China Information Security Announces Strong First Quarter 2008 Results

SHENZHEN, China , May 13 /Xinhua-PRNewswire-FirstCall/ -- China Information Security Technology, Inc. (OTC Bulletin Board: CIFS) ("China Information Security," "CIST" or the "Company"), a leading provider of Information Security and 3S (Geographic...


SHENZHEN, China , May 13 /Xinhua-PRNewswire-FirstCall/ -- China Information Security Technology, Inc. (OTC Bulletin Board: CIFS) ("China Information Security," "CIST" or the "Company"), a leading provider of Information Security and 3S (Geographic Information System -- GIS, Remote Sensing -- RS, and Global Positioning System -- GPS) services in China , today announced strong financial results for the first quarter ended March 31, 2008 .

"We are pleased to see such strong momentum in our operations in the first quarter, as we reaped the benefits of our expanded product portfolio and further geographic reach," commented Mr. Jiang Huai Lin , CEO of China Information Security. "At this point, we remain confident in achieving our financial goals for the year 2008. With the rapid expansion of our customer base and the successful integration of newly acquired businesses, we should be able to strengthen our competitive position and increase our market share."

For the three months ended March 31, 2008 , revenues grew 180% to $14.4 million, compared to $5.1 million in the same period of 2007. The increase was primarily due to the Company's market expansion, development of new product lines and procurement of several large-scale system integration projects. Financial results of ISDT and Bocom Technology were consolidated starting from November 1, 2007 and February 1, 2008 , respectively. They contributed $3.0 million and $0.8 million to revenues for the three months ended March 31, 2008 , respectively.

Gross profit for the first quarter of 2008 grew 91% year over year to $6.1 million, compared to the same period of 2007, representing a 42% gross margin. The Company's gross margin declined mainly due to higher costs for procured hardware and other subcontracting costs related to the implementation of several large-scale system integration projects.

Administrative expenses increased to $1.4 million in the first quarter of 2008, from $0.5 million in the same period last year. The increase was attributable to an increase in the Company's administrative staff and increased administrative costs due to the expansion of the Company's operations.

Selling expenses for the quarter ended March 31, 2008 were around $0.4 million and remained stable as a percentage of revenues.

Income from operations grew 65.5% to $4.1 million in the first quarter of 2008, representing an operating margin of 28.6%, as compared to $2.5 million and 48.4% in the same period of 2007. The improvement was a result of the strong increase in the Company's revenues. However, the operating margin declined due to higher costs for procured hardware and other subcontracting costs related to the implementation of several large-scale system integration projects, and increased operating expenses due to market expansion.

The Company's subsidiaries, IST, ISDT and Bocom Technology, and its VIE, iASPEC, are subject to EIT at a rate of 18% of assessable profits in 2008. In addition, IST is a Foreign Investment Enterprise engaged in the technology industry which entitles it to a two-year exemption from EIT followed by a 50% tax exemption for the next three years. Income tax expenses for the three months ended March 31, 2008 was $0.2 million.

Net income grew 85.3% to $4.0 million in the first quarter of 2008, or $0.09 per basic and diluted share, compared to $2.1 million during the same period of 2007.*

Financial Condition

As of March 31, 2008 , the Company had $23.6 million in cash and cash equivalents, total current assets of $58.1 million and total assets of $107.2 million. The Company's stockholders' equity increased to $80.3 million, from $74.0 million as of December 31, 2007 .

Recent Developments

(1) Corporate Governance

In April 2008 , China Information Security established three committees -- audit, compensation and nominating to comply with all NASDAQ listing requirements. Mr. Sean Shao , CFO of NYSE listed Trina Solar , was retained as the independent director who will lead as Chairman of the Audit Committee.

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