China Public Security Announces Strong Fourth Quarter and Fiscal Year 2007 Results and Revises its Guidance for 2008

SHENZHEN, China , April 1, 2008 /Xinhua-PRNewswire-FirstCall/ -- China Public Security Technology, Inc., (OTC Bulletin Board: CPBY) ('' China Public Security'' or the ''Company''), a leading provider of public security information technology...


SHENZHEN, China , April 1, 2008 /Xinhua-PRNewswire-FirstCall/ -- China Public Security Technology, Inc., (OTC Bulletin Board: CPBY) ('' China Public Security'' or the ''Company''), a leading provider of public security information technology and Geographic Information Systems (''GIS'') software services in China , today announced strong financial results for the fourth quarter and fiscal year ended December 31, 2007 .

'' China Public Security delivered strong growth in revenues and profits in the fourth quarter, as we successfully penetrated markets outside Shenzhen and continued to implement several large-scale system integration projects,'' commented Mr. Jiang Huai Lin , CEO of China Public Security. ''Additionally, we benefited from the consolidation of our operations since November 1, 2007 , with the operations of Information Security Development Technology (Shenzhen) Co. Ltd.''

Fourth Quarter 2007 Results

For the three months ended December 31, 2007 , revenues grew 222% to $11.7 million, compared to $3.6 million in the same period of 2006. The increase in revenues was largely due to the Company's expansion in the market, the development of new product lines and the procurement of several large-scale system integration projects in 2007. During the quarter, the Company completed several project phases, including the Shenzhen City Police Geographic Information System, the Shantou City First Responder Coordination Platform, and the Intelligent Border Control and Security Surveillance System for Huangang Port. In addition, after iASPEC Software Co., Ltd. (''iASPEC'') became the Company's variable interest entity (''VIE''), and ISDT became the Company's wholly owned subsidiary, their financial results were consolidated effective July 1 and November 1, 2007 , respectively.

Gross profit for the fourth quarter of 2007 grew 89.2% year over year to $5 million, compared to the same period of 2006, representing a 43% gross margin. The Company's gross margin declined during the 2007 period, compared to the same period of the prior year, mainly due to higher costs for procured hardware and other subcontracting costs related to the implementation of several large-scale system integration projects. Another factor was the increasing proportion of hardware sales with higher related costs after the Company's acquisition of ISDT in November 2007 .

Administrative expenses increased to $1.7 million in the fourth quarter of 2007, from $0.7 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. The number of employees increased from 180 in 2006, to 460 in 2007.

Selling expenses for the quarter ended December 31, 2007 were around $0.1 million and remained stable as a percentage of revenues.

Income from operations, excluding stock based compensation of $0.7 million, grew 85.4% to $3.3 million in the fourth quarter of 2007, representing an operating margin of 28.6%, as compared to $1.8 million and 49.7% in the same period of 2006. 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, Information Security Technology ( China ) Co., Ltd (''IST''), ISDT, and its VIE, iASPEC, are subject to an enterprise income tax (''EIT'') rate of 15% of assessable profits. In addition, IST is a Foreign Investment Enterprise or FIE engaged in the advanced technology industry, which entitles it to a two-year exemption from the EIT, followed by a 7.5% tax exemption for the next 3 years. On August 10, 2007 , IST was granted the EIT exemption by PRC tax authorities, retroactive to as of January 1, 2007 . Income tax expense for the year ended December 31, 2007 was $0.1 million, and represents taxes on iASPEC's income not attributable to the Company under the Management Services Agreement between the Company and iASPEC. Income tax expenses were $1.0 million for the year ended December 31, 2006 .

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