China Information Security Technology, Inc. Announces Record Third Quarter 2008 Results
Source PRN, PRNOTW
SHENZHEN, China , Nov. 12 /Xinhua-PRNewswire-FirstCall/ -- China Information Security Technology, Inc., (Nasdaq: CPBY) ("China Information Security," "CIST" or the "Company"), a leading application software developer, systems integrator and full-service Geographic Information Systems ("GIS") solutions provider to public security and civil-use markets in China , today reported strong financial results for the third quarter ended September 30, 2008 .
Third Quarter 2008 Highlights On GAAP basis: -- Revenues increased to $27.2 million, from $10.2 million -- Gross profit rose to $12.5 million, from $5.1 million -- Operating income increased to $8.7 million, from $3.9 million -- Net income was $8.0 million, or $0.17 per basic and diluted share On a non-GAAP basis*: -- Revenues increased 167.5% year over year to $27.2 million -- Gross profit increased 145.8% to $12.5 million -- Operating income increased 135.7% to $9.3 million, with a 34.3% operating margin* -- Net income grew 129.3% to $8.6 million, or $0.19 per basic and diluted share* * Includes the consolidation of iASPEC and excludes Stock Based Compensation ("SBC") and Amortization of Intangible Assets. See Table 1 for a reconciliation of Net Income and EPS to exclude SBC and Amortization of Intangible Assets."We are pleased to announce record revenues in the third quarter of 2008," said Mr. Jiang Huai Lin , Chairman and CEO of the Company. "We were able to win a series of contracts in the quarter which allowed us to leverage our product development efforts by adding new modules to our existing products, demonstrating the strength of our brand. We remain confident in meeting or exceeding our previously stated goals for the year 2008. While China's economy has been impacted by the economic slowdown worldwide, we believe we are well positioned to weather this storm as our products and services address both public and health security needs which are highly supported by the Chinese government."
During the quarter, the Company achieved the following milestones: -- Successfully expanded its geographical presence to 24 provinces and provincial cities across China, including Guangdong, Inner Mongolia, Fujian, Shanxi, Beijing, Shanghai, Sichuan and Xinjiang -- Signed new contracts in the third quarter with a combined value of $26.75 million, including: a 120 Emergency Medical Service (EMS) GIS Command and Coordination System in Shenzhen, valued at $1.5 million; two contracts to construct the Aerophotogrammetrical Surveys and Digital Maps for the Bureaus of Land and Resources of Nanning in Guangxi Province and Jiaxing in Zhejiang Province, valued at $1.3 million and $3.3 million respectively; the Phase II Project for the Shenzhen Residence Card Information Management System, valued at $7.0 million; the Police Geographic Information System ("PGIS") for the Kashgar City Police Bureau in Xinjiang Province, valued at $1.0 million; and the Logistics Intelligent Surveillance Information System ("LISI System") for the Shenzhen International Airport, valued at $2.1 million -- Achievement of an estimated $21.49 million in backlog contracts, consisting of $14.61 million related to contracts that were incomplete as of September 30, 2008, and $6.88 million related to newly signed, but not yet implemented contracts -- Inclusion in the Russell 3000, Russell Microcap and Russell Global Indexes -- Promoted key personnel to the management team -- Entered into a new vertical, the Digital Hospital industry, by entering into a Share Purchase Agreement to acquire 100% of the equity of Shenzhen Zhongtian Technology Development Co. Ltd. -- Awarded first contract in Shenzhen Digital Hospital market, valued at $2.2 million Third Quarter 2008 ResultsOn a non-GAAP basis*:
Revenue in the third quarter increased to
Gross profit in the third quarter of 2008 increased to
Administrative expenses increased to
Research and development expenses for the third quarter of 2008 increased
to
Selling expenses for the quarter ended September 30, 2008 increased to
Income from operations for the third quarter of 2008, increased to
The Company's subsidiaries, IST, ISS and Bocom Technology, and its VIE,
iASPEC, are subject to EIT at a rate of 18% of assessable profits in 2008.
Geo, iASPEC's newly acquired subsidiary, is subject to EIT at a rate of 15% of
assessable profits as a High-Tech Enterprise. However, after offsetting
accumulated losses from prior years, Geo had no assessable profit subject to
EIT for the three months ended September 30, 2008 . 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 EIT followed by a 50%
tax exemption for the next three years. Income tax expense for the three
months ended September 30, 2008 was
Net income increased 129.3% to
On a non-GAAP basis*:
For the first nine months of 2008, revenue increased to
Financial Condition
As of September 30, 2008 , the Company had
Business Outlook
Management expects that the acquisitions of ISS, Bocom Technology, Geo and Zhongtian Technology will also accelerate the Company's geographical 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 research and development capabilities and outstanding contract win ratio, to seize contract opportunities nationwide during Phase II of China's "Golden Shield Project".
Management expects that the Company will continue to see strength in its PGIS product line due to its dominant national market position, its geographical expansion to new regions and additional follow-on opportunities in connection with product line extensions. The Company's success in winning follow-on orders for Intelligent Border Control products should serve as a live demonstration model for other port cities in China and also in the civil- use sector. Similarly, management believes that the Company's recent win of the Phase II Shenzhen Residence Card Management project will serve as a model for large-scale rollouts, positioning the Company for other follow-on opportunities, should the residence card program be extended to other cities in China .
Through the acquisition of Zhongtian Technology, the Company should benefit as it enters the largely under-penetrated digital hospital industry in China and expands into another secular growth vertical. Zhongtian Technology solidifies the Company's status as a leader in the development of robust, mission critical information systems infrastructure, which should enable it to successfully perform and maintain contracts, such as, the recently won contract to construct the digital hospital and medical information systems for three Shenzhen city hospitals. Additionally, Zhongtian Technology's Medical Case Statistics Software can also be used to provide public health authorities with an integrated command and decision system for public health and disease control. The software would provide city governments with an additional layer of security through real-time disease and control statistical information.
While the global economic slowdown has also impacted China , the central government has pledged to increase infrastructure spending in order to boost domestic demand. Shenzhen City will begin building infrastructure related projects for the 2011 World University Olympic Games. In addition, the central government's desire for a harmonious society remains. CIST's products match public infrastructure needs, enhance security efforts by improving emergency response for police, fire and ambulance services, and are generally essential to a city's continued growth and prosperity. Therefore, management expects that the current infrastructure and emergency response coordination initiatives should experience minimal impact from the current economic turmoil.
"The short-term volatility in the financial markets and the increasing evidence that we are in a recessionary environment are naturally a concern for us," said Mr. Lin. "While China is also facing some of these repercussions, we believe we can maintain a healthy growth rate through 2009 due to the end markets that we serve."
Fiscal Year 2008 Guidance
The company expects to meet or exceed its previous guidance for 2008, with
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 nine months ended September 30, 2008 , reflect the results of operations of CIST, its subsidiaries and its VIE, while the financial data for the nine months ended September 30, 2007 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.
Conference Call Information
Management will conduct a conference call at 8:30 am EST on Thursday, November 13, 2008 to discuss its third quarter 2008 results. To participate in the live conference call, please dial the call-in number five to ten minutes prior to the scheduled conference call time:
Date: Thursday, November 13, 2008 Time: 8:30 am EST Conference Call-In #: 888-419-5570 International Callers: 617-896-9871 Conference Passcode #: 704 394 11 Webcast Link: http://www.visualwebcaster.com/event.asp?id=53266&pw=CIST For those unable to participate in the call at this time, please call: Replay Call-In #: 888-286-8010 International Callers: 617-801-6888 Replay Passcode: 16067019 Replay Expires on: Thursday, November 20, 2008About China Information Security Technology, Inc.
Through its wholly-owned Chinese subsidiary, China Information Security Technology, Inc. ("CIST" or the "Company") headquartered in Shenzhen, China ("PRC"), is a leading application software developer, systems integrator and full-service Geographic Information Systems ("GIS") solutions provider to the public security and civil-use markets in China , aiming to use information technology to improve public safety and information management. Its main business lines range from digital public security, to intelligent border control, and Geographic Information Systems (GIS). Its commitment to leading- edge technology and quality assurance has won the Company numerous government and enterprise contracts throughout China . To learn more about the Company, please visit the corporate website at http://www.chinacpby.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 significance of the Company's contract wins, its acquisition of Information Security Software, Shenzhen Bocom Multimedia Display Technology Co., Ltd., Wuda Geoinformatics Co., Ltd. and Shenzhen Zhongtian Technology Development Company Ltd. and its expansion into other sectors and other regions in China ; 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 (UNAUDITED) THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 Three Months Three Months Ended Ended September 30, September 30, 2008 2007 Revenue - third parties 27,163,062 10,158,286 Revenue - related party 14,592 TOTAL REVENUE 27,177,654 10,158,286 Cost of Revenue (14,720,619) (5,085,459) GROSS PROFIT 12,457,035 5,072,827 Administrative expenses (2,349,130) (801,195) Research and development expenses (748,853) (261,475) Selling expenses (645,285) (101,228) INCOME FROM OPERATIONS 8,713,767 3,908,929 Other income, net 265,295 (127,143) Interest income 133,475 15,880 Interest expense (75,121) -- Minority interest (624,958) (45,000) Income tax expense (378,183) (30,288) NET INCOME 8,034,275 3,722,378 WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING Basic 46,066,067 39,418,720 Diluted 46,355,078 39,835,665 EARNINGS PER SHARE Basic 0.17 0.09 Diluted 0.17 0.09 CHINA INFORMATION SECURITY TECHNOLOGY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2008 AND DECEMBER 31, 2007 SEPTEMBER 30, DECEMBER 31, 2008 2007 (UNAUDITED) ASSETS CURRENT ASSETS Cash and cash equivalents $21,573,938 $19,755,182 Short-term investments 5,835,072 14,966,752 Accounts receivable, net 39,907,348 11,721,306 Advances to suppliers 3,232,041 1,791,440 Amount due from related parties 87,526 -- Inventories 12,852,838 4,779,930 Other receivables 2,627,523 974,475 TOTAL CURRENT ASSETS 86,116,286 53,989,085 Deposits for business acquisitions 1,458,106 8,989,022 Long-term investment 2,990,475 -- Property and equipment 22,020,618 13,826,896 Deposit for purchase of software 5,011,510 -- Intangible assets 10,914,264 4,894,397 Goodwill 21,075,626 7,154,395 TOTAL ASSETS $149,586,885 $88,853,795 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Short-term loans $5,877,323 -- Accounts payable 17,542,886 $3,079,304 Advances payable 916,182 394,383 Tax payable 1,395,708 326,026 Amount due to related parties 578,258 -- Other payables and accrued expenses 1,734,940 987,483 TOTAL CURRENT LIABILITIES 28,045,297 4,787,196 MINORITY INTEREST 14,616,261 10,060,657 STOCKHOLDERS' EQUITY Shares issued and outstanding (September 30, 2008: 47,262,404 and December 31, 2007: 45,639,396) 207,121 190,891 Additional paid-in capital 67,409,619 57,421,150 Reserve 1,755,552 1,755,552 Retained earnings 31,834,147 13,170,549 Accumulated other comprehensive income 5,718,888 1,467,800 TOTAL STOCKHOLDERS' EQUITY 106,925,327 74,005,942 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 149,586,885 $88,853,795 CHINA INFORMATION SECURITY TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 NINE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, 2008 2007 OPERATING ACTIVITIES Net income $18,663,598 $10,420,382 Adjustments to reconcile net income to net cash provided by (used in) operations: Depreciation 3,457,334 683,941 Amortization of intangible assets 811,553 47,501 Stock-based compensation 1,004,699 -- Minority interest 1,034,864 45,000 Gain on disposition of property and equipment (31,840) -- Changes in operating assets and liabilities, net of effects of business acquisitions (Increase)decrease in inventories (6,131,919) 901,254 Increase in accounts receivables (22,453,975) (3,811,031) (Increase)decrease in other receivables, advances to suppliers and prepaid expenses (1,308,566) 209,702 (Increase)decrease in amount due from related parties (86,811) 1,308,103 Increase(decrease) in amount due to related parties 33,543 (11,623,250) Increase in accounts payable 11,157,416 96,615 Decrease in advances payable (2,329,126) -- (Decrease)increase in other payables and accrued expenses (555,553) 185,782 Increase(decrease) in tax payable 712,348 (44,038) Net cash provided by (used in) operating activities 3,977,565 (1,580,037) INVESTING ACTIVITIES Net cash acquired from VIE acquisition -- 4,731,140 Deposit for business acquisition of Zhongtian (1,458,106) (1,331,558) Cash acquired in Bocom acquisition 713,793 -- Cash acquired in Geo acquisition 2,443,677 -- Consideration paid for business acquisition of Geo (6,998,811) -- Short-term investments (5,655,605) -- Proceeds from sale of property and equipment 1,146,671 -- Purchase of property and equipment (7,985,935) (6,010,693) Capitalized and purchased software development costs (1,751) -- Proceeds from sale of marketable securities 14,966,752 -- Dividends received 36,507 -- Deposit for purchase of software (4,751,591) -- Net cash used in investing activities (7,544,399) (2,611,111) FINANCING ACTIVITIES Increase in restricted cash -- (584,668) Receipt of advances payable -- (200,000) Cash received from private placement of common stock -- 13,311,211 Borrowings under short-term loan 5,875,549 -- Repayment of bank loan (1,086,312) -- Net cash provided by financing activities 4,789,237 12,526,543 NET INCREASE IN CASH AND CASH EQUIVALENTS 1,222,403 8,335,395 EFFECT OF EXCHANGE RATE CHANGES ON CASH 596,353 331,371 CASH AND CASH EQUIVALENTS, BEGINNING 19,755,182 172,316 CASH AND CASH EQUIVALENTS, ENDING $21,573,938 $8,839,082 Revenues by segment for the three and nine months ended September 30, 2008 and 2007 are as follows: Three Three Nine Nine Months Months Months Months Ended Ended Ended Ended September September September September 30, 2008 30, 2007 30, 2008 30, 2007 Revenues (1) Information Security Segment $8,055,059 $2,285,473 $21,635,343 $5,248,952 GIS Segment 11,050,738 7,872,813 27,984,314 13,349,069 Product Sales Segment 8,071,857 -- 16,673,166 -- $27,177,654 $10,158,286 $66,292,823 $18,598,021 Percentage to revenue Information Security Segment 30% 22% 33% 28% GIS Segment 40% 78% 42% 72% Product Sales Segment 30% -- 25% -- (1) Revenues by operating segments exclude intercompany transactions. 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] Web site: http://www.chinacpby.com Investor Relations Contact: Mr. Crocker Coulson President CCG Investor Relations Tel: +1-646-213-1915 (NY office) Email: [email protected] Website: http://www.ccgir.comSOURCE China Information Security Technology, Inc.
