China Unitech Group, Inc. Announces Third Quarter 2010 Results

SHENZHEN, China, Nov. 16, 2010 /PRNewswire-Asia-FirstCall/ -- China Unitech Group, Inc. (the "Company") (OTC Bulletin Board: CUIG), operating through Junlong Culture Communication Co. Ltd ("Junlong"), a leading internet cafe chain operator in China, today announced its financial results for its third quarter of 2010.

Third Quarter 2010 Highlights

• Revenue increased 61.4% to $5.8 million year-over-year
• Gross profit increased 83.5% year-over-year to $2.7 million
• Operating income increased 52.7% to $2.2 million year-over-year
• Net income was $1.6 million in the third quarter of 2010, up 41.4% year-over-year
• Cash flow provided by operating activities was $6.1 million for the nine months ended September 30, 2010, as compared to $3.6 million for the same period last year
• Acquired one internet cafe in and opened 6 additional internet cafes in the third quarter of 2010

"We are pleased to report another quarter of momentous financial performance with significant surges in our top line and bottom line, representing an increase of 61.4% and 41.4%, respectively, year-over-year. During the third quarter, we successfully added 7 additional new stores, bringing the total number of internet cafes under the "Dragon Surf" brand name to 43. While we continued to expand our presence in Shenzhen, we executed innovative ways to attract and sustain customers, resulting in improved average occupation rate. This has demonstrated Junlong's seasoned capability and Junlong is well on the way to becoming a major national internet cafe operator in the future," commented Mr. Dishan Guo, Chief Executive Officer of China Unitech Group, Inc.

Third Quarter 2010 Results

For the quarter ended September 30, 2010, net revenue increased 61.4% to $5.8 million, compared to $3.6 million in the third quarter of 2009. Revenue growth was mainly due to the contribution of 15 internet cafes opened since September 30, 2009. The accelerated growth compared to previous quarters was due to one acquired internet cafe located in Baoan District and six newly opened internet cafes located in Shenzhen City during the third quarter of 2010. An increase in average occupation utilization also contributed favorably to the Company's revenue growth.  

Gross profit for the third quarter of 2010 increased 83.5% to $2.7 million, compared to $1.5 million in the third quarter of 2009. Gross margin expanded 5.6 percentage points to 46.4%, as compared to 40.8% in the comparable period of 2009. The increase was mainly attributable to the increase in computer usage time in the third quarter of 2010.

Operating expenses increased 1,304.0% to $0.5 million for the third quarter of 2010 from $0.04 million for the third quarter of 2009. The increase was primarily due to higher general and administrative expenses attributable to professional fees related to the Company's status as a public company and reorganizational expenses attributable to recent share exchange transaction with Classic Bond in July 2010.

Operating income for the third quarter of 2010 increased 52.7% to $2.2 million, compared to $1.4 million in the comparable period of 2009. Operating margin was 37.7% in the quarter compared to 39.8% in the third quarter of 2009.

Income tax expense for the third quarter of 2010 increased 96.6% to $0.6 million, compared to $0.3 million in the same period last year, primarily due to the increase in net revenue and higher income tax rate of 22% for the third quarter of 2010, up from 20% for the comparable period in 2009.  

Net income increased 41.4% to $1.6 million, or $0.08 per diluted share compared to $1.1 million or $0.06 per share for the same period last year. Diluted earnings per share were calculated using weighted average shares of 20,186,957and 19,000,000 for the quarters ended September 30, 2010 and September 30, 2009, respectively.

Results for the Nine Months Ended September 30, 2010

Net revenue was $14.1 million for the nine months ended September 30, 2010, an increase of 35.8% from $10.4 million for the same period in 2009. Gross profit was $6.3 million, or 44.9% of revenue, an increase of 51.8% from $4.2 million, or 40.1% of revenue, for the nine months ended September 30, 2009. Operating income was $5.6 million, or 39.3% of revenue, an increase of 36.8% from $4.1 million, or 39.0% of revenue, for the nine months ended September 30, 2009. Net income increased 28.6% to $4.2 million for the nine months ended September 30, 2010, or $0.22 per diluted share, compared to $3.3 million, or $0.17 per share for the same period last year. Diluted earnings per share were calculated using weighted average shares of 19,400,000 and 19,000,000 for the nine months ended September 30, 2010 and September 30, 2009, respectively.

Financial Condition

As of September 30, 2010, the Company had $6.4 million in cash and cash equivalents, compared to $3.1 million at year-end 2009, working capital of $5.8 million and a current ratio of 3.1:1. As of September 30, 2010, shareholders' equity was $11.8 million, up from $7.0 million at the end of 2009.

For the nine months ended September 30, 2010, the Company generated $6.0 million in cash from operating activities, compared with$3.6 million for the same period last year. Net cash used in investing activities was $3.3 million for the nine months ended September 30, 2010, which was used for the acquisitions of internet cafes and improvements on leased assets.

Business Outlook

The Company plans to complete acquisitions in Guizhou, Yunnan and Sichuan provinces in the future in order to qualify as a national internet cafe operator.

"For the remainder of 2010, we continue to look for acquisition opportunities to expand our presence outside of Guangdong province as this move would enable us to qualify as one of few national internet cafe operators in China. While we are lagging behind our initial timeline for completing cross provincial acquisitions, we continue to carry out stringent due diligence on potential targets. Despite the delay, we anticipate healthy and stable top line growth in the last quarter of 2010 supported by our acquisitions completed thus far and the strong market demand for internet cafe services," commented Mr. Guo.

About China Unitech Group, Inc.

China Unitech Group, Inc. is the holding company of Classic Bond Development Limited. The Company operates through its variable interest entity Junlong Culture Communication Co. Ltd. ("Junlong"), a leading internet cafe chain operator headquartered in Shenzhen, China. Established in 2003, Junlong is one of the five largest internet cafe chain operators in Shenzhen with 43 company-owned stores. Junlong's internet cafes are operated and managed under the Dragon Surf brand. Its robust system offers a one-stop entertainment and media venue for customers, including VoIP, instant messaging, online games, snacks and drinks. Its internet cafes are typically located in high traffic areas that target mature students and migrant workers. The Company currently employs about 510 full time employees.

Safe Harbor Statement

This press release may contain certain "forward-looking statements" relating to the business of China Unitech Group, Inc., its subsidiary companies and variable interest entity. All statements, other than statements of historical fact included herein are "forward-looking statements" including statements regarding the ability of the Company to grow; the general ability of the Company to achieve its commercial objectives; the business strategy, plans and objectives of the Company and its subsidiaries; the ability to obtain adequate funding for acquisitions, and any other statements of non-historical information. These forward-looking statements are often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions, and involve known and unknown risks and uncertainties. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company's periodic reports that are filed with the Securities and Exchange Commission and available on its website (http://www.sec.gov). All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements.

Financial tables follow

SOURCE China Unitech Group, Inc.

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