China Security & Surveillance Technology Reports Fourth Quarter and Full Year 2007 Financial Results

-- 4Q07 Revenue Increases 106% to $84.2 Million Compared to 4Q06 -- 4Q07 Net Income increases 124% to $14.82 Million -- Full Year 2007 Revenue increases 124% to $240.2 Million --Full Year Net Income increases 54% to $35 Million

SHENZHEN, China, March 10 /Xinhua-PRNewswire/ -- China Security & Surveillance Technology, Inc. ("China Security" or the "Company") , a leading provider of digital surveillance technology in China, today reported its financial results for the fourth quarter and full year ending December 31, 2007.

Full Year 2007

The Company reported GAAP earnings per diluted share of $0.91 for the full year of 2007 compared to $0.85 in the full year 2006. GAAP results for the full year of 2007 include: (1) approximately $13.7 million, or $0.35 per diluted share, of non-cash expense related to the redemption accretion on convertible notes (as described below under the caption "Explanation of Redemption Accretion"); (2) approximately $5.0 million, or $0.13 per diluted share, of non-cash expense related to depreciation and amortization of long- lived assets due to our acquisition of subsidiaries, and (3) approximately $4.2 million, or $0.11 per diluted share, of non-cash expense related to employee stock compensation recognized pursuant to SFAS 123 (R). Additionally, the Company realized a one-time pre-tax gain of $13.63 million, or $0.30 per diluted share (after tax effect), related to the disposal of properties and land use rights during the year. Excluding these non-cash expenses and one- time gain, diluted earnings per share was $1.20, compared to $0.89 per diluted share in 2006 (see the "Reconciliation of GAAP to non-GAAP Measures" toward the end of this release). Diluted share count increased 44% in 2007 to 38.8 million from 26.9 million in 2006. Shares associated with the Company's convertible bond are not included in the GAAP fully diluted share count, as the corresponding increase in net income associated with the accruals would impact earnings per share in an anti-dilutive manner.

Revenue increased 124% to $240.2 million compared to $106.9 million in 2006. Revenue growth continues to be positively impacted by the increasing size of Safe City government contracts, as well as growth from smaller corporate contracts. Historically, the average contract size for safe city projects was $1-1.5 million. The Company is still receiving other contract awards sized well below that average, but recent contracts from Safe City projects have ranged from $5-8 million. These larger Safe City contracts tend to have longer time duration to fulfill -- in some cases as long as 22-25 weeks, versus historical durations of 6-12 weeks. Organic revenue during 2007 was approximately $190.7 million, or 79.4% or total revenue (which included the 2007 fourth quarter revenue contribution from Cheng Feng). Non-organic revenue, or revenue of acquired companies was approximately $49.5 million or 20.6% of total revenue in 2007 (which included the three quarters' revenue contribution from Cheng Feng). As a result, organic revenues grew during the year by $86.3 million, or 83% from $104.4 million in 2006.

Full year 2007 gross profits increased $38.5 million, or 124%, to $69.5 million from $31.0 million for 2006. Gross margin for the year was 28.9%, flat with 2006.

Income from operations in 2007 increased 68.8% to $42.7 million from $25.3 million in the prior year. Operating margin decreased to 17.7% from 23.6% in 2006. Such decrease was primarily due to the increase of our selling and marketing expenses as well as the general and administrative expenses. Net income in 2007 increased 54% to $35.3 million, up from $22.9 million in 2006. Net income per share was $0.91 versus $0.85 in 2006.

Fourth Quarter 2007

For the fourth quarter 2007, the Company reported GAAP earnings per diluted share of $0.35 compared to $0.20 in the fourth quarter 2006. GAAP results for the fourth quarter of 2007 include: (1) approximately $4.4 million, or $0.09 per diluted share, of non-cash expense related to the redemption accretion on convertible notes; (2) approximately $1.7 million, or $0.04 per diluted share, of non-cash expense related to depreciation and amortization of long-lived assets due to our acquisition of subsidiaries, and (3) approximately $2.2 million, or $0.05 per diluted share, of non-cash expense related to employee stock compensation recognized pursuant to SFAS 123 (R). Additionally, in the fourth quarter of 2007, the Company realized a one-time pre-tax gain of $8.11 million, or $0.16 per diluted share (after tax effect), related to the disposal of property and land use right during the year. Excluding these non-cash expenses and the one-time gain, diluted earnings per share was $0.38, compared to $0.22 per diluted share in the fourth quarter 2006 (see "About Non-GAAP Financial Measures" toward the end of this release). Diluted share count increased 28% in the fourth quarter 2007 to 42.15 million from 33.17 million in the fourth quarter of 2006.

Fourth quarter revenue increased 106% to $84.2 million compared to $40.9 million in the fourth quarter 2006. Organic revenue during the fourth quarter was approximately $69.3 million, or 82.3% of total revenue (which included the fourth quarter 2007 revenue contribution from Cheng Feng). Non-organic revenue, or revenue of acquired companies totaled approximately $14.9 million or 17.7% of total revenue in the fourth quarter 2007. As a result, organic revenues grew during the fourth quarter by $28.4 million, or 69.3% from $40.9 for the same period last year.

In the fourth quarter gross profits increased $14 million, or 130%, to $24.7 million from $10.7 million for the same period last year. Gross margin for the fourth quarter was 29.3%, as compared to 26.2% for the same period last year. The increase in gross margin reflected the growing recognition of sales of some higher-margin Safe City projects.

Income from operations in the fourth quarter increased 63.9% to $13.6 million from $8.3 million for the same period in 2006. Operating margin decreased to 16.1% from 20.2% in the fourth quarter last year. Net income in the fourth quarter of 2007 increased 124% to $14.8 million, up from $6.6 million in the same quarter last year. Net income per share was $0.35 versus $0.20 in the fourth quarter 2006.

The Company's cash position at the end of the year was $89.1 million, up from $79.8 million at the end of the third quarter. Total debt at the end of 2007 was $137.2 million, up from $130.5 million at the end of the third quarter of 2007.

Mr. Guo Shen Tu, Chief Executive Officer of China Security, commented, "We are encouraged by the integration of our 2007 acquisitions and partnerships, which are contributing nicely to our revenue growth, while providing synergies to our overall business. In the fourth quarter we continued to see significant demand from government Safe-City contracts, and importantly, the size, duration, and potential margins of the contracts we are signing are continuing to increase. Over the next four quarters, we will continue to focus our energies on integrating our acquisitions and generating revenue from the manufacturing and systems integration businesses, while building our operating services and international products divisions to prepare them to contribute more substantially to overall revenue growth in 2009."

Financial Outlook

For the first quarter of 2008, the Company expects to achieve revenues between $68-$70 million. Excluding the non-cash charges related to the redemption amount payable on convertible notes, the accrual of performance based employee compensation, and the depreciation and amortization of long lived assets related to the Company's recent acquisitions. The Company expects to achieve an adjusted net income of $13-$14 million and adjusted diluted earnings per share of $0.31-$0.34 in the first quarter of 2008.

The Company estimates that non-cash interest expenses associated with the redemption accretion on convertible notes, the employee stock compensation and the depreciation and amortization of long lived assets related to the Company's recent acquisitions for the first quarter of 2008, will be approximately $4.4 million, $3.1 million and $1.9 million, respectively.

For the full year 2008, the Company expects to achieve revenues between $350-$370 million. The Company expects to achieve an adjusted net income of $65-$75 million and adjusted diluted earnings per share of $1.50-$1.75. The major contributors to results should continue to be system installation and manufacturing of security and safety products with marginal contribution coming from operating services and international products. The Company expects non-cash expense related to the redemption amount payable on convertible notes will be approximately $17.6 million in 2008. Going forward, we expect to continue to incur accrual non cash stock compensation for 2008. We also expect higher depreciation and amortization costs related to the intangible assets from an increasing number of acquisitions.

Mr. Tu concluded, "We are more excited than ever about the future of China Security. We believe we have built the strongest foundation among our recent acquisitions and partnerships to make us a market leader in manufacturing and equipment. We will continue to deploy our resources and our efforts to build these segments of our business, while at the same time increasing our focus on our burgeoning operating services and international products divisions. We believe that the security expertise of our operating team will enable us to grow those businesses over time much the same way we've successfully grown the manufacturing and systems integration businesses. Demand for our products and our expertise continues to grow, and we plan to be ready with solutions to all security needs.

In the coming year, we expect to strengthen our foothold as a market leader and consolidator in our business. We believe we have the best possible strategy for growing internally and through strategic acquisitions in order to position China Security as the leader in providing turnkey security solutions. We expect that as our spectrum of products and services grows, we will become the logical choice for customers seeking comprehensive security solutions. We're confident that our focus on sophisticated security needs in the Chinese marketplace will enable us to stay ahead of demand and continue to report strong financial results."

Explanation of Redemption Accretion

The Company raised $60 million and $50 million through two guaranteed senior unsecured convertible note financings with Citadel in February 2007 and April 2007, respectively. These notes bear interest at a rate of 1% per annum and are due in 2012. Under the indentures, if the notes are not converted before their respectively maturities, the notes are to be redeemed by the Company on the maturity date at a redemption price equal to 100% of the principal amount of the notes then outstanding plus an additional amount of 15% per annum, calculated on a quarterly compounded basis, plus any accrued and unpaid interest.

As of December 31st, the Company accrued $13.7 million as a redemption amount payable under the notes, which was included in interest expense in the income statement of 2007. Unlike the annual interest rate of 1% that the Company is actually paying out to the note holders under the note on a semi- annual basis, the Company would only pay the accrued redemption amount under the notes if the notes are not converted into the Company's common stock before their respective maturities and are redeemed in accordance with its terms. Nevertheless, the Company believes that it must accrue the entire redemption amount under U.S. generally accepted accounting principles. This accrual will result in non-cash expense of approximately $17.6 million annually beginning in 2008.

Conference Call

The Company will hold a conference call to discuss the financial results at 5:00 p.m. ET today. The Company invites you to join the call by dialing 913-312-1235. A live webcast of the conference call will be available at http://www.csst.com/ . A replay of the call will be available from March 10, 2008 to March 17, 2008. Listeners may access the replay by dialing 719-457- 0820, passcode: 4517900.

About China Security & Surveillance Technology, Inc.

Based in Shenzhen, China, China Security manufactures, distributes, installs and maintains security and surveillance systems throughout China. China Security has manufacturing facilities in China and a R&D facility which maintains an exclusive collaboration agreement with Beijing University. China Security has built a diversified customer base through its extensive sales and service network throughout China. To learn more about the Company visit http://www.csst.com/ .

About Non-GAAP Financial Measures

This press release contains non-GAAP financial measures for earnings that exclude the accrual for the redemption amount payable under certain outstanding convertible notes issued by the Company and certain other non-cash charges. China Security believes that these non-GAAP financial measures are useful to investors because they exclude non-cash charges that China Security's management excludes when it internally evaluates the performance of China Security's business and makes operating decisions, including internal budgeting, and performance measurement, because these measures provide a consistent method of comparison to historical periods. Moreover, management believes these non-GAAP measures reflect the essential operating activities of China Security. Accordingly, management excludes the expense arising from the accrual of redemption amounts payable under its outstanding convertible notes and certain other non-cash charges when making operational decisions. China Security believes that providing the non-GAAP measures that management uses to its investors is useful to investors for a number of reasons. The non-GAAP measures provide a consistent basis for investors to understand China Security's financial performance in comparison to historical periods. In addition, it allows investors to evaluate China Security's performance using the same methodology and information as that used by China Security's management. Non-GAAP measures are subject to inherent limitations because they do not include all of the expenses included under GAAP and because they involve the exercise of judgment of which charges are excluded from the non- GAAP financial measure. However, China Security's management compensates for these limitations by providing the relevant disclosure of the items excluded.

The following table provides the non-GAAP financial measure and the related GAAP measure and provides a reconciliation of the non-GAAP measure to the equivalent GAAP measure.

Reconciliation of GAAP to non-GAAP Measures, Table 1 (Unaudited) Exclude non cash items and one time gain (All amounts in millions of dollars, except for per share figures) Twelve Months Ended Three Months Ended December December December December 31, 2007 31, 2006 31, 2007 31, 2006 GAAP Net Income $35.32 $22.93 $14.82 $6.63 Add: Depreciation and amortization 5.04 1.12 1.70 0.55 Non-cash employee compensation 4.16 -- 2.10 -- Redemption accretion on convertible notes 13.70 -- 4.36 -- Less: Gain on disposal of land use rights and properties (net of tax) (11.59) -- (6.89) -- Adjusted Net Income (Excludes all non-cash items) $46.63 $24.05 $16.09 $7.18 GAAP Diluted EPS $0.91 $0.85 $0.35 $0.20 Add: Depreciation and amortization 0.13 0.04 0.04 0.02 Non-cash employee compensation 0.11 -- 0.05 -- Redemption accretion on convertible notes 0.35 -- 0.10 -- Less: Gain on disposal of land use rights and properties (net of tax) (0.30) -- (0.16) -- Adjusted Diluted EPS (Excludes all non-cash items) $1.20 $0.89 $0.38 $0.22 Diluted weighted average number of shares outstanding 38.80 26.94 42.15 33.17 Reconciliation of GAAP to non-GAAP Measures, Table 2 (Unaudited) Assuming conversion of Citadel notes, and exclude one time gain (All amounts in millions of dollars, except for per share figures) Twelve Months Ended Three Months Ended December 31, 2007 December 31, 2007 GAAP Net Income $35.32 $14.82 Add: Redemption accretion on convertible notes 13.70 4.36 Less: Gain on disposal of land use rights and properties (11.59) (6.89) Adjusted Net Income (Assuming conversion of Citadel notes and adjust for the Gain on disposal of land use rights and properties) $37.43 $12.29 Net Income Diluted EPS (Assuming conversion) $0.81 $0.31 Add: Redemption accretion on convertible notes 0.31 0.09 Less: Gain on disposal of land use rights (net of tax) (0.27) (0.14) Adjusted Diluted EPS (assuming conversion of Citadel notes and adjust for the Gain on disposal of land use rights and properties) $0.85 $0.26 Diluted weighted average number of shares outstanding (assuming conversion of Citadel notes) 43.50 47.60 * There were no convertible notes outstanding in the three and twelve months ended December 31, 2006. Safe Harbor Statement

This press release includes certain statements that are not descriptions of historical facts, but are forward-looking statements. Such statements include, among others, those concerning our expected financial performance and strategic and operational plans, our future operating results, our expectations regarding the market for security and surveillance products, our expectations regarding the continued growth of the security and surveillance market, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and that a number of risks and uncertainties could cause our actual results to differ materially from those anticipated, expressed or implied in the forward-looking statements. These risks and uncertainties include, but not limited to, the factors mentioned in the "Risk Factors" section of our Annual Report on Form 10-K for the year ended December 31, 2007, and other risks mentioned in our other reports filed with the Securities Exchange Commission, or SEC. Copies of filings made with the SEC are available through the SEC's electronic data gathering analysis retrieval system (EDGAR) athttp://www.sec.gov/. The words "believe," "expect," "anticipate," "project," "targets," "optimistic," "intend," "aim," "will" or similar expressions are intended to identify forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. The Company assumes no obligation and does not intend to update any forward- looking statements, except as required by law.

For more information, please contact: Company Contact: Kewa Luo Tel: +1-212-588-0885 Email: ir@cssr.com Investor Contact: ICR: Bill Zima & Ashley Ammon MacFarlane Tel: +1-203-682-8200 CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE QUARTERS ENDED DECEMBER 31, 2007 AND 2006 Expressed in thousands of U.S. dollars (Except for share and per share amounts) Three Months Ended December 31, 2007 2006 Revenues $ 84,174 $ 40,932 Cost of goods sold 59,384 30,213 Gross profit 24,790 10,719 Selling and marketing 2,709 825 General and administrative 7,047 1,061 Depreciation and amortization 1,498 552 Income from operations 13,536 8,281 Rental income received from related party 103 123 Interest income 60 63 Interest expense (4,819) (108) Gain on disposal of fixed assets 8,115 -- Equity in net loss of affiliated companies -- 314 Other income, net 1,483 148 Income before income taxes and minority interest 18,478 8,821 Minority interest in income of consolidated subsidiaries (33) (15) Income taxes (3,620) (2,173) Net income $ 14,825 $ 6,633 Foreign currency translation gain 4,917 739 COMPREHENSIVE INCOME $ 19,742 $ 7,372 NET INCOME PER SHARE BASIC $ 0.35 $ 0.22 DILUTED $ 0.35 $ 0.20 WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING BASIC 41,922,449 30,370,550 DILUTED 42,149,873 33,867,478 CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 and 2005 Expressed in thousands of U.S. dollars (Except for share and per share amounts) 2007 2006 2005 Revenues $ 240,188 $ 106,989 $ 32,688 Cost of goods sold (including depreciation and amortization for the years ended December 31, 2007, 2006 and 2005 of $216, $0 and $0, respectively) 170,649 75,976 23,473 Gross profit 69,539 31,013 9,215 Selling and marketing 5,622 1,511 288 General and administrative (including non-cash employee compensation for the years ended December 31, 2007, 2006 and 2005 of $4,157, $0 and $0, respectively) 16,442 3,036 1,189 Depreciation and amortization 4,824 1,124 260 Income from operations 42,651 25,342 7,478 Rental income from related parties 483 496 439 Interest income 374 63 9 Interest expense (15,011) (108) -- Gain on sale of affiliated company -- 307 -- Gain on disposal of land use rights and properties 13,632 -- -- Other income (expense), net 2,530 711 120 Income before income taxes and minority interest 44,659 26,811 8,046 Minority interest in (income) loss of consolidated subsidiaries (49) 9 -- Income taxes (9,291) (3,889) (780) Net income 35,319 22,931 7,266 Foreign currency translation gain 9,664 1,664 545 COMPREHENSIVE INCOME $ 44,983 $ 24,595 $ 7,811 NET INCOME PER SHARE BASIC $ 0.95 $ 0.88 $ 0.39 DILUTED $ 0.91 $ 0.85 $ 0.39 WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING BASIC 37,368,549 26,052,519 18,521,479 DILUTED 38,795,241 26,940,215 18,521,479 CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2007 AND 2006 Expressed in thousands of U.S. dollars (Except for share and per share amounts) ASSETS 2007 2006 CURRENT ASSETS Cash and cash equivalents $ 89,071 $ 30,980 Accounts receivable, net 63,206 26,754 Related party receivables 549 440 Inventories, net 40,606 19,721 Prepayment and deposits 3,225 3,533 Advances to suppliers 2,877 2,889 Other receivables 13,171 1,697 Tax refundable 92 -- Deferred tax assets - current 137 41 Total current assets 212,934 86,055 Deposits paid for acquisition of 46,443 -- Plant and equipment, net 24,066 8,339 Land use rights, net 1,379 1,152 Intangible assets 39,800 9,997 Investment, at cost -- 12 Goodwill 52,369 8,426 Deferred financing cost 150 -- Deferred tax assets - non-current 262 462 TOTAL ASSETS $ 377,403 $ 114,443 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable - short term $ 12,814 $ 2,272 Accounts payable 21,864 4,000 Accrued expenses 5,108 749 Advances from customers 8,352 5,432 Taxes payable 4,153 1,660 Payable for acquisition of business -- 7,500 Deferred income 915 831 Due to director -- 76 Total current liabilities 53,206 22,520 LONG TERM LIABILITIES Notes payable - long term 698 2,010 Convertible notes payable 123,701 -- Total liabilities 177,605 24,530 MINORITY INTEREST IN CONSOLIDATED 61 94 SHAREHOLDERS' EQUITY Common stock, $0.0001 par value; 100,000,000 shares authorized 4 3 Additional paid-in capital 110,254 45,320 Retained earnings 76,802 41,483 Statutory surplus reserve fund 804 804 Accumulated other comprehensive 11,873 2,209 Total shareholders' equity 199,737 89,819 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 377,403 $ 114,443 CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 and 2005 Expressed in thousands of U.S. dollars (Except for share and per share amounts) 2007 2006 2005 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 35,319 $ 22,931 $ 7,266 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,040 1,124 260 Allowance for doubtful accounts 74 113 -- Provision for obsolete inventories 8 230 -- Deferred income taxes 7 107 (590) Amortization of loan origination fees -- 37 -- Common stock issued for services -- 250 -- Amortization of consultancy services 122 -- -- Amortization of deferred financing cost 26 -- -- Non-cash compensation expense 4,157 -- -- Redemption accretion on convertible notes 13,701 -- -- Gain on disposal of land use rights, properties, plant and equipment (13,632) (15) -- Issue of warrants for investor relation services -- 185 -- Gain on sale of affiliated company -- (307) -- Minority interest 49 (9) -- Changes in operating assets and liabilities: (Increase) decrease in: Accounts receivable (28,539) (13,992) (7,270) Related party receivables (80) 3,768 369 Other receivables (6,932) (401) (337) Inventories (7,851) (13,328) 771 Prepayment & deposits 453 (3,233) -- Advances to suppliers 1,178 (1,323) 1,780 (Decrease) increase in: Accounts payable and accrued expenses 10,094 6,300 (3,630) Advances from customers 1,376 -- -- Payable for acquisition of business -- -- 593 Taxes payable 2,271 582 700 Related party payable -- (9) -- Deferred income 141 (26) 887 Net cash provided by operating activities 16,982 2,984 799 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to plant and equipment (11,382) (5,114) (49) Additions to intangible assets, other than through business acquisitions (1,016) (107) -- Addition to land use right, other than through business acquisitions (591) -- -- Deposits paid for acquisition of subsidiaries (22,545) -- -- Deposits paid for acquisition of properties and intangible assets (23,898) -- -- Net cash outflow on acquisition of net assets of businesses acquired (net of cash acquired) (36,378) (6,539) (30) Proceeds from dispositions of non current assets -- 592 -- Proceeds from disposal of land use rights, properties, plant and equipments 12,844 -- -- Net cash used in investing activities (82,966) (11,168) (79) CASH FLOWS FROM FINANCING ACTIVITIES: Cash received from (advanced to) directors (71) 9 1,063 New borrowings, net of issuing cost 124,883 3,495 -- Repayment of borrowings (8,045) -- -- Warrants exercised 3,905 123 -- Issue of common stock, net of issuing expenses -- 32,285 -- Net cash provided by financing activities 120,672 35,912 1,063 NET INCREASE IN CASH AND CASH EQUIVALENTS 54,688 27,728 1,783 Effect of exchange rate changes on cash 3,403 975 461 Cash and cash equivalents, beginning of year 30,980 2,277 33 CASH AND CASH EQUIVALENTS, END OF YEAR $ 89,071 $ 30,980 $ 2,277