Revenues Increased 246.6% to $43.4 million; Net Income Up 205.0% to
$10.3 million; EPS of $.37 excluding comprehensive income
Recent Operating and Financial Highlights include:
* During the third quarter the Company signed 51 new contracts, with a
total value of approximately $32 million.
* On July 6th the Company entered into an agreement to acquire Shanghai
Cheng Feng Digital Technology Co., Ltd. ("Cheng Feng") whose
proprietary technology is expected to significantly improve the
Company's positioning in the security market
* On July 31st the Company completed a private placement yielding net
proceeds of $14.9 million
* On October 3rd the Company formalized a receivables bank financing
agreement with China Construction Bank to facilitate new business
signings and contract work for approved Safe City "Plan 3111"
projects.
SHENZHEN, China, Nov. 16 /Xinhua-PRNewswire/ -- China Security &
Surveillance Technology, Inc. ("China Security") (OTC Bulletin Board: CSSTF),
a leading provider of digital surveillance technology in China, today reported
financial results for the third quarter and first nine months ended September
30, 2006.
For the third quarter of 2006, the Company reported revenues of $43.4
million, an increase of 246.6 percent compared to $12.5 million for the third
quarter of last year. Revenues were comprised of the following: $24.4 million
in deferred contracts signed during the second quarter, $14.3 million from new
contracts signed during the quarter, $2.1 million from accessories and
products, and a $2.6 million contribution from the Cheng Feng acquisition. As
a percentage of revenue, the sale of security systems and installations
comprised approximately 95 percent of revenue during the third quarter 2006
with the remaining balance related to the sale of parts. The majority of the
increase in revenue resulted from new government regulations and initiatives
designed to improve macro economic trends in China. Additionally, the Company
was also effective in further capitalizing on its strong brand name, broad
distribution channels and extensive sales network to win business from new and
installed customers.
Gross profit for the third quarter was $12.9 million, resulting in gross
margins of 29.6 percent as compared to gross profit of $4.3 million and gross
margins of 34.3 percent for the third quarter last year. The decrease in gross
margins was primarily a result of increasing competition and a conscious
decision by management to lower prices on its key products to win new
business. Total operating expenses for the third quarter of 2006 were $2.1
million, a significant increase from the $0.3 million reported in the third
quarter of last year, resulting from an expansion of the organization
accommodate current and future growth in addition to the incremental costs
associated with being a public entity. Income from operations was $10.8
million, up 167.6 percent from the $4.0 million for the same period last year.
Operating margins for the third quarter 2006 were 24.8 percent compared to
32.1 percent last year with the decline as compared to last year a result of
the lower gross margins and higher operating expenses previously discussed.
The Company recorded an income tax expense of $0.8 million for the third
quarter of 2006, nearly equal to that incurred during the third quarter of
last year. This represented an effective tax rate of 7.0 percent and 18.9
percent for the third quarter of each respective year and decrease related to
the effective of change in deferred tax assets and liability components. Net
income for the third quarter increased 205.0 percent to $10.3 million, or
$0.37 per diluted share, from $3.4 million, or $0.16 per diluted share for the
third quarter of 2005. Fully diluted weighted average shares used in this
calculation were 28.0 and 21.6 million for the third quarters of 2006 and
2005, respectively. These figures exclude the impact of comprehensive income.
Fully diluted shares outstanding at the end of the third quarter, including
warrants, was approximately 31.0 million.
"Sales momentum continued in the third quarter and our pipeline of
potential future business remains robust. Solid execution on behalf of our
team, supported by key government initiatives and mandates along with macro
economic drivers, enabled us to report significant year over year and
sequential growth," stated Mr. Guo Shen Tu, Chief Executive Officer of China
Security. "During the third quarter, the Company signed 51 new contracts with
a total value of more than $32 million for the sale of equipment and
installation services, including several city-wide surveillance projects and
several directly related to State Ordinance 458, several of these we believe
can lead to much larger projects. As of October 1st, 24 projects totaling
$16.3 million in contract value had yet to commence, which when coupled with
$1.5 million in deferred project revenue, created a backlog of $17.8 million
that the Company expects to convert to revenues during the fourth quarter. In
addition, China Security announced $10.7 million in new fourth quarter
signings and a significant portion are expected to be realized as revenue
before the end of this year."
For the first nine months of 2006, the Company reported revenues of $66.1
million, an increase of 161.5 percent compared to $25.3 million for the first
nine months of 2005. Gross profit for the first nine months in 2006 was $20.3
million, resulting in gross margins of 30.7 percent as compared to gross
profit of $7.2 million and gross margins of 28.4 percent for the prior nine
month period. Total operating expenses for the first nine months of 2006 were
$3.2 million, an increase of 357.9 percent compared to the $0.7 million for
the same period last year. Income from operations for the first nine months in
2006 was $17.1 million, up 163.6 percent from the $6.5 million reported for
the same period last year with operating margins of 25.8 percent and 25.6
percent respectively. The Company recorded an income tax expense for the first
nine months of 2006 of $1.7 million as compared to $0.8 million for the same
period last year, representing an effective tax rate of 9.5 percent and 12.4
percent respectively. Net income for the period increased 172.4 percent to
$16.3 million, or $0.66 per diluted share, from $6.0 million, or $0.28 per
diluted share for the first nine months last year, which excludes the impact
of comprehensive income.
The Company's balance sheet strengthened significantly, with a current
ratio of 2.91 to 1 and working capital of approximately $46.8 million. The
Company completed the quarter with $23.5 million in cash and equivalents, up
from $2.3 million as of December 31, 2005, with the primary increase in cash
as a result of two prior private placements in 2006 that collectively
generated $22.5 million in net proceeds. The Company plans on using $7.5
million in cash for the previously announced acquisition of Chang Feng, in
addition to issuing 1.33 million restricted common shares. Inventory increased
261.7 percent from the end of 2005 to $19.2 million with the increase used to
support future revenue growth. Accounts receivable increased 52.0 percent from
the end of 2005 to $17.7 million, which was well below the growth in revenues
for the nine month period. Management believes current accounts receivable are
of high quality and has had very minimal occurrences of collection issues to
date. Shareholder's equity increased 98.8 percent to $48.9 million compared to
$24.6 million as of December 31, 2005.
"On October 3rd the Company announced a bank financing agreement with
China Construction Bank to help support the its efforts to secure new
contracts and improving cash conversion for the Safe City Projects initiative
(termed "Plan 3111"). This agreement will provide financing of up to 80
percent of the total contract amount for projects which qualify and affords
the Company with a significant competitive advantage versus the under
capitalized manufacturers which comprise most of our domestic marketplace.
Based on this agreement and our approved vendor designation, we feel confident
in our ability to win new contracts associated with what we believe is one of
the largest growth opportunities in China," concluded Mr. Guo Shen Tu.
Conference Call Information
Management held a conference call at 8:30 a.m. EST on Wednesday, November
15th. There will be a playback available until November 22, 2006. To listen to
the playback, please call 877-519-4471 when calling within the United States
or 973-341-3080 when calling internationally. Please use pass code 8120438 for
the replay.
The webcast may also be accessed at ViaVid's website at www.viavid.net.
The webcast can be accessed until December 15, 2006 on either site.
About China Security & Surveillance Technology, Inc.
Based in Shenzhen, China, China Security manufactures, distributes,
installs and maintains security and surveillance systems through its wholly
owned subsidiary, Golden Group Corporation (Shenzhen) Limited. China Security
has a manufacturing facility located in Shenzhen and a R&D facility which
leverages an exclusive collaboration agreement with Beijing University. In
addition, China Security has built a diversified customer base through its
extensive sales and service network that includes 37 points of presence
throughout the PRC. To learn more about China Security, visit their website
at: http://www.csstf.com .
Safe Harbor Statement
This press release includes certain statements that are not descriptions
of historical facts, but are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These forward-looking statements may include statements
about our proposed discussions related to our business or growth strategy,
which is subject to change. 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 upon assumptions with respect to future business
decisions, which are subject to change. For a further description of other
risks and uncertainties, see our most recent Annual Report filed with the
Securities and Exchange Commission (SEC) on Form 20-F, and our subsequent SEC
filings. Copies of filings made with the SEC are available through the SEC's
electronic data gathering analysis retrieval system (EDGAR) at www.sec.gov.
Contact:
Company: Investors:
Terence Yap Matt Hayden or Brett Maas
(646) 713-4888 Hayden Communications
(852) 98387413 (858) 704-5065
terence@goldengroup.cn matt@haydenir.com
- TABLES FOLLOW -
CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED BALANCE SHEETS AS OF SEPTEMBER 30, 2006 AND DECEMBER 31, 2005
ASSETS
September 30, December 31,
2006 2005
(Unaudited)
USD USD
CURRENT ASSETS
Cash and cash equivalents 23,477,149 2,276,915
Accounts receivable, net 17,701,594 11,642,823
Related party receivables 1,457,300 3,783,198
Inventories, net 19,212,303 5,311,293
Prepayment & deposits 288,420 --
Advance to suppliers 4,471,388 1,492,512
Other receivables 3,412,842 415,455
Assets held for sale 3,796 --
Deferred tax assets - current portion 1,284,113 129,712
Total current assets 71,308,906 25,051,908
Plant and equipment, net 7,865,149 1,951,566
Land use rights, net 1,143,884 1,142,182
Equity in affiliated companies 12,652 --
Goodwill 8,426,502 --
Intangible assets 3,359,046 511,127
Deferred tax assets - non-current portion 401,646 459,889
TOTAL ASSETS 92,517,786 29,116,672
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accruals 5,677,230 1,839,609
Related party payables 118,074 --
Taxes payable 1,718,711 1,115,356
Payable for acquisition of business 13,917,004 592,846
Deferred income 1,498,333 887,469
Short-term debts 1,472,219 --
Due to a director 82,635 69,646
Total current liabilities 24,484,206 4,504,926
LONG-TERM LIABILITIES
Long-term debt 2,772,468 --
Total liabilities 27,256,674 4,504,926
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 106,944 --
REDEEMABLE EQUITY 16,221,072 --
SHAREHOLDERS' EQUITY
Common stock, $0.01 par value;
100,000,000 shares authorized
29,159,259 including 4,634,592 shares
classified as redeemable equity
(September 30, 2006) and 21,558,000
(December 31, 2005) shares issued and
outstanding 245,247 215,580
Additional paid-in capital 11,563,672 4,494,565
Retained earnings 34,830,628 18,552,610
Statutory reserves 823,748 803,758
Accumulated other comprehensive income 1,469,799 545,233
Total shareholders' equity 48,933,094 24,611,746
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 92,517,784 29,116,672
CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Three Months Ended Nine Months Ended
September 30 June 30
2006 2005 2006 2005
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
USD USD USD USD
Revenues 43,448,232 12,535,699 66,057,404 25,265,140
Cost of goods sold 30,587,917 8,237,909 45,762,899 18,087,424
Gross profit 12,860,315 4,297,790 20,294,505 7,177,716
Selling and marketing 393,831 67,577 686,941 188,017
General and
administrative 1,301,813 72,039 1,974,875 151,075
Depreciation and
amortization 382,809 128,605 571,602 367,118
Income from operations 10,781,861 4,029,569 17,061,087 6,471,506
Other income, net 250,114 118,001 949,894 358,722
Equity in net loss of
affiliated companies 7,055 -- 7,055 --
Income before income
taxes 11,024,921 4,147,570 18,003,926 6,830,228
Minority interest in
income of consolidated
subsidiaries 5,599 -- 5,599 --
Income taxes 773,675 782,711 1,716,199 846,589
Income from continuing
operations 10,245,647 3,364,859 16,282,128 5,983,639
Loss from discontinued
operations, net of
taxes 17,988 -- 17,988 --
Gain on disposal of
discontinued
operations, net of
taxes 33,868 -- 33,868 --
Net income 10,261,527 3,364,859 16,298,008 5,983,639
Foreign currency
translation gain
(loss) 707,825 (17,852) 924,566 (17,852)
COMPREHENSIVE INCOME 10,969,352 3,347,007 17,222,574 5,965,787
NET INCOME PER SHARE
BASIC 0.37 0.16 0.66 0.28
DILUTED 0.37 0.16 0.66 0.28
WEIGHT AVERAGE NUMBER
OF SHARES OUTSTANDING
BASIC AND DILUTED 27,647,979 21,558,000 24,597,358 21,558,000
DILUTED 27,948,386 21,558,000 24,689,147 21,558,000
CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
2006 2005
(Unaudited) (Unaudited)
USD USD
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 16,298,008 5,983,639
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 571,602 128,605
Amortization of loan origination fees 10,438 --
Issue of warrants for investor relation
services 185,000 --
Equity in net loss of affiliated
companies 7,055 --
Non-cash adjustments related to
discontinued operations (15,880) --
Deferred taxes (1,170,422) (412,174)
Minority interest 5,599 --
Changes in operating assets and
liabilities:
(Increase) decrease in:
Inventories (12,687,002) 4,014,904
Accounts receivable (5,061,441) (4,094,494)
Advances to suppliers (2,936,222) (35,346)
Prepayment & deposits 61,580 --
Other receivables (2,189,669) (360,272)
Related party receivables 2,673,753 (811,504)
(Decrease) increase in:
Accounts payable and accruals 1,690,287 (3,380,793)
Deferred income 599,367 545,747
Related party payables 109,218 --
Deferred tax liabilities 81,902 --
Tax payable 631,172 608,919
Net cash (used in)provided by operating
activities (1,135,655) 2,187,231
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (4,427,448) --
Proceeds from disposal of fixed assets -- 74,873
Additions to intangible assets (31,314) --
Acquisitions, net of cash acquired (107,012) --
Proceeds from dispositions of
discontinued operations 570,597 --
Net cash (used in) provided by investing
activities (3,995,177) 74,873
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock, net of issuing
expenses 22,284,845 --
New borrowings 3,508,351 --
Advances from directors 12,087 1,087,689
Net cash provided by financing activities 25,805,283 1,087,689
NET INCREASE IN CASH AND CASH EQUIVALENTS 20,674,451 3,349,793
Effect of exchange rate changes on cash 525,783 (407,402)
Cash and cash equivalents, at beginning
of period 2,276,915 33,298
CASH AND CASH EQUIVALENTS, END OF PERIOD 23,477,149 2,975,689
