Earnings grow 228% to $4.6 million or 12 cents per share
SHENZHEN CITY, China, Aug. 21 /Xinhua-PRNewswire-FirstCall/ -- China Public Security Technology, Inc., (OTC Bulletin Board: CPBY) ("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 second quarter ended June 30, 2007.
Second Quarter 2007 Highlights (Pro-Forma measures)
-- Total revenues increased 200% year over year to $10.5 million;
-- Gross profit rose 143% year over year to $5.1 million, representing 49%
gross margin;
-- Operating income rose 163% to $4.2 million, with operating margin
reaching 40%;
-- Net income grew 228% to $4.6 million, or $0.12 per basic share and
$0.11 per diluted share.
Second Quarter 2007 Results
"Following a strong first quarter, China Public Security delivered exceptional growth in revenues and profits in the second quarter, as we continued to win important new contracts in the public security sector and expand the breadth of our product offerings," Mr. Jiang Huai Lin, CEO of China Public Security said. "In the second quarter, we successfully implemented an Intelligent Border Control System at the Shenzhen Bay Port and Futian Port, and introduced an exciting new solution to deal with identity card management and internal immigration. Our recent wins strengthen our confidence that we will achieve our financial objectives for 2007 and beyond, as we continue to win additional contracts and expand our offerings to other major regions of 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.
On July 1, 2007 PST implemented a new Management Services Agreement with iASPEC Software Engineering Company Limited or iASPEC, to replace the existing Turnkey Agreement. Beginning in the third quarter, iASPEC's financial data and information will be consolidated into China Public Security's accounts. The Company believes that these modifications to its corporate structure and accounting treatment will result in greater transparency for investors and will improve China Public Security's ability to exert greater control over the business and affairs of iASPEC, thus improving confidence in the outlook for the Company's business. As a result, the company is presenting its second quarter results on a pro forma basis to consolidate the financial results of iASPEC. Beginning with the third quarter of 2007, financial results will be presented on a consolidated basis under U.S. Generally Accepted Accounting Principles (GAAP).
On a pro forma basis, for the three months ended June 30, 2007, revenues grew 200% to $10.5 million, compared to $3.5 million in the prior year. The increase in revenues is due to successful delivery of several high profile projects, including the First Responder System Project for the Shantou City, Border Control Closed-Circuit Television Monitoring and Information Management System, and Fast Anti-Stowaway Monitoring and Control System Projects for the Shenzhen Bay Port.
Gross profit grew 143% to $5.1 million, compared to $2.1 million, representing gross margins of 49% as compared to 60% in the second quarter of 2006. In the second quarter, the company engaged in several large-scale systems integration projects, such as the Video Surveillance System at Shenzhen Bay Port. These large-scale projects involve high costs in procured hardware and other subcontracting costs, which resulted in higher costs than pure software development services, and therefore decreased the associated gross margins.
Administrative expenses increased to $0.7 million in the second quarter from $0.5 million in the same period last year. The increase is attributable to more staff being hired and increased costs from expansion of the company's operations.
Selling expenses for the fiscal quarters ended June 30, 2007 and 2006 were $0.3 million and $0.05 million, respectively. The increase was due to expansion of marketing and sales functions in the period.
Income from operations grew 163% to $4.2 million in the second quarter of 2007, representing operating margins of 40%, as compared to $1.6 million and 46% in the same period of 2006. The improvement was a result of the strong increase in revenues. However, the operating margin decrease is due to multi large-scale system integration projects, which involve high costs for procured hardware and other subcontracting costs.
Income taxes decreased to $(0.4) million from $0.2 million in the same period 2006. Public Security Technology due to the reversal of previously recorded estimate of income tax, 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 7.5% reduced tax rate for the next three years. On August 10, 2007, CPST has obtained a tax exemption from the PRC tax authorities.
Net income grew 228% to $4.6 million in the second quarter of 2007, or $0.12 per basic share and $0.11 per diluted share, compared to $1.4million in the second quarter of 2006.
Financial Condition
On June 30, 2007, China Public Security had $5.4 million in Cash and Cash Equivalents, total current assets of $13.9 million and total assets of $22.8 million. Shareholder's equity increased to $22.0 million from $1.6 million as of December 31, 2006.
Second Quarter 2007 Operational Highlights
iASPEC was awarded a phase I contract by the Zhuhai Special Economic Zone for installing its Police-Use Geographic Information System. The PGIS platform allows China Public Security to provide its law enforcement customers with various services, including specialized mapping services, geographic positioning services, messaging services, automated police patrol area monitoring, patrol history tracking, and work hour management. The project should be completed by the end of December 2007. In addition, The Zhuhai project, together with the Shantou First Responder System Project and Foshan PGIS project, mark the company's market expansion to other cities besides Shenzhen.
The Company also won the contract for construction of Phase I of the Shenzhen Residence Card Information Management System Project right after the end of the second quarter, valued at $2.2 million dollars. Construction is expected to commence in the third quarter of 2007. The bidding process for Phase II construction of the Shenzhen Residence Card Information Management System, which has an estimated value of $7.0 million, is expected to commence in the fourth quarter of 2007, and other Residence Card Information Management System projects are planned for implementation in 2008 and 2009.
Outlook for 2007
"The market for public security information technology is continuing to increase based on the ‘Police Force Technology Reinforcement' initiative advocated by the PRC government. An increasing number of cities are eager to build or install public security information technology systems," said Mr. Lin. "There are about 660 cities and 280 borders in China. Just within Guangdong province we see significant opportunities to deploy our public security information technology solutions. In addition, GIS has significant opportunities not only in police-use but also in civil use."
For 2007, management increased estimated revenues to $32 million with net income of $12.5 million. For 2008, the company expects revenues of $53 million with net profit expected to reach $21 million.
"We were very pleased with the successful installation at the Shenzhen Bay Port and are very excited to win the Phase 1 contract of the Shenzhen City Residence Card Information Management System Project, which provides us with another huge market opportunity," Mr. Lin concluded.
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 operations in the period from January 17, 2006 through June 30, 2006. Accordingly the accompanying financial statements for the period from January 1, 2006 through June 30, 2006 (the "Predecessor Period") reflect the results of operations of iASPEC. The accompanying financial data for the period from January 1, 2007 through June 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 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 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 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.
CHINA PUBLIC SECURITY TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
PREDECESSOR SUCCESSOR REALLOCATION NON_GAAP
THREE MONTHS THREE MONTHS OF THREE MONTHS
ENDED ENDED RELATED ENDED
June 30, June 30, PARTY June 30,
2006 2007 REVENUE 2007
REVENUE - THIRD PARTIES $3,529,712 $1,750,162 $8,781,422 $10,531,584
REVENUE - RELATED PARTY -- 3,657,433 (3,657,433) --
TOTAL REVENUES 3,529,712 5,407,595 10,531,584
COST OF REVENUES (1,409,605) (597,831) (4,786,916) (5,384,747)
GROSS PROFIT 2,120,107 4,809,764 5,146,837
ADMINISTRATIVE EXPENSES (451,429) (428,189) (243,865) (672,054)
ANNUAL FEE TO iASPEC -- (45,000) (45,000)
SELLING EXPENSES (51,487) (175,132) (93,208) (268,340)
INCOME FROM OPERATIONS 1,617,191 4,161,443 4,161,443
OTHER INCOME -- 20,267 20,267
INCOME BEFORE TAX 1,617,191 4,181,710 4,181,710
INCOME TAXES (238,655) 377,444 377,444
NET INCOME $1,378,536 $4,559,154 $4,559,154
WEIGHTED AVERAGE NUMBER OF
SHARES
BASIC N/A 39,418,720 N/A
DILUTED N/A 39,835,665 N/A
EARNINGS PER SHARE
BASIC N/A $0.12 N/A
DILUTED N/A $0.11 N/A
CHINA PUBLIC SECURITY TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
DECEMBER 31 JUNE 30
2006 2007
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 172,316 $ 5,388,715
Accounts receivable -- 351,215
Prepaid expenses - related party -- 745,039
Related party receivables 1,410,471 7,247,258
Advances receivable 332,479 --
Amount due from a director -- 13,666
Other receivables and deposits 243,948 124,880
TOTAL CURRENT ASSETS 2,159,214 13,870,773
NON-CURRENT ASSETS
Property and equipment 49,826 5,039,848
Prepaid expenses - related party -- 3,886,997
TOTAL NON-CURRENT ASSETS 49,826 8,926,845
TOTAL ASSETS $ 2,209,040 $ 22,797,618
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITES
Accounts payable $ -- $ 80,513
Advances payable 200,000 --
Accrued expenses 66,832 468,774
Tax payable 215,255 182,698
Amounts due to a director 82,304 73,105
TOTAL CURRENT LIABILTIES 564,391 805,090
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 7,437,344
Accumulated other comprehensive income -- 338,663
TOTAL STOCKHOLDERS’ EQUITY 1,644,649 21,992,528
TOTAL LIABILTIES AND STOCKHOLDERS’
EQUITY $ 2,209,040 $ 22,797,618
CHINA PUBLIC SECURITY TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
PREDECESSOR SUCCESSOR
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
2006 2007
OPERATING ACTIVITIES
Net income $ 2,209,515 $ 6,698,005
Adjustments to reconcile net income
to net cash provided from (used
in) operations
Depreciation 139,220 102,548
Amortization of intangible
assets 69,628 --
Changes in operating assets and
liabilties
Increase in inventories (50,047) --
Decrease (Increase) in trade and
other receivables 416,193 (225,893)
Decrease (Increase) in related
parties receivables 872,692 (5,465,413)
Increase in prepaid expenses -
related party -- (4,632,036)
Increase in trade payables 318,935 80,513
Decrease in accrued expenses (274,983) 391,887
Increase (Decrease) in tax payable 206,544 (38,367)
Net cash provided by (used in)
operating activities 3,907,697 (3,088,756)
INVESTING ACTIVITIES
Advances (to) from third parties (442,944) 340,999
Amount due to a director -- (22,865)
Advances to related parties -- (335,233)
Purchase of plant and equipment (1,080,138) (5,092,775)
Capitalised software development cost (584,737) --
Net cash used in investing activities (2,107,819) (5,109,874)
FINANCING ACTIVITIES
Repayment of advances payable -- (205,984)
Cash received from private placement
of common stock -- 13,311,211
Net cash provided by financing
activities -- 13,105,227
EFFECT OF EXCHANGE RATE CHANGES ON
CASH 377,779 309,802
NET INCREASE IN CASH AND CASH
EQUIVALENTS 1,799,878 4,906,597
CASH AND CASH EQUIVALENTS, BEGINNNING 57,758 172,316
CASH AND CASH EQUIVALENTS, ENDING $ 2,235,415 $ 5,388,715
Supplemental disclosure of cash flow
information
Income tax paid $ 273,441 $ 43,796
