2 million, an increase of 694.1% year-over-year. The increase was primarily attributable to the payment of share-based consultancy fees of $1.8 million incurred during the quarter in connection with the issuance of 2,050,000 shares of common stock to certain consultants for advisory and professional services at the fair value of $0.87 per share.

Income from operations in Q2 was $1.8 million, a decrease of 33.1% year-over-year. This decrease resulted primarily from the payment of share-based consultancy fees of $1.8 million incurred during the quarter. Excluding share-based consultancy fees, income from operations was $3.6 million, an increase of 33.0% year-over-year.

Net income in Q2 was $0.9 million, or $0.02 per diluted share, compared with net income of $2.0 million, or $0.04 per diluted share for the corresponding period in 2009. Non-GAAP net income excluding share-based consultancy fees was $2.7 million ($0.05 per diluted share) an increase of 35.0% year-over-year.

Six Months of Fiscal Year 2011 Results

For the six months ended November 30, 2010, total revenue was $24.4 million, an increase of 25.6% year-over-year. The increase in revenue is mainly attributable to contributions from the Company's LIP product, introduced in September 2009. Gross profit for the six months ended November 30, 2010 was $7.8 million, up 27.7% from $6.1 million for the six months ending November 30, 2009. The increase in gross profit was primarily due to increased sales of our higher profit margin LIP product, driven by strong customer demand. Net income for the six months ended November 30, 2010 was $3.4 million, a decrease of 17.4% as compared to the net income of $4.1 million for the corresponding period a year ago. The decrease was primarily attributable to the payment of share-based consultancy fees of $1.8 million during the six month period ended November 30, 2010. Excluding the share-based consultancy fees, non-GAAP adjusted net income for the six months ended November 30, 2010 was $5.2 million, or $0.10 per diluted share, an increase of 26.3%.

Financial Condition

As of November 30, 2010, cash and cash equivalents were $19.8 million, up 9.9% from $18.0 million on May 31, 2010.  Accounts receivable were $5.4 million at the end of the quarter, compared to $2.8 million at the end of May 2010. The increase in cash and accounts receivable of approximately $2.5 million was primarily due to increased sales to customers. The Company had working capital of $23.9 million and a current ratio of 12.8. Stockholders' equity totaled $46.7 million, up from $40.5 million on May 31, 2010.

Net cash provided by operations was $1.4 million for the six months ended November 30, 2010, compared with net cash provided by operations of $4.8 million for the same period in 2009.

Business Outlook

China Sun had strong growth in the second quarter, primarily as a result of the new LIP supply agreement.  China Sun expects to add two additional LIP production lines by the end of May 30, 2011, which will increase the Company's LIP production capacity. The Company reiterates its previous guidance of 2011 fiscal year revenues in the range of $56 million to $58 million, and non-GAAP adjusted net income to be in the range between $10 million and $11 million, excluding the cost of share-based consultancy fees.

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 condensed 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 anode 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 cobalt oxide. 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 has recently diversified into the manufacture of LIP and plans to forward integrate to manufacture of power Li-ion batteries.  For more information, visit http://www.china-sun.cn.

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 expected growth in sales of LIP due to China's expanding 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.

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