Palm Beach, FL 4/16/12 (StreetBeat) -- China Sun Group High-Tech Co. (OTCBB: CSGH), 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."
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