SHENZHEN, China , Nov. 15 /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, today announced record financial results for the third quarter ended September 30, 2007 .
Third Quarter 2007 Highlights -- Revenues increased 128% year over year to $10.2 million -- Gross profit rose 87% year over year to $4.9 million, representing a 48% gross margin -- Operating income rose 71% to $3.9 million, with a 38% operating margin -- Net income grew 92% to $3.7 million, or $0.09 per basic and diluted shareThird Quarter 2007 Results
'' China Public Security delivered strong growth in revenues and profits in the third quarter, as we successfully expanded to markets outside Shenzhen and implemented several large-scale system integration projects," commented Mr. Jiang Huai Lin , CEO of China Public Security. ''In the third quarter, we completed several high profile projects, and began the construction of Phase I of the Shenzhen City Residence Card Information Management System Project. We also restructured our legal relationship with iASPEC, our exclusive commercial partner, in order to provide greater transparency to investors.''
Effective July 1, 2007 , Public Security Technology (PRC) Co., Ltd. (''PST''), the Company's wholly-owned subsidiary, implemented a new management services agreement with its exclusive commercial partner iASPEC Software Engineering Company Limited (''iASPEC''), which replaced the prior commercial arrangement between the parties. As a result of the new arrangement, iASPEC is now considered the Company's variable interest entity, and its financial data and information is consolidated into the Company's accounts.
On a pro forma basis, for the three months ended September 30, 2007 ,
revenues grew 128% to
Gross profit for the third quarter of 2007 grew 87% year over year to
Administrative expenses increased to
Selling expenses for the quarters ended September 30, 2007 and 2006 were
Income from operations grew 71% to
On August 10, 2007 , PST was granted the Enterprises Income Tax exemption
by PRC tax authorities, retroactive to January 1, 2007 . The provision for the
three months ended September 30, 2007 was provided by iASPEC at the tax rate
of 15%. The provision for income taxes was
Net income grew 92% to
Nine Months Results
On a pro forma basis, the Company's revenue for the first nine months of
2007 increased 167% over the comparable period in 2006, to
For the nine months ended September 30, 2007 , cash flow from operations
totaled a net outflow of
Financial Condition
On September 30, 2007 , the Company had
Recent Developments
On October 29, 2007 , the Company sold 5,000,000 shares of its common stock
to certain accredited investors for gross proceeds of approximately
On November 7, 2007 , the Company completed the acquisition of Fortune Fame
International Investment Ltd., a Hong Kong company, and its wholly-owned
Chinese subsidiary, Information Security Development Technology (Shenzhen)
Company Ltd. (''Information Security''), for a total purchase price of
approximately
Third Quarter 2007 Operational Highlights
As of the end of the third quarter of 2007, the Company held a strong position in the market for Police-use Geographic Information Systems (PGIS) in Guangdong Province, based on its work on China's intelligent border control system, and its win of China's first contract to develop a new residence ID card management system to be piloted in Shenzhen.
The Company began Phase I construction of the Shenzhen Residence Card
Information Management System Project in the third quarter of 2007. The
bidding process for Phase II construction of this project, which has an
estimated value of
Outlook for 2007
''The market for public security information technology continues to increase at a very rapid rate. It is estimated that Phase II of China's Golden Shield Project, another initiative to build safe and stable cities, could be approved to start up at the end of 2007 or in early 2008,'' said Mr. Lin . ''Billions of dollars will be invested to upgrade the communication networks and information systems by the central government and municipalities. In addition, we believe that significant opportunities remain for our police and civil use of our products and services.''
Management has projected 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. Although Public Security (the ''Successor''), was formed on January 17, 2006 , it had no significant operations in the period from January 17, 2006 through September 30, 2006 . Accordingly, the accompanying financial statements for the period from January 1, 2006 through September 30, 2006 (the ''Predecessor Period'') reflect the results of operations of iASPEC. The accompanying financial data for the period from January 1, 2007 through September 30, 2007 (the ''Successor Period'') reflect the results of operations of China Public Security Holdings Limited. Accordingly, the results of operations of the Predecessor and the Successor are not comparable in all respects. We have provided non-GAAP financial measures through the reallocation of net related party revenues from iASPEC, 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 Public Security Technology, Inc.
Through its wholly-owned Chinese subsidiary, China Public Security is focused on the development and implementation of large scale, high-tech public security and Geographic Information System (''GIS'') related projects. The Company provides a broad portfolio of fully integrated solutions and services, including public security information technology (First Responder Coordination Platform, Intelligent Border Control and Intelligent Security Surveillance), Geographic Information System (Police-use GIS and Civil-use GIS), and e- Government Platform services, software sales and maintenance. Through its exclusive commercial arrangement with iASPEC, China Public Security has the licenses to 16 registered and copyrighted software applications in China . In addition, ASPEC 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.chinacpby.com .
About Non-GAAP Financial Measures
This press release includes a reference to non-GAAP financial measures. For a description of these non-GAAP financial measures, including management's reason for using such measures, and reconciliations of these non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with Generally Accepted Accounting Principles (GAAP), please see the section entitled ''Non-GAAP Financial Measures".
Safe Harbor Statement
This press release may contain certain ''forward-looking statements" relating to the business of China Public 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 ability of the Company to win new contracts and expand its business to other regions in China , or achieve otherwise 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 PUBLIC SECURITY TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED) PREDECESSOR SUCCESSOR THREE MONTHS NINE MONTHS THREE MONTHS NINE MONTHS ENDED ENDED ENDED ENDED SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER 30, 2006 30, 2006 30, 2007 30, 2007 REVENUE - THIRD PARTIES $4,449,060 $9,684,279 $10,158,286 $13,121,765 REVENUE - RELATED PARTY -- -- -- 5,476,256 TOTAL REVENUES 4,449,060 9,684,279 10,158,286 18,598,021 COST OF REVENUES (1,826,500) (3,712,045) (5,244,343) (6,052,886) GROSS PROFIT 2,622,560 5,972,234 4,913,943 12,545,135 ADMINISTRATIVE EXPENSES (298,503) (923,345) (903,786) (1,620,965) SELLING EXPENSES (36,172) (155,288) (101,228) (345,029) INCOME FROM OPERATIONS 2,287,885 4,893,601 3,908,929 10,579,141 OTHER INCOME/ (EXPENSES) 6,537 6,537 (111,263) (83,471) INCOME BEFORE TAXES AND MINORITY INTEREST 2,294,422 4,900,138 3,797,666 10,495,670 MINORITY INTEREST -- -- (45,000) (45,000) INCOME TAXES (356,284) (752,485) (30,288) (30,288) NET INCOME 1,938,138 4,147,653 3,722,378 10,420,382 FOREIGN CURRENCY TRANSLATION GAIN 81,540 238,350 508,876 847,539 COMPREHENSIVE INCOME $2,019,678 $4,386,003 $4,231,254 $11,267,921 WEIGHTED AVERAGE NUMBER OF SHARES BASIC N/A N/A 39,418,720 38,438,770 DILUTED N/A N/A 39,891,236 38,871,098 EARNINGS PER SHARE BASIC N/A N/A $0.09 $0.27 DILUTED N/A N/A $0.09 $0.27 CHINA PUBLIC SECURITY TECHNOLOGY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS DECEMBER 31 SEPTEMBER 30 2006 2007 ASSETS (Unaudited) CURRENT ASSETS Cash and cash equivalents $ 172,316 $ 8,839,082 Restricted Cash -- 584,668 Accounts receivable -- 10,255,808 Prepaid expenses -- 1,374,797 Related party receivables 1,410,471 -- Advances receivable 332,479 -- Inventory -- 2,188,434 Other receivables and deposits 243,948 883,778 TOTAL CURRENT ASSETS 2,159,214 24,126,567 NON-CURRENT ASSETS Deposit for business acquisition 1,331,558 Property and equipment 49,826 13,395,518 Intangible assets -- 569,775 TOTAL NON-CURRENT ASSETS 49,826 15,296,851 TOTAL ASSETS $ 2,209,040 $ 39,423,418 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ -- $ 2,234,738 Advances payable 200,000 -- Deferred Revenue -- 175,944 Accrued expenses 66,832 391,717 Tax payable 215,255 201,457 Amounts due to a director 82,304 82,304 Other payable -- 32,116 TOTAL CURRENT LIABILITIES 564,391 3,118,276 MINORITY INTEREST -- 10,081,360 STOCKHOLDERS' EQUITY Common stock, par $0.01 Authorized capital, 75,000,000 shares Shares issued and outstanding (2007: 39,418,720 2006: 31,550,298 shares) 50,000 128,684 Additional paid-in capital -- 13,232,527 Reserves 159,465 855,310 Retained earnings 1,435,184 11,159,722 Accumulated other comprehensive income -- 847,539 TOTAL STOCKHOLDERS' EQUITY 1,644,649 26,223,782 $ 2,209,040 $ 39,423,418 CHINA PUBLIC SECURITY TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) PREDECESSOR SUCCESSOR NINE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, 2006 2007 OPERATING ACTIVITIES Net income $ 4,147,653 $ 10,420,382 Adjustments to reconcile net income to net cash provided from (used in) operations Depreciation 382,489 683,941 Amortization of intangible assets 104,364 47,501 Minority interest -- 45,000 Changes in operating assets and liabilities, net of VIE acquired Decrease in inventories 203,237 901,254 Decrease (Increase) in trade and other receivables 1,478,841 (3,811,031) Increase in prepaid expenses -- 209,702 Decrease in related parties receivables -- 1,308,103 Decrease in related party payables -- (11,623,250) Increase (Decrease) in trade and other payables 167,954 96,615 Increase in accrued expenses (42,180) 185,782 Increase (Decrease) in tax payable 354,520 (44,038) Net cash provided by (used in) operating activities 6,796,878 (1,580,037) INVESTING ACTIVITIES Advances to related parties (1,563,806) -- Net cash acquired from VIE acquisition -- 4,731,140 Deposit for business acquisition -- (1,331,558) Purchase of property and equipment (3,268,668) (6,010,693) Capitalized software development cost (101,096) -- Net cash used in investing activities (4,933,570) (2,611,111) FINANCING ACTIVITIES Short-term loan 632,591 -- Increase in restricted cash -- (584,668) Receipt (Repayment) of advances -- (200,000) payable Cash received from private placement of common stock -- 13,311,211 Net cash provided by financing activities 632,591 12,526,543 EFFECT OF EXCHANGE RATE CHANGES ON CASH 7,747 331,371 NET INCREASE IN CASH AND CASH EQUIVALENTS 2,495,899 8,335,395 CASH AND CASH EQUIVALENTS, BEGINNING 57,758 172,316 CASH AND CASH EQUIVALENTS, ENDING $ 2,561,404 $ 8,839,082 Supplemental disclosure of cash flow information Income taxes paid $ 526,905 $ 80,847 For more information, please contact: Company Contact: Mr. Michael Lin Vice President, Investor Relations China Public 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]SOURCE China Public Security Technology, Inc.
