China Security & Surveillance Technology, Inc. ("China Security") (OTC Bulletin Board: CSCT), a leading provider of digital surveillance technology in China, today reported financial results for the fourth quarter and the year ended December 31, 2006.
For the fourth quarter of 2006, the Company reported revenues of $40.9 million, an increase of 451.4 percent compared to $7.4 million for the fourth quarter of last year. The majority of the increase in revenue resulted from the Company winning business as a result of new government regulations and initiatives designed to improve public safety 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 fourth quarter was $10.7 million, resulting in gross margins of 26.2 percent as compared to gross profit of $2.0 million and gross margins of 27.4 percent for the fourth quarter last year. Total operating expenses for the fourth quarter of 2006 were $2.4 million, compared to $1.0 million last year with the increase as a result of an expansion of the organization to accommodate current and future growth and incremental costs from being public. Income from operations was $8.3 million, up 722.0 percent from the $1.0 million for the same period last year. Operating margin for the fourth quarter 2006 was 20.2 percent compared to 13.6 percent last year. Net income for the fourth quarter increased 417.3 percent to $6.6 million, from $1.3 million last year. Fully diluted shares outstanding at the end of the fourth quarter, including warrants in the money, was approximately 30.4 million.
"We are pleased with our accomplishments and financial performance for both the fourth quarter and entire 2006 year, stated Mr. Guoshen Tu, Chairman and CEO. "We have significantly grown our organization which has enabled us to successfully capitalize on the substantial base of opportunities created by the new Safe City government initiatives. To further expand and complement our organization, we completed the acquisition of Shanghai Cheng Feng, while signing letters of intent (LOI's) for HiEasy Electronic Technology and Shenzhen Hongtianzhi Electronics Co., Ltd. which we anticipate closing during the first half of this year. Additionally, during the fourth quarter we signed $41.7 million in new contracts which will provide us with solid future visibility and continued business momentum."
For the full year of 2006, the Company reported revenue of $107.0 million, an increase of 227.3 percent compared to $32.7 million for the full year of 2005. Gross profit was $31.0 million, resulting in gross margins of 29.0 percent as compared to gross profit of $9.2 million and gross margins of 28.2 percent for the prior year. Total operating expenses were $5.7 million, an increase of 226.5 percent compared to the $1.7 million in 2005. Income from operations for the full year 2006 was $25.3 million, up 238.9 percent from the $7.5 million reported for the same period last year with operating margins of 23.7 percent and 22.9 percent respectively. The Company recorded an income tax expense for the full year of 2006 of $3.9 million as compared to $0.8 million last year, representing an effective tax rate of 14.5 percent and 9.7 percent respectively. Net income for the period increased 215.6 percent to $22.9 million, or $0.87 per diluted share from $7.3 million, or $0.39 per diluted share for the full year last year.
The Company's balance sheet strengthened significantly, with a current ratio of 3.8 to 1 and working capital of approximately $63.5 million. The Company completed the year with $31.0 million in cash and equivalents, up from $2.3 million as of December 31, 2005, with the primary increase in cash resulting from three private placements completed during 2006. Inventory increased 271.3 percent from the end of 2005 to $19.7 million as the Company prepared for further growth in 2007. Accounts receivable increased 129.8 percent from the end of 2005 to $26.8 million. Management believes current accounts receivable are of high quality with minimal occurrences of collection issues to date. Shareholder's equity increased 265.0 percent to $89.8 million compared to $24.6 million as of December 31, 2005.
Mr. Tu concluded, "Supported by a strong working capital position, the recent $60 million convertible financing, and our accounts receivable financing agreement with China Construction Bank, we believe our Company is well positioned to pursue and execute on both future organic growth and acquisition related opportunities. As a result of our broad geographic footprint and an extremely diversified customer base we will look to continue to establish the Company as leading player in the security and surveillance market."
Conference Call Information
Management will hold a conference call at 4:30 p.m. EDT on Monday March 12th. Participants in the U.S. should call 888-802-8577 or 973-935-8754 when calling from outside the U.S. The conference call will webcast at http://viavid.net/dce.aspx?sid=00003C58 and can also be accessed at ViaVid's website http://www.viavid.net until April 12, 2007.
There will be a playback available until 11:59 p.m. Eastern Time March 19, 2007. 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 8545874 for the replay.
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 59 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 may include 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 http://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
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2006 AND 2005
Expressed in thousands of U.S. dollars
(Except for share amounts)
ASSETS
December 31, December 31,
2006 2005
CURRENT ASSETS
Cash and cash equivalents $30,980 $2,277
Accounts receivable, net 26,754 11,643
Related party receivables 440 3,783
Inventories, net 19,721 5,311
Prepayment and deposits 3,533 -
Advances to suppliers 2,889 1,493
Other receivables 1,697 415
Deferred tax assets - current portion 125 129
Total current assets 86,139 25,051
Plant and equipment, net 8,339 1,952
Land use rights, net 1,152 1,142
Intangible assets 9,997 511
Security investment 12 -
Goodwill 8,426 -
Deferred tax assets - non-current portion 462 460
TOTAL ASSETS $114,527 $29,116
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $4,000 $1,077
Accruals 6,181 763
Taxes payable 1,660 1,115
Payable for acquisition of business 7,500 593
Short term debts 2,272 -
Deferred income 831 887
Due to director 76 70
Deferred tax liabilities 84 -
Total current liabilities 22,604 4,505
LONG TERM LIABILITIES
Notes payable - long term $2,010 $-
Total liabilities $24,614 $4,505
MINORITY INTEREST IN
CONSOLIDATED SUBSIDIARIES $94 $-
SHAREHOLDERS' EQUITY
Common stock, $0.01 par value;
100,000,000 shares authorized
31,824,938 (2006) and 21,558,000
(2005) shares issued and outstanding $319 $216
Additional paid-in capital 45,004 4,494
Retained earnings 41,483 18,552
Statutory surplus reserve fund 804 804
Accumulated other comprehensive income 2,209 545
Total shareholders' equity 89,819 24,611
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $114,527 $29,116
CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
Expressed in thousands of U.S. dollars
(Except for share amounts)
2006 2005 2004
Revenues $106,989 $32,688 $16,056
Cost of goods sold 75,976 23,473 8,796
Gross profit 31,013 9,215 7,260
Selling and marketing 1,511 288 391
General and administrative 3,036 1,189 513
Depreciation and amortization 1,124 260 225
Income from operations 5,342 7,478 6,131
Rental income from related parties - 439 478
Other income (expense), net 1,162 129 (12)
Equity in net income of
affiliated companies 307 - -
Income before income taxes 26,811 8,046 6,597
Minority interest in income of
consolidated subsidiaries (9) - -
Income taxes 3,889 780 873
Net income 22,931 7,266 5,724
Foreign currency translation gain 1,664 545 -
COMPREHENSIVE INCOME $24,595 $7,811 $5,724
NET INCOME PER SHARE
BASIC $0.88 $0.39 $0.34
DILUTED $0.87 $ 0.39 $0.34
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING
BASIC 26,052,519 18,521,479 17,000,000
DILUTED 26,253,745 18,521,479 17,000,000
CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
Expressed in thousands of U.S. dollars
2006 2005 2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $22,931 $7,266 $5,724
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 1,124 260 225
Allowance for doubtful accounts - - 239
Deferred income taxes 10 (590) -
Amortization of loan origination fees 37 - -
Gain on disposal of plant and equipment (15) - -
Issue of warrants for investor
relation services 185 - -
Equity in net income of
affiliated companies (307) - -
Minority interest (9) - -
Changes in operating assets
and liabilities:
(Increase) decrease in:
Accounts receivable (13,879) (7,270) 526
Related party receivables 3,768 369 (888)
Other receivables (401) (337) (78)
Inventories (13,098) 771 (4,537)
Advances to suppliers (1,323) 1,780 114
Prepayment & deposits (3,533) - -
(Decrease) increase in:
Accounts payable and accruals 6,300 (3,630) (393)
Payable for acquisition of business - 593 -
Deferred income (26) 887 -
Custom deposit - - - (540)
Taxes payable 582 700 292
Related party payable (9) - -
Deferred tax liabilities 97 - -
Net cash provided by
operating activities 2,434 799 684
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction in progress - - 676
Additions to plant and equipment (5,114) (49) (786)
Additions to intangible assets, other
than through business acquisition (107) - -
Proceeds from dispositions of
non current assets 571 - -
Government grant received 21 - -
Net cash outflow on acquisition
of net assets of businesses
acquired (net of cash acquired) (6,539) (30) -
Net cash used in
investing activities (11,168) (79) (110)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash received from (advanced to)
directors 9 1,063 (1,056)
Proceeds from bank borrowings 3,495 - -
Warrants exercised 123 - -
Issue of common stock, net of
issuing expenses 32,835 - -
Net cash provided by (used in)
financing activities 36,462 1,063 (1,056)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 27,728 1,783 (482)
Effect of exchange rate
changes on cash 975 461 -
Cash and cash equivalents,
beginning of year 2,277 33 515
CASH AND CASH EQUIVALENTS,
END OF YEAR $30,980 $2,277 $33