China Sun Group High-Tech Co. Announces First Quarter Fiscal Year 2011 Financial Results

DALIAN, China, Oct. 14 /PRNewswire-Asia-FirstCall/ --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 announced results for its first quarter ended August 31, 2010.

First Quarter 2011 Highlights:

• Revenue increased 26.2% over the prior year quarter to $11.8 million
• Operating margin of 27.7%
• Net profit margin of 20.7%
• Earnings per diluted share of $0.05

"Fiscal year 2011 got off to a solid start as we experienced increased customer demand throughout the first quarter," noted China Sun Group's Chief Executive Officer, Mr. Guosheng Fu. "The growth in demand for our expanded portfolio of products, which now includes Lithium Iron Phosphate (LIP), was in-line with management's expectations for the quarter, with revenue increasing 26% compared to the first quarter of the prior fiscal year. Furthermore, although higher raw materials costs resulted in lower gross margins in the most recent quarter compared to the prior year period, we anticipate that the revenue contribution from our new, higher margin LIP segment will steadily increase as the year progresses as we expect LIP production to ramp up throughout fiscal year 2011."

Continuing, Mr. Fu added, "We anticipate increased demand for LIP, which is used in the manufacture of batteries for eco-friendly cars, in part, as a result of the Chinese Government's recently announced 12th Five-Year Plan, which specifically identifies environmentally friendly as well as energy efficient industries and composite materials for preferential policy treatment in the form of government investment, tax incentives, and access to capital."

"Finally, given our strong performance in what is historically the weakest quarter of the year in terms of customer demand, we remain on schedule to meet our previously issued fiscal year 2011 financial guidance."

Fiscal First Quarter 2011 Results

Revenue for the first fiscal quarter of 2011 was $11.8 million compared to revenue of $9.3 million in the prior year period, an increase of 26.2%. The increase was attributable to higher customer demand in the most recent period and the introduction of a new product, Lithium Iron Phosphate, which was not offered in the prior year period.

Gross profit for the quarter was $3.7 million or 31.5% of revenues compared to $3.1 million or 32.8% 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 first fiscal quarter of 2011 was $3.3 million compared to operating income of $2.8 million in the prior year period, an increase of 17.6%. The increase in operating income resulted primarily from increased customer demand which was offset by higher sales and marketing expenses compared to the prior year period as the Company increased advertising and began to expand its customer network for the growing Lithium Iron Phosphate segment. The increase in operating income was also offset by an increase in general and administrative expenses, primarily due to higher non-recurring legal expenses incurred in the most recent quarter.

Net income for the first fiscal quarter of 2011 was $2.4 million, or $0.05 per basic and diluted share, which represents a 17.8% increase from the $2.1 million, or $0.04 per basic and diluted share, in the first quarter of fiscal 2010.

Update on 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. Since the beginning of fiscal year 2010, the Company has sent LIP samples to 32 potential customers. Although the testing process is ongoing, China Sun expects additional orders for LIP from new customers beginning in the second fiscal quarter of this year. Additional output would require expansion of the Company's production facilities. The Company believes that its cash reserves, which stood at $19.4 million as of August 31, 2010, will be sufficient to fund the capital investment required for additional LIP production.

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 the product and plans to continue further research and development. If results are favorable, the Company would make a significant investment in manufacturing facilities for power Li-ion batteries later in fiscal 2011. The Company has retained the financial advisory services of Grandview Capital in order actively explore financing alternatives that would be suitable for funding the power Li-ion battery project.

As part of the Company's commitment to operating under the highest standards of corporate governance and accountability, China Sun recently retained the services of international law firm, Reed Smith LLP as its new U.S. corporate and securities counsel. Reed Smith will handle U.S. securities filings, regulatory compliance and transactions in the U.S., ensuring the highest levels of disclosure and transparency.

Fiscal Year 2011 Outlook

Given the Company's first quarter production levels and the anticipated demand over the remaining nine months of fiscal year 2011, China Sun continues to anticipate producing 1,200 tons of cobaltosic oxide and 600 tons of Lithium Iron Phosphate for the full year with the Lithium Iron Phosphate production occurring mostly in the second half of the year. As a result of this forecast and management's expectations for raw materials prices over the next nine months, China Sun reaffirms the previously issued full year guidance of revenue in the range of $56.0 million to $58.0 million, net income in the range of $10.0 million to $ 11.0 million, and net income per diluted share in the range of $0.18 to $0.20.

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 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

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

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