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China Sun Group High-Tech Co., Ltd. Announces Fourth Quarter and Fiscal Year 2010 Financial Results

    DALIAN, China, Sept. 15 /PRNewswire-Asia-FirstCall/ -- 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 results for the fourth quarter and fiscal year ended May 31, 2010.

    Fourth Quarter 2010 Highlights:

    -- Revenue increased 13.7% over the prior year quarter to $11.0 million

    -- Operating margin of 28.5%

    -- Net profit margin of 21.1%

    -- Earnings per diluted share of $0.04

    Fiscal Year 2010 Highlights:

    -- Revenue increased 11.2% over the prior fiscal year to $41.2 million

    -- Operating margin of 28.0%

    -- Net profit margin of 20.9%

    -- Earnings per diluted share of $0.16

    "I am pleased both with the growth of our legacy products and with the launch of our Lithium Iron Phosphate segment during the past fiscal year. With China Sun's high quality production control and strong R&D team, we will be looking to expand our share of what we believe will a growing market as China develops new clean energy businesses and provides government and municipal support. In addition, the first phase of our development of a Power-li battery business, beginning in October 2010, will be an exciting start to our potential entry into a downstream industry where there is opportunity to add customer value and therefore increase margins to the benefit of shareholders," said Mr. Bin Wang, Chief Executive Officer of China Sun Group.

    Fiscal Fourth Quarter 2010 Results

    Revenue for the fourth fiscal quarter of 2010 was $11.0 million compared to revenue of $9.6 million in the prior year period, an increase of 13.7%. The increase was attributable to higher customer demand and the introduction of a new product, lithium iron phosphate, which was not offered in the prior year period.

    Fourth quarter ended May 31, tons sold              2010            2009

    Cobaltosic oxide                                     285             254

    Lithium iron phosphate                               108               0

    Gross profit for the quarter was $3.6 million or 32.7% of revenues compared to $3.4 million or 35.3% of revenues in the same quarter a year ago.  The reduction in gross margin was largely due to an increase in the cost of raw materials.

    Operating income for the fourth fiscal quarter of 2010 was $3.1 million compared to operating income of $3.1 million in the prior year period, an increase of 0.6%. The increase in operating income resulted from higher gross profit and reduced sales and marketing expenses because of the absence of
one-time marketing expenses incurred in the prior year quarter relating to product testing for purposes of certification by our customers, offset by higher general and administrative expenses due to one-off repair and maintenance in the fiscal fourth quarter of 2010.

    Net income for the fourth quarter of 2010 was $2.3 million, or $0.04 per diluted share, which was approximately equal to the $2.3 million, or $0.04 per diluted share, in the prior year period.

    Fiscal Year 2010 Results

    Revenue for fiscal year 2010 was $41.2 million compared to revenue of $37.0 million in the prior fiscal year, an increase of 11.2%. The increase was attributable to higher customer demand and the introduction of a new product, lithium iron phosphate, in October of 2009:

    Full Year ended May 31, tons sold                   2010            2009

    Cobaltosic oxide                                    1056             718

    Lithium iron phosphate                               157               0

    Gross profit for the year was $13.1 million or 31.7% of revenues compared to $13.6 million or 36.7% of revenues in the same quarter a year ago.  The reduction in gross margins was largely due to an increase in the cost of raw materials.

    Operating income for fiscal year 2010 was $11.5 million compared to operating income of $11.5 million in the prior year period, an increase of 0.5%. The increase in operating income resulted from the absence of
non-recurring sales and marketing expenses incurred in the prior year relating to product testing for purposes of certification by our customers, and lower selling, general and administrative expenses compared to the prior year, offset by lower gross profit in the most recent period. 

    Net income for fiscal year 2010 was $8.6 million, or $0.16 per diluted share, which was approximately equal to the net income of $8.6 million, or $0.16 per diluted share in the prior year period.

    Research and Product Development Plans and Funding Sources

    The Company is continuing to develop its Lithium Iron Phosphate business in collaboration with potential customers' R&D and product development facilities.  During fiscal year 2010 the company sent LIP samples to 24 potential customers and gave out a further 9 samples in the first quarter of fiscal 2011.  The samples usually undergo a six month testing process before being considered as viable input materials for the customer's production process.  A number of the potential customers are coming to the end of their testing processes and additional LIP orders may result in fiscal 2011.  Additional output would require expansion of the Company's production facilities.

    In addition to co-operation and testing with potential customers, the Company is also investing research funds into the development of its own power Li-ion batteries.  The Company believes that there is a significant market for a product in this marketplace and plans to continue further research and development.  If results are favorable, the Company would begin a significant investment in manufacturing facilities for power Li-ion batteries later in fiscal 2011.

    Initial funding for additional LIP production and power Li-ion battery research, development and manufacturing are expected to come from the Company's cash reserves which stood at $18 million as of May 31, 2010. The Company has elected to terminate its previously announced $15 million equity facility after determining that the incremental cost of capital would result in a sub-optimal financing mix. The termination of the agreement did not result in any penalties for the Company, and no shares were issued under the agreement. The Company is actively exploring more suitable financing alternatives.  

    Fiscal Year 2011 Outlook

    For fiscal year 2011, China Sun Group expects to produce 1,200 tons of cobaltosic oxide and lithium cobalt oxide and 600 tons of lithium iron phosphate.  The production of Lithium Iron Phosphate will be weighted towards the second half of the 2011 fiscal year.  Based on these production levels and the Company's expectations for raw materials prices for the next twelve months, full year revenue is expected to be in the range of $56.0 million and $58.0 million, net income is expected to be in the range of $10.0 million and $ 11.0 million, with net income per diluted share in the range of $0.18 to $0.20.

    Appointment of Chief Executive Officer

    China Sun announced today that on September 13, 2010, Mr. Guosheng Fu was appointed the Chief Executive Officer of China Sun Group High-Tech Co. As a result of this appointment, and effective upon the commencement of Mr. Fu's appointment, Bin Wang will cease to be Chief Executive Officer. Mr. Wang will continue as the Company's Chairman of the Board of Directors.

    Mr. Fu, 54, has been with the Company's wholly-owned subsidiary, Dalian Xinyang High-Tech Development Co. Ltd ("DLXY") since May 2002.  From May 2002 until August 2003, Mr Fu was a general manager of DLXY.  In April 2003 to December 2007 he was appointed Assistant to the Chairman of the Board. In January 2008, he was appointed Vice President and General Manager of DLXY, in charge of its day-to-day operations. Mr. Fu has acquired extensive management experience over the last three decades and has received awards in management excellence, including Glorious Entrepreneur of Heilongjiang Province and Northeast China as well as Outstanding Figure of Brand Management of China.  Mr. Fu also has extensive experience in developing and managing new industries in the energy sector, employing innovative thinking, a pioneering spirit, and a strong concept of market and brand awareness.

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

    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 ability to become a leading anode 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 .

FINANCIAL TABLES FOLLOW

CHINA SUN GROUP HIGH-TECH CO.
CONSOLIDATED BALANCE SHEETS
AS OF MAY 31, 2010 AND 2009
(Currency expressed in United States Dollars ("US$"),
except for number of shares)

                                                        As of May 31,       

                                                     2010           2009

    ASSETS                                                              

    Current assets:                                                     

    Cash and cash equivalents                   $ 18,017,266   $   9,209,953

    Accounts receivable, trade                     2,793,038       1,580,220

    Inventories                                    1,218,336       1,657,023

    Value-added tax receivable                            --         124,627

    Deposits and prepayments                           3,049         439,560

    Total current assets                          22,031,689      13,011,383

    Non-current assets:                                                 

    Technical know-how, net                        2,475,298       2,608,059

    Property, plant and equipment, net            20,567,954      19,630,119

    TOTAL ASSETS                                $ 45,074,941   $  35,249,561

    LIABILITIES AND STOCKHOLDERS' EQUITY                                 

    Current liabilities:                                                

    Accounts payable, trade                     $  2,127,244   $     847,796

    Income tax payable                             1,488,619       1,476,030

    Other payables and accrued                                          

     liabilities                                     984,189       1,022,303

    Total liabilities                              4,600,052       3,346,129

    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;                                       

     53,422,971 shares and 53,422,971                                    

     shares issued and outstanding,                                      

     respectively                                     53,423          53,423

    Additional paid-in capital                     9,585,204       9,585,204

    Accumulated other comprehensive                                     

     income                                        3,043,344       3,067,549

    Statutory reserve                              2,277,365       1,387,775

    Retained earnings                             25,515,553      17,809,481

    Total stockholders' equity                    40,474,889      31,903,432

    TOTAL LIABILITIES AND STOCKHOLDERS'                                 

     EQUITY                                     $ 45,074,941   $  35,249,561



CHINA SUN GROUP HIGH-TECH CO.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED MAY 31, 2010 AND 2009
(Currency expressed in United States Dollars ("US$"),
except for number of shares)

                                                     Years ended May 31,     

                                                     2010            2009

    Revenues, net                              $  41,189,122   $  37,033,483

    Cost of revenue (inclusive of                                       

     depreciation and amortization)               28,134,650      23,444,655

    Gross profit                                  13,054,472      13,588,828

    Operating expenses:                                                  

    Sales and marketing                               77,870         574,671

    Research and development                         121,825         102,069

    General and administrative                     1,311,598       1,423,013

    Total operating expenses                       1,511,293       2,099,753

    INCOME FROM OPERATIONS                        11,543,179      11,489,075

    Other income:                                                       

    Interest income                                   35,067          35,449

    INCOME BEFORE INCOME TAXES                    11,578,246      11,524,524

    Income tax expense                            (2,982,584)     (2,943,786)

    NET INCOME                                 $   8,595,662   $   8,580,738

    Other comprehensive (loss) income:                                  

    - Foreign currency translation                                      

     (loss) gain                                     (24,205)        479,361

    COMPREHENSIVE INCOME                       $   8,564,957   $   9,060,099

    Net income per share - Basic and                                    

     diluted                                   $        0.16   $        0.16

    Weighted average common stock                                        

     outstanding - Basic and diluted              53,422,971      53,422,971



CHINA SUN GROUP HIGH-TECH CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31, 2010 AND 2009
(Currency expressed in United States Dollars ("US$"))

                                                     Years ended May 31,       

                                                    2010             2009

    Cash flows from operating                                           

     activities:                                                         

    Net income                            $       8,595,662  $     8,580,738

    Adjustments to reconcile net                                        

     income to net cash provided by                                       

     operating activities:                                               

    Depreciation of property, plant                                     

     and equipment                                1,369,824          666,657

    Amortization of technical know-how              130,161               --

    Changes in operating assets and                                     

     liabilities:                                                        

    Accounts receivable, trade                   (1,213,221)        (252,398)

    Inventories                                     436,714        3,121,272

    Value-added tax receivable                      391,661          329,511

    Deposits and prepayments                        435,697         (363,191)

    Accounts payable, trade                       1,279,095          100,064

    Customer deposits                                    --             (343)

    Income tax payable                               13,980          475,318

    Other payables and accrued                                          

     liabilities                                   (304,563)          93,496

    Net cash provided by operating                                      

     activities                                  11,135,010       12,751,124

    Cash flows from investing activities:   
    Payment on technical know-how                        --       (2,206,150)

    Purchase of plant and equipment              (1,300,564)      (3,785,437)

    Payment on construction in                                           

     progress                                    (1,024,906)      (1,532,786)

    Net cash used in investing                                          

     activities                                  (2,325,470)      (7,524,373)

    Effect of exchange rate changes on                                  

     cash and cash equivalents                       (2,227)         104,088

    NET CHANGE IN CASH AND CASH                                         

     EQUIVALENTS                                  8,807,313        5,330,839

    CASH AND CASH EQUIVALENTS,                                          

     BEGINNING OF YEAR                            9,209,953        3,879,114

    CASH AND CASH EQUIVALENTS, END OF                                   

     YEAR                                 $      18,017,266  $     9,209,953

    SUPPLEMENTAL DISCLOSURE OF CASH FLOW

     INFORMATION:                   

    Cash paid for income taxes            $       2,127,504  $     2,468,468

    Cash paid for interest                $              --  $            --

    For more information, please contact:

    Company Contact:   
     Mr. Guosheng Fu, Vice President     
     China Sun Group High-Tech Co., Ltd. 
     Tel:   +86-411-8288-9800/8289-2736 (China)
     Email: ir@china-sun.cn  
     Web:   http://www.china-sun.cn

    Investor Relations Contact:             
     Mr. Mark Collinson, Partner
     CCG Investor Relations
     Tel:   +1-646-833-3422
     Email: mark.collinson@ccgir.com
     Web:   http://www.ccgirasia.com     

 

Source: China Sun Group High-Tech Co., Ltd.  
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