China Public Security Announces 2006 Year End Results
23 April 2007
China Public Security Technology, Inc., (OTC Bulletin Board: CPBY) ("China Public Security" or "the Company"), a leading provider of public security informatization and Geographic Information System (GIS) software solutions and operating services in China, today announced its audited financial results for the year ended December 31, 2006.
2006 Highlights
-- Total revenues of $2.2 million
-- Gross profit of $2.1 million, representing 96% gross margin
-- Operating income of $1.9 million, with operating margin reaching 87%
-- GAAP Net income of $1.6 million, or $0.06 per diluted share
Pro-Forma 2006 Highlights
-- Total revenues increased 135% to $11.8 million
-- Gross profit increased 193% to 8.0 million, representing 68% gross
margin
-- Operating income rose 224% to $6.7 million, with operating margin
reaching 57%
-- Non-GAAP, pro-forma net income from continuing operations increased
213% in 2006 to $5.7 million, or $0.22 per diluted share
Full Year 2006 Results
"2006 was a very successful year for China Public Security, both in terms of financial results and the execution of our long term development plan. We achieved triple-digit growth of both our top and bottom lines, driven by strong demand for our security solutions and system management services from the public sector," said Mr. Lin Jianghuai the CEO of China Public Security. "Additionally, the successful completion of our private placement and related U.S. going public transaction was an important landmark for our Company, providing us with the financial strength to enhance our product offerings and expand our reach into other provinces in China."
China Public Security's public security informatization and Geographic Information Systems (GIS) solutions allow the integration of police, fire and traffic control emergency systems, and employs technologies of geographic information, e-map and broadband networks to enable the automation of public security services, and allow the development of a comprehensive system for quick decision making and rapid response to enhance public safety and improve the efficiency of service delivery. China Public Security's GIS solutions can also be used for private sector applications that include site selection, market analysis, mobile workforce and asset management, as well location-based services in sectors such as Telecommunications, Financial Services, Insurance and Real Estate. In addition to GIS solutions, China Public Security also provides Automated Border Control System solutions that combine 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.
In 2006, China Public Security had $2.2 million in revenues. Gross profits were $2.1 million, and gross margins were 96%. Operating profits were $1.9 million, representing operating margins of 87%. Net income was $1.6 million, or $0.06 per share.
China Public Security's pro-forma, Non-GAAP, revenue in 2006 was $11.8 million, an increase of 135% compared to $5.0 million in 2005. The increase was due to strong market demand for the Company's solutions as a result of growing market recognition for its GIS solutions. During 2006, China Public Security added 29 new contracts, which have already started to contribute to revenue and profits. Gross profit in 2006 was $8.0 million, an increase of 193% over the $2.7 million recorded in 2005. Gross margin was 68% in 2006, up from 54% in 2005. The improvement in gross margin was the result of higher contract volumes and efficient cost control. Operating expenses in 2006 were $1.3 million, an increase of 95% compared to $659,316 in 2005, due to higher selling expenses and administrative expenses resulting from the expansion of the Company's business as well as higher legal and professional services fees related to the Company's going public transaction in the U.S. market. Operating income in 2006 was $6.7 million, an increase of 224% over $2.1 million in 2005. Operating margin was 57% in 2006, compared to 41% in 2005. This improvement was due to the benefits of larger scale as well as cost discipline. Net income was $5.7 million in 2006, an increase of 213% over 2005. Pro-forma non-GAAP earnings per diluted share were $0.22 in 2006.
Financial Condition
At December 31, 2006, China Public Security had $0.17 million in cash, and working capital of $1.5 million, and shareholders' equity totaled $1.6 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 $14.3 million net proceeds to the Company after the deduction of offering expenses in the amount of $0.67 million.
Outlook for 2007
The size 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. Currently, the Company's customer base is concentrated in Guangdong Province in the south of China. However, in the future the Company sees the opportunity to deploy its GIS solution capabilities in major urban areas in other regions of China.
China Public Security also sees significant opportunities to extend its GIS solutions into the private sector and is currently working with China Unicom and China Telecom to develop its GIS solutions for private sector applications. The Company has successfully implemented a solution to help China Unicom manage its network maintenance workforce by tracking technicians to dispatch them to the nearest trouble spots more effectively. Going forward the Company plans to leverage this technology into applications in logistics, insurance and others.
In addition, the Company's Electronic Border Control System has also been enjoying increasing market recognition, with implemented solutions at Shenzhen Bay and Futian New borders serving as references for 100 Chinese border control locations. As a pioneer in border control automation, China Public Security's proven Electronic 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.
Use of Non-GAAP Financial Measures
On October 9, 2006, Bo Hai Wen, China Public Security's fully owned operating subsidiary, entered into an exclusive Business Turnkey Agreement with iASPEC, whereby Bo Hai Wen essentially succeeded to all of the operations of iASPEC and iASPEC is considered the Predecessor to Bo Hai Wen. All results of operations for periods prior to October 9, 2006 are the operating results of iASPEC, which is considered to be the Company's "predecessor" for these purposes since Bo Hai Wen, China Public Security's operating subsidiary, had no ongoing business operations prior to the software license and subcontracting arrangement with iASPEC. The Pro-Forma combined financial results, as of and for the fiscal year ended December 31, 2006 has been derived from the combined audited financial statements of both entities. China Public Security's management believes that the combined, non-GAAP operating results provide investors with a better understanding of how its results relate to the Company's historical performance. A reconciliation of adjustments to GAAP results for the quarter and year ended December 31, 2006 is included below. This additional non-GAAP information is not meant to be considered in isolation or as a substitute for GAAP financials.
About China Public Security Technology, Inc.
Through its indirect wholly-owned Chinese subsidiary, China Public Security Technology, Inc. is a leading provider of public security informatization and real-time Geographic Information System (GIS) software solutions and operating services in China. The Company provides a broad portfolio of fully integrated products and services, including Consolidated Emergency Response or "Three-in-One" Platform, Police-use GIS, Civil-use GIS, Electronic Boarder Control System and other software sales and supporting services. The Company currently has the 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 Shenzhen City Immigration Boarder Check Station of Ministry of Public Security of PRC, Shantou City Public Security Bureau, Dongfang City Public Security Bureau of Hainan Province, Shenzhen City Traffic Police Bureau, Shenzhen City Public Security Bureau, China Unicom Shenzhen Division, Shenzhen Urban Planning Bureau and the Shenzhen Fire Department. To learn more about the Company, please visit the corporate website at http://www.chinapsh.com.
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:
Mr. Michael Lin
Vice President, Investor Relations
China Public Security Technology, Inc.
Tel: +1-949-743-0868
Email: mlin@chinapsh.com
Investor Relations Contact:
Mr. Crocker Coulson
President
CCG Elite Investor Relations
Tel: +1-646-213-1915 (NY office)
crocker.coulson@ccgir.com CONSOLIDATED INCOME STATEMENT, BALANCE SHEET, AND CASHFLOW STATEMENT, FOLLOWS
CHINA PUBLIC SECURITY TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31 2005
PERIOD FROM JANUARY 1, 2006 TO OCTOBER 8, 2006
PERIOD FROM JANUARY 17, 2006 TO DECEMBER 31 2006
The statements of operations for the year ended December 31, 2005 and for the period from January 1 to October 8, 2006 reflect operations of the Predecessor Company.
PREDECESSOR SUCCESSOR COMBINED
JANUARY 1 JANUARY 17 Non-GAAP
YEAR ENDED THROUGH THROUGH YEAR ENDED
DECEMBER 31 OCTOBER 8 DECEMBER 31 DECEMBER 31
2005 2006 2006 2006
REVENUE - THIRD PARTIES $5,023,065 $9,644,332 989,755 $10,634,087
REVENUE - RELATED PARTY - - 1,185,449 1,185,449
TOTAL REVENUES 5,023,065 9,644,332 2,175,204 11,819,536
COST OF REVENUES - THIRD
PARTIES (2,292,785) (3,739,518) (89,934) (3,829,452)
GROSS PROFIT 2,730,280 5,904,814 2,085,270 7,990,084
ADMINISTRATIVE EXPENSES (474,822) (924,196) (97,510) (1,021,706)
ANNUAL FEE TO iASPEC - - (45,000) (45,000)
SELLING EXPENSES (184,494) (157,855) (60,013) (217,868)
INCOME FROM OPERATIONS 2,070,964 4,822,763 1,882,747 6,705,510
OTHER INCOME 62,296 6,584 1,305 7,889
INCOME BEFORE TAX 2,133,260 4,829,347 1,884,052 6,713,399
INCOME TAXES (321,000) (749,381) (289,403) (1,038,784)
NET INCOME 1,812,260 4,079,966 1,594,649 5,674,615
FOREIGN CURRENCY
TRANSLATION GAIN - 268,305 - 268,305
COMPREHENSIVE INCOME $1,812,260 $4,348,271 $1,594,649 $5,942,920
WEIGHTED AVERAGE NUMBER
OF SHARES N/A N/A 26,958,104 N/A
BASIC AND DILUTED
EARNINGS PER SHARE N/A N/A 0.06 N/A
Reconciliation of GAAP and Non-GAAP Financial Measures:
The above Statement of Operations set forth the key components of China Public Security results of operations for the periods indicated. All of the non-GAAP financial measures used in this press release relate to the inclusion of financial information of iASPEC, which for accounting purposes is treated as China Public Security Predecessor Company. For fiscal year 2005, revenues were generated from iASPEC. For purpose of analysis in this press release the results of the Predecessor Period from January 1 through October 8, 2006 and the Successor Period from January 17 through December 31, 2006 were combined. This is not in accordance with US GAAP and the periods presented are not comparable due to the Company's reverse acquisition by China Public Security Holdings.
CHINA PUBLIC SECURITY TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2006
(Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $172,316
Related party receivables 1,410,471
Advances receivable 332,479
Other receivables and deposits 243,948
TOTAL CURRENT ASSETS 2,159,214
PROPERTY AND EQUIPMENT 49,826
TOTAL ASSETS $2,209,040
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Advances payable $200,000
Accrued expenses 66,832
Tax payable 215,255
Amounts due to a director 82,304
TOTAL CURRENT LIABILITIES 564,391
STOCKHOLDERS' EQUITY
Common stock, par $0.01
Authorized capital, 75,000,000 shares
Shares issued and outstanding
31,550,298 shares 50,000
Reserves 159,465
Retained earnings 1,435,184
TOTAL STOCKHOLDERS' EQUITY 1,644,649
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $2,209,040
CHINA PUBLIC SECURITY TECHNOLOGY, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31 2005
PERIOD FROM JANUARY 1, 2006 TO OCTOBER 8, 2006
PERIOD FROM JANUARY 17, 2006 TO DECEMBER 31 2006
The statements of cash flows for the year ended December 31 2005 and for the period from January 1 to October 8 2006 reflect operations of the Predecessor Company.
(Audited)
PREDECESSOR SUCCESSOR
JANUARY 1 JANUARY 17
YEAR ENDED THROUGH THROUGH
DECEMBER 31,OCTOBER 8, DECEMBER 31,
2005 2006 2006
OPERATING ACTIVITIES
Net income $1,812,260 $4,079,966 $1,594,649
Adjustments to reconcile net income
to net cash providing from
operations
Depreciation 362,970 422,946 1,131
Amortization of intangible
assets 61,122 105,630 -
Changes in operating assets and
liabilities
(Increase) decrease in inventories (274,288) 203,236 -
Increase in trade and other
receivables (1,632,279) 1,516,215 (243,948)
Increase in related parties
receivables - - (1,295,159)
Increase in trade payables 6,956 150,266 -
Increase in accrued expenses 40,640 (11,332) 66,832
Increase in tax payable - 354,520 215,255
Net cash provided by operating
activities 377,381 6,821,447 338,760
INVESTING ACTIVITIES
Advances receivable - - (332,479)
Advances to Hong Kong United Development - (1,563,806) (115,312)
Purchase of plant and equipment (30,876) (3,329,474) (50,957)
Capitalised software development cost (331,491) (102,953) -
Net cash used by investing activities (362,367) (4,996,233) (498,748)
FINANCING ACTIVITIES
Advances payable - - 200,000
Amount due to stockholder - - 82,304
Short term loan - 632,591 -
Capital contribution - - 50,000
Net cash provided by financing
activities - 632,591 332,304
NET INCREASE IN CASH AND CASH
EQUIVALENTS 15,014 2,457,805 172,316
EFFECT OF EXCHANGE RATE ON CASH - 65,740 -
CASH AND CASH EQUIVALENTS, BEGINNING 42,744 57,758 -
CASH AND CASH EQUIVALENTS, ENDING $57,758 $2,581,303 $172,316
Supplemental disclosure of cash flow
information
Income tax paid $159,380 $508,712 $74,148
Source: prnewswire
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