China Information Security Technology, Inc. Announces First Quarter 2010 Results

Conference Call

China Information Security Technology will host a corresponding conference call and live webcast at 8:00 am Eastern Daylight Time (8:00 pm, Beijing time) on Monday, May 10, 2010.

    The dial-in details for the live conference call are as follows:
    - U.S. Toll Free Number:           1-866-519-4004
    - International Dial-in Number:    +65-6723-9381
    - Mainland China Toll Free Number: 10-800-819-0121
    - Hong Kong Toll Free Number:      80-093-0346
    Conference ID: 73230958

A live and archived webcast of the conference call will be available on the Investor Relations section of China Information Security's website at http://www.chinacpby.com .

A telephone replay of the call will be available from May 10, 2010 through May 17, 2010.

    The dial-in details for the replay are as follows:
    - U.S. Toll Free Number:           1-866-214-5335
    - International Dial-in Number:    +61-2-8235-5000
    Conference ID: 73230958

About China Information Security Technology, Inc.

China Information Security Technology, Inc., together with its subsidiaries, specialized in Geographic Information System ("GIS"), digital public security and hospital information systems, and aims to be the largest GIS software provider in the People's Republic of China. Headquartered in Shenzhen, China, the Company's total solutions include specialized software, hardware, systems integration, and related services organized into three business segments - Digital Public Security Technology ("DPST"), Geographic Information Systems ("GIS"), and Digital Hospital Information System ("DHIS"). To learn more about the Company, please visit its corporate website at http://www.chinacpby.com .

Safe Harbor Statement

This press release may contain certain "forward-looking statements" relating to the business of China Information Security Technology, Inc., and its subsidiary companies. All statements, other than statements of historical fact included herein are "forward-looking statements" including statements regarding: the significance of the Company's new contract wins during the quarter; the ability of the Company to continue to strengthen its position in the industry by winning and successfully performing under national contracts; the ability of the Company to secure future opportunities in the market by leveraging its R&D capabilities and reputation; the continued support of the Chinese government for domestic GIS products; the general ability of the Company to achieve its commercial objectives, including the Company's plan to sustain the growth while creating shareholder value; the business strategy, plans and objectives of the Company and its subsidiaries; and any other statements of non-historical information. 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. Investors 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.

    For further information, please contact:

    China Information Security Technology, Inc.
     Iris Yan
     Tel:   +86-755-8370-4767
     Email: ir@chinacpby.com
     Web:   http://www.chinacpby.com

    Christensen
     Kathy Li
     Tel:   +1-480-614-3036
     Email: kli@christensenir.com

     Roger Hu
     Tel:   +86-158-1049-5326
     Email: rhu@christensenir.com



                    CHINA INFORMATION SECURITY TECHNOLOGY, INC.
                       CONDENSED CONSOLIDATED BALANCE SHEETS
                       MARCH 31, 2010 AND DECEMBER 31, 2009

                                                  March 31,       December 31,
                                                     2010            2009
    ASSETS                                       (Unaudited)

    CURRENT ASSETS
    Cash and cash equivalents                $    11,004,980   $  13,478,633
    Restricted cash                                6,316,960       5,859,910
    Accounts receivable:
    Billed, net of allowance for doubtful
     accounts of $3,103,000 and $3,123,000,
     respectively                                 13,667,821      23,907,035
      Unbilled                                    67,705,717      47,851,638
    Bills receivable                                 102,690              --
    Advances to suppliers                          3,602,609       6,924,035
    Amount due from related parties, net of
     allowance for doubtful accounts of
     $0 and $73,000, respectively                    138,237         129,937
    Inventories, net of provision of
     $208,000 and $184,000, respectively          16,596,430      10,936,004
    Other receivables and prepaid expenses        16,366,468      15,405,089
    Deferred tax assets                            1,814,416       1,719,327
    TOTAL CURRENT ASSETS                         137,316,328     126,211,608

    Deposit for software purchase                        4,634,987              1,426,452
        Long-term  investments                                                    2,862,016              2,862,016
        Property,  plant  and  equipment,  net                        52,777,136            53,586,514
        Land  use  rights,  net                                                      2,126,824              1,907,611
        Intangible  assets,  net                                                13,192,322            13,556,141
        Goodwill                                                                            50,609,866            50,609,866
        Deferred  tax  assets                                                            380,933                  668,730
        TOTAL  ASSETS                                                          $      263,900,412      $  250,828,938

        LIABILITIES  AND  EQUITY

        CURRENT  LIABILITIES
        Short-term  bank  loans                                        $        12,214,242      $    15,927,780
        Accounts  payable                                                            18,681,672            20,159,317
        Bills  payable                                                                  10,897,636            12,658,029
        Advances  from  customers                                                3,908,165              3,950,744
        Amount  due  to  related  parties,
          current  portion                                                                  583,736                  583,736
        Accrued  payroll  and  benefits                                      1,283,047              3,142,240
        Other  payables  and  accrued  expenses                      12,369,519            14,252,918
        Contingent  consideration,  current
          portion                                                                              1,529,226              1,857,994
        Income  tax  payable                                                          2,336,989              3,290,245
        TOTAL  CURRENT  LIABILITIES                                          63,804,232            75,823,003

        Long-term  bank  loans                                                      4,019,580              1,907,100
        Amount  due  to  related  parties,
          long-term  portion                                                          6,043,037                            --
        Contingent  consideration,  net  of
          current  portion                                                              2,169,068              2,635,397
        Deferred  tax  liabilities                                              2,455,383              2,564,604
        TOTAL  LIABILITIES                                                          78,491,300            82,930,104

        COMMITMENTS  AND  CONTINGENCIES                                                  --                            --



        EQUITY
        Common  stock,  par  $0.01;  authorized
          capital  200,000,000  shares;  shares
          issued  and  outstanding  2010:
          51,811,787:  2009:  49,905,141  shares            $          252,615      $            233,548
        Treasury  stock,  6,000  shares,  at  cost                      (11,468)                  (11,468)
        Additional  paid-in  capital                                      89,357,316              78,495,062
        Reserve                                                                              8,345,371                8,345,371
        Retained  earnings                                                        66,743,383              60,462,275
        Accumulated  other  comprehensive
          income                                                                              5,253,568                5,016,575
        Total  equity  of  the  Company                                  169,940,785            152,541,363
        Non-controlling  interest                                          15,468,327              15,357,471
        Total  equity                                                                185,409,112            167,898,834

        TOTAL  LIABILITIES  AND  EQUITY                                263,900,412            250,828,938



                                        CHINA  INFORMATION  SECURITY  TECHNOLOGY,  INC.
                                        CONDENSED  CONSOLIDATED  STATEMENTS  OF  INCOME
                                        THREE  MONTHS  ENDED  MARCH  31,  2010  AND  2009
                                                                          (Unaudited)

                                                                                                Three  Months        Three  Months
                                                                                                        Ended                      Ended
                                                                                                    March  31,                March  31,
                                                                                                          2010                        2009

        Revenue  -  Products                                                $        6,347,970    $        2,821,128
        Revenue  -  Software                                                        15,178,632              9,011,466
        Revenue  -  System  integration                                      2,783,883              2,955,457
        Revenue  -  Others                                                                  994,622                  192,133
        TOTAL  REVENUE                                                                  25,305,107            14,980,184

        Cost  -  Products  sold                                                      5,240,422              2,612,791
        Cost  -  Software  sold                                                      6,401,411              2,700,941
        Cost  -  System  integration                                            2,475,810              2,145,752
        Cost  -  Others                                                                          70,011                    37,436
        TOTAL  COST                                                                        14,187,654              7,496,920

        GROSS  PROFIT                                                                    11,117,453              7,483,264

        Administrative  expenses                                              (2,770,031)          (2,216,347)
        Research  and  development  expenses                              (569,431)              (503,852)
        Selling  expenses                                                            (1,214,562)              (593,716)
        INCOME  FROM  OPERATIONS                                                  6,563,429              4,169,349

        Subsidy  income                                                                      162,782                  197,789
        Other  income,  net                                                                966,799                  181,367
        Interest  income                                                                      18,891                    76,917
        Interest  expense                                                                (148,891)                (60,210)
        INCOME  BEFORE  INCOME  TAXES                                          7,563,010              4,565,212

        Income  tax  expense                                                        (1,171,083)              (588,396)
        NET  INCOME                                                                          6,391,927              3,976,816

        Less:  Net  income  attributable  to  the
          non-controlling  interest                                              (110,819)              (219,823)

        NET  INCOME  ATTRIBUTABLE  TO  THE
          COMPANY                                                                    $        6,281,108    $        3,756,993

        Weighted  average  number  of  shares
        Basic                                                                                  51,213,463            47,520,030
        Diluted                                                                              51,213,463            47,520,030

        Earnings  per  share  -  Basic  and
          Diluted
        Basic  -  Net  income  attributable  to
          the  Company's  common  stockholders                $                  0.12    $                  0.08
        Diluted  -  Net  income  attributable  to
          the  Company's  common  stockholders                $                  0.12    $                  0.08


                                                                                                Three  Months        Three  Months
                                                                                                        Ended                      Ended
                                                                                                    March  31,                March  31,
                                                                                                          2010                        2009

        Net  income                                                          $            6,391,927      $        3,976,816
        Other  comprehensive  income:
        Foreign  currency  translation  gain                              237,030                    451,742
        Total  other  comprehensive  income
        Comprehensive  income                                                    6,628,957                4,428,558
        Comprehensive  income  attributable  to
          the  non-controlling  interest                                    (110,856)                (219,823)
        Comprehensive  income  attributable  to
          the  Company                                                      $            6,518,101      $        4,208,735



                                            CHINA  INFORMATION  SECURITY  TECHNOLOGY,  INC.
                                      CONDENSED  CONSOLIDATED  STATEMENTS  OF  CASH  FLOWS
                                            THREE  MONTHS  ENDED  MARCH  31,  2010  AND  2009
                                                                            (Unaudited)

                                                                                                        Three  Months  Three  Months
                                                                                                                Ended              Ended
                                                                                                              March  31,      March  31,
                                                                                                                  2010                2009
        OPERATING  ACTIVITIES
        Net  income                                                                              $6,391,927    $3,976,816
        Adjustments  to  reconcile  net  income  to  net  cash
          used  in  operating  activities:
        Depreciation                                                                            1,524,276          915,105
        Amortization  of  intangible  assets                                      499,657          428,006
        Stock-based  compensation                                                                  --          183,600
        (Gain)/  loss  on  disposal  of  property  and  equipment      (5,037)            8,329
        Change  in  allowance  for  accounts  receivable                  438,272          335,129
        Provision  for  obsolete  inventories                                      23,835                    --
        Change  in  deferred  income  tax                                                83,458          (18,597)
        Change  in  fair  value  of  contingent  consideration      (795,097)                  --
        Changes  in  operating  assets  and  liabilities,  net
          of  effects  of  business  acquisitions:
        Increase  in  restricted  cash                                                (456,894)                  --
        Increase  in  accounts  receivable                                  (10,152,521)  (3,278,151)
        Decrease  in  advances  to  suppliers                                  3,484,877                    --
        Increase  in  other  receivables  and
          prepaid  expenses                                                                (1,452,006)  (1,883,282)
        Increase  in  inventories                                                    (5,890,035)  (5,489,875)
        (Decrease)  /  increase  in  accounts  payable                (3,236,934)        625,672
        (Decrease)  /  increase  in  advances  from  customers        (41,873)    3,783,613
        Increase  in  amount  due  to  related  parties                      844,549              7,472
        Decrease  in  amount  due  from  related  parties                            --            62,663
        Decrease  in  other  payables  and  accrued  expenses    (1,648,862)  (1,119,926)
        Decrease  in  income  tax  payable                                          (952,931)        (26,316)
        Net  cash  used  in  operating  activities                      (11,341,339)  (1,489,742)

        INVESTING  ACTIVITIES
        Proceeds  from  sales  of  property  and  equipment                30,797            21,068
        Purchase  of  land-use-rights                                                (384,187)                  --
        Purchases  of  property  and  equipment                                (532,107)      (231,528)
        Capitalized  and  purchased  software  development
          costs                                                                                          (135,962)      (147,588)
        Deposit  for  software  purchase                                        (3,207,441)      (717,752)
        Net  cash  used  in  investing  activities                        (4,228,900)  (1,075,800)

        FINANCING  ACTIVITIES
        Borrowing  of  short-term  loans                                          8,250,529                    --
        Borrowing  of  short-term  shareholders'  loans              6,026,550                    --
        Borrowing  of  long-term  loans                                            4,018,210                    --
        Repayment  of  short-term  loans                                      (10,872,150)                  --
        Repayment  of  long-term  loans                                          (4,018,210)                  --
        Issued  common  stock                                                              9,611,811                    --
        Repurchase  of  common  stock                                                              --          (11,468)
        Net  cash  provided  by  /  (used  in)  financing
          activities                                                                            13,016,740          (11,468)

        Effect  of  exchange  rate  changes  on  cash  and  cash
          equivalents                                                                                  79,846            46,153

        NET  DECREASE  IN  CASH  AND  CASH  EQUIVALENTS                (2,473,653)  (2,530,857)
        CASH  AND  CASH  EQUIVALENTS,  BEGINNING                          13,478,633      9,565,252
        CASH  AND  CASH  EQUIVALENTS,  ENDING                              $11,004,980    $7,034,395



        Selected  information  by  segment  is  presented  in  the  following  tables  for
        the  three  months  ended  March  31,  2010  and  2009.

                                                                                                      Three  Months    Three  Months
                                                                                                        Ended  March    Ended  March
                                                                                                          31,  2010          31,  2009
                                                                                                        (Unaudited)    (Unaudited)
        Revenues(1)
                  DIST  Segment                                                          $  12,097,423  $    7,520,456
                  GIS  Segment                                                                10,637,080        5,859,666
                  DHIS  Segment                                                                2,570,604        1,600,062
            (1)  Revenues  by  operating  segments
                    exclude  inter-company  transactions            $  25,305,107  $  14,980,184
        Percentage  to  Revenue
                  DIST  Segment                                                                        47.8%                50.2%
                  GIS  Segment                                                                          42.0%                39.1%
                  DHIS  Segment                                                                        10.2%                10.7%

 

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