On April 4, 2006, China Security and Surveillance, Inc. (OTC: CSSTF), a leading provider of security and surveillance products and services in China, announced that it signed definitive agreements and closed an $8 million private placement transaction with institutional investors. The funds will be utilized for working capital, general corporate purposes, and future acquisitions. Brean Murray, Carret & Co. acted as the sole placement agent in the transaction with the Pinnacle China Fund, L.P. as the lead investor.
According to the terms of the private placement, 2,666,667 shares of common stock issued by the Company were purchased at $3 per share. In conjunction with this transaction the Company issued a total of 416,667 warrants to Brean Murray, Carret & Co, as placement agent. China Security and Surveillance received $7.3 million in net proceeds after fees and expenses. As a result of the private placement, the fully diluted share count for the company is now 25 million. As part of this transaction China Security and Surveillance has committed to becoming a U.S. domiciled corporation, which is expected to be completed before the end of 2006.
Mr. Tu Guo Shen, Chief Executive Officer of China Security and Surveillance, Inc. commented, "We appreciate the commitment of our new institutional investors and look forward to a continued, productive relationship. As the 2005 audit comes to a close, we estimate the Company will report record revenue of approximately $33-33.5 million US, representing a 106 percent increase from the $16 million US reported in 2004 and earnings that are expected to be in the range of $7.5-8.0 million US compared to $5.7 million US in 2004. The capital generated by this transaction will help us accelerate our organic growth initiatives and will allow us to pursue targeted acquisitions to enhance our position as a leading product developer and marketer in the burgeoning security and surveillance industry in China."
China Security and Surveillance offers a broad portfolio of fully integrated products for specific customer applications addressing multiple vertical end markets. Key assets include three research and development centers that leverage a partnership with Beijing University, a scalable manufacturing facility in Shenzhen and an extensive sales and service network that includes 37 points of presence throughout the PRC. Currently, there are a number of formal and planned regulatory drivers which the Company believes offer significant growth opportunities. These include the estimated $6 billion - $12 billion US that Beijing expects to spend for security infrastructure in preparation for the 2008 Olympics, along with the planned investment by Shanghai for the 2010 World Fair. In addition, several ordinances have been passed by the PRC Government which requires security surveillance systems to be installed in: 1) all coal mines in China (currently estimated at 28,000) by the end of 2008, 2) all Justice Departments and Courts, 3) 660 cities throughout China for street surveillance, and 4) retail stores in Xi'an where an installation must occur before a business license will be granted.
China Security and Surveillance was recently awarded an exclusive contract by the Shenzhen Cyber Cafe Association, in conjunction with the passing of Ordinance 458, to provide video monitoring systems for the over 1,000 internet cafes in Shenzhen City, which is expected to be completed by March 1, 2007 and yield approximately $3 million in revenues. According to Ordinance 458 issued January 18th, 2006 by the State Council, within one year of the initiation date of March 1, 2006, the estimated 2.19 million registered entertainment halls in China must purchase video-monitoring systems covering entrances, exits and main corridors. The Company is actively pursuing similar opportunities within the other provinces of China.
In connection with the private placement, Mr. Tu Guo Shen, the Company's Chairman, has agreed to place a percentage of his shares in China Security and Surveillance, in an escrow account as part of a make good provision until such time as the Company has achieved its projected net income for 2006 and 2007 of $17.49 and $34.1 million, respectively.
The shares sold in this private placement have not been registered under the Securities Act of 1933, as amended, (the "Securities Act"), or any state securities laws, and unless so registered, the securities may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. The Company is obligated, within 45 days after closing, to file a registration statement covering resale of the shares sold in this offering as well as the shares underlying the warrants issued to Brean Murray, Carret & Co, LLC, and to use its best efforts to cause the registration statement to be declared effective as soon as possible.
Based in Shenzhen, China, China Security and Surveillance, Inc. designs, manufactures and provides Security Surveillance solutions through its wholly owned subsidiary, the Golden Group Ltd. The Company has a manufacturing facility located in Shenzhen and three R&D facilities which leverage an exclusive collaboration agreement with Beijing University. In addition, the company has built a diversified customer base through its extensive sales and service network that includes thirty seven points of presence throughout the PRC.
Safe Harbor Statement
This press release contains forward-looking statements. Risk factors that could cause actual results to differ materially from those projected in forward-looking statements include, but are not limited to, general business conditions, managing growth, and political and other business risk. The Company's 2005 audit has not been completed. Management's current revenue expectations could change materially and the Company is under no obligation to adjust this expectation until the final 2005 audit is completed. All forward-looking statements are expressly qualified in their entirety by this Cautionary Statement and the risks and other factors detailed in the Company's reports filed with the Securities and Exchange Commission. China Security and Surveillance Technology Inc. undertakes no duty to update those forward-looking statements.
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