SHENZHEN CITY, China, May 18 /Xinhua-PRNewswire-FirstCall/ -- China Public Security Technology, Inc., (BULLETIN BOARD: CPBY.OB) ("China Public Security" or "the Company"), a leading provider of large-scale high-tech public security information technology and Geographic Information Systems ("GIS") software services in China, today announced record financial results for the first quarter ended March 31, 2007.
First Quarter 2007 Highlights (Non-GAAP measures)
-- Total revenues increased 202% year over year to $5.1 million
-- Gross profit increased 157% year over year to $3.2 million,
representing 61% gross margin
-- Operating income rose 154% to $2.5 million, with operating margin
reaching 48%
-- Net income grew 157% to $2.1 million, or $0.06 per basic and diluted
share
First Quarter 2007 Results
"During the first quarter China Public Security delivered strong growth of both our top and bottom lines, as we continued to win important new contracts in the Shenzhen public security sector and expand the breadth of our product offerings to our Intelligent Border Control Platform," said Mr. Jianghuai Lin, the Chief Executive Officer of China Public Security. "We expect to sustain our strong momentum over the next several quarters as we continue to win additional contracts for the follow-on phases of existing projects with our current clients, as well as through the expansion of our footprint to other cities and provinces in China."
China Public Security Technology provides a broad portfolio of fully integrated solutions and services across three main business segments: Public Security Information Technology; GIS and e-Government; and Software Sales and Maintenance. There are three major products and services within the Public Security Information Technology segment: (1) the First Responder Coordination Platform allows the integration of police, fire and traffic control emergency systems and enables comprehensive and rapid decision-making and response which enhances public safety and improves the efficiency of service delivery; (2) the Intelligent Border Control System combines biometric information such as fingerprints and facial features with infrared and license plate recognition technologies to enable the automation of border control checkpoints for faster and more accurate processing of passengers; and (3) the Intelligent Security Surveillance System adopts technologies such as biometric recognition, proactive detection and intelligent video analysis, and integrates this with facial recognition, GIS, data storage and analysis, to manage and control an entire surveillance system with a consolidated software platform. In addition, our GIS platforms, which include the police-use GIS (PGIS) and civil-use GIS, may be extended to different uses. PGIS can be used in specialized mapping services, geographic positioning services, messaging services, automated police patrol area monitoring, patrol history tracking and work hour management. CGIS can be used in site selection, market analysis, mobile workforce and asset management, as well for location-based services in sectors such as Telecommunications, Insurance and Logistics. Moreover, the Company owns 16 exclusive rights to registered and copyrighted software, some of which may be applied in other areas within in the e-Government space. The Company has inherited software sales, distribution and support service businesses from Shenzhen iASPEC Software Engineering Company Limited ("iASPEC"), the Company's exclusive contracting partner,.
In the first quarter of 2007, China Public Security's revenues grew 201% to $3.4 million, compared to $1.7 million in the first quarter of 2006. During the quarter the Company signed several new contracts and saw the value of its contracts rise as a result of its successful track record of execution and increased market recognition for the quality of its products and services.
Pro-forma non-GAAP, gross profit in the first quarter 2007 grew 157% to $3.2 million, representing gross margins of 61%, compared to $1.2 million and 72%, respectively, in the first quarter of 2006. During the first quarter of 2007, the Company signed several contracts related to its Intelligence Surveillance product offering. This new product line involves the use of advanced facial recognition and video technologies for city-wide surveillance applications and was developed in 2006 because of management's vision of potential growth in this area. Costs for such kind of contracts are higher than pure system integration because they involve installation work. The higher cost incurred leads directly to a drop in gross profit in this quarter.
Administrative expenses increased to $481,784 in the quarter from $173,413 in the comparable period last year. The $308,371 or 177% increase in administrative expenses is mainly attributable to more staff being hired and the associated increase in other administrative charges due to the expansion of our operations.
Selling expenses for the fiscal quarters ended March 31, 2007 and 2006 were $127,776 and $67,629, respectively. The increase of $60,147 or 48% is due to the expansion in marketing and sales functions during the period.
Income from operations grew 154% to $2.5 million in the first quarter 2007, representing operating margins of 83%, compared with $1.0 million and 58% in the same period of 2006. The improvement in income from operations was a result of the strong increase in revenues. The value and scale of the contracts signed and recognized as revenue are significantly higher than in the comparable period last year as a result of the Company's increased reputation in the public security industry and in the government sector.
Income taxes increased to $377,444 from $157,546 in the same period 2006. Public Security Technology, which was subject to a tax rate of 15% for the first quarter in 2007 and 2006, is entitled to a two-year exemption from the corporate tax followed by a 12.5% reduced tax rate for the subsequent three years. Currently, the Company is applying for the tax exemption starting from January 2007.
Net income grew 157% to $2.1 million in the first quarter of 2007, or $0.06 per basic and diluted share, compared to $830,979 in the first quarter of 2006.
Financial Condition
On March 31, 2006, China Public Security had $4.8 million in cash, and working capital of $9.6 million, and shareholders' equity totaled $17.1 million.
On February 6, 2007, China Public Security completed a private placement of 7,868,422 shares of its common stock to two accredited investors. As a result of the private placement the Company raised $14.95 million in gross proceeds, resulting in $13.31 million net proceeds to the Company after the deduction of offering expenses in the amount of $1.64 million.
First Quarter 2007 Operational Highlights
During the quarter iASPEC was awarded a $3.8 million contract by the Shantou Special Economic Zone for building its First Responder Coordination System, with 100% of the value of the contract subcontracted to Public Security Technology (PRC) Co., Ltd. ("Public Security"), China Public Security's wholly owned operating subsidiary. China Public Security's First Responder Coordination Platform is a software program which integrates the contact numbers for general police, fire, traffic and other related government organizations into one contact number and enables these agencies to consolidate and improve their public emergency response. The project is expected to be completed by the end of December 2007.
In addition, iASPEC, was awarded a contract by the Sha Tau Kok Border Control Station in Shenzhen, P.R.C., for its Intelligent Border Control System, with 100% of the value of the contract subcontracted to Public Security. The Intelligent Border Control System stores biometric information such as fingerprints and facial features from passengers in a database, and integrates it with infrared and license plate recognition technologies to enable the automation of border control checkpoints for faster and more accurate processing of passengers. Shenzhen has one of the most important borders in China, and in order to manage the rapidly growing volume of passengers and cross boarder vehicle traffic, the Immigration Border Control Station of Shenzhen City has decided to implement China Public Security's Intelligent Border Control solution.
During the first quarter China Public Security also announced the appointment of Mr. William Ho as its Chief Financial Officer, effective on March 30, 2007. In this capacity, Mr. Ho will report directly to Mr. Jianghuai Lin and will be in charge of the company's overall financial planning and control, financial reporting and investor relations activities.
Outlook for 2007
"The value of China's public security information technology space is estimated at $4.5 billion and analysts expect it to grow at 19% for the next five years. Close to 650 cities across China are expected to initiate the deployment of their first responder emergency systems in the coming years," said Mr. Jianghuai Lin. "Going forward we see significant opportunities to deploy our GIS solution capabilities in major urban areas in regions of China other than in Guangdong Province, as well as in the private sector, where we are currently working with China Unicom and China Telecom to develop our GIS solutions for private sector applications in logistics, asset management and location based services, among others."
"In addition, we are very pleased with the success of our Intelligent Border Control System which we have implemented at the new Shenzhen Bay and Futian borders which now serve as examples for 100 Chinese border control locations," continued Mr. Jianghuai Lin. "As a pioneer in border control automation, China Public Security's proven Intelligent Border Control System puts the Company in a good position to win additional border control automation contracts in other regions of China."
For 2007, management estimates revenue of $27 million and net profits of $12.5 million. For 2008, revenue is estimated at $45 million with net profits expected to reach $21 million. China Public Security's management has pledged 7.89 million shares of its own stock into an escrow account as a "make good" provision towards achieving those net profit targets in connection with the recently completed private placement.
Business Turnkey Agreement
On October 9, 2006, Public Security entered into an exclusive Business Turnkey Agreement with iASPEC, pursuant to which Public Security is to perform all services necessary for iASPEC to fulfill its customer contracts in exchange for 100% or 90% of the revenues from such contracts, depending on the contract. In addition, iASPEC granted Public Security an exclusive, royalty- free, transferable, worldwide perpetual license to use and install iASPEC's proprietary software. As a result of the Turnkey Agreement, Public Security succeeded to all of the operations of iASPEC.
Non-GAAP Financial Measures
The Company uses non-GAAP financial measures in this press release due related 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 operations in the period from January 17, 2006 through March 31, 2006. Accordingly the accompanying financial statements for the period from January 1, 2006 through March 31, 2006 (the "Predecessor Period") reflect the results of operations of iASPEC. The accompanying financial data for the period from January 1, 2007 through March 31, 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 aforementioned 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 indirect wholly-owned Chinese subsidiary, China Public Security Technology, Inc. is a leading provider of large-scale high-tech public security information technology and Geographic Information System (GIS) software services in China. The Company provides a broad portfolio of fully integrated products and services, including system design and database management for Police-Use GIS, Civil-Use GIS, e-Government solutions, as well as other related products and services. The Company currently has an exclusive license of 16 patents in China, through its exclusive business turnkey agreement with Shenzhen iASPEC Software Engineering Company Limited (iASPEC). Under this agreement the Company acts as iASPEC's exclusive subcontractor to key customers, including the Shenzhen City Public Security Bureau, China Unicom Shenzhen Division, the Shenzhen Urban Planning Bureau and the Shenzhen Fire Department. 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 non-GAAP financial measures. For a description of these non-GAAP financial measures, including management's reason for using such measure, 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 contains certain statements that may include "forward looking statements". All statements other than statements of historical fact included herein are "forward-looking statements". 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. You 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.
Company Contact: Investor Relations Contact:
Mr. Michael Lin Mr. Crocker Coulson
Vice President, Investor Relations President
China Public Securities Technology, Inc. CCG Elite Investor Relations
Tel: +1-949-743-0868 Tel: +1-646-213-1915 (NY office)
Email:
The statements of operations for the First Quarter ended March 31, 2006 reflect operations of the Predecessor Company.
PREDECESSOR SUCCESSOR REALLOCATION NON-GAAP
THREE MONTHS OF THREE OF THREE MONTHS
ENDED MONTHS RELATED PARTY ENDED
MARCH 31 ENDED REVENUE MARCH 31
2006 MARCH 31 2007
2007
REVENUE -
THIRD PARTIES $1,705,507 $1,213,318 3,932,251 $5,145,569
REVENUE -
RELATED PARTY - 1,818,823 (1,818,823) -
TOTAL REVENUES 1,705,507 3,032,141 5,145,569
COST OF REVENUES (475,940) (210,712) (1,771,527) (1,982,239)
GROSS PROFIT 1,229,567 2,821,429 3,163,330
ADMINISTRATIVE
EXPENSES (173,413) (198,990) (282,794) (481,784)
ANNUAL FEE TO
iASPEC - (45,000) (45,000)
SELLING EXPENSES (67,629) (68,669) (59,107) (127,776)
INCOME FROM
OPERATIONS 988,525 2,508,770 2,508,770
OTHER INCOME - 7,525 7,525
INCOME BEFORE TAX 988,525 2,516,295 2,516,295
INCOME TAXES (157,546) (377,444) (377,444)
NET INCOME 830,979 2,138,851 2,138,851
FOREIGN CURRENCY
TRANSLATION
ADJUSTMENT 141,573 11,318 11,318
COMPREHENSIVE
INCOME $972,552 $2,150,169 $2,150,169
WEIGHTED AVERAGE
NUMBER OF SHARES
BASIC N/A 36,446,205 N/A
DILUTED N/A 36,760,592 N/A
EARNINGS PER SHARE
BASIC N/A $0.06 N/A
DILUTED N/A $0.06 N/A
NOTE:
The above Statement of Operations set forth the key components of China Public Security results of operations for the periods indicated for the first
stquarter of 2007. For the first quarter ended March 31 2006, revenues were generated from iASPEC, which for accounting purposes is treated as China Public Security Predecessor Company. For purpose of analysis in this press release the results of the Successor Period from January 1, 2007 through March 31, 2007 are compared to the Predecessor Period from January 1 through March 31, 2006.
CHINA PUBLIC SECURITY TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
DECEMBER 31 MARCH 31
2006 2007
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $172,316 $4,794,688
Accounts receivable - 247,849
Prepaid expenses - related party - 1,500,000
Amount due from a director - 251,365
Related party receivables 1,410,471 3,435,112
Advances receivable 332,479 -
Other receivables and deposits 243,948 8,695
TOTAL CURRENT ASSETS 2,159,214 10,237,709
NON-CURRENT ASSETS
Property and equipment 49,826 3,665,346
Prepaid expenses - related party - 3,886,997
TOTAL NON-CURRENT ASSETS 49,826 7,552,343
TOTAL ASSETS $2,209,040 $17,790,052
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITES
Advances payable $200,000 $ -
Accrued expenses 66,832 42,858
Tax payable 215,255 558,863
Amounts due to a director 82,304 82,304
TOTAL CURRENT LIABILTIES 564,391 684,025
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 159,465 352,556
Retained earnings 1,435,184 3,381,942
Translation reserve - 11,318
TOTAL STOCKHOLDERS' EQUITY 1,644,649 17,107,027
TOTAL LIABILTIES AND STOCKHOLDERS' EQUITY $2,209,040 $17,791,052
CHINA PUBLIC SECURITY TECHNOLOGY, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
The statements of cash flows for the quarter ended March 31 2006 reflect operations of the Predecessor Company.
PREDECESSOR SUCCESSOR
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
2006 2007
OPERATING ACTIVITIES
Net income $830,979 $2,138,851
Adjustments to reconcile net income
to net cash providing from operations
Depreciation 92,146 31,657
Amortization of intangible assets 15,700 -
Changes in operating assets and liabilties
Decrease in inventories 75,571 -
Decrease (Increase) in trade and other
receivables 679,818 (12,596)
Increase in related parties receivables (238,126) (1,774,640)
Increase in prepaid expenses
- related party - (5,386,997)
Increase in trade payables 21,603 -
Decrease in accrued expenses (140,933) (23,974)
Increase (decrease) in tax payable 150,785 343,608
Net cash provided by operating activities 1,487,543 (4,684,091)
INVESTING ACTIVITIES
Advances to third parties (424,969) 332,479
Amount due from a director - (251,365)
Advances to related parties - (250,001)
Purchase of plant and equipment (1,073) (3,646,823)
Capitalised software development cost (102,125) -
Net cash used in investing activities (528,167) (3,815,710)
FINANCING ACTIVITIES
Advances payable - (200,000)
Cash from private placement of common stock - 13,311,211
Net cash provided by financing activities - 13,111,211
NET INCREASE IN CASH AND CASH EQUIVALENTS 959,376 4,611,410
EFFECT OF EXCHANGE RATE CHANGE ON CASH 1,663 10,962
CASH AND CASH EQUIVALENTS, BEGINNNING 57,758 172,316
CASH AND CASH EQUIVALENTS, ENDING $1,018,797 $4,794,688
Supplemental disclosure of cash flow
information
Income tax paid $- $ 33,836
