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 .
First Quarter 2008 Highlights On GAAP basis, -- Revenues increased to $14.4 million, from $3.0 million -- Gross profit rose to $6.1 million, from $2.8 million -- Operating income increased to $3.7 million, from $2.5 million -- Net income grew 67.3% to $3.6 million, or $0.08 per basic and diluted share On a non-GAAP basis*, -- Revenues increased 180% year over year to $14.4 million, from $5.1 million -- Gross profit rose 91% year over year to $6.1 million, representing a 42% gross margin -- Operating income, rose 65.5% to $4.1 million, with a 28.6% operating margin -- Net income grew 85.3% to $4.0 million, or $0.09 per basic and diluted share * includes the consolidation of iASPEC and excludes stock based compensation ("SBC")"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."
During the quarter, the Company achieved the following milestones: -- Expanded the market to 14 provinces and provincial cities in China, including Guangdong, Chongqing, Tianjin, Jiangxi, Guangxi, Zhejiang, Shanghai, Yunnan, Fujian, Hainan, Liaoning, Shanxi, Sichuan and Macao -- Completed the acquisition of Bocom Multimedia Display Company Limited ("Bocom Multimedia") and its subsidiary, Bocom Technology, for approximately $18.0 million -- Approved the entry of iASPEC into a series of agreements to acquire 57% of the shares of Wuhan Wuda Geoinformatics Co., Ltd. ("Geo"), a leading provider of GIS software products and integrated solutions in China, for an aggregate purchase price of RMB49.5 million (approximately US$7.0 million) in cash -- Changed the Company's corporate name to China Information Security Technology, Inc., to reflect the Company's national scope of operations and planned expansion into the high-growth civil-use GIS market -- Filed the application to list the Company's common stock on the NASDAQ Global Market First Quarter 2008 Results On a non-GAAP basis*, For the three months ended March 31, 2008 , revenues grew 180% to
Gross profit for the first quarter of 2008 grew 91% year over year to
Administrative expenses increased to
Selling expenses for the quarter ended March 31, 2008 were around
Income from operations grew 65.5% to
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
Net income grew 85.3% to
Financial Condition
As of March 31, 2008 , the Company had
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.
(2) Completed Geo Acquisition
On April 1, 2008 , iASPEC closed the acquisition of 57% of the total equity interest in Wuda Geoinformatics Co., Ltd. ("Geo"), a leading provider of GIS software products and integrated solutions in China .
(3) Reincorporation
In April 2008 , China Public Security Technology ("CPST") merged into China Information Security Technology, Inc., a Nevada corporation, with CIST being the surviving corporation. The symbol for CIST's common stock on the OTC Bulletin Board has been changed to "CIFS.OB".
(4) iASPEC's Establishment of Two New Subsidiaries
On April 11, 2008 , iASPEC established two subsidiaries in Shenzhen , PRC,
Shenzhen iASPEC Information Security Technology, Co., Ltd. and Shenzhen iASPEC
Intelligent Systems, Co., Ltd., each with registered paid-in capital of
Outlook for 2008
The Company plans to leverage its strength and brand recognition in Guangdong Province in order to win business across China . The Company intends to manage its national operations from six centers located in Guangzhou , Beijing , Shanghai , Wuhan , Chongqing and Xi'an .
Management expects that the acquisitions of ISDT, Bocom Technology, and Geo will also accelerate the Company's geographic expansion, enhance its technological capabilities or competitive advantages, provide licensing and recurring revenue opportunities, and serve to fulfill its planned expansion into civil-use GIS markets. Furthermore, the Company expects to capitalize on its strong R&D capability and outstanding contract win ratio, to seize contract opportunities during Phase II of China's "Golden Shield Project" nationwide.
"The market for security information technology continues to increase at a very rapid rate," said Mr. Lin. "With our technological capabilities, diverse and growing range of products, high barriers to entry and dedicated employees, we believe that we are well positioned to execute on our business plan and to create long term value for our stockholders."
Fiscal Year 2008 Guidance
The Company is maintaining its 2008 financial guidance for pro forma
revenues of
Non-GAAP Financial Measures
The Company uses non-GAAP financial measures in this press release due to the inclusion of financial information of iASPEC which is considered to be the Company's "Predecessor" for these purposes. Effective as of July 1, 2007 , iASPEC became the Company's variable interest entity, or VIE, whose operation results began to be reflected in the financial data starting from July 1, 2007 . Therefore, the accompanying financial data for the three months ended March 31, 2008 , reflect the results of operations of CIST, its subsidiaries and its VIE, while the financial data for the three months ended March 31, 2007 only reflects the results of operations of CIST and its subsidiaries. We have provided non-GAAP financial measures through the reallocation of net related party revenues from iASPEC before it became a consolidated entity, which is not in accordance with US GAAP. The reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure is provided in the following section. The Company's management believes that these non-GAAP financial measures are necessary because the abnormally high financial ratios calculated using GAAP would be misleading to investors and would not reflect the substance of the Company's performance.
About China Information Security Technology, Inc.
Through its wholly-owned Chinese subsidiary, China Information Security is focused on the development and implementation of large scale, high-tech information security and 3S ("Geographic Information System -- GIS, Remote Sensing -- RS, and Global Positioning System -- GPS") related projects. The Company provides a broad portfolio of fully integrated solutions and services, including security information technology (First Responder Coordination Platform, Intelligent Border Control System and Residence Card Information Management System), 3S (GIS, RS and GPS), and Product Sales and Services. Through its exclusive contractual arrangement with iASPEC Software Company Limited (iASPEC), China Information Security has the licenses to numerous registered and copyrighted software applications in China . In addition, iASPEC is considered the Company's variable interest entity, and its financial data and information is consolidated into the Company's accounts. To learn more about the Company, please visit the corporate website at http://www.cistchina.com .
Safe Harbor Statement
This press release may contain certain "forward-looking statements" relating to the business of China Information Security Technology, Inc., and its subsidiary companies. All statements, other than statements of historical fact included herein are "forward-looking statements" including statements regarding the general ability of the Company to achieve its commercial objectives; the business strategy, plans and objectives of the Company and its subsidiaries; 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, 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-- CHINA INFORMATION SECURITY TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF INCOME (NON-GAAP) THREE MONTHS ENDED MARCH 31, 2008 AND 2007 NON-GAAP THREE THREE THREE REALLOCATION MONTHS MONTHS MONTHS OF ENDED ENDED ENDED RELATED MARCH MARCH 31, MARCH 31, PARTY 31, 2008 2007 REVENUE 2007 REVENUE - THIRD PARTIES 14,404,426 1,213,318 3,932,251 5,145,569 REVENUE - RELATED PARTY -- 1,818,823 (1,818,823) -- TOTAL REVENUE 14,404,426 3,032,141 5,145,569 COST OF REVENUE (8,352,264) (210,712)(1,771,527)(1,982,239) GROSS PROFIT 6,052,162 2,821,429 3,163,330 ADMINISTRATIVE EXPENSES (1,752,735) (219,294) (282,794) (502,088) RESEARCH AND DEVELOPMENT EXPENSES (147,003) -- -- FEE TO iASPEC UNDER THE TURNKEY -- (45,000) (45,000) SELLING EXPENSES (417,703) (68,669) (59,107) (127,776) INCOME FROM OPERATIONS 3,734,721 2,488,466 2,488,466 OTHER INCOME, NET 69,401 7,525 7,525 INTEREST INCOME 26,603 20,304 20,304 MINORITY INTEREST (45,000) -- -- INCOME TAX EXPENSE (206,745) (377,444) (377,444) NET INCOME 3,578,980 2,138,851 2,138,851 WEIGHTED AVERAGE NUMBER OF SHARES BASIC 45,985,550 36,446,205 NA DILUTED 46,720,415 36,760,592 NA EARNINGS PER SHARE BASIC 0.08 0.06 NA DILUTED 0.08 0.06 NA CHINA INFORMATION SECURITY TECHNOLOGY, INC. CONSOLIDATED BALANCE SHEETS MARCH 31, 2008 AND DECEMBER 31, 2007 MARCH 31, DECEMBER 31, 2008 2007 (UNAUDITED) (AUDITED) ASSETS CURRENT ASSETS Cash and cash equivalents $ 23,624,772 $ 19,755,182 Investment in marketable securities -- 14,966,752 Accounts receivable 21,142,354 11,721,306 Notes receivable 49,842 -- Advances to suppliers 4,984,145 1,791,440 Inventories 6,951,380 4,779,930 Other receivables 1,330,867 974,475 TOTAL CURRENT ASSETS 58,083,360 53,989,085 Deposit for business acquisition 7,049,073 8,989,022 Property and equipment 14,075,360 13,826,896 Intangible assets 9,305,274 4,894,397 Goodwill 18,701,923 7,154,395 TOTAL ASSETS $ 107,214,990 $ 88,853,795 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 3,987,497 $ 3,079,304 Advances from customers 1,460,301 394,383 Income tax payable 724,797 326,026 Other payables and accrued expenses 1,625,030 987,483 Acquisition consideration payable 9,000,000 -- TOTAL CURRENT LIABILITIES 16,797,625 4,787,196 MINORITY INTEREST 10,105,657 10,060,657 STOCKHOLDERS' EQUITY Common stock, par $0.01; Authorized capital, 75,000,000 shares; Shares issued and outstanding (March 31, 2008 and December 31,2007: 45,639,396 shares) 190,891 190,891 Additional paid-in capital 57,805,115 57,421,150 Reserve 1,755,552 1,755,552 Retained earnings 16,749,529 13,170,549 Accumulated other comprehensive income 3,810,621 1,467,800 TOTAL STOCKHOLDERS' EQUITY 80,311,708 74,005,942 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 107,214,990 88,853,795 CHINA INFORMATION SECURITY TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2008 AND 2007 MARCH 31, MARCH 31, 2008 2007 OPERATING ACTIVITIES Net income $ 3,578,980 $ 2,138,851 Adjustments to reconcile net income to net cash provided from operation: Depreciation 657,678 31,657 Amortization of intangible assets 217,854 -- Stock-based compensation 383,965 -- Minority interest 45,000 -- Changes in operating assets and liabilities, net of effects of business acquisition: Increase in inventories (590,698) -- Increase in accounts receivable (5,648,740) (12,596) Increase in related party receivable -- (1,774,640) Increase in prepaid related party expenses -- (5,386,997) Decrease in other receivables and deposits (2,738,826) -- Decrease in accounts payable (303,819) -- Decrease in advances from customers (1,024,711) -- Increase (decrease) in other payables and accrued expenses 439,039 (23,974) Increase in income tax payable 70,142 343,608 Net cash used in operating activities (4,914,136) (4,684,091) INVESTING ACTIVITIES Cash acquired from Bocom** 713,793 -- Deposits paid for acquisition of Geo (6,909,279) -- Repayments from third parties -- 332,479 Advances to related parties -- (250,001) Decrease in amount due from a director -- (251,365) Purchase of property and equipment (337,212) (3,646,823) Capitalized software development costs (67,292) -- Proceeds from sale of marketable securities 14,966,752 -- Net cash provided by (used in) investing activities 8,366,762 (3,815,710) FINANCING ACTIVITIES Advances received from (repaid to) a third party company -- (200,000) Proceeds from first private placement -- 13,311,211 Net cash provided by financing activities $ -- $ 13,111,211 NET INCREASE IN CASH AND CASH EQUIVALENTS $ 3,452,626 $ 4,611,410 EFFECT OF EXCHANGE RATE CHANGES ON CASH 416,964 10,962 CASH AND CASH EQUIVALENTS, BEGINNING 19,755,182 172,316 CASH AND CASH EQUIVALENTS, ENDING $ 23,624,772 $ 4,794,688 Supplemental disclosure of cash flow information Income taxes paid $ 136,805 $ 33,836 ** 1,125,000 shares of common stock were issued for the purchase price of Bocom Multimedia acquisition, approximately $9,000,000, on April 1,2008. For more information, please contact: Company Contact: Mr. Michael Lin Vice President, Investor Relations China Information Security Technology, Inc. Tel: +1-949-743-0868 Email: [email protected] Investor Relations Contact: Mr. Crocker Coulson President CCG Elite Investor Relations Tel: +1-646-213-1915 (NY office) Email: [email protected] Web: http://www.ccgelite.comSOURCE China Information Security Technology, Inc.
