China Fire & Security Group Announces First Quarter 2010 Financial Results

BEIJING, May 10 /PRNewswire-Asia/ -- China Fire & Security Group, Inc. (Nasdaq: CFSG) ("China Fire" or "the Company"), a leading total solutions provider for industrial fire protection systems in China, today announced its financial results for the first quarter ended March 31, 2010.

    Highlights for the first quarter of 2010:

    -- Successfully signed and executed the first retrofitting contract of $92
       million with Wuhan Iron and Steel Group.
    -- Revenue increased 25.3% year-over-year to $20.9 million.
    -- Gross margin increased to 55.5%, from 48.8% in the previous quarter.
    -- Non-GAAP Net income increased 6.7% year-over-year to $6.3 million.
    -- Non-GAAP Diluted EPS increased 6.0% year-over-year to $0.22.



                                    First Quarter,      First Quarter, Change
    (in US Dollars)                      2010                2009        (%)
    GAAP Net Income                   5,247,225           5,645,603     -7.1%
    Non-Cash Option and
     Restricted Stock
     Expenses                         1,035,674             245,049    322.6%
    Non-GAAP Net Income               6,282,899           5,890,652      6.7%
    GAAP Diluted EPS                       0.19                0.20     -7.7%
    Non-GAAP Diluted EPS                   0.22                0.21      6.0%

First Quarter 2010 Results

For the first quarter of 2010, the Company's revenue increased 25.3% year over year to $20.9 million, compared to $16.7 million for the same period in 2009. This increase was primarily driven by an increase in all business segments including system contracting projects, product sales and maintenance services and the successful implementation of the Wuhan Iron and Steel's retrofitting contract during the period.

Gross margin for the first quarter of 2010 was 55.5%, compared to a gross margin of 61.6% for the first quarter of 2009. The decrease in the Company's gross margin was primarily due to the contract mix during the period where lower margin contracts contributed to a higher percentage of revenues.

The Company's operating expenses were $5.5 million for the first quarter of 2010, compared to $4.1 million for the same period of 2009. The increase in the Company's operating expenses was primarily due to an increase of $0.8 million in non-cash option and restricted stock expenses during this quarter. If this non-cash item is excluded, then operating expenses only increased 17.0% on annual basis, which is slower than the Company's growth in revenue.

The Company's operating income for the first quarter of 2010 was $6.1 million, compared to $6.2 million for the same period last year.

The Company's GAAP net income for the first quarter of 2010 was $5.2 million, compared to $5.6 million for the same period of 2009, representing an annual decrease of 7.1 %. This decrease in GAAP net income was mainly attributable to a lower gross margin and higher operating expenses. As a result, the Company's fully diluted EPS was $0.19 in the first quarter of 2010, versus $0.20 in the first quarter of 2009.

If the non-cash option and restricted stock expenses are excluded, then the Company's non-GAAP net income was $6.3 million during the first quarter of 2010, compared to $5.9 million during the first quarter of 2009, representing an annual increase of 6.7%. The Company's non-GAAP diluted EPS was $0.22 for the first quarter of 2010, compared to $0.21 for the same period of 2009.

Liquidity and Capital Resources

As of March 31, 2010, the Company had cash and cash equivalents of $25.1 million, a decrease of $9.8 million from $34.9 million at the end of 2009. During the first quarter, the Company used $7.1 million cash for operations as compared to a positive operating cash flow of $2.5 million in the same period of last year. This quarterly decrease in the Company's cash position and negative operating cash flow during the first quarter of 2010 were due to a temporary delay in the initial payment of $18 million from the Wuhan Iron and Steel's retrofitting project. The Company is expected to receive the initial payment during the second quarter of 2010.

Financial Outlook for 2010

Based on the current backlog of $141 million, the Company reaffirms that for the year 2010, its revenue is expected to increase by between 66% to 78% to a range of $135 million to $145 million. Net income is estimated to grow 89% to 105% or between $47 million to $49 million, $1.65 to $1.70 per diluted share.

Mr. Weigang Li, executive chairman of China Fire commented, "We are pleased with our first quarter results as we successfully signed and implemented our first retrofitting project in the iron and steel industry. Through our internal marketing research, we have found the huge potential in the retrofitting market for iron and steel industry, which is approximately $2 billion. We are confident that China Fire will be able to secure more retrofitting contracts in future. Furthermore, in addition to our core iron and steel vertical, we continue to pursue expansions into other verticals, including power, transportation, petrochemical as well as international markets."

Conference Call

The Company will hold a conference call to discuss the financial results at 8:00 a.m. ET today, May 10, 2010. The Company invites the participants to join the call by dialing +1-719-325-4814. To listen to the live webcast of the event, please go to http://www.chinafiresecurity.com and click on the Investor Relations section or the link http://viavid.net/dce.aspx?sid=000074D5 where conference calls are posted. Please go to the link 15 minutes early to download and install any necessary audio software.

A replay of the call will be available from May 10, 2010 to May 17, 2010. Listeners may access the recording by dialing +1-719-457-0820, passcode: 3688604.

About China Fire & Security Group, Inc.

China Fire & Security Group, Inc. (NASDAQ: CFSG), through its wholly owned subsidiary, Sureland Industrial Fire Safety Limited ("Sureland"), is a leading total solution provider of industrial fire protection systems in China. Leveraging on its proprietary technologies, China Fire is engaged primarily in the design, manufacturing, sales and maintenance services of a broad product portfolio including detectors, controllers, and fire extinguishers. Via its nationwide direct sales force, China Fire has built a solid client base including major companies in iron and steel, power, petrochemical and transportation industries throughout China. China Fire has a seasoned management team with strong focus on standards and technologies. Currently, China Fire has a comprehensive portfolio of patents covering fire detection, system control and fire extinguishing technologies. Founded in 1995, China Fire is headquartered in Beijing with about 430 employees in more than 30 sales and project offices throughout China. For more information about the Company, please go to http://www.chinafiresecurity.com .

Cautionary Statement Regarding Forward Looking Information

This presentation may contain forward-looking information about China Fire & Security Group, Inc. and its wholly owned subsidiary Sureland which are intended to be covered by the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts. These statements can be identified by the use of forward-looking terminology such as "believe," "expect," "may," "will," "should," "project," "plan," "seek," "intend," or "anticipate" or the negative thereof or comparable terminology, and include discussions of strategy, statements about industry trends and China Fire & Security Groups' future performance, operations and products. This and other "Risk Factors" are contained in China Fire & Security Groups' public filings with the SEC.

    For more information, please contact:

     China Fire & Security Group, Inc.
     Amy Gao, Investor Relations
     Tel:   +86-10-8441-7400
     Email: [email protected]



                CHINA FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                    AS OF MARCH 31, 2010 AND DECEMBER 31, 2009

                                 ASSETS
                                               March 31,         December 31,
                                                  2010               2009
    CURRENT ASSETS:                           (Unaudited)
     Cash and cash equivalents           $     25,137,358  $      34,976,880
     Restricted cash                            5,741,283          1,837,134
     Notes receivable                           5,609,303          4,274,268
     Accounts receivable, net of
      allowance for doubtful accounts
      of $7,160,723 and $6,539,787 as of
      March 31, 2010 and December 31,
      2009, respectively                       31,862,625         30,989,569
     Receivables from and prepayments to
      related party                             1,759,452            551,792
     Other receivables                            641,015            368,679
     Inventories                                5,577,035          5,360,520
     Costs and estimated earnings in
      excess of billings                       43,713,982         36,562,573
     Employee advances                          1,409,465            953,625
     Prepayments and deferred expenses          3,633,930          3,397,358
       Total current assets                   126,624,125        121,046,728
    PLANT AND EQUIPMENT, net                    8,761,779          8,617,521
    OTHER ASSETS:
     Restricted cash - non current              2,020,865          3,602,906
     Accounts receivable - retentions           3,977,360          3,463,998
     Deferred expenses - non current              116,045            116,045
     Investment in joint ventures                 480,547            477,837
     Intangible assets, net                     1,022,333          1,041,156
       Total other assets                       7,617,150          8,701,942
         Total assets                    $    143,003,054  $     138,366,191

                              LIABILITIES AND EQUITY
    CURRENT LIABILITIES:
     Accounts payable                    $      6,515,131  $       6,903,961
     Accounts payable to related party                 --            272,994
     Customer deposits                          2,277,836          2,182,790
     Billings in excess of costs and
      estimated earnings                        1,247,992          1,429,999
     Other payables                               488,169            333,121
     Accrued liabilities                       13,091,597         13,841,300
     Taxes payable                              8,752,516          9,002,470
       Total current liabilities               32,373,241         33,966,635
    COMMITMENTS AND CONTINGENCIES
     EQUITY:
     Common stock, $0.001 par value,
      65,000,000 shares authorized,
      27,595,541 shares issued and
      outstanding as of March 31, 2010
      and December 31, 2009, respectively          27,595             27,595
     Additional paid-in-capital                21,636,811         20,601,138
     Statutory reserves                         7,147,795          7,147,795
     Retained earnings                         74,513,274         69,266,049
     Accumulated other comprehensive
      income                                    7,303,764          7,324,237
       Total shareholders' equity             110,629,239        104,366,814
       Noncontrolling interest                        574             32,742
       Total equity                           110,629,813        104,399,556
         Total liabilities and equity    $    143,003,054  $     138,366,191



                CHINA FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES
     CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
               FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
                                    UNAUDITED
                                                  Three Months Ended March 31,
                                                      2010           2009
    REVENUES
      System contracting projects              $   15,521,748 $   13,003,184
      Products                                      4,530,599      3,124,322
      Maintenance services                            891,379        584,705
          Total revenues                           20,943,726     16,712,211
    COST OF REVENUES
      System contracting projects                   7,311,285      4,807,258
      Products                                      1,454,067      1,211,653
      Maintenance services                            546,218        396,541
          Total cost of revenues                    9,311,570      6,415,452
    GROSS PROFIT                                   11,632,156     10,296,759
    OPERATING EXPENSES
      Selling and marketing                         1,996,198      1,902,318
      General and administrative                    2,940,077      1,680,639
      Depreciation and amortization                   200,106        193,394
      Research and development                        396,896        314,030
          Total operating expenses                  5,533,277      4,090,381
    INCOME FROM OPERATIONS                          6,098,879      6,206,378
    OTHER INCOME (EXPENSES)
       Other income                                    39,344        111,953
       Other expenses                                  (4,081)        (1,257)
       Interest income                                 83,800        122,096
          Total other income (expenses)               119,063        232,792
    INCOME BEFORE PROVISION FOR INCOME TAXES
     AND
    NONCONTROLLING INTEREST                         6,217,942      6,439,170
    PROVISION FOR INCOME TAXES                      1,002,874        793,567
    NET INCOME BEFORE NONCONTROLLING INTEREST       5,215,068      5,645,603
    Less: Net loss attributable to
     noncontrolling interest                          (32,157)            --
    NET INCOME ATTRIBUTABLE TO CONTROLLING
     INTEREST                                       5,247,225      5,645,603
    OTHER COMPREHENSIVE INCOME
       Foreign currency translation adjustment $      (20,473)$     (178,217)
    COMPREHENSIVE INCOME                            5,226,752      5,467,386
    BASIC EARNINGS PER SHARE
       Weighted average number of shares       $   27,595,541 $   27,586,593
       Earnings per share                                0.19           0.20
    DILUTED EARNINGS PER SHARE
       Weighted average number of shares       $   28,397,085 $   28,210,911
       Earnings per share                                0.19           0.20

SOURCE China Fire & Security Group, Inc.