China Security & Surveillance Technology, Inc. Reports First-Quarter 2010 Financial Results / Highlighted by Robust Revenue and Earnings Growth, and Strong Momentum in the Government Sector

SHENZHEN, China, April 26 /PRNewswire-Asia/ --

-- First-quarter revenues increased 24.7% to $120.19 million versus the first quarter of 2009, driven by the rapid growth of demand for CSST's products and services in China -- First-quarter net income increased 64.0% to $3.28 million and diluted EPS increased 25.0% to $0.05 versus the first quarter of 2009

Note: CSST's first-quarter 2010 earnings conference call will be broadcast live via the Internet at 8 a.m. ET on Monday, April 26, 2010, at http://irpage.net/csct/index.html .

China Security & Surveillance Technology, Inc. ("CSST" or the "Company") (NYSE: CSR; Nasdaq Dubai: CSR), a leading integrated security and surveillance solution provider in the P.R.C., today reported its first-quarter 2010 results highlighted by the rapid growth of demand for CSST's products and services in China.

CSST's first-quarter revenues totaled $120.19 million, net income was $3.28 million and diluted EPS was $0.05.

"We delivered a strong first quarter. Momentum in the installation business continues, and execution across the Company is solid," said Mr. Guoshen Tu, Chairman and Chief Executive Officer of CSST. "I am particularly pleased with our robust growth in the government sector, driven by the safe city and e-city projects.

Government expectations for security and surveillance products are on the rise. The opportunity for growth is substantial. CSST is well positioned to benefit from the growth of security and surveillance industry in China."

First-Quarter Financial Results

For the quarter ended March 31, 2010, CSST's revenues totaled $120.19 million versus $96.42 million in the first quarter of last year, driven by the strong growth of demand for CSST's products and services in China. Government customers accounted for 55% of total revenues, while corporate customers accounted for 45%. Organic revenues for the first quarter of 2010 totaled $119.37 million, or 99.3% of total revenues, compared with $87.10 million or 90.3% in the first quarter of 2009. Non-organic revenues totaled $0.82 million or 0.7% of total revenues

Gross profit totaled $28.98 million, up 15.8% from $25.03 million in the first quarter of last year. Gross margin was 24.1% compared with 26.0% for the same period in 2009. The slight drop in gross margin was due to the pricing pressure in the corporate sector related to our efforts to maintain market share and expand customer base in China.

"During the first quarter, we continued to experience pricing pressure from corporate customers. There were also quite a number of smaller-scale projects with a relatively lower margin. We believe that it is still vital for us to take on these projects to expand our market share, strengthen our leadership position, and broaden our customer base for ongoing security services," added Mr. Tu.

Correspondingly, income from operations was $6.97 million versus $7.98 million for the first quarter of last year. Operating margin was 5.8%, compared with 8.3% in the first quarter of 2009, as a result of a lower gross margin and higher general and administrative expenses, including non-cash employee compensation.

Net income totaled $3.28 million, up 64.0% from $2.00 million in the first quarter of 2009; and diluted earnings per share totaled $0.05 versus $0.04 last year. The increase was primarily due to the decrease of non-cash expenses related to the redemption accretion on our convertible notes as discussed below.

CSST recognized a total of non-cash items of $11.56 million, down from $12.66 million from the same period in 2009. The two main contributors to the Company's non-cash expenses included the depreciation and amortization of $3.23 million; and non-cash employee compensation expense of $8.33 million for the three months ended March 31, 2010. Expense for redemption accretion on convertible notes in this quarter was eliminated, due to the fact that we retired and restructured the $110 million principal amount of convertible notes into two new zero coupon interest notes on September 2, 2009.

As of March 31, 2010, CSST's accounts receivable was $300.25 million, up from $251.60 million at December 31, 2009. The increase in accounts receivable was due to the fact that a majority of the first quarter projects were completed and respective revenues were recognized towards the end of the quarter, as a result of late Chinese New Year holiday. Customer payments were delayed into the second quarter of 2010, which has caused the increase of accounts receivable.

"We will continue to monitor the accounts receivable closely. Our factoring facilities with local banks will help us to convert accounts receivable into cash as we continue to ramp up large government projects," commented Mr. Tu.

As of March 31, 2010, CSST's total backlog was $199.72 million, up from $86.87 million and $192.85 million at March 31, 2009 and December 31, 2009 respectively. The increase of backlog was attributable to growth in government contracts signed in the past years. CSST expects the majority of the total backlog to be realized within the next few quarters.

As of March 31, 2010, CSST's cash balance was $142.29 million, compared with $154.48 million at the end of 2009. CSST's net cash used in operating activities was $60.88 million for the first quarter of 2010, as compared with $21.44 million net cash provided by operating activities for the same period in 2009. The decrease of net cash from operating activities was mainly due to increase in accounts receivable and advance to suppliers. Net cash used in investing activities for the first quarter of 2010 was $7.66 million, which is an increase of $4.85 million from net cash used in investing activities of $2.81 million in the same period of 2009. Such increase was primarily due to increased deposits for acquisitions of subsidiaries in the first quarter of 2010. Net cash provided by financing activities for the first quarter of 2010 was $56.34 million, as compared with $5.95 million net cash provided by financing activities for the same period in 2009. Such increase was mainly attributable to the additional bank loans raised in the first quarter of 2010.

Operational Highlights

CSST's first-quarter growth was driven by the robust growth in the installation segment. Such momentum continued in the first quarter of 2010 and CSST secured several significant government agreements, notably in e-city projects. These agreements were key to propel the future growth of the Company. Highlights of key government agreements in the first quarter of 2010 included:

-- Phase one framework agreement for the Tongling City E-city development, with a project valued at approximately RMB 77 million (approximately US$ 11.3 million). -- Phase one framework agreement for a major digitization project for the Dantu area of Zhenjiang City. As part of the Zhenjiang E-city development, the phase one project is valued at approximately RMB 250 million (approximately US$ 36.6 million). -- Framework agreement for the Changchun City E-city development, with the total project valued at approximately RMB 1.5 billion (US$ 219.4 million). -- E-city contract with Baotou City for RMB560 million (approximately US$ 82.0 million): The E-city solution will cover a number of areas, including city safety network, traffic management, public information management, emergency response and energy saving and emission reduction.

Revenues from the above projects are expected to be recognized within the next two years. Additionally, CSST continues to maintain working relationships with local banks to provide us with revolving financing facilities in order to handle working capital needs.

Financial Outlook

"Mainland's demand for security and surveillance products and services continues to be strong, we are keenly focused on cost improvement as well as ongoing leadership and expansion in key areas expected to drive future growth. We will move forward in enhancing our capabilities in the security service business and continue to look at sizable government contracts," said Mr. Tu.

"Our confidence flows from the belief that we offer the best products and services in the industry. We are confident and ready to capitalize on our financial strength, our market leadership and our disciplined cost control strategies. These are CSST's strengths, and the critical drivers that will lead our growth in 2010."

About China Security & Surveillance Technology, Inc.

Based in Shenzhen, China, CSST designs, manufactures, sells, installs, services and monitors electronic surveillance and safety products and solutions, including related software, in China. Its customers are mainly comprised of government, commercial, industrial and education entities. CSST has built a diversified customer base through its extensive sales and service network that includes branch offices and distribution points throughout China. To learn more about the Company visit http://www.csst.com/ .

Safe Harbor Statement

This press release may include certain statements that are not descriptions of historical facts, but are forward-looking statements. Such statements include, among others, those concerning our expected financial performance and strategic and operational plans, our future operating results, our expectations regarding the market for surveillance and safety products, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. Forward-looking statements can be identified by the use of forward-looking terminology such as 'will,' 'believes,' 'expects' or similar expressions. Such information is based upon expectations of our management that were reasonable when made but may prove to be incorrect. All of such assumptions are inherently subject to uncertainties and contingencies beyond our control and based upon premises with respect to future business decisions, which are subject to change. We do not undertake to update the forward-looking statements contained in this press release. For a description of the risks and uncertainties that may cause actual results to differ from the forward-looking statements contained in this press release, see our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission ('SEC'), and our subsequent SEC filings. Copies of filings made with the SEC are available through the SEC's electronic data gathering analysis retrieval system at http://www.sec.gov/

For more information, please contact: Company Contact: Terence Yap, Chief Financial Officer and Vice Chairman China Security & Surveillance Technology, Inc. Tel: [phone] Email: [e-mail] Investor and Media Contact: Patrick Yu, Fleishman-Hillard Hong Kong Tel: [phone] Email: [e-mail] CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2010 and 2009 Expressed in thousands of U.S. dollars (Except for share and per share amounts) Three Months Ended March 31 2010 2009 (Unaudited) (Unaudited) Revenues $120,190 $96,416 Cost of goods sold (including depreciation and amortization for the three months ended March 31, 2010 and 2009 of $254 and $241, respectively) 91,211 71,390 Gross profit 28,979 25,026 Selling and marketing 2,714 2,714 General and administrative 16,322 11,507 (including non-cash employee compensation for the three months ended March 31, 2010 and 2009 of $8,326 and $4,218, respectively) Depreciation and amortization 2,980 2,822 Income from operations 6,963 7,983 Interest income 78 29 Interest expense (2,295) (6,037) Other income, net 246 229 Income before income taxes 4,992 2,204 Income taxes (1,717) (202) Net income 3,275 2,002 Add: net loss attributable to the noncontrolling interest 2 11 Net income attributable to the Company 3,277 2,013 Foreign currency translation gain 124 54 Comprehensive income attributable to the Company 3,401 2,067 Comprehensive loss attributable to the noncontrolling interest (2) (11) Comprehensive Income $3,399 $2,056 NET INCOME PER SHARE ATTRIBUTABLE TO THE COMPANY'S COMMON SHAREHOLDERS BASIC $0.05 $0.04 DILUTED $0.05 $0.04 WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING BASIC 63,961,000 45,041,000 DILUTED 68,369,000 49,362,000 CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2010 (UNAUDITED) AND DECEMBER 31, 2009 Expressed in thousands of U.S. dollars (Except for share and per share amounts) ASSETS March 31, 2010 December 31, 2009 Cash and cash equivalents $142,293 $154,483 Accounts receivable, net 300,247 251,604 Inventories, net 73,469 70,141 Prepayments and deposits 4,755 4,706 Advances to suppliers 54,044 39,399 Other receivables 30,326 26,692 Deferred tax assets - current portion 10 13 Total current assets 605,144 547,038 Deposits paid for acquisition of subsidiaries, properties and intangible assets 13,726 7,199 Plant and equipment, net 74,856 75,447 Land use rights, net 7,716 7,733 Intangible assets 53,242 54,677 Goodwill 79,511 79,511 Deferred financing cost 1,737 1,953 TOTAL ASSETS $835,932 $773,558 LIABILITIES AND EQUITY March 31, 2010 December 31, 2009 CURRENT LIABILITIES Notes payable $134,040 $57,116 Obligation under product financing arrangements - short term 5,308 5,184 Guaranteed senior unsecured notes payable - short term 36,127 35,701 Accounts and bills payable 65,924 68,817 Accrued expenses 15,836 26,762 Advances from customers 33,186 27,503 Taxes payable 16,468 14,835 Payable for acquisition of businesses, properties and land use rights 5,105 5,105 Deferred income 2,028 1,868 Total current liabilities 314,022 242,891 LONG TERM LIABILITIES Obligation under product financing arrangements - long term 5,168 6,541 Guaranteed senior unsecured notes payable - long term 25,192 43,988 Net deferred tax liabilities 460 773 Total liabilities 344,842 294,193 EQUITY Preferred stock, $0.0001 par value; 10,000,000 shares authorized, 0 shares issued and outstanding Common stock, $0.0001 par 7 7 value; 290,000,000 shares authorized 68,494,270 (March 31, 2010) and 67,866,730 (December 31, 2009) shares issued and outstanding Additional paid-in capital 293,351 285,025 Retained earnings 169,259 165,982 Statutory surplus reserve fund 804 804 Accumulated other comprehensive income 27,689 27,565 Total equity of the Company 491,110 479,383 Noncontrolling interest (20) (18) Total equity 491,090 479,365 TOTAL LIABILITIES AND EQUITY $835,932 $773,558 CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES CONDENSED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2010 and 2009 Expressed in thousands of U.S. dollars (Except for share and per share amounts) Three Months Ended March 31 2010 2009 (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $3,275 $2,002 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Provision for doubtful accounts -- 1,396 Depreciation and amortization 3,234 3,063 Amortization of consultancy services -- 11 Amortization of deferred financing cost 217 109 Non-cash employee compensation 8,326 4,218 Debt discount amortization 950 -- Redemption accretion on convertible notes -- 5,375 Deferred taxes (310) 31 Changes in operating assets and liabilities: (Increase) decrease in: Accounts receivable (48,573) 15,342 Other receivables (3,626) 1,739 Inventories (3,308) (9,441) Prepayments and deposits (46) 466 Advances to suppliers (14,634) (21,315) (Decrease) increase in: Accounts payable and accrued expenses (13,846) (2,222) Advances from customers 5,675 23,195 Taxes payable 1,629 (2,350) Deferred income 159 (184) Net cash (used in) provided by operating activities (60,878) 21,435 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to plant and equipment (597) (393) Additions to intangible assets (533) (804) Deposits paid for acquisition of subsidiaries (6,526) -- Payments for business acquisitions -- (1,881) Cash acquired in business acquisitions -- 273 Net cash used in investing activities (7,656) (2,805) CASH FLOWS FROM FINANCING ACTIVITIES: New borrowings, net of issuing cost 109,137 13,166 Repayment of borrowings (32,229) (7,314) New borrowings from obligation under product financing arrangements -- 891 Repayment of obligation under product financing arrangements (1,251) (798) Repayment of guaranteed senior unsecured notes payable (19,320) -- Net cash provided by financing activities 56,337 5,945 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (12,197) 24,575 Effect of exchange rate changes on cash 7 117 Cash and cash equivalents, beginning of period 154,483 47,779 CASH AND CASH EQUIVALENTS, END OF PERIOD $142,293 $72,471

China Security & Surveillance Technology, Inc.

CONTACT: Company Contact: Terence Yap, Chief Financial Officer and Vice
Chairman of China Security & Surveillance Technology, Inc., [phone],
or [e-mail]; Investor and Media Contact: Patrick Yu, Fleishman-Hillard Hong
Kong, [phone], or [e-mail]

Web Site: http://www.csst.com/