China Security & Surveillance Technology Reports Second Quarter 2007 Financial Results

SHENZHEN, China , Aug. 13 /Xinhua-PRNewswire/ -- China Security & Surveillance Technology, Inc. (" China Security" or the "Company") (OTC: CSCT), a leading provider of digital surveillance technology in China , today reported its financial...


SHENZHEN, China , Aug. 13 /Xinhua-PRNewswire/ -- China Security & Surveillance Technology, Inc. (" China Security" or the "Company") (OTC: CSCT), a leading provider of digital surveillance technology in China , today reported its financial results for the second quarter ending June 30, 2007 .

The Company reported GAAP earnings per diluted share of $0.11 for the second quarter of 2007 compared to $0.10 in second quarter of 2006. Results for the second quarter of 2007 include: (1)approximately $3.8 million, or $0.10 per diluted share, of non-cash expense related to the accrual of amounts payable under outstanding convertible notes in the event that such notes are redeemed (as described below under the caption "Explanation of Redemption Accrual"); (2) approximately $1.1 million, or $0.03 per diluted share, of non- cash expense related to the amortization of goodwill and (3) approximately $800,000, or $0.02 per diluted share, of non-cash expense related to the accrual of performance-based employee compensation. Excluding these non-cash expenses, diluted earnings per share was $0.26, compared to $0.10 per diluted share in the second quarter of 2006 (see "About Non-GAAP Financial Measures" toward the end of this release). Diluted share count increased 58% in the second quarter of 2007 to 38.8 million from 24.6 million in the second quarter of 2006.

Revenue increased 551.3% to $52.1 million compared to $8.0 million in the second quarter of 2006. Revenue improved significantly as a result of increased demand among both new and existing customers for security and surveillance products within various industries and organizations in China as well as the increase in government-initiated programs to install security systems. Second quarter 2007 revenue also benefited from an increase in the visibility of the Company's brand in China , which management believes led to new contract wins in the second quarter. Organic revenue growth during the second quarter of 2007 accounted for 78% of the Company's total revenues, while recent acquisitions also contributed to revenue growth.

Mr. Guo Shen Tu , Chief Executive Officer of China Security, commented, "We are pleased with our financial performance in the second quarter. During the second quarter, we secured fifty-nine new contracts across a wide array of private businesses as well as local and city governments. We are seeing significant demand from government Safe-City contracts, and importantly, several of our customers are bypassing the pilot phase and moving straight to longer-term, higher revenue-generating projects."

Second quarter gross profit increased 397% to $14.9 million, compared to $3.0 million in the prior year. Gross profit margin was 28.6% down from 37.5% year-over-year, but up from 26.3% in the first quarter of 2007. The year-over- year decline primarily reflects the Company's present strategy to penetrate new markets and increase total market share. The sequential increase in margin from the first quarter of 2007 primarily reflects better economies of scale and improved price strength.

Income from operations increased 300% to $9.6 million from $2.4 million in the second quarter of 2006. Total operating expenses increased to $5.2 million in the second quarter of 2007 from $0.6 million in second quarter of 2006, primarily due to professional expenses related to the costs of being a public reporting company as well as the hiring of additional staff.

The Company recognized interest expense of $4.1 million in the second quarter of 2007. Approximately $0.3 million reflects interest payments on debt outstanding and approximately $3.8 million reflects the non-cash accrual of amounts payable under outstanding convertible notes, if such notes are not converted into the Company's common stock before their maturities and are redeemed as explained in the Company's indenture with Citadel Equity Fund Ltd. ("Citadel"). China Security anticipates that its annual non-cash accrual will be approximately $13 million for 2007.

This content continues onto the next page...