UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended:
June 30, 2010
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________to _____________
Commission File Number:
001-34076
CHINA INFORMATION SECURITY TECHNOLOGY, INC.
(Exact Name of Registrant as Specified in Its Charter)
Nevada
|
98-0575209
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
21
st
Floor, Everbright Bank
Building
Zhuzilin, Futian District
Shenzhen, Guangdong,
518040
Peoples Republic of China
(Address of principal
executive offices, Zip Code)
(+86) 755-8370-8333
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes [ ] No [ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large accelerated filer [ ]
|
Accelerated filer [ X ]
|
Non-accelerated filer [ ]
(Do not check if a smaller
reporting company)
|
Smaller reporting company [ ]
|
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [ X ]
The number of shares outstanding of each of the issuers
classes of common stock, as of August 4, 2010 is as follows:
Class of Securities
|
Shares Outstanding
|
Common Stock, $0.01 par value
|
51,805,787
|
CHINA INFORMATION SECURITY TECHNOLOGY, INC.
Quarterly Report on FORM 10-Q
Three and Six Months
Ended June 30, 2010
TABLE OF CONTENTS
PART I
|
FINANCIAL
INFORMATION
|
|
ITEM 1.
|
FINANCIAL STATEMENTS.
|
3 - 31
|
ITEM 2.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
|
32 - 43
|
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK.
|
43
|
ITEM 4.
|
CONTROLS AND
PROCEDURES.
|
43
|
PART II
|
OTHER INFORMATION
|
|
ITEM 1.
|
LEGAL PROCEEDINGS.
|
44
|
ITEM 1A.
|
RISK FACTORS.
|
44
|
ITEM 2.
|
UNREGISTERED SALES
OF EQUITY SECURITIES AND USE OF PROCEEDS.
|
45
|
ITEM 3.
|
DEFAULTS UPON SENIOR SECURITIES.
|
45
|
ITEM 4.
|
(REMOVED AND
RESERVED).
|
45
|
ITEM 5.
|
OTHER INFORMATION.
|
45
|
ITEM 6.
|
EXHIBITS.
|
46
|
- 2 -
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CHINA INFORMATION SECURITY TECHNOLOGY, INC.
INDEX
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX
MONTHS ENDED JUNE 30, 2010 AND 2009
Contents
|
Page(s)
|
|
|
Condensed Consolidated Balance
Sheets as of June 30, 2010 (unaudited) and December 31, 2009
|
4 -
5
|
Condensed Consolidated Statements of Income
for the three and six months ended June 30, 2010 and 2009
(unaudited)
|
6
|
Condensed Consolidated
Statements of Comprehensive Income for the three and six months ended June
30, 2010
and 2009 (unaudited)
|
7
|
Condensed Consolidated Statement of Changes in
Equity for the six months ended June 30, 2010 (unaudited)
|
8
|
Condensed Consolidated
Statements of Cash Flows for the six months ended June 30, 2010 and 2009
(unaudited)
|
9 -
10
|
Notes to the Consolidated Financial Statements
(unaudited)
|
11 - 31
|
CHINA INFORMATION SECURITY TECHNOLOGY,
INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30,
2010 AND DECEMBER 31, 2009
Expressed in U.S. dollars
(Except for share and per share amounts)
|
NOTES
|
|
|
June 30
|
|
|
December 31
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$
|
17,745,272
|
|
$
|
13,478,633
|
|
Restricted cash
|
|
|
|
5,795,203
|
|
|
5,859,910
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
Billed, net of allowance
for doubtful accounts of $2,944,000 and $3,123,000,
respectively
|
|
|
|
24,114,664
|
|
|
23,907,035
|
|
Unbilled
|
|
|
|
58,149,465
|
|
|
47,851,638
|
|
Bills receivable
|
|
|
|
218,622
|
|
|
-
|
|
Advances to suppliers
|
|
|
|
4,084,692
|
|
|
6,924,035
|
|
Amount due from related
parties, net of allowance for doubtful accounts of $0
|
|
|
|
|
|
|
|
|
and $73,000, respectively
|
6
|
|
|
158,467
|
|
|
129,937
|
|
Inventories, net of provision
of $183,000 and $184,000,respectively
|
7
|
|
|
20,985,556
|
|
|
10,936,004
|
|
Other receivables and prepaid expenses
|
|
|
|
14,751,936
|
|
|
15,405,089
|
|
Deferred tax assets
|
12
|
|
|
1,622,613
|
|
|
1,719,327
|
|
TOTAL CURRENT ASSETS
|
|
|
|
147,626,490
|
|
|
126,211,608
|
|
|
|
|
|
|
|
|
|
|
Deposit for software purchase
|
|
|
|
4,797,561
|
|
|
1,426,452
|
|
Deposit for purchase of land
use rights
|
|
|
|
925,912
|
|
|
-
|
|
Long-term investments
|
8
|
|
|
2,873,722
|
|
|
2,862,016
|
|
Property, plant and equipment,
net
|
9
|
|
|
62,612,136
|
|
|
53,586,514
|
|
Land use rights, net
|
10
|
|
|
2,123,702
|
|
|
1,907,611
|
|
Intangible assets, net
|
10
|
|
|
13,138,669
|
|
|
13,556,141
|
|
Goodwill
|
|
|
|
50,067,871
|
|
|
50,609,866
|
|
Deferred tax assets
|
12
|
|
|
428,336
|
|
|
668,730
|
|
TOTAL ASSETS
|
|
|
$
|
284,594,399
|
|
$
|
250,828,938
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Short-term bank loans
|
11
|
|
$
|
22,121,740
|
|
$
|
15,927,780
|
|
Accounts payable
|
|
|
|
17,115,384
|
|
|
20,159,317
|
|
Bills payable
|
|
|
|
10,605,305
|
|
|
12,658,029
|
|
Advances from customers
|
|
|
|
3,266,171
|
|
|
3,950,744
|
|
Amount due to related parties,
current portion
|
6
|
|
|
667,138
|
|
|
583,736
|
|
Accrued payroll and benefits
|
|
|
|
1,609,966
|
|
|
3,142,240
|
|
Other payables and accrued
expenses
|
|
|
|
14,969,739
|
|
|
14,252,918
|
|
Contingent consideration, current portion
|
4
|
|
|
1,568,437
|
|
|
1,857,994
|
|
Income tax payable
|
|
|
|
3,875,563
|
|
|
3,290,245
|
|
TOTAL CURRENT LIABILITIES
|
|
|
|
75,799,443
|
|
|
75,823,003
|
|
|
|
|
|
|
|
|
|
|
Long-term bank loans
|
11
|
|
|
4,036,020
|
|
|
1,907,100
|
|
Amount due to related parties,
long-term portion
|
6
|
|
|
5,015,528
|
|
|
-
|
|
Contingent consideration, net of current
portion
|
4
|
|
|
2,224,685
|
|
|
2,635,397
|
|
Deferred tax liabilities
|
12
|
|
|
1,896,337
|
|
|
2,564,604
|
|
TOTAL LIABILITIES
|
|
|
|
88,972,013
|
|
|
82,930,104
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
-
|
|
|
-
|
|
(CONTINUED)
- 4 -
CHINA INFORMATION SECURITY TECHNOLOGY,
INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30,
2010 AND DECEMBER 31, 2009 (CONTINUED)
Expressed in U.S. dollars
(Except for share and per share amounts)
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, par $0.01; authorized capital
200,000,000 shares; shares issued and outstanding 2010: 51,811,787: 2009:
49,905,141shares
|
13
|
|
$
|
252,615
|
|
$
|
233,548
|
|
Treasury stock, 6,000 shares, at cost
|
|
|
|
(11,468
|
)
|
|
(11,468
|
)
|
Additional paid-in capital
|
|
|
|
89,128,945
|
|
|
78,495,062
|
|
Reserve
|
|
|
|
8,345,371
|
|
|
8,345,371
|
|
Retained earnings
|
|
|
|
76,095,452
|
|
|
60,462,275
|
|
Accumulated other comprehensive income
|
|
|
|
6,020,572
|
|
|
5,016,575
|
|
Total equity of the Company
|
|
|
|
179,831,487
|
|
|
152,541,363
|
|
Non-controlling interest
|
|
|
|
15,790,899
|
|
|
15,357,471
|
|
Total equity
|
|
|
|
195,622,386
|
|
|
167,898,834
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY
|
|
|
|
284,594,399
|
|
|
250,828,938
|
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
- 5 -
CHINA INFORMATION SECURITY TECHNOLOGY,
INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE
THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Unaudited)
Expressed in U.S. dollars
(Except for share and
per share amounts)
|
NOTES
|
|
|
Three Months
Ended
|
|
|
Six Months
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue - Products
|
|
|
$
|
7,471,511
|
|
$
|
3,789,288
|
|
$
|
13,819,481
|
|
$
|
6,610,416
|
|
Revenue - Software
|
|
|
|
22,406,236
|
|
|
15,921,487
|
|
|
37,584,868
|
|
|
24,932,952
|
|
Revenue - System integration
|
|
|
|
3,485,523
|
|
|
5,571,619
|
|
|
6,269,406
|
|
|
8,527,076
|
|
Revenue - Others
|
|
|
|
153,618
|
|
|
505,525
|
|
|
1,148,240
|
|
|
697,659
|
|
TOTAL REVENUE
|
|
|
|
33,516,888
|
|
|
25,787,919
|
|
|
58,821,995
|
|
|
40,768,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost - Products sold
|
|
|
|
5,813,701
|
|
|
3,007,849
|
|
|
11,054,123
|
|
|
5,620,640
|
|
Cost - Software sold
|
|
|
|
10,257,690
|
|
|
5,993,637
|
|
|
16,659,101
|
|
|
8,694,577
|
|
Cost - System integration
|
|
|
|
570,721
|
|
|
4,395,011
|
|
|
3,046,531
|
|
|
6,540,763
|
|
Cost - Others
|
|
|
|
76,470
|
|
|
124,671
|
|
|
146,481
|
|
|
162,108
|
|
TOTAL COST
|
|
|
|
16,718,582
|
|
|
13,521,168
|
|
|
30,906,236
|
|
|
21,018,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
|
16,798,306
|
|
|
12,266,751
|
|
|
27,915,759
|
|
|
19,750,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative expenses
|
|
|
|
(2,621,501
|
)
|
|
(2,304,376
|
)
|
|
(5,391,532
|
)
|
|
(4,520,723
|
)
|
Research and development expenses
|
|
|
|
(560,649
|
)
|
|
(720,411
|
)
|
|
(1,130,080
|
)
|
|
(1,224,263
|
)
|
Selling expenses
|
|
|
|
(1,489,212
|
)
|
|
(644,349
|
)
|
|
(2,703,774
|
)
|
|
(1,238,064
|
)
|
INCOME FROM OPERATIONS
|
|
|
|
12,126,944
|
|
|
8,597,615
|
|
|
18,690,373
|
|
|
12,766,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidy income
|
|
|
|
268,898
|
|
|
318,071
|
|
|
431,680
|
|
|
515,860
|
|
Other (loss)/income, net
|
4
|
|
|
(324,700
|
)
|
|
(16,845
|
)
|
|
642,099
|
|
|
164,521
|
|
Interest income
|
|
|
|
10,403
|
|
|
120,627
|
|
|
29,294
|
|
|
197,544
|
|
Interest expense
|
|
|
|
(263,756
|
)
|
|
(56,443
|
)
|
|
(412,647
|
)
|
|
(116,653
|
)
|
INCOME BEFORE INCOME TAXES
|
|
|
|
11,817,789
|
|
|
8,963,025
|
|
|
19,380,799
|
|
|
13,528,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
12
|
|
|
(2,163,609
|
)
|
|
(1,091,800
|
)
|
|
(3,334,692
|
)
|
|
(1,680,196
|
)
|
NET INCOME
|
|
|
|
9,654,180
|
|
|
7,871,225
|
|
|
16,046,107
|
|
|
11,848,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net income attributable
to the non-
controlling interest
|
|
|
|
(302,111
|
)
|
|
(73,395
|
)
|
|
(412,930
|
)
|
|
(293,218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME ATTRIBUTABLE TO
THE
COMPANY
|
3
|
|
$
|
9,352,069
|
|
$
|
7,797,830
|
|
$
|
15,633,177
|
|
$
|
11,554,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
3
|
|
|
51,450,623
|
|
|
47,536,883
|
|
|
51,332,698
|
|
|
47,528,503
|
|
Diluted
|
3
|
|
|
51,450,623
|
|
|
47,536,883
|
|
|
51,332,698
|
|
|
47,528,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - Basic
and Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic - Net income attributable to the
Company's common stockholders
|
|
|
$
|
0.18
|
|
$
|
0.16
|
|
$
|
0.30
|
|
$
|
0.24
|
|
Diluted - Net income
attributable to the
Company's common stockholders
|
|
|
$
|
0.18
|
|
$
|
0.16
|
|
$
|
0.30
|
|
$
|
0.24
|
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
- 6 -
CHINA INFORMATION SECURITY TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (Unaudited)
Expressed in U.S. dollars
(Except for share and per share
amounts)
|
|
Three Months
Ended
|
|
|
Six Months
Ended
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
9,654,180
|
|
$
|
7,871,225
|
|
|
16,046,107
|
|
$
|
11,848,041
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
gain
|
|
787,465
|
|
|
(16,365
|
)
|
|
1,024,495
|
|
|
435,377
|
|
Comprehensive income
|
|
10,441,645
|
|
|
7,854,860
|
|
|
17,070,602
|
|
|
12,283,418
|
|
Comprehensive income
attributable to the non-controlling
interest
|
|
(322,572
|
)
|
|
(73,310
|
)
|
|
(433,428
|
)
|
|
(293,133
|
)
|
Comprehensive income attributable to the
Company
|
$
|
10,119,073
|
|
$
|
7,781,550
|
|
|
16,637,174
|
|
$
|
11,990,285
|
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
- 7 -
CHINA INFORMATION SECURITY TECHNOLOGY, INC
CONDENSED CONSOLIDATED STATEMENT OF
CHANGES IN
EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2010 (Unaudited)
Expressed in U.S. dollars
(Except for share and per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
Treasury stock
|
|
|
Additional
|
|
|
|
|
|
|
|
|
other
|
|
|
Non-
|
|
|
|
|
|
|
Par value $0.01
|
|
|
Par value $0.01
|
|
|
Paid-in
|
|
|
|
|
|
Retained
|
|
|
comprehensive
|
|
|
controlling
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Reserve
|
|
|
earnings
|
|
|
income
|
|
|
interest
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AS AT JANUARY
1,
2010
|
|
49,905,141
|
|
$
|
233,548
|
|
|
(6,000
|
)
)
|
$
|
(11,468
|
|
$
|
78,495,062
|
|
$
|
8,345,371
|
|
$
|
60,462,275
|
|
$
|
5,016,575
|
|
$
|
15,357,471
|
|
$
|
167,898,834
|
|
Issuance of common stock in private
placements (Note 13 )
|
|
1,652,033
|
|
|
16,520
|
|
|
-
|
|
|
-
|
|
|
9,113,232
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
9,129,752
|
|
Common stock issued upon the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exercise of warrants (Note 13)
|
|
41,250
|
|
|
413
|
|
|
-
|
|
|
-
|
|
|
253,275
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
253,688
|
|
Stock-based compensation
(Note 13)
|
|
213,363
|
|
|
2,134
|
|
|
-
|
|
|
-
|
|
|
1,267,376
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,269,510
|
|
Net income for the period
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
15,633,177
|
|
|
-
|
|
|
412,930
|
|
|
16,046,107
|
|
Foreign currency translation
gain
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,003,997
|
|
|
20,498
|
|
|
1,024,495
|
|
BALANCE AS AT JUNE 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,811,787
|
|
$
|
252,615
|
|
|
(6,000
|
)
|
$
|
(11,468
|
)
|
$
|
89,128,945
|
|
$
|
8,345,371
|
|
$
|
76,095,452
|
|
$
|
6,020,572
|
|
$
|
15,790,899
|
|
$
|
195,622,386
|
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
- 8 -
CHINA INFORMATION SECURITY TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE
SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (Unaudited)
Expressed in U.S.
dollars
(Except for share and per share amounts)
|
|
Six Months
Ended
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net income
|
$
|
16,046,107
|
|
$
|
11,848,041
|
|
Adjustments to reconcile net income to net
cash provided by operating activities:
|
|
|
|
|
|
|
Depreciation
|
|
3,441,071
|
|
|
1,852,357
|
|
Amortization of intangible assets
|
|
927,048
|
|
|
865,710
|
|
Stock-based compensation
|
|
-
|
|
|
183,600
|
|
Loss on disposal of property and equipment
|
|
320,957
|
|
|
31,764
|
|
Change in allowance for
accounts receivable
|
|
267,716
|
|
|
573,881
|
|
Reversal of write-down of inventories
|
|
(1,362
|
)
|
|
-
|
|
Change in deferred income tax
|
|
215,192
|
|
|
(29,517
|
)
|
Change in fair value of contingent
consideration
|
|
(700,268
|
)
|
|
-
|
|
Changes in operating assets
and liabilities, net of effects of business acquisitions:
|
|
|
|
|
|
|
Decrease in restricted cash
|
|
457,202
|
|
|
-
|
|
Increase in accounts
receivable
|
|
(10,656,507
|
)
|
|
(14,665,591
|
)
|
Decrease / (increase) in advances to suppliers
|
|
2,091,453
|
|
|
(3,028,042
|
)
|
Decrease / (increase) in other
receivables and prepaid expenses
|
|
313,302
|
|
|
(1,540,531
|
)
|
Increase in inventories
|
|
(10,164,333
|
)
|
|
(1,657,773
|
)
|
(Decrease) / increase in
accounts payable
|
|
(5,209,216
|
)
|
|
4,643,442
|
|
(Decrease) / increase in advances from
customers
|
|
(695,808
|
)
|
|
4,469,480
|
|
Increase in amount due to
related parties
|
|
5,311,077
|
|
|
177,621
|
|
Increase / (decrease) in other payables and
accrued expenses
|
|
921,098
|
|
|
(432,401
|
)
|
Increase in income tax payable
|
|
569,611
|
|
|
695,912
|
|
Net cash provided by operating
activities
|
|
3,454,340
|
|
|
3,987,953
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
Increase in restricted cash
related to bank borrowings
|
|
(368,895
|
)
|
|
-
|
|
Proceeds from sales of property and equipment
|
|
44,007
|
|
|
100,225
|
|
Proceeds from sale of
short-term investments
|
|
-
|
|
|
5,862,800
|
|
Refund of investment in former Joint Venture
|
|
-
|
|
|
4,397,100
|
|
Purchase of land-use-rights
|
|
(230,970
|
)
|
|
-
|
|
Purchases of property and equipment
|
|
(11,038,575
|
)
|
|
(630,478
|
)
|
Capitalized and purchased
software development costs
|
|
(432,547
|
)
|
|
(308,484
|
)
|
Deposit for software purchase
|
|
(4,777,693
|
)
|
|
(4,781,846
|
)
|
Deposit for purchase of
land-use-rights
|
|
(165,093
|
)
|
|
-
|
|
Net cash (used in) / provided by investing
activities
|
|
(16,969,766
|
)
|
|
4,639,317
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
Borrowing of short-term loans
|
|
21,003,299
|
|
|
1,898,082
|
|
Borrowing of long-term loans
|
|
4,019,306
|
|
|
-
|
|
Repayment of short-term loans
|
|
(14,887,816
|
)
|
|
(732,850
|
)
|
Repayment of long-term loans
|
|
(1,906,970
|
)
|
|
-
|
|
Issued common stock
|
|
9,383,440
|
|
|
-
|
|
Repurchase of common stock
|
|
-
|
|
|
(11,468
|
)
|
Net cash provided by
financing activities
|
|
17,611,259
|
|
|
1,153,764
|
|
(CONTINUED)
- 9 -
CHINA INFORMATION SECURITY TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE
SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (CONTINUED) (Unaudited)
Expressed in U.S. dollars
(Except for share and per share
amounts)
|
|
Six Months Ended
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
and cash equivalents
|
|
170,806
|
|
|
30,757
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH
EQUIVALENTS
|
|
4,266,639
|
|
|
9,811,791
|
|
CASH AND CASH EQUIVALENTS, BEGINNING
|
|
13,478,633
|
|
|
9,565,252
|
|
CASH AND CASH EQUIVALENTS, ENDING
|
$
|
17,745,272
|
|
$
|
19,377,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow
information:
|
|
|
|
|
|
|
|
|
Six Months
Ended
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
Cash paid during the period
|
|
|
|
|
|
|
Income taxes
|
$
|
2,547,020
|
|
$
|
1,013,801
|
|
Interest paid
|
$
|
449,494
|
|
$
|
117,327
|
|
|
|
|
|
|
|
|
Supplemental disclosure of significant
non-cash transactions:
|
|
|
|
|
|
|
On January 12, 2010, the Company granted eligible employees a
total of 213,363 shares of the Company's common stock as compensation under the
China Information Security Technology, Inc. 2007 Equity Incentive Plan (The
Plan). The fair value of these shares of approximately $1.3 million, based on
the quoted market price, was accrued as of December 31, 2009 as the compensation
was for services provided in 2009.
On February 2, 2009, the Company granted eligible employees a
total of 60,000 shares of the Companys common stock as compensation under the
Plan. The fair value of these shares of $183,600 based on quoted market price
was recognized as stock-based compensation for the six months ended June 30,
2009.
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
- 10 -
CHINA INFORMATION SECURITY TECHNOLOGY, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Expressed in U.S. dollars
(Except for share and per share
amounts)
1. ORGANIZATION AND BASIS OF PRESENTATION
China Information Security Technology, Inc. (the Company or
CIST), together with its subsidiaries, is a total solution provider of digital
security, geographic, and hospital information systems in the People's Republic
of China (PRC). The Companys total solutions include specialized software,
hardware, systems integration, and related services organized into three
business segments Geographic Information Systems (GIS), Digital Information
Security Technology (DIST) and Digital Hospital Information System (DHIS).
These total solutions are provided through the Companys wholly-owned PRC
subsidiaries, Information Security Technology (China) Co., Ltd (IST),
Information Security Software (China) Co., Ltd (formerly, Information Security
Development Technology Co., Ltd), or ISS, Shenzhen Bocom Multimedia Display
Technology Co., Ltd (Bocom), Shenzhen Zhongtian Technology Development Company
Ltd (Zhongtian), and Huipu Electronics (Shenzhen) Co., Ltd. ("Huipu"), and
through the Companys variable interest entity (VIE), iASPEC Software Co, Ltd
(iASPEC), and Wuda Geoinformatics Co., Ltd (Geo), 57% of which is owned by
iASPEC.
The operating results of Bocom, Geo, Zhongtian and Huipu have
been included in the Companys consolidated financial statements since February
1, 2008, April 1, 2008, November 1, 2008, and November 1, 2009, their respective
acquisition dates.
The amounts of Topwell and Huipus revenue and earnings
included in the Companys consolidated income statement for the three and six
months ended June 30, 2010, and the revenue and earnings in the same period of
the combined entities had the acquisition date been January 1, 2009 are:
|
|
Three Months
ended
|
|
|
|
|
|
|
|
|
Six Months
ended
|
|
|
|
|
|
|
Revenue
|
|
|
Earnings
|
|
|
EPS
|
|
|
EPS
|
|
|
Revenue
|
|
|
Earnings
|
|
|
EPS
|
|
|
EPS
|
|
|
|
|
|
|
/(losses)
|
|
|
Basic
|
|
|
Diluted
|
|
|
|
|
|
/(losses)
|
|
|
Basic
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010, actual
|
$
|
33,516,888
|
|
|
9,352,069
|
|
|
0.18
|
|
|
0.18
|
|
$
|
58,821,995
|
|
|
15,633,177
|
|
|
0.30
|
|
|
0.30
|
|
June 30, 2009, supplemental pro forma
|
$
|
30,201,905
|
|
|
8,103,012
|
|
|
0.17
|
|
|
0.16
|
|
$
|
49,596,075
|
|
|
12,159,495
|
|
|
0.25
|
|
|
0.25
|
|
The interim condensed consolidated financial statements
included herein, presented in accordance with United States generally accepted
accounting principles and stated in US dollars, have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. These statements reflect all
adjustments, consisting of normal recurring adjustments, which, in the opinion
of management, are necessary for fair presentation of the information contained
therein. The results of operations for the three and six months ended June 30,
2010 are not necessarily indicative of the results that may be expected for the
entire year ending December 31, 2010. It is suggested that these interim
consolidated financial statements be read in conjunction with the financial
statements of the Company and related notes thereto included in the Companys
Annual Report on Form 10-K for the year ended December 31, 2009 and notes
thereto. The Company follows the same accounting policies in the preparation of
interim reports.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Consolidation
The condensed consolidated financial statements of the Company
have been prepared in accordance with U.S. generally accepted accounting
principles. The consolidated financial statements include the accounts of the
Company, its subsidiaries and its VIE for which the Company is the primary
beneficiary. All significant intercompany accounts and transactions have been
eliminated in consolidation.
(b) Foreign Currency Translation
The functional currency of the U.S. and British Virgin Islands
(BVI) companies is the United States dollars. The functional currency of the
Companys Hong Kong subsidiaries is the Hong Kong dollars.
- 11 -
CHINA INFORMATION SECURITY TECHNOLOGY, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Expressed in U.S.
dollars
(Except for share and per share amounts)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(b) Foreign Currency Translation (continued)
The functional currency of the Companys wholly-owned PRC
subsidiaries and its VIE is the Chinese Renminbi Yuan, (RMB). RMB is not
freely convertible into foreign currencies. The Companys PRC subsidiaries and
their VIEs financial statements are maintained in the functional currency.
Monetary assets and liabilities denominated in currencies other than the
functional currency are translated into the functional currency at rates of
exchange prevailing at the balance sheet date. Transactions denominated in
currencies other than the functional currency are translated into the functional
currency at the exchange rates prevailing at the dates of the transactions.
Exchange gains or losses arising from foreign currency transactions are included
in the determination of net income for the respective periods.
For financial reporting purposes the financial statements of
the Company have been translated into United States dollars. Assets and
liabilities are translated at exchange rates at the balance sheet dates and
revenue and expenses are translated at average exchange rates, and equity is
translated at historical exchange rates. Any resulting translation adjustments
are not included in determining net income but are included in foreign exchange
adjustment to other comprehensive income, a component of equity.
(c) Revenue Recognition
The Company generates its revenues primarily from three
sources, (1) hardware sales, (2) software sales and (3) system integration
services. The Company's revenue recognition policies are in accordance with SEC
Staff Accounting Bulletin No. 104, "Revenue Recognition" and Financial
Accounting Standards Board Accounting Standards Codification (FASB ASC)
No.605.35 ("FASB ASC 605.35") .
Revenues from hardware products are recognized only when
persuasive evidence of an arrangement exists, delivery has occurred and upon
receipt of customers' acceptance, the price to the customer is fixed or
determinable in accordance with the contract, and collectability is reasonably
assured.
Software revenues are generated from fixed-price contracts
which include the development of software products, and services to customize
such software to meet customers' needs. Generally, when the services are
determined to be essential to the functionality of the delivered software,
revenue is recognized using the percentage of completion method of accounting in
accordance with FASB ASC 605.35. The percentage of completion for each contract
is estimated based on the ratio of direct labor hours incurred to total
estimated direct labor hours. The Company provides post contract support (PCS),
which includes telephone technical support, that is not essential to the
functionality of the software. Although vendor-specific objective evidence does
not exist for PCS, because (1) the PCS fees are included in the total contract
amount, (2) the PCS service period is for less than one year, (3) the estimated
cost of providing PCS is not significant, and (4) unspecified upgrades/
enhancements offered are minimal and infrequent; the Company recognizes PCS
revenue together with the initial fee after delivery and customer acceptance of
the software products.
System integration revenues are generated from fixed-price
contracts which provide for software development and hardware integration, which
involves more than minor modifications to the functionality of the software and
hardware products. Accordingly, system integration revenues are accounted for in
accordance with FASB ASC 605.35, using the percentage of completion method of
accounting. The percentage of completion for each contract is estimated based on
the ratio of costs incurred to total estimated costs. Contract periods are
usually less than six months, and typical contract periods for PCS are 12
months.
System integration projects are billed in accordance with
contract terms, which typically require partial payment at the signing of the
contract, at delivery and customer acceptance dates, with the remainder due
within a stated period of time not exceeding 12 months. Occasionally, the
Company enters into contracts which allow a percentage of the total contract
price to be paid one to three years after completion of the system integration
project. Revenues on these extended payments are recognized upon completion of
the terms specified in the contract and when collectability is reasonably
assured.
- 12 -
CHINA INFORMATION SECURITY TECHNOLOGY, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Expressed in U.S.
dollars
(Except for share and per share amounts)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(c) Revenue Recognition (continued)
No rights of return are allowed except for non-conforming
products, which have been insignificant based on historical experiences. If
non-conforming products are returned due to software issues, the Company will
provide upgrades or additional customization to suit customers' needs. In cases
where non-conformity is a result of integrated hardware, the Company returns the
hardware to the original vendor for replacement.
Unbilled accounts receivable consist of estimated future
billings for work performed but not yet invoiced to the customer. Unbilled
accounts receivable are generally invoiced within one year of completion of the
work performed. Changes in estimates for revenues, costs and profits are
recognized in the period in which they are determinable. When the Company's
estimates indicate that the entire contract will be performed at a loss, a
provision for the entire loss is recorded in the current accounting period.
Other revenue mainly consists of income derived from
maintenance service and royalty income.
(d) Treasury Stock
The Company repurchases its common stock from time to time in
the open market and holds such shares as treasury stock. The Company applies the
cost method and presents the cost to repurchase such shares as a reduction in
shareholders equity. As of June 30, 2010, the Company has repurchased 6,000
shares of common stock.
(e) Recent Accounting Pronouncements
In April 2010, the FASB issued Accounting Standards Update No.
2010-17, Revenue Recognition - Milestone Method (Topic 605) - Revenue
Recognition (ASU 2010-17). ASU 2010-17 provides guidance on defining the
milestone and determining when the use of the milestone method of revenue
recognition for research or development transactions is appropriate. It provides
criteria for evaluating if the milestone is substantive and clarifies that a
vendor can recognize consideration that is contingent upon achievement of a
milestone as revenue in the period in which the milestone is achieved, if the
milestone meets all the criteria to be considered substantive. ASU 2010-17 is
effective for interim and annual periods beginning after June 15, 2010 and
should be applied prospectively. Early adoption is permitted. The Company is
currently evaluating the impact of the pending adoption of ASU 2010-17 on our
consolidated financial statements.
In February 2010, the FASB issued ASU 2010-09, Amendments to
Certain Recognition and Disclosure Requirements, as an amendment to Accounting
Standards Codification (ASC) Topic 855, Subsequent Events (ASC 855). As a
result of ASU 2010-09, SEC registrants will not disclose the date through which
management evaluated subsequent events in the financial statements. ASU 2010-09
is effective immediately for all financial statements that have not yet been
issued or have not yet become available to be issued, or June 30, 2010 for the
Company. The adoption of ASU 2010-09 is for disclosure purposes only and did not
have any effect on the Companys financial position or results of operations.
In January 2010, the FASB issued ASU 2010-06, Improving
Disclosures about Fair Value Measurements. ASU 2010-06 amends ASC Topic 820,
Fair Value Measurement and Disclosure (ASC 820) to require a number of
additional disclosures regarding fair value measurements. In addition to the new
disclosure requirements, ASU 2010-06 also amends ASC 820 to clarify that
reporting entities are required to provide fair value measurement disclosures
for each class of assets and liabilities. Prior to the issuance of ASU 2010-06,
the guidance in ASC 820 required separate fair value disclosures for each major
category of assets and liabilities.
ASU 2010-06 also clarifies the requirement for entities to
disclose information about both the valuation techniques and inputs used in
estimating Level 2 and Level 3 fair value measurements. Except for the
requirement to disclose information about purchases, sales, issuance and
settlements in the reconciliation of recurring Level 3 measurements on a gross
basis, all of the provisions of ASU 2010-06 are effective for interim and annual
reporting periods beginning after December 15, 2009, or January 1, 2010 for the
Company. The requirement to separately disclose purchases, sales, issuances and
settlements of recurring Level 3 measurements does not become effective until
fiscal years beginning after December 15, 2010, or January 1, 2011 for the
Company. The adoption of ASU 2010-06 is for disclosure purposes only and did not
have any effect on the Companys financial position or results of operations.
- 13 -
CHINA INFORMATION SECURITY TECHNOLOGY, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Expressed in U.S.
dollars
(Except for share and per share amounts)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(e) Recent Accounting Pronouncements (continued)
In June 2009, the FASB issued guidance now codified within ASC
Topic 810, Consolidation (ASC 810). ASC 810 requires entities to perform an
analysis to determine whether the enterprises variable interest or interests
give it a controlling financial interest in a variable interest entity. This
analysis identifies the primary beneficiary of a variable interest entity as one
with the power to direct the activities of a variable interest entity that most
significantly impact the entitys economic performance and obligation to absorb
losses of the entity that could potentially be significant to the variable
interest. The guidance is effective as of the beginning of the annual reporting
period commencing after November 15, 2009, or January 1, 2010 for the Company,
with early adoption prohibited. The adoption of the guidance codified within ASC
810 did not have any effect on the Companys financial position or results of
operations.
3. EARNINGS PER SHARE
Basic earnings per share is computed by dividing income
available to common stockholders by the weighted-average number of shares of
common stock outstanding during the period. Diluted earnings per share reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock, or resulted in
the issuance of common stock that shared in the earnings of the entity. For
purposes of the computation of net income per share, shares issued in connection
with acquisitions that are returnable are considered contingently returnable
shares under FASB ASC 260, although classified as issued and outstanding, are
not included in the basic weighted average number of shares until all necessary
conditions are met that no longer cause the shares to be contingently
returnable. These contingently returnable shares are included in the diluted
weighted average number of shares as of the beginning of the period in which the
conditions were satisfied (or as of the date of the agreement, if later).
Components of basic and diluted earnings per share were as
follows:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to the
common stockholders
|
$
|
9,352,069
|
|
$
|
7,797,830
|
|
$
|
15,633,177
|
|
$
|
11,554,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average outstanding
shares of common stock
|
|
51,450,623
|
|
|
47,536,883
|
|
|
51,332,698
|
|
|
47,528,503
|
|
Dilutive effect of options ,warrants, and
contingently issuable
shares
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Common stock and common stock
equivalents
|
|
51,450,623
|
|
|
47,536,883
|
|
|
51,332,698
|
|
|
47,528,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.18
|
|
$
|
0.16
|
|
$
|
0.30
|
|
$
|
0.24
|
|
Diluted
|
$
|
0.18
|
|
$
|
0.16
|
|
$
|
0.30
|
|
$
|
0.24
|
|
- 14 -
CHINA INFORMATION SECURITY TECHNOLOGY, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Expressed in U.S.
dollars
(Except for share and per share amounts)
4. FAIR VALUE OF FINANCIAL INSTRUMENTS AND FAIR VALUE
ACCOUNTING
Financial Instruments
Management has estimated that the carrying amounts of
non-related party financial instruments approximate their fair values due to
their short-term maturities. The fair value of the amount due from (to) related
parties is not practicable to estimate due to the related party nature of the
underlying transactions.
Fair Value Accounting
FASB ASC 820.10 establishes a fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (Level 1 measurements) and the
lowest priority to unobservable inputs (Level 3 measurements). As required by
FASB ASC 820.10, assets are classified in their entirety based on the lowest
level of input that is significant to the fair value measurement. The three
levels of the fair value hierarchy under FASB ASC 820.10 are described below:
Level
1
|
Unadjusted quoted prices in
active markets that are accessible at the measurement date for identical,
unrestricted assets or liabilities;
|
Level
2
|
Quoted prices in markets that are not active,
or inputs that are observable, either directly or indirectly, for
substantially the full term of the asset or liability;
|
Level
3
|
Prices or valuation techniques
that require inputs that are both significant to the fair value
measurement and unobservable (supported by little or no market activity).
|
At June 30, 2010, the contingent consideration in relation to
the purchase of Topwell Treasure Ltd. ("Topwell") and its wholly-owned Chinese
subsidiary, Huipu Electronics (Shenzhen) Co., Ltd. ("Huipu") in 2009 was
measured at fair value.
The fair value estimate of the contingent consideration is
based on the weighted probability (level 3 input) of achievement of After Tax
Net Income targets (ATNI) in 2010, 2011 and 2012, which could result in the
issuance of up to 1,101,930 additional shares of the Companys common stock.
Actual achievement of ATNI below $3.2 million would reduce the liability to zero
and achievement of ATNI of $6.8 million or more would increase the liability to
$6.8 million. As of June 30, 2010, the fair value of the current portion of this
contingent consideration is $1,568,437, compared to $1,857,994 at December 31,
2009. The fair value of none-current portion of the contingent consideration is
$2,224,685, compared to $2,635,397 at December 31, 2009. A change in fair value
of the acquisition-related contingent consideration could have a material effect
on the statement of operations and financial position in the period of the
change in estimate. Included in other loss in the three months ended June 30,
2010 is a loss of $90,000 and included in other income in the six months ended
June 30, 2010 is a gain of $700,000, due to the change in estimate of the fair
value of acquisition-related contingent consideration.
- 15 -
CHINA INFORMATION SECURITY TECHNOLOGY, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Expressed in U.S.
dollars
(Except for share and per share amounts)
5. VARIABLE INTEREST ENTITY
The Company is the primary beneficiary of iASPEC, pursuant to
the Management Service Agreement (MSA), and iASPEC qualifies as a variable
interest entity of the Company. Accordingly, the assets and liabilities and
revenues and expenses of iASPEC have been included in the accompanying
consolidated financial statements.
In order to facilitate iASPECs expansion and also to provide
financing for iASPEC to complete the acquisition of Geo, the Company advanced
RMB38 million (approximately $5.4 million) to iASPEC in two installments on
November 20, 2007 and May 8, 2008, respectively, to increase iASPECs registered
capital. In order to comply with PRC laws and regulations, the advance was made
to Mr. Lin, iASPECs then majority shareholder, who, upon the authority and
direction of the Board of Directors, forwarded the funds to iASPEC. The Company
has recorded the advance of these funds as an interest-free loan to iASPEC,
which was eliminated against additional capital of iASPEC in consolidation. The
increase in iASPECs registered capital does not affect ISTs exclusive option
to purchase iASPECs assets and shares under the MSA.
For the three and six months ended June 30, 2010, net income of
$302,111 ($284,421 from iASPEC and $17,690 from Geo), $412,930 ($419,219 from
iASPEC and loss of $6,289 from Geo), respectively was attributable to
non-controlling interest in the consolidated statements of income of the
Company.
For the same period of year 2009, net income of $73,395
($45,000 from iASPEC and $28,395 from Geo) and $293,218 ($90,000 from iASPEC and
$203,218 from Geo), respectively was attributable to non-controlling interest in
the consolidated statements of income of the Company
At June 30, 2010, the consolidation of iASPEC and Geo, resulted
in an increase in assets of approximately $53.3 million, an increase in
liabilities (consisting primarily of accounts payable and short-term bank loans)
of approximately $22.1 million. The assets of these entities consist mainly of
cash at bank, trade and other receivables, inventories and property, plant and
equipment. The creditors of these entities do not have recourse to the general
credit of the Group. The Group will provide all of the needed financing for the
VIEs.
6. RELATED PARTY BALANCES AND TRANSACTIONS
(a) Related party balances
As of June 30, 2010 and December 31, 2009, amount due from (to)
related parties consists of:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Due from related companies
|
|
|
|
|
|
|
- Xiamen Yili Geo Information Technology Co., Ltd.
|
$
|
18,854
|
|
$
|
-
|
|
- Shenzhen Kewen Information Technology
Co., Ltd.
|
|
139,613
|
|
|
129,937
|
|
|
$
|
158,467
|
|
$
|
129,937
|
|
- 16 -
CHINA INFORMATION SECURITY TECHNOLOGY, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Expressed in U.S.
dollars
(Except for share and per share amounts)
6. RELATED PARTY BALANCES AND TRANSACTIONS (CONTINUED)
(a) Related party balances (Continued)
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Due to related companies,
current portion
|
|
|
|
|
|
|
- Shenzhen Information Security Investment and
Development Co., Ltd.
|
$
|
88,380
|
|
$
|
-
|
|
- Xiamen Yili Geo Information Technology
Co., Ltd.
|
|
-
|
|
|
7,335
|
|
- Wuhan Geo Navigation and Communication Technology
Co., Ltd.
|
|
578,758
|
|
|
576,401
|
|
|
$
|
667,138
|
|
$
|
583,736
|
|
|
|
|
|
|
|
|
Due to related party,
long-term portion
|
|
|
|
|
|
|
- Shareholder
|
$
|
5,015,528
|
|
$
|
-
|
|
Due from related companies, current portion
Approximately 8% of Xiamen Yili Geo Information Technology Co.,
Ltd. (Yili) is owned by Geo. The balance consists of accounts receivable from
sales during the three and six months ended June 30, 2010.
Shenzhen Kewen Information Technology Co., Ltd. (Kewen) is a
private company owned by a member of the senior management of Zhongtian. The
balance due from Kewen primarily consists of accounts receivable from sales
during the three and six months ended June 30, 2010.
Due to related companies, current portion
Shenzhen Information Security Investment and Development Co.,
Ltd. (ISID) is a company under the control of Mr Lin. The balance due to ISID
represents advances from ISID to Bocom. These advances are non-interest bearing
and due on demand.
Approximately 9% of Wuhan Geo Navigation and Communication
Technology Co., Ltd. (Geo Navigation) is owned by Geo. The balance due to Geo
Navigation represents advances from Geo Navigation to Geo. These advances are
non-interest bearing and due on demand.
Due to related party, long-term portion
The balance due to shareholder represents the personal loans
from Mr. Jianghuai Lin (Mr. Lin), the CEO of the Company, to the Company as of
June 30, 2010.
On January 14, 2010, Mr. Lin loaned the Company a total of $5
million from the proceeds of the sale of his shares for use for general
corporate purposes and working capital. In consideration of the loan from Mr.
Lin, the Company's Board of Directors approved the issuance and delivery of a
one-year, non-interest bearing, convertible promissory note (the Original
Note) to Mr. Lin, in the principal amount of $5 million The note is due and
payable on January 14, 2011, and is convertible into shares of the Company's
common stock at a conversion price of $5.88 per share (the per share closing
price on the trading day prior to the delivery date of the Original Note).
On March 25, 2010, Mr. Lin surrendered the Original Note to the
Company and has asked the Company to void and rescind the Original Note, and
issue a replacement note (the New Note), in the principal amount of
$6,000,000, to reflect the principal amount of the Original Note as well as an
additional loan of $1,000,000 made to the Company on March 25, 2010.
The New Note has omitted the conversion feature that was
contained in the Original Note and it is non-interest bearing. The maturity date
of the New Note is March 5, 2012 and the Company may prepay all or any part of
the amounts outstanding under this Note at any time before the maturity date
without the express written consent of Mr. Lin.
- 17 -
CHINA INFORMATION SECURITY TECHNOLOGY, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Expressed in U.S.
dollars
(Except for share and per share amounts)
6. RELATED PARTY BALANCES AND TRANSACTIONS (CONTINUED)
(b) Revenue - related party
Amount earned from Kewen and Yili during the three and six
months ended June 30, 2010 and 2009 are as follows:
|
|
Three Months
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
194,772
|
|
$
|
50,900
|
|
$
|
219,664
|
|
$
|
75,772
|
|
Cost of sales
|
|
(94,787
|
)
|
|
(33,121
|
)
|
|
(108,252
|
)
|
|
(43,162
|
)
|
Gross profit
|
$
|
99,985
|
|
$
|
17,779
|
|
$
|
111,412
|
|
$
|
32,610
|
|
(c) Guarantees of bank loans
Mr. Lin has provided personal guarantees for certain of the
Companys loans as follows:
|
|
|
|
|
June 30,
|
|
|
December 31
|
|
Borrower
|
|
Lender
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ISIID
|
|
Hang Seng Bank Limited
|
|
$
|
-
|
|
$
|
5,160,000
|
|
IASPEC
|
|
Hang Seng Bank
Limited
|
|
|
-
|
|
|
4,401,000
|
|
IASPEC
|
|
Industrial and Commercial Bank of China, Shenzhen
|
|
|
-
|
|
|
586,800
|
|
IASPEC
|
|
Industrial and
Commercial Bank of China, Shenzhen
|
|
|
-
|
|
|
733,500
|
|
IASPEC
|
|
Industrial and Commercial Bank of China, Shenzhen
|
|
|
-
|
|
|
1,173,600
|
|
IASPEC
|
|
Industrial and
Commercial Bank of China, Shenzhen
|
|
|
589,200
|
|
|
-
|
|
IASPEC
|
|
Industrial and Commercial Bank of China, Shenzhen
|
|
|
1,473,000
|
|
|
-
|
|
|
|
|
|
$
|
2,062,200
|
|
$
|
12,054,900
|
|
7. INVENTORIES
As of June 30, 2010 and December 31, 2009, inventories consist
of:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
$
|
9,150,872
|
|
$
|
3,385,758
|
|
Work in processes
|
|
129,755
|
|
|
344,875
|
|
Finished goods
|
|
3,355,419
|
|
|
2,034,345
|
|
Installations in process
|
|
8,349,510
|
|
|
5,171,026
|
|
Total
|
$
|
20,985,556
|
|
$
|
10,936,004
|
|
- 18 -
CHINA INFORMATION SECURITY TECHNOLOGY, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Expressed in U.S.
dollars
(Except for share and per share amounts)
8. LONG-TERM INVESTMENTS
As of June 30, 2010 and December 31, 2009, long-term
investments consist of:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Tianhe Navigation and
Communication Technology Co., Ltd. ("Tianhe")
|
$
|
2,800,072
|
|
$
|
2,788,666
|
|
Xiamen Yili Geo Information Technology Co.,
Ltd. ("Yili")
|
|
73,650
|
|
|
73,350
|
|
|
$
|
2,873,722
|
|
$
|
2,862,016
|
|
Geo holds a 20% ownership interest in Tianhe. Although Geo owns
20% of Tianhe, Geos management does not have the ability to exercise
significant influence over operating and financial policies of Tianhe due to the
following factors:
a.
|
The Company and Geo do not participate in the policy
making, operations, or financial processes of Tianhe;
|
|
|
b.
|
There are no intercompany transactions between the
Company or Geo and Tianhe;
|
|
|
c.
|
There is no interchange of managerial
personnel;
|
|
|
d.
|
The Company and Geo do not nominate or hold a board
position at Tianhe; and
|
|
|
e.
|
There is no technological or financial dependence between
the Company or Geo and Tianhe.
|
Long-term investments also include Geos investments in Yili.
During the year ended December 31, 2009, the Company received dividends of RMB
750,000 (approximately $110,000), in connection with its investment in Yili. As
at December 31, 2009, management determined that there was an other-than
temporary impairment in the value of its investment in Tianhe and recorded an
impairment loss of approximately $233,000. As at June 30, 2010, the management
reassessed the possible impairment to the investment to Tianhe and determined
that no more impairment loss should be made.
9. PROPERTY AND EQUIPMENT
As of June 30, 2010 and December 31, 2009, property and
equipment consist of:
|
|
June 30
|
|
|
December 31
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Office building
|
$
|
7,340,667
|
|
$
|
6,536,605
|
|
Plant and machinery
|
|
23,838,343
|
|
|
17,844,918
|
|
Electronic equipment,
furniture and fixtures
|
|
11,236,665
|
|
|
11,405,355
|
|
Motor vehicles
|
|
1,124,703
|
|
|
1,098,729
|
|
Purchased software
|
|
32,474,737
|
|
|
27,036,904
|
|
Total
|
|
76,015,115
|
|
|
63,922,511
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation
|
|
(13,402,979
|
)
|
|
(10,335,997
|
)
|
|
$
|
62,612,136
|
|
$
|
53,586,514
|
|
Depreciation expense for the three months ended June 30, 2010
and 2009 was approximately $1,917,000 and $937,000, respectively. Depreciation
expense for the six months ended June 30, 2010 and 2009 was approximately
$3,441,000 and $1,852,000, respectively.
- 19 -
CHINA INFORMATION SECURITY TECHNOLOGY, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Expressed in U.S.
dollars
(Except for share and per share amounts)
10. LAND USE RIGHTS AND INTANGIBLE ASSETS
(a) Land use rights
As of June 30, 2010 and December 31, 2009, land use rights
consist of:
|
|
June 30
|
|
|
December 31
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Land use rights
|
$
|
2,154,372
|
|
$
|
1,914,611
|
|
Less: accumulated amortization
|
|
(30,670
|
)
|
|
(7,000
|
)
|
Land use rights, net
|
$
|
2,123,702
|
|
$
|
1,907,611
|
|
Amortization expense for the three months ended June 30, 2010
and 2009 was approximately $12,000 and $0, respectively. Amortization expense
for the six months ended June 30, 2010 and 2009 was approximately $24,000 and
$0, respectively.
Estimated amortization for the next five years and thereafter
is as follows:
Remainder of 2010
|
$
|
23,640
|
|
2011
|
|
47,281
|
|
2012
|
|
47,281
|
|
2013
|
|
47,281
|
|
2014
|
|
47,281
|
|
Thereafter
|
|
1,910,938
|
|
Total
|
$
|
2,123,702
|
|
(b) Intangible assets
As of June 30, 2010 and December 31, 2009, intangible assets
consist of:
|
|
June 30
|
|
|
December 31
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Software and software
development costs
|
$
|
6,095,144
|
|
$
|
5,637,740
|
|
Technology
|
|
7,220,499
|
|
|
7,191,087
|
|
Trademarks
|
|
4,167,117
|
|
|
4,150,143
|
|
Customer base
|
|
296,073
|
|
|
294,867
|
|
Sub-Total
|
|
17,778,833
|
|
|
17,273,837
|
|
Less: accumulated
amortization
|
|
(4,640,164
|
)
|
|
(3,717,696
|
)
|
|
|
|
|
|
|
|
Intangible assets, net
|
$
|
13,138,669
|
|
$
|
13,556,141
|
|
Amortization expense for the three months ended June 30, 2010
and 2009 was approximately $427,000 and $438,000, respectively. Amortization
expense for the six months ended June 30, 2010 and 2009 was approximately
$927,000 and $866,000, respectively.
- 20 -
CHINA INFORMATION SECURITY TECHNOLOGY, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Expressed in U.S.
dollars
(Except for share and per share amounts)
10. LAND USE RIGHTS AND INTANGIBLE ASSETS (CONTINUED)
(b) Intangible assets (continued)
Estimated amortization for the next five years and thereafter
is as follows:
Remainder of 2010
|
$
|
810,781
|
|
2011
|
|
1,686,267
|
|
2012
|
|
1,599,467
|
|
2013
|
|
1,337,600
|
|
2014
|
|
1,330,165
|
|
Thereafter
|
|
6,374,389
|
|
Total
|
$
|
13,138,669
|
|
- 21
CHINA INFORMATION SECURITY TECHNOLOGY, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Expressed in U.S.
dollars
(Except for share and per share amounts)
11. BANK LOANS
(a) Short-term bank loans
At June 30, 2010 and December 31, 2009, the Company had the
following bank borrowings:
|
|
Loan
|
Interest
rate
|
|
|
Lender
|
Terms
|
Period
|
per annum
|
June 30,
|
December
31,
|
|
|
|
|
2010
|
2009
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
China Merchants Bank, Wuhan Donghu Branch
|
Principal amount of RMB5,000,000 ($733,500). Fixed interest rate; interest is
payable monthly and principal is due at maturity. The
loan is collateralized by Geo's land and office buildings.
|
June 25, 2009 to June 24, 2010
|
5.58%
|
$ -
|
$ 733,500
|
China Merchants Bank, Wuhan Donghu Branch
|
Principal amount of RMB5,000,000 ($736,500).
Fixed interest rate; interest is payable monthly and principal is due at maturity. The loan is collateralized by Geo's land and office
buildings
|
June 8, 2010 to December 6, 2010
|
5.10%
|
736,500
|
-
|
China Merchants Bank, Wuhan Donghu Branch
|
Principal amount of RMB3,000,000 ($441,900). Fixed interest rate; interest is
payable monthly and principal is due at maturity. The
loan is collateralized by Geo's land and office buildings.
|
October 12, 2009 to October 12, 2010
|
5.58%
|
441,900
|
440,100
|
China Merchants Bank, Wuhan Donghu Branch
|
Principal amount of RMB4,000,000 ($589,200).
Fixed interest rate; interest is payable monthly and principal is due at maturity. The loan is collateralized by Geo's land and office
buildings.
|
December 2, 2009 to December 2, 2010
|
5.58%
|
589,200
|
586,800
|
Hang Seng Bank Limited
|
Principal amount of HKD 40,000,000 ($5,160,000 ).Weighted average
interest rate; interest is payable monthly and
principal is due at maturity. The loan is guaranteed by Mr. Lin, iASPEC, Bocom, CPSH and the Company and through June 25, 2009 was collateralized by a three-month fixed deposit of RMB40,000,000
($5,868,000) of IST.
|
June
18, 2009 to October 31, 2010
|
2.75% p/a over HIBOR
|
-
|
5,160,000
|
Industrial and Commercial Bank of China, Shenzhen Branch
|
Principal amount of RMB4,000,000 ($586,800).
Fixed interest rate; interest is payable monthly and principal is due at maturity. The loan is collateralized by accounts receivable of RMB 4,880,000 ($715,900) and
guaranteed by Mr. Lin.
|
November 5, 2009 to April 1, 2010
|
5.589%
|
-
|
586,800
|
(CONTINUED)
- 22 -
CHINA INFORMATION SECURITY TECHNOLOGY, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Expressed in U.S.
dollars
(Except for share and per share amounts)
11. BANK LOANS (CONTINUED)
(a) Short-term bank loans (continued)
Industrial and Commercial Bank of China, Shenzhen Branch
|
Principal amount
of RMB8,000,000 ($1,173,600). Fixed interest rate; interest is payable
monthly and principal is due at
maturity. The loan is collateralized by accounts receivable of RMB 9,166,603 ($1,344,700) and guaranteed by Mr. Lin.
|
December 29, 2009 to May 7, 2010
|
5.589%
|
-
|
1,173,600
|
Industrial and Commercial Bank of China, Shenzhen Branch
|
Principal amount of RMB5,000,000 ($733,500). Fixed interest rate;
interest is payable monthly and principal is due at maturity. The loan is
collateralized by accounts receivable of RMB 6,912,495 ($1,014,000) and guaranteed by Mr. Lin.
|
November 10, 2009 to April 29, 2010
|
5.589%
|
-
|
733,500
|
Ping An Bank
|
Principal amount
of RMB 40,000,000 ($5,892,000). Fixed interest rate; interest is payable monthly and principal is due at maturity. The
loan is collateralized by Huipus plants.
|
June 30, 2010 to June 30, 2011
|
5.31%
|
5,892,000
|
-
|
Hang Seng Bank Limited
|
Principal amount of RMB 30,000,000 ($4,401,000). The loan is guaranteed by Mr. Lin, iASPEC, IST, PST.
|
September 1, 2009 to October 30, 2010
|
120% of PBOCs interest rate for Renminbi loan during the
period
|
-
|
4,401,000
|
Bank of China, Shenzhen Longgang Branch
|
Principal amount
of RMB10,000,000 ($1,473,000). Fixed interest rate; interest is payable
monthly and principal is due at maturity. The loan is guaranteed by IST.
|
February 26, 2010 to August 26, 2010
|
4.86%
|
1,473,000
|
-
|
Bank of
China, Shenzhen Longgang Branch
|
Principal amount of RMB4,000,000 ($589,200). Fixed interest rate;
interest is payable monthly and principal is due at maturity. The loan is guaranteed by IST.
|
March 17, 2010 to September 14, 2010
|
4.86%
|
589,200
|
-
|
Bank of China, Shenzhen Longgang Branch
|
Principal amount
of RMB16,000,000 ($2,356,800). Fixed interest rate; interest is payable
monthly and principal is due at maturity. The loan is guaranteed by IST.
|
March 31, 2010 to September 28, 2010
|
4.86%
|
2,356,800
|
-
|
(CONTINUED)
- 23 -
CHINA INFORMATION SECURITY TECHNOLOGY, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Expressed in U.S.
dollars
(Except for share and per share amounts)
11. BANK LOANS (CONTINUED)
(a) Short-term bank loans (continued)
Shenzhen Commercial Bank
|
Principal amount of RMB 14,400,000
($2,112,480). See Note 11(b)
|
December 31, 2009 to December 30, 2010
|
7.128%
|
-
|
|
2,112,480
|
China Merchants Bank, Wuhan Donghu Branch
|
Principal amount of RMB3,000,000 ($441,900). Fixed interest rate; interest is payable monthly and
principal is due at maturity. The loan is
collateralized by Geo's land and office buildings
|
May 14, 2010 to November 11, 2010
|
5.10%
|
441,900
|
|
-
|
Ping An Bank
|
Principal amount of RMB 32,600,000
($4,801,980). Fixed interest rate; interest is payable monthly and principal is due at maturity. The loan is collateralized by Huipus plants.
|
March 31, 2010 to March 30, 2011
|
5.31%
|
4,801,980
|
|
-
|
Hang Seng Bank Limited
|
Principal amount of USD1,123,200. Fixed interest rate; interest is payable monthly and principal is due at maturity. The loan is guaranteed by the Company
|
May 31, 2010 to August 9, 2010
|
4.60%
|
1,123,200
|
|
-
|
Hang Seng Bank Limited
|
Principal amount of USD383,760. Fixed interest
rate; interest is payable monthly
and principal is due at maturity.
The loan is guaranteed by the Company
|
June
17, 2010 to August 9, 2010
|
4.50%
|
383,760
|
|
-
|
Hang Seng Bank Limited
|
Principal amount of USD1,230,100. Fixed interest rate; interest is payable monthly and principal is due at maturity. The loan is guaranteed by the Company
|
May 21, 2010 to August 19, 2010
|
4.60%
|
1,230,100
|
|
-
|
Industrial and Commercial Bank of China, Shenzhen Branch
|
Principal amount of RMB4,000,000 ($589,200).
Fixed interest rate; interest is payable monthly and principal is due at maturity. The loan is collateralized by
accounts receivable of RMB 4,580,000 ($675,000) and guaranteed by Mr. Lin.
|
April 28, 2010 to October 26, 2010
|
5.59%
|
589,200
|
|
-
|
Industrial and Commercial Bank of China, Shenzhen Branch
|
Principal amount of RMB10,000,000 ($1,473,000). Fixed
interest rate; interest is payable monthly and
principal is due at maturity. The loan is collateralized by accounts receivable of RMB
12,321,000 ($1,815,000) and guaranteed by Mr. Lin.
|
June 30, 2010 to December 28,
2010
|
5.59%
|
1,473,000
|
|
-
|
|
|
|
|
$
22,121,740
|
|
$
15,927,780
|
- 24 -
CHINA INFORMATION SECURITY TECHNOLOGY, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Expressed in U.S.
dollars
(Except for share and per share amounts)
11. BANK LOANS (CONTINUED)
(b) Long-term bank loans
On October 18, 2006, Huipu obtained a RMB 55,000,000
($8,069,000) term loan from Shenzhen Commercial Bank to finance the construction
of its plant and buildings. The loan has a fixed interest rate at 7.128% per
annum and matures on October 17, 2011. Interest on the loan is payable monthly,
and principal of RMB 1,200,000 ($176,000) is payable monthly through the
maturity date, with any remaining principal also payable on the maturity date.
The total outstanding balance of this loan as of December 31,
2009 is RMB 27,400,000 ($4,020,000), of which RMB 14,400,000 ($2,112,000) is due
in one year and classified as current liability
On January 1, 2010, Huipu repaid the outstanding balance and
obtained a RMB 27,400,000 ($4,020,000) long term loan from Ping An Bank. The new
loan has a fixed interest rate at 7.128% per annum and matures on October 17,
2011. Interest on the loan is payable monthly, and principal is due at maturity.
12. INCOME TAXES
Pre-tax income for the three and six months June 30, 2010 and
2009 was taxable in the following jurisdictions:
|
|
Three months ended June 30
|
|
|
Six months ended
June 30
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PRC
|
$
|
12,302,773
|
|
$
|
9,342,249
|
|
$
|
19,490,776
|
|
$
|
14,242,894
|
|
Others
|
|
(484,984
|
)
|
|
(379,224
|
)
|
|
(109,977
|
)
|
|
(714,657
|
)
|
Total income before income
taxes
|
$
|
11,817,789
|
|
$
|
8,963,025
|
|
$
|
19,380,799
|
|
$
|
13,528,237
|
|
United States
The Company was incorporated in Nevada and is subject to United
States of America tax law. It is management's intention to reinvest all the
income attributable to the Company earned by its operations outside the United
States of America (the U.S.). Accordingly, no U.S. corporate income taxes are
provided in these condensed consolidated financial statements.
BVI
Under the current laws of the BVI, dividends and capital gains
arising from the Company's investments in the BVI are not subject to income
taxes.
- 25 -
CHINA INFORMATION SECURITY TECHNOLOGY, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Expressed in U.S.
dollars
(Except for share and per share amounts)
12. INCOME TAXES (CONTINUED)
PRC
The income tax provision consists of the following:
|
|
Three months ended June 30
|
|
|
Six months ended
June 30
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current taxes
|
$
|
2,027,487
|
|
$
|
1,102,720
|
|
$
|
3,115,112
|
|
$
|
1,709,713
|
|
Deferred taxes
|
|
136,122
|
|
|
(10,920
|
)
|
|
219,580
|
|
|
(29,517
|
)
|
Provision for income taxes
|
$
|
2,163,609
|
|
$
|
1,091,800
|
|
$
|
3,334,692
|
|
$
|
1,680,196
|
|
|
|
Three months ended
June 30
|
|
|
Six months ended
June 30
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PRC federal statutory tax rate
|
$
|
25%
|
|
$
|
25%
|
|
$
|
25%
|
|
$
|
25%
|
|
Computed expected income tax expense
|
|
2,954,448
|
|
|
1,792,605
|
|
|
4,845,200
|
|
|
2,705,647
|
|
Tax concession
|
|
(1,219,294
|
)
|
|
(872,532
|
)
|
|
(1,935,319
|
)
|
|
(1,341,162
|
)
|
Change in valuation allowance
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Permanent differences
|
|
103,243
|
|
|
111,288
|
|
|
203,336
|
|
|
182,423
|
|
Other differences
|
|
325,212
|
|
|
60,439
|
|
|
221,475
|
|
|
133,288
|
|
Income taxes
|
$
|
2,163,609
|
|
$
|
1,091,800
|
|
$
|
3,334,692
|
|
$
|
1,680,196
|
|
- 26 -
|
CHINA INFORMATION SECURITY TECHNOLOGY, INC.
|
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
|
Expressed in U.S. dollars
|
(Except for share and per share amounts)
|
12.
|
INCOME TAXES (CONTINUED)
|
The significant components of deferred tax assets and deferred
tax liabilities were as follows as at June 30, 2010 and December 31, 2009:
|
|
June 30,
2010
|
|
|
December 31,
2009
|
|
|
|
Deferred Tax
Assets
|
|
|
Deferred
Tax
Liabilities
|
|
|
Deferred Tax
Assets
|
|
|
Deferred
Tax
Liabilities
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Fixed assets
|
$
|
274,572
|
|
$
|
(205,183
|
)
|
$
|
202,458
|
|
$
|
(212,101
|
)
|
Intangible assets
|
|
89,433
|
|
|
(1,691,154
|
)
|
|
91,865
|
|
|
(2,352,503
|
)
|
Inventory valuation
|
|
886,865
|
|
|
-
|
|
|
953,754
|
|
|
-
|
|
Accounts receivable allowance
|
|
735,748
|
|
|
-
|
|
|
765,573
|
|
|
-
|
|
Equity investments
|
|
35,146
|
|
|
-
|
|
|
35,003
|
|
|
-
|
|
Loss carry-forwards
|
|
1,020,290
|
|
|
-
|
|
|
2,075,541
|
|
|
-
|
|
Gross deferred tax
assets and liabilities
|
|
3,042,054
|
|
|
(1,896,337
|
)
|
|
4,124,194
|
|
|
(2,564,604
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
(991,105
|
)
|
|
-
|
|
|
(1,736,137
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax
assets and liabilities
|
$
|
2,050,949
|
|
$
|
(1,896,337
|
)
|
$
|
2,388,057
|
|
$
|
(2,564,604
|
)
|
The breakdown between current and long-term deferred tax assets
and liabilities was as follows as at June 30, 2010 and December 31, 2009:
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Current deferred tax
assets
|
$
|
1,622,613
|
|
$
|
1,719,327
|
|
Current deferred tax liabilities
|
|
-
|
|
|
-
|
|
Long-term deferred tax
assets
|
|
428,336
|
|
|
668,730
|
|
Long-term deferred tax liabilities
|
|
(1,896,337
|
)
|
|
(2,564,604
|
)
|
|
|
|
|
|
|
|
Total net deferred tax
assets/(liabilities)
|
$
|
154,612
|
|
$
|
(176,547
|
)
|
As at June 30, 2010, Geo and Huipu had incurred tax losses of
approximately $480,000 and $6,945,000, respectively. Approximately $190,000 of
the accumulated losses of Geo can be carried forward through approximately
2010.
FASB ASC 740 requires that deferred tax assets be reduced by a
valuation allowance if it is more likely than not that some portion or all of
the deferred tax asset will not be realized. In accordance with proactive
communication with local tax bureau, the management determined that $2,997,000
of the accumulative losses of Huipu could not be utilized to deduct against
future taxable profit as it had been denied by the local tax bureau. The
management derecognized the corresponding deferred tax assets amounting to
$745,000 and wrote off the corresponding valuation allowance therefore.
The management also expects the rest of $3,948,000 of the
accumulated losses of Huipu may not be utilized to deduct against future taxable
profit due to the fact that proper approval from the local tax bureau has not
been obtained, the valuation allowance amounting to approximately $991,000
existed as at June 30, 2010.
- 27 -
|
CHINA INFORMATION SECURITY TECHNOLOGY, INC.
|
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
|
Expressed in U.S. dollars
|
(Except for share and per share amounts)
|
|
(a) Issuance of new shares
|
On January 12, 2010, the Company issued 1,652,033 shares of
common stock to certain purchasers at $6.15 per share, for the purpose of
funding the Company with working capital. The purchasers also received from the
Company additional warrants to purchase an aggregate of 813,008 shares of common
stock at an exercise price of $6.15. The warrants expired 45 days after the
initial issuance date.
On January 21, 2010, the Purchasers exercised the warrants and
purchased 41,250 shares of common stock at an exercise price of $6.15.
(b) Stock-based compensation
|
Effective June 13, 2007, the Board of Directors of the Company
adopted the China Information Security Technology, Inc. 2007 Equity Incentive
Plan (The Plan). The Plan provides for grants of stock options, stock
appreciation rights, performance units, restricted stock, restricted stock units
and performance shares. A total of 8,000,000 shares of the Companys common
stock may be issued pursuant to Awards granted under the Plan.
On November 30, 2007, subject to ratification of the Plan by
the stockholders, the Company issued options to certain employees to purchase
490,000 shares of the Companys common stock, par value $0.01, with an exercise
price of $9.48 per share. The options were to vest on December 5, 2008 and
expire on December 5, 2011.
On March 3, 2008, the Company's Board of Directors voided and
canceled the grant of the stock options, and on March 20, 2008 approved the
grant of 400,000 shares of common stock to the employees. The fair value of the
Companys common stock based on quoted market prices on March 20, 2008 was $4.30
per share. Since the cancellation and grant of the replacement award occurred
concurrently, they were treated as a modification of the terms of the cancelled
award. 100,000 shares of common stock became vested on June 20, 2008 and
September 20, 2008, respectively, and the remaining 200,000 shares of common
stock were vested on December 20, 2008.
On February 2, 2009, the Company granted eligible employees a
total of 60,000 shares of the Companys common stock as compensation under the
Plan.
On January 12, 2010, the Company granted eligible employees a
total of 213,363 shares of the Company's common stock as compensation under the
Plan. The fair value of these shares of approximately $1.3 million, based on the
quoted market price, was accrued as of December 31, 2009 as the compensation was
for services provided in 2009.
As of June 30, 2010, there was no unrecognized compensation
expenses related to the non-vested options.
14.
CONSOLIDATED SEGMENT DATA
|
Segment information is consistent with how management reviews
the businesses, makes investing and resource allocation decisions and assesses
operating performance. Transfers and sales between reportable segments, if any,
are recorded at cost.
In connection with the changes in the Company's business
portfolio and realignment of management, management conducted a review of its
operating business segments during the first quarter of 2009. The review
resulted in adding the Digital Hospital Information System Segment and merging
the Product Sales Segment into Digital Information Security Technology Segment.
The Company's new segment reporting, which has been used for
all periods presented, follows the organizational structure as reflected in its
internal management reporting systems, which are the basis for assessing the
financial performance of the business segments and for allocating resources to
the business segments.
- 28 -
|
CHINA INFORMATION SECURITY TECHNOLOGY, INC.
|
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
|
Expressed in U.S. dollars
|
(Except for share and per share amounts)
|
|
14.
CONSOLIDATED SEGMENT DATA (CONTINUED)
|
The Company reports financial and operating information in the
following three segments:
(a) Geographic Information Systems Segment ("GIS"): includes
the Police-Use Geographic Information Systems ("PGIS") and Civil-Use GIS sale;
(b) Digital Information Security Technology Segment ("DIST"): includes revenues
from information security related projects;
(c) Digital Hospital Information System Segment ("DHIS"):
includes revenues from digital information system provided to hospitals or
medical institutes.
The Company also provides general corporate services to its
segments and these costs are reported as "Corporate and others."
Selected information by segment is presented in the following
tables for the three and six months ended June 30, 2010 and 2009.
|
|
Three months
ended June 30
|
|
|
Six months
ended June 30
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
GIS
Segment
|
$
|
15,677,977
|
|
$
|
7,974,312
|
|
$
|
26,315,057
|
|
$
|
13,833,978
|
|
DIST Segment
|
|
13,957,662
|
|
|
15,221,482
|
|
|
26,055,086
|
|
|
22,741,939
|
|
DHIS Segment
|
|
3,881,249
|
|
|
2,592,125
|
|
|
6,451,852
|
|
|
4,192,186
|
|
|
$
|
33,516,888
|
|
$
|
25,787,919
|
|
$
|
58,821,995
|
|
$
|
40,768,103
|
|
(1)Revenues by
operating segments exclude intercompany transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
GIS
Segment
|
$
|
6,217,144
|
|
$
|
4,356,698
|
|
$
|
10,472,996
|
|
$
|
5,727,286
|
|
DIST Segment
|
|
4,621,172
|
|
|
3,373,025
|
|
|
6,288,481
|
|
|
5,988,166
|
|
DHIS Segment
|
|
1,746,608
|
|
|
1,235,740
|
|
|
2,716,947
|
|
|
1,780,456
|
|
Corporate and
others(2)
|
|
(457,980
|
)
|
|
(367,848
|
)
|
|
(788,051
|
)
|
|
(728,943
|
)
|
Income from operations
|
|
12,126,944
|
|
|
8,597,615
|
|
|
18,690,373
|
|
|
12,766,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate other income (expenses), net
|
|
(55,802
|
)
|
|
301,226
|
|
|
1,073,779
|
|
|
680,381
|
|
Corporate interest
income
|
|
10,403
|
|
|
120,627
|
|
|
29,294
|
|
|
197,544
|
|
Corporate interest expense
|
|
(263,756
|
)
|
|
(56,443
|
)
|
|
(412,647
|
)
|
|
(116,653
|
)
|
Income before
income tax
|
|
11,817,789
|
|
|
8,963,025
|
|
|
19,380,799
|
|
|
13,528,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
(2,163,609
|
)
|
|
(1,091,800
|
)
|
|
(3,334,692
|
)
|
|
(1,680,196
|
)
|
Net
income
|
|
9,654,180
|
|
|
7,871,225
|
|
|
16,046,107
|
|
|
11,848,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to the non-controlling interest
|
|
(302,111
|
)
|
|
(73,395
|
)
|
|
(412,930
|
)
|
|
(293,218
|
)
|
Net income
attributable to the Company
|
$
|
9,352,069
|
|
$
|
7,797,830
|
|
$
|
15,633,177
|
|
$
|
11,554,823
|
|
(2) Includes non-cash compensation, professional fees and
consultancy fees for the Company.
- 29 -
|
CHINA INFORMATION SECURITY TECHNOLOGY, INC.
|
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
|
Expressed in U.S. dollars
|
(Except for share and per share amounts)
|
14. CONSOLIDATED SEGMENT DATA (CONTINUED)
Total assets by segment as at June 30, 2010 and December 31,
2009 are as follows:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
|
|
Total assets:
|
|
|
|
|
|
|
GIS Segment
|
$
|
113,883,809
|
|
$
|
98,140,496
|
|
DIST Segment
|
|
138,059,958
|
|
|
115,003,084
|
|
DHIS Segment
|
|
32,480,073
|
|
|
30,886,236
|
|
Corporate and others
|
|
170,559
|
|
|
6,799,122
|
|
|
$
|
284,594,399
|
|
$
|
250,828,938
|
|
15. COMMITMENTS AND CONTINGENCIES
iASPEC, Bocom, Zhongtian, and Huipu lease offices, employee
dormitories and factory space in Shenzhen, Guangzhou, Beijing and Dongguan in
the PRC, under lease agreements that will expire on various dates through August
2012. Rent expense for the three months ended June 30, 2010 and 2009 was
approximately $84,700 and $81,100, respectively. Rent expense for the six months
ended June 30, 2010 and 2009 was approximately $168,500 and $262,100,
respectively.
Future minimum lease payments under these lease agreements are
as follows:
Six months ended June 30, 2010
|
|
|
|
Remainder
of 2010
|
$
|
201,760
|
|
2011
|
|
242,017
|
|
2012
|
|
21,042
|
|
Total
|
$
|
464,819
|
|
The Company entered into several purchase commitments during
the period to purchase operating software and a database. The total contracted
price is approximately $5.38 million (RMB 36.5 million). As of June 30, 2010,
the Company paid deposits of approximately $4.80 million (RMB 32.5 million). The
Company will pay the remaining contracted amount 90 days subsequent to final
testing of the software.
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
The Company extends credit to its customers in the normal course of business and
generally does not require collateral. As a result, management performs ongoing
credit evaluations, and the Company maintains an allowance for potential credit
losses based upon its loss history and its aging analysis. The allowance for
doubtful accounts ($2,944,000 at June 30, 2010 and $3,123,000 at December 31,
2009) is the Company's best estimate of the amount of probable credit losses in
existing accounts receivable.
Management reviews the allowance for doubtful accounts each
reporting period based on a detailed analysis of accounts receivable. In the
analysis, management primarily considers the age of the customer's receivable
and also considers the creditworthiness of the customer, the economic conditions
of the customer's industry, and general economic conditions and trends, among
other factors. If any of these factors change, the Company may also change its
original estimates, which could impact the level of the Company's future
allowance for doubtful accounts. If judgments regarding the collectability of
accounts receivables were incorrect, adjustments to the allowance may be
required, which would reduce profitability. Since the Company's accounts
receivables are often concentrated in a relatively few number of customers, a
significant change in the liquidity or financial position of any one of these
customers could have a material adverse effect on the Company's financial
statements.
- 30 -
|
CHINA INFORMATION SECURITY TECHNOLOGY, INC.
|
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
|
Expressed in U.S. dollars
|
(Except for share and per share amounts)
|
16.
CONCENTRATIONS (CONTINUED)
|
For the three months ended June 30, 2010, the Company had no
customer accounted for over 10% of the third party revenue. For the three months
ended June 30, 2009, the Company had three customers that represented
approximately 19.56%, 14.57%, 13.45% of the Company's third party revenue.
As of June 30, 2010, accounts receivables were due from 230
customers. Of these, no customers accounted for over 10% of the total accounts
receivable. As of June 30, 2009, accounts receivable were due from 136
customers. Of these, two customers accounted for 22.10% and 10.58% of total
accounts receivable, respectively.
On July 9, 2010, the Company entered into an agreement with the
municipal government of Dongguan City, to purchase a land-use-right for 101,764 square meters
of land for a consideration of approximately $22 million (RMB
150 million) to be paid in cash in installments. We plan to use the land for
future construction of facilities to
consolidate all of our subsidiaries in Guangdong province on the same premises. We paid an initial deposit of $737,000 (RMB 5 million) on July 16,
2010. We are obligated to pay 30% of the consideration on or before August 31,
2010, another 30% of the consideration by September 30, 2010 and the remaining
portion of the purchase price by November 30, 2010.
- 31 -
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Forward-Looking Statements
This quarterly report contains forward-looking statements
relating to us that are based on the beliefs of our management as well as
assumptions made by, and information currently available to, our management.
When used in this Report, the words anticipate, believe, estimate,
expect, intend, plan and similar expressions, as they relate to us or our
management, are intended to identify forward-looking statements. These
statements reflect management's current view of us concerning future events and
are subject to certain risks, uncertainties and assumptions, including among
many others: the possibility that third parties hold proprietary rights that
preclude us from marketing our products, the emergence of additional competing
technologies, changes in domestic and foreign laws, regulations and taxes,
changes in economic conditions, uncertainties related to China's legal system
and economic, political and social events in China, a general economic downturn,
a downturn in the securities markets, and other risks and uncertainties. Should
any of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
described in this Report as anticipated, estimated or expected. We undertake no
obligation to publicly release any revisions to the forward-looking statements
after the date of this document. You should consider the factors and risks
discussed in this report and carefully review the risk factors described in our
Annual Report on Form 10-K for our fiscal year ended December 31, 2009 and other
documents we file from time to time with the U.S. Securities and Exchange
Commission.
Use of Certain Defined Terms
Except as otherwise indicated by the context, references in
this report to:
-
Bocom are to Shenzhen Bocom Multimedia Display Technology Co., Ltd, a
PRC company,
-
China and PRC, are to the People's Republic of China,
-
CIST, we, us, or our and the Company are to the combined
business of China Information Security Technology, Inc. and its wholly-owned
subsidiary, CPSH; along with CPSH's wholly-owned subsidiaries, IST and ISSI,
and ISSI's wholly-owned subsidiary, ISS; and ISIID, and its operating PRC
subsidiary, Bocom; iASPEC, to whose operations we succeeded on October 9, 2006
and who became our variable interest entity effective July 1, 2007, and its
57% majority owned subsidiary, Geo; and Kwong Tai, and its wholly-owned PRC
subsidiary, Zhongtian; and HPC, and its wholly-owned PRC subsidiary, Huipu,
-
CPSH are to China Public Security Holdings Limited, a British Virgin
Islands company,
-
Geo, are to Wuda Geoinformatics Co., Ltd., a PRC company,
-
Hong Kong, are to the Hong Kong Special Administrative Region of China,
-
HPC are to HPC Electronics (China) Company Limited (formerly, Topwell
Treasure Ltd. ("Topwell")), a Hong Kong company,
-
Huipu are to Huipu Electronics (Shenzhen) Co., Ltd. a PRC company.
-
iASPEC are to iASPEC Software Co., Ltd., a PRC company,
-
ISIID, are to Information Security International Investment and
Development Limited, a Hong Kong company,
-
ISS, are to Information Security Software (China) Co., Ltd., a PRC
company,
-
ISSI are to Information Security Software Investment Limited, a Hong
Kong company,
-
IST are to Information Security Technology (China) Co., Ltd., a PRC
company,
-
Kwong Tai, are to Kwong Tai International Technology Limited, a Hong
Kong company,
-
RMB or Renminbi, are to the Renminbi Yuan, Chinas national currency;
-
U.S. dollars, dollars and $ refer to the legal currency of the
United States. Throughout this report, we have converted RMB to USD as
follows:
|
June 30, 2010
|
|
|
|
|
Balance sheet
|
|
RMB 6.81
to US$1.00
|
|
|
Statement of income and comprehensive
income
|
|
RMB 6.83 to US$1.00
|
|
- 32 -
|
|
|
|
|
|
June 30, 2009
|
|
|
|
|
Balance sheet
|
|
RMB 6.84
to US$1.00
|
|
|
Statement of income and comprehensive
income
|
|
RMB 6.84 to US$1.00
|
|
-
Zhongtian, are to Shenzhen Zhongtian Technology Development Company Ltd.
a PRC company.
Overview of Our Business
We are a leading provider of integrated solutions for the
digital security sector, the Geographic Information Systems, or GIS, and the
digital hospital information sector. We provide a broad portfolio of fully
integrated solutions and services, including a First Responder Coordination
Platform, Intelligent Recognition System, Residence Card Information Management
System, Police-use and Civil-use GIS products, and Digital Hospital Information
System, as well as high-end multimedia display systems and technology.
We are headquartered in Shenzhen, China and our common stock is
listed on the Nasdaq Global Select Market. As of June 30, 2010, we had more than
1,490 employees and 11 sales offices nationwide. We were founded in 1993.
Our customers are mostly public sector entities that use our
products and services to improve the service quality and management level and
efficiency of public security, traffic control, fire control, medical rescue,
border control, and surveying and mapping. Our typical customers include some of
the most important governmental departments in China, including the Ministry of
Public Security, the public security, fire fighting, traffic and police
departments of several provinces, the Shenzhen General Station of Exit and Entry
Frontier Inspection, and several provincial personnel, urban planning, civil
administration, land resource, and mapping and surveying bureaus. Over the past
several years, we have diversified our customer base beyond our local reach.
In the future, we expect to continually expand our market and product
offerings in the public and other sectors, through active industry consolidation
and enhancement of our technical capabilities.
We generate revenues through the sale of our integrated
hardware and software products and through the provision of related support
services. A significant portion of our operations are conducted through iASPEC,
our variable interest entity. iASPEC is a PRC domestic company owned by Jiang
Huai Lin, our Chairman and Chief Executive Officer, who is a PRC citizen and
resident. iASPEC is able to obtain governmental licenses that are restricted to
PRC entities that have no foreign ownership. These licenses allow iASPEC to
perform Police-use Geographic Information Systems, or PGIS, services for PRC
governmental customers. Under our Amended and Restated Management Services
Agreement, or MSA, among our subsidiary, IST, iASPEC and Mr. Lin, IST is
entitled to receive 95% of the net received profit of iASPEC during the term of
the Agreement, less costs and expenses related to sales and operations, and
accrued but uncollected accounts receivable. In fiscal years 2009, 2008 and
2007, 48.6%, 48% and 68% of our revenues, respectively, were generated under
this exclusive commercial arrangement with iASPEC. During the six months ended
June 30, 2010, $28.95 million, or 49.2% of our revenue was derived in connection
with the MSA.
Where You Can Find Additional Information
We file annual, quarterly and other reports, proxy statements
and other information with the SEC. You may obtain and copy any document we file
with the SEC at the SECs public reference room at 100 F Street, NE, Room 1580,
Washington, D.C. 20549. You may obtain information on the operation of the SECs
public reference facilities by calling the SEC at 1-800-SEC-0330. You can
request copies of these documents, upon payment of a duplicating fee, by writing
to the SEC at its principal office at 100 F Street, NE, Room 1580, Washington,
D.C. 20549-1004. The SEC maintains an Internet website at http://www.sec.gov
that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. Our SEC filings,
including exhibits filed therewith, are accessible through the Internet at that
website.
You may also request a copy of our SEC filings, at no cost to
you, by writing or telephoning us at: China Information Security Technology,
Inc., 21
st
Floor, Everbright Bank Building, Zhuzilin, Futian
District, Shenzhen, Guangdong, 518040 Peoples Republic of China, attention
Corporate Secretary, telephone (+86) 755-8370-8333. We will not send exhibits to
the documents, unless the exhibits are specifically requested and you pay our
fee for duplication and delivery.
- 33 -
The following chart reflects our corporate organizational
structure:
Our corporate headquarters are located at 21
st
Floor, Everbright Bank Building, Zhuzilin, Futian District, Shenzhen, Guangdong,
518040, Peoples Republic of China. Our telephone number is (+86) 755
-8370-8333. We maintain a website at
www.chinacpby.com
that contains
information about our subsidiary CPSH, but that information is not a part of
this report.
- 34 -
First Half of 2010 Financial Performance Highlights
We continued to experience strong demand for our products and
services during the six months ended June 30, 2010, which resulted in growth in
our revenue and net income. The following are some financial highlights for the
six months ended June 30, 2010:
-
Revenue
: Revenue increased $18.05 million, or 44.3%, to $58.82
million for the six months ended June 30, 2010, from $40.77 million for the
six months ended June 30, 2009.
-
Gross Profit
: Gross profit increased $8.17 million, or 41.4%, to
$27.92 million for the six months ended June 30, 2010, from $19.75 million for
the six months ended June 30, 2009.
-
Income from operations
: Income from operations increased $5.92
million, or 46.4%, to $18.69 million for the six months ended June 30, 2010,
from $12.77 million for the six months ended June 30, 2009.
-
Net income attributable to the Company
: Net income attributable to
the Company was $15.63 million for the six months ended June 30, 2010,
increased $4.08 million, or 35.3%, from $11.55 million for the six months
ended June 30, 2009.
-
Fully diluted net income per share
: Fully diluted net income per
share was $0.30 for the six months ended June 30, 2010, as compared to $0.24
for the six months ended June 30, 2009.
As at June 30, 2010, the total of our contract backlog was
approximately $52.27 million, which was another new record for our Company.
Results of Operations
The following tables set forth key components of our results of
operations for the periods indicated, both in dollars and as a percentage of
sales revenue and key components of our revenue for the periods indicated in
dollars. The financial data for the three and six months ended June 30, 2010
reflects the operating results of the Company and its subsidiaries and our VIE,
iASPEC and its subsidiary Geo, while the financial data for the same period in
2009 reflects the operating results of the Company and its subsidiaries and VIE,
excluding Huipu, which was not acquired until October 2009.
For the Three-Month Periods Ended June 30, 2010 and 2009
(Unaudited)
(All amounts, other than percentages of revenue and numbers of
shares, in U.S. dollars)
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
Percentage
|
|
|
As reported
|
|
|
Percentage
|
|
|
Period-over-period
|
|
|
|
|
|
|
of Revenue
|
|
|
|
|
|
of Revenue
|
|
|
Increase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease)
|
|
Revenue
|
|
33,516,888
|
|
|
100.00%
|
|
|
25,787,919
|
|
|
100.00%
|
|
|
7,728,969
|
|
|
29.97%
|
|
Costs of revenue
|
|
16,718,582
|
|
|
49.88%
|
|
|
13,521,168
|
|
|
52.43%
|
|
|
3,197,414
|
|
|
23.65%
|
|
Gross Profit
|
|
16,798,306
|
|
|
50.12%
|
|
|
12,266,751
|
|
|
47.57%
|
|
|
4,531,555
|
|
|
36.94%
|
|
Administrative expenses
|
|
(2,621,501
|
)
|
|
7.82%
|
|
|
(2,304,376
|
)
|
|
8.94%
|
|
|
(317,125
|
)
|
|
13.76%
|
|
Research and
development expenses
|
|
(560,649
|
)
|
|
1.67%
|
|
|
(720,411
|
)
|
|
2.79%
|
|
|
159,762
|
|
|
-22.18%
|
|
Selling expenses
|
|
(1,489,212
|
)
|
|
4.44%
|
|
|
(644,349
|
)
|
|
2.50%
|
|
|
(844,863
|
)
|
|
131.12%
|
|
Income from operations
|
|
12,126,944
|
|
|
36.18%
|
|
|
8,597,615
|
|
|
33.34%
|
|
|
3,529,329
|
|
|
41.05%
|
|
Subsidy income
|
|
268,898
|
|
|
0.80%
|
|
|
318,071
|
|
|
1.23%
|
|
|
(49,173
|
)
|
|
-15.46%
|
|
Other losses, net
|
|
(324,700
|
)
|
|
0.97%
|
|
|
(16,845
|
)
|
|
0.07%
|
|
|
(307,855
|
)
|
|
1827.57%
|
|
Interest income
|
|
10,403
|
|
|
0.03%
|
|
|
120,627
|
|
|
0.47%
|
|
|
(110,224
|
)
|
|
-91.38%
|
|
Interest expense
|
|
(263,756
|
)
|
|
0.79%
|
|
|
(56,443
|
)
|
|
0.22%
|
|
|
(207,313
|
)
|
|
367.30%
|
|
Income from continuing operations before
Income Taxes
|
|
11,817,789
|
|
|
35.26%
|
|
|
8,963,025
|
|
|
34.76%
|
|
|
2,854,764
|
|
|
31.85%
|
|
Income Tax Expense
|
|
(2,163,609
|
)
|
|
6.46%
|
|
|
(1,091,800
|
)
|
|
4.23%
|
|
|
(1,071,809
|
)
|
|
98.17%
|
|
Net Income
|
|
9,654,180
|
|
|
28.80%
|
|
|
7,871,225
|
|
|
30.52%
|
|
|
1,782,955
|
|
|
22.65%
|
|
Less: Net Income
Attributable to the NCI
|
|
(302,111
|
)
|
|
0.90%
|
|
|
(73,395
|
)
|
|
0.28%
|
|
|
(228,716
|
)
|
|
311.62%
|
|
Net Income Attributable
to the Company
|
|
9,352,069
|
|
|
27.90%
|
|
|
7,797,830
|
|
|
30.24%
|
|
|
1,554,239
|
|
|
19.93%
|
|
- 35 -
Revenue
Our revenue is generated from our integrated software and
hardware products and through the related after-sales services. For the three
months ended June 30, 2010, our revenue was $33.52 million, compared to $25.79
million for the three months ended June 30, 2009, an increase of $7.73 million,
or 30%. During the current quarter, Huipu, which was acquired in October 2009,
contributed $4.26 million to total revenues. Excluding the impact from Huipu,
organic revenue growth was 13.5% as we continued to focus on profitability and
hence reducing lower-margin businesses primarily in product and system
integration categories.
Software sales increased by 40.7% to $22.41 million for the
three months ended June 30, 2010, from $15.92 million for the three months ended
June 30, 2009. Software sales constituted 66.9% of our total revenue, which
increased from 61.7% during the same period in the prior year, reflecting our
continued commitment to our core competency in software. Excluding the impact of
Huipu, software sales were 76.6% of organic revenues.
Product sales increased by $3.68 million, or 97.2% for the
three months ended June 30, 2010, as compared to $3.79 million in the same
period of 2009. Product sales constituted 22.3% of total revenue during the
current period as compared with 14.7% during the same period in the prior year.
Product sales excluding Huipu declined by 22.01% from the same period in the
prior year to 10.1% of organic revenues. This reflects our focus on higher
value-added product sales with the Huipu acquisition.
Sales of system integration services decreased by 37.4% for the
three-month ended June 30, 2010, as compared to the same period of 2009. As a
percentage of revenue, it declined from 21.6% during the three months ended June
30, 2009 to 10.4% during the current quarter. Excluding the impact of Huipu,
system integration was 11.9% of organic revenues. The steady decline in weight
of system integration business, which carries lower margin, reflects our
strategy of growing businesses with higher profitability.
Other revenue decreased by 69.6%, from $0.51 million in the
three months ended June 30, 2009 to $0.15 million in the same period of 2010.
Other revenue mainly derived from maintenance services in the three months ended
June 30, 2009, while in the same period of 2010, in addition to maintenance
services, we also generated $0.11 million royalty income from Huipu by licensing
other manufacturers to use the HPC trademark. We believe this is an effective
way to harvest HPCs value and monetize its intellectual property.
Regarding segment breakdown, for the three months ended June
30, 2010, approximately $15.68 million of our revenues were generated by our GIS
segment, $13.96 million of our revenues were generated by our DIST segment and
$3.88 million was generated by the DHIS segment. This compared with $7.97
million by our GIS segment, $15.22 million by our DIST segment and $2.59 million
by our DHIS segment for the three months ended June 30, 2009. The DIST segment
decreased by 8.3% compared with the same period of 2009, while the
year-over-year growth ratios for GIS and DHIS segments were 96.6% and 49.7%
respectively.
GIS accounted for 46.8% of the total revenue while DIST and
DHIS represented 41.6% and 11.6% respectively. Excluding the impact of Huipu,
the segment weights were 46.3%, 40.4% and 13.3% respectively. These compared to
30.9%, 59.0% and 10.1% of the total revenue for the three months ended June 30,
2009. For the first time, GIS segment weight exceeded that of DIST and became
the largest business segment for us in the second quarter of 2010. As our
technologies continue to evolve, we are able to integrate more and more DIST
functions with those of GIS to create brand new capabilities for our customers.
Such new offerings contributed to the GIS segment, instead of DIST, which
explains the negative growth rate in DIST segment. The shifts in segment weights
ultimately reflect the growth momentum in GIS and DHIS segments outpacing that
of DIST. This is the direct result of our focus in the last few years on
targeting areas with the highest barriers-to-entry and developing sustainable
competitive advantages in the GIS and DHIS segments, in anticipation of
accelerating market growth in the coming years. As such expectation starts to
materialize, we believe we have been well positioned to capture the growth
opportunities.
Cost of Revenue and Gross Profit
|
|
2010
|
|
2009
|
|
|
|
Revenue
|
|
|
%
|
|
|
Cost
|
|
|
GP
|
|
|
GP%
|
|
|
Revenue
|
|
|
%
|
|
|
Cost
|
|
|
GP
|
|
|
GP%
|
|
Products
|
$
|
7,471,511
|
|
|
22.29%
|
|
|
5,813,701
|
|
|
1,657,810
|
|
|
22.19%
|
|
|
3,789,288
|
|
|
14.69%
|
|
|
3,007,849
|
|
|
781,439
|
|
|
20.62%
|
|
Software
|
|
22,406,236
|
|
|
66.85%
|
|
|
10,257,690
|
|
|
12,148,546
|
|
|
54.22%
|
|
|
15,921,487
|
|
|
61.74%
|
|
|
5,993,637
|
|
|
9,927,850
|
|
|
62.36%
|
|
System integration
|
|
3,485,523
|
|
|
10.40%
|
|
|
570,721
|
|
|
2,914,802
|
|
|
83.63%
|
|
|
5,571,619
|
|
|
21.61%
|
|
|
4,395,011
|
|
|
1,176,608
|
|
|
21.12%
|
|
Others
|
|
153,618
|
|
|
0.46%
|
|
|
76,470
|
|
|
77,148
|
|
|
50.22%
|
|
|
505,525
|
|
|
1.96%
|
|
|
124,671
|
|
|
380,854
|
|
|
75.34%
|
|
Subtotal
|
$
|
33,516,888
|
|
|
100.00%
|
|
|
16,718,582
|
|
|
16,798,306
|
|
|
50.12%
|
|
|
25,787,919
|
|
|
100.00%
|
|
|
13,521,168
|
|
|
12,266,751
|
|
|
47.57%
|
|
- 36 -
As indicated in the table above, our cost of revenues increased
$3.2 million, or 23.7%, to $16.72 million, for the three months ended June 30,
2010, from $13.52 million for the three months ended June 30, 2009. As a
percentage of revenues, our cost of revenue decreased to 49.9% during the three
months ended June 30, 2010, from 52.4% in the same period of 2009. As a result,
gross margin was 50.1% for the three months ended June 30, 2010, an increase of
2.5%, from 47.6% in the same period of 2009. Huipu yielded a gross margin of
18.5% . Excluding the impact of Huipu, gross margin of organic business was
54.7% .
The improvement in gross margin resulted from several factors.
During the quarter, we cut down on the lower-margin product sales while
benefiting from Huipus higher-margin product contribution. As a result, the
gross margin of products improved by 157 basis points. During the quarter, we
continued to reduce the weight of system integration business which typically
carries lower margin. The gross margin for this segment during the quarter was
as high as 83.63% primarily due to the progress of certain projects. Meanwhile,
we continued to increase the weight of software business, which carries higher
gross margin. However, the gross margin of software business declined to 54.22%
from 62.36% a year ago primarily due to the outsourcing practice which we
started in the first quarter of 2010. We believe that by outsourcing some of the
non-essential and labor-intensive portions of our software projects, we will be
able to focus our resources on the higher value-added components of the software
business. This practice should enable us to grow revenues more effectively and
save operating expenses, which, overtime, will be accretive to our long-term
shareholder value.
For the three months ended June 30, 2010, approximately $7.91
million of our cost of revenues was attributable to our GIS segment, $7.04
million was attributable to our DIST segment and $1.77 million was attributable
to our DHIS segment, compared to $2.44 million to GIS segment, $10.17 million to
DIST segment and $0.91 million by DHIS segment, respectively, during the same
period of 2009.
Administrative Expenses
Administrative expenses consist primarily of compensation and
benefits to our general management, finance and administrative staff,
professional advisor fees, audit fees and other expenses incurred in connection
with general operations. Our administrative expenses increased by about $0.32
million, or 13.8%, to $2.62 million for the three months ended June 30, 2010,
from $2.30 million in the same period of 2009. Some notable changes that
resulted in the increase of administrative expenses are: 1) the addition of
administrative expenses of Huipu of about $0.38 million; and 2) the reversal of
bad debt provision expenses of $0.17 million as we collected several accounts
receivable balances provided for in the prior year.
Research and Development Expenses
Research and development expenses consist primarily of
personnel-related expenses, as well as costs associated with new software and
hardware development and enhancement. Research and development expenses
decreased by $0.16 million or 22.2% to $0.56 million for the three months ended
June 30, 2010, from $0.72 million in the same period of 2009. As a percentage of
sales, research and development expenses accounts for approximately 1.7% of the
total revenue for the three months ended June 30, 2010, compared with 2.8% of
total revenue for the same period in 2009. The research and development expenses
came down in percentage of revenues because the research and development
investments made from prior years are yielding scalable effects in revenue
growth.
Selling Expenses
Selling expenses consist primarily of compensation and benefits
to our sales and marketing staff, sales and after-sales traveling cost, and
other sales related costs. Our selling expenses increased $0.84 million, or
131.1%, to $1.49 million for the three months ended June 30, 2010, from $0.64
million in the corresponding period of 2009. The selling expenses outpacing
revenue growth reflects our heightened efforts in national market expansion.
Income from Operations
Income from operations increased $3.53 million, or 41.1%, to
$12.13 million for the three months ended June 30, 2010, from $8.60 million in
the corresponding period in 2009. Income from operations as a percentage of
revenue increased to 36.2% during the three months ended June 30, 2010, from
33.3% in 2009.
Other Losses, net
Key components of Other Losses, net of $0.32 million for the
three months ended June 30, 2010 were (1) donations of approximately $0.18
million to the Education Committee of Jinjiang City, Fujian Province, for building
schools and (2) loss of $0.09 million, which resulted from the increase of fair
value of the liability associated with the contingent consideration for HPC
acquisition during the period. As our stock price appreciated during the period,
the contingent liability, which is based on our stock price, increased in fair
value. Such an increase in contingent liability served to reduce our profit.
- 37 -
Non-controlling interest
Non-controlling interest of $302,000 for the three months ended
June 30, 2010 represents the $284,000 fee retained by iASPEC under the revised
MSA, which represents 5.0% of the net income for the three months ended June 30,
2010, and $18,000 of Geos profit retained by the 43% non-controlling interest
in Geo. The retained profits by iASPEC during the three months ended June 30,
2009 was $45,000, which was a fixed amount according to the original MSA, and
the retained profits by Geos 43% shareholders was approximately $28,395.
Income Tax Expense
Income tax expense for the three months ended June 30, 2010 was
$2.16 million, up from $1.09 million for the same period in 2009.
Our subsidiaries, ISS, Zhongtian and Huipu are all governed by
the Income Tax Laws of the PRC and are subject to the PRCs enterprises income
tax, or EIT, at a rate of 22% of assessable profits in 2010, compared to 20% for
the same period in 2009, an increase of 2%.
Bocom, and our VIE, iASPEC (inclusive of Geo), as High-Tech
Enterprises, are subject to EIT at a rate of 15% of assessable profits. After
offsetting accumulated losses from prior years, Geo had no assessable profit
subject to EIT for the three months ended June 30, 2010. In addition, as a
software company, IST was entitled to a two-year exemption from EIT followed by
a 50% tax exemption for the next 3 years. Year 2010 is the fourth year that IST
is entitled to the tax holiday and will be subject to a favorable tax rate of
11%.
Net income attributable to the Company
As a result of the factors described above, net income
increased $1.55 million, or 19.9%, to $9.35 million during the three months
ended June 30, 2010, from $7.79 million for the same period in 2009.
For the Six-Month Periods Ended June 30, 2010 and 2009
(Unaudited)
(All amounts, other than percentages of revenue and numbers of
shares, in U.S. Dollars)
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
Percentage
|
|
|
As
reported
|
|
|
Percentage
|
|
|
Period-over-period
|
|
|
|
|
|
|
of Revenue
|
|
|
|
|
|
of Revenue
|
|
|
Increase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease)
|
|
Revenue
|
|
58,821,995
|
|
|
100.00%
|
|
|
40,768,103
|
|
|
100.00%
|
|
|
18,053,892
|
|
|
44.28%
|
|
Costs of revenue
|
|
30,906,236
|
|
|
52.54%
|
|
|
21,018,088
|
|
|
51.56%
|
|
|
9,888,148
|
|
|
47.05%
|
|
Gross Profit
|
|
27,915,759
|
|
|
47.46%
|
|
|
19,750,015
|
|
|
48.44%
|
|
|
8,165,744
|
|
|
41.35%
|
|
Administrative expenses
|
|
(5,391,532
|
)
|
|
9.17%
|
|
|
(4,520,723
|
)
|
|
11.09%
|
|
|
(870,809
|
)
|
|
19.26%
|
|
Research and
development expenses
|
|
(1,130,080
|
)
|
|
1.92%
|
|
|
(1,224,263
|
)
|
|
3.00%
|
|
|
94,183
|
|
|
-7.69%
|
|
Selling expenses
|
|
(2,703,774
|
)
|
|
4.60%
|
|
|
(1,238,064
|
)
|
|
3.04%
|
|
|
(1,465,710
|
)
|
|
118.39%
|
|
Income from
operations
|
|
18,690,373
|
|
|
31.77%
|
|
|
12,766,965
|
|
|
31.32%
|
|
|
5,923,408
|
|
|
46.40%
|
|
Subsidy income
|
|
431,680
|
|
|
0.73%
|
|
|
515,860
|
|
|
1.27%
|
|
|
(84,180
|
)
|
|
-16.32%
|
|
Other income, net
|
|
642,099
|
|
|
1.09%
|
|
|
164,521
|
|
|
0.40%
|
|
|
477,578
|
|
|
290.28%
|
|
Interest income
|
|
29,294
|
|
|
0.05%
|
|
|
197,544
|
|
|
0.48%
|
|
|
(168,250
|
)
|
|
-85.17%
|
|
Interest expense
|
|
(412,647
|
)
|
|
0.70%
|
|
|
(116,653
|
)
|
|
0.29%
|
|
|
(295,994
|
)
|
|
253.74%
|
|
Income from continuing operations before
Income
Taxes
|
|
19,380,799
|
|
|
32.95%
|
|
|
13,528,237
|
|
|
33.18%
|
|
|
5,852,562
|
|
|
43.26%
|
|
Income Tax Expense
|
|
(3,334,692
|
)
|
|
5.67%
|
|
|
(1,680,196
|
)
|
|
4.12%
|
|
|
(1,654,496
|
)
|
|
98.47%
|
|
Net Income
|
|
16,046,107
|
|
|
27.28%
|
|
|
11,848,041
|
|
|
29.06%
|
|
|
4,198,066
|
|
|
35.43%
|
|
Less: Net Income
Attributable to the NCI
|
|
(412,930
|
)
|
|
0.70%
|
|
|
(293,218
|
)
|
|
0.72%
|
|
|
(119,712
|
)
|
|
40.83%
|
|
Net Income Attributable to the
Company
|
|
15,633,177
|
|
|
26.58%
|
|
|
11,554,823
|
|
|
28.34%
|
|
|
4,078,354
|
|
|
35.30%
|
|
- 38 -
Revenue
Our revenue is generated from our integrated hardware and
software products and through the related after-sales services. For the six
months ended June 30, 2010, our revenue was $58.82 million, compared to $40.77
million for the six months ended June 30, 2009, an increase of $18.05 million,
or 44.3% . During the current quarter, Huipu, which was acquired in October
2009, contributed $9.13 million to revenues. Excluding the impact from Huipu,
organic revenue growth was 21.9% .
Software sales increased by 50.7% to $37.58 million for the six
months ended June 30, 2010, from $24.93 million for the six months ended June
30, 2009. Software sales constituted 63.9% of our total revenue, roughly in line
with 61.2% during the same period in the prior year, reflecting our continued
commitment to our core competency in software. Excluding the impact of Huipu,
software sales were 75.6% of organic revenues.
Product sales increased by $7.21 million, or 109.1% for the six
months ended June 30, 2010, as compared to $6.61 million in the same period of
2009. Product sales constituted 23.5% of total revenue during the current period
as compared with 16.2% during the same period in the prior year. Product sales
excluding Huipu declined by 7.1% from the same period in the prior year to 9.4%
of organic revenues, as we focused on higher value-added product sales with
Huipu.
Sales of system integration services decreased by 26.5% for the
six months ended June 30, 2010, as compared to the same period of 2009. As a
percentage of revenue, it declined from 20.9% during the six months ended June
30, 2009 to 10.7% during the current period. Excluding the impact of Huipu,
system integration was 12.6% of organic revenues. The decline in weight of
system integration business, which carries lower margin, reflects our strategy
of growing businesses with higher profitability.
Other revenue increased by 64.6%, from $0.70 million in the six
months ended June 30, 2009 to $1.15 million in the same period of 2010. Other
revenue mainly derived from maintenance services in the six months ended June
30, 2009, while in the same period of 2010, in addition to maintenance services,
we also generated $0.73 million royalty income from Huipu by licensing other
manufacturers to use the HPC trademark. We believe this is an effective way to
harvest HPCs value and monetize its intellectual property.
Regarding segment breakdown, for the six months ended June 30,
2010, approximately $26.32 million of our revenues were generated by our GIS
segment, $26.06 million of our revenues were generated by our DIST segment and
$6.45 million was generated by the DHIS segment. This compared with $13.83
million by our GIS segment, $22.74 million by our DIST segment and $4.19 million
by our DHIS segment for the six months ended June 30, 2009. The year-over-year
growth ratios for the three segments were 90.2%, 14.6% and 53.9% respectively.
Excluding the impact of Huipu, the equivalent ratios were 57.2%, -5.5% and 53.9%
respectively.
GIS accounted for 44.7% of the total revenue while DIST and
DHIS represented 44.3% and 11.0% respectively. Excluding the impact of Huipu,
the segment weights were 43.8%, 43.2% and 13.0% respectively. These compared to
33.9%, 55.8% and 10.3% of the total revenue for the six months ended June 30,
2009. For the first time, GIS segment weight exceeded that of DIST and became
the largest business segment for us in the first six months of 2010. As our
technologies continue to evolve, we are able to integrate more and more DIST
functions with those of GIS to create brand new capabilities for our customers.
Such new offerings contributed to the GIS segment, instead of DIST, which
explains the negative growth rate in DIST segment. Overall, the shifts in
segment weights reflected the GIS and DHIS segments outpacing DIST in their
growth momentum. This is the direct result of our focus in the last few years on
targeting at areas with the highest barriers-to-entry and developing sustainable
competitive advantages in the GIS and DHIS segments, in anticipation of
accelerating market growth in the coming years. As such anticipation starts to
be realized, we believe we have been well positioned to capture the growth
opportunities.
Cost of Revenue and Gross Profit
|
|
2010
|
|
|
2009
|
|
|
|
Revenue
|
|
|
%
|
|
|
Cost
|
|
|
GP
|
|
|
GP%
|
|
|
Revenue
|
|
|
%
|
|
|
Cost
|
|
|
GP
|
|
|
GP%
|
|
Products
|
$
|
13,819,481
|
|
|
23.49%
|
|
|
11,054,123
|
|
|
2,765,358
|
|
|
20.01%
|
|
|
6,610,416
|
|
|
16.21%
|
|
|
5,620,640
|
|
|
989,776
|
|
|
14.97%
|
|
Software
|
|
37,584,868
|
|
|
63.90%
|
|
|
16,659,101
|
|
|
20,925,767
|
|
|
55.68%
|
|
|
24,932,952
|
|
|
61.16%
|
|
|
8,694,577
|
|
|
16,238,375
|
|
|
65.13%
|
|
System integration
|
|
6,269,406
|
|
|
10.66%
|
|
|
3,046,531
|
|
|
3,222,875
|
|
|
51.41%
|
|
|
8,527,076
|
|
|
20.92%
|
|
|
6,540,763
|
|
|
1,986,313
|
|
|
23.29%
|
|
Others
|
|
1,148,240
|
|
|
1.95%
|
|
|
146,481
|
|
|
1,001,759
|
|
|
87.24%
|
|
|
697,659
|
|
|
1.71%
|
|
|
162,108
|
|
|
535,551
|
|
|
76.76%
|
|
Subtotal
|
$
|
58,821,995
|
|
|
100.00%
|
|
|
30,906,236
|
|
|
27,915,759
|
|
|
47.46%
|
|
|
40,768,103
|
|
|
100.00%
|
|
|
21,018,088
|
|
|
19,750,015
|
|
|
48.44%
|
|
As indicated in the table above, our cost of revenues increased
$9.89 million, or 47.0%, to $30.91 million, for the six months ended June 30,
2010, from $21.02 million for the six months ended June 30, 2009. As a
percentage of revenues, our cost of revenue increased to 52.5% during the six months ended June 30, 2010, from 51.6% in
the same period of 2009. As a result, gross margin was 47.5% for the six months
ended June 30, 2010, a decrease of 0.9%, from 48.4% in the same period of 2009.
Huipu yielded a gross margin of 23.7% . Excluding the impact of Huipu, gross
margin of organic business was 51.8%, exceeding the gross margin a year ago.
- 39 -
For the six months ended June 30, 2010, approximately $13.06
million of our cost of revenues was attributable to our GIS segment, $14.9
million was attributable to our DIST segment and $2.95 million was attributable
to our DHIS segment, compared to $5.69 million to GIS segment, $13.86 million to
DIST segment and $1.46 million by DHIS segment, respectively, during the same
period of 2009.
Administrative Expenses
Administrative expenses consist primarily of compensation and
benefits to our general management, finance and administrative staff,
professional advisor fees, audit fees and other expenses incurred in connection
with general operations. Our administrative expenses increased by about $0.87
million, or 19.3%, to $5.39 million for the six months ended June 30, 2010, from
$4.52 million in the same period of 2009. Some notable changes that resulted in
the increase of administrative expenses are: 1) the addition of administrative
expenses of Huipu of about $0.69 million; 2) the decrease of bad debt provision
expenses of $0.31 million period-over-period; and 3) the decrease of stock based
compensation expenses of $0.18 million.
Research and Development Expenses
Research and development expenses consist primarily of
personnel-related expenses, as well as costs associated with new software
product development and enhancement. Research and development expenses decreased
by $94,000 or 7.7% to $1.13 million for the six months ended June 30, 2010, from
$1.22 million in the same period of 2009. As a percentage of sales, research and
development expenses accounts for approximately 1.9% of the total revenue for
the six months ended June 30, 2010, compared with 3% of total revenue for the
same period in 2009.The research and development expenses came down in
percentage of revenues because the research and development investments made
from prior years are yielding scalable effects in revenue growth.
Selling Expenses
Selling expenses consist primarily of compensation and benefits
to our sales and marketing staff, sales and after-sales traveling cost, and
other sales related costs. Our selling expenses increased $1.47 million, or
118.4%, to $2.70 million for the six months ended June 30, 2010, from $1.24
million in the corresponding period of 2009. The selling expenses outpacing
revenue growth reflects our heightened efforts in national market expansion.
Income from Operations
Income from operations increased $5.92 million, or 46.4%, to
$18.69 million for the six months ended June 30, 2010, from $12.77 million in
the corresponding period in 2009. Income from operations as a percentage of
revenue increased to 31.8% during the six months ended June 30, 2010, from 31.3%
in 2009.
Other Income, net
Other income, net of $0.64 million for the six months ended
June 30, 2010 primarily due to the fair value change for contingent shares paid
for HPC acquisition. Approximately $0.7 million gain resulting from the decrease
of fair value of the liability associated with issuing the contingent
consideration was recorded during the period. As our stock price declined during
the period, the contingent liability, which is based on our stock price,
decreased in fair value. Such a decrease in contingent liability served to
increase our profit.
Non-controlling interest
Non-controlling interest of $0.41 million for the six months
ended June 30, 2010 represents the $0.42 million fee retained by iASPEC under
the revised MSA, which represents 2.6% of the net income for the six months
ended June 30, 2010, and $6,000 of Geos losses retained by the 43%
non-controlling interest in Geo. The retained profits by iASPEC during the six
months ended June 30, 2009 was $90,000, which was a fixed amount according to
the original MSA, and the retained profits by Geos 43% shareholders was
approximately $203,218.
- 40 -
Income Tax Expense
Income tax expense for the six months ended June 30, 2010 was
$3.33 million, up from $1.68 million for the same period in 2009.
Our subsidiaries, ISS, Zhongtian and Huipu are all governed by
the Income Tax Laws of the PRC and are subject to the PRCs enterprises income
tax, or EIT, at a rate of 22% of assessable profits in 2010, compared to 20% for
the same period in 2009, an increase of 2%.
Bocom, and our VIE, iASPEC (inclusive of Geo), as High-Tech
Enterprises, are subject to EIT at a rate of 15% of assessable profits. After
offsetting accumulated losses from prior years, Geo had no assessable profit
subject to EIT for the six months ended June 30, 2010. In addition, as a
software company, IST was entitled to a two-year exemption from EIT followed by
a 50% tax exemption for the next 3 years. Year 2010 is the fourth year that IST
is entitled to the tax holiday and will be subject to a favorable tax rate of
11%.
Net income attributable to the Company
As a result of the factors described above, net income
increased $4.08 million, or 35.3%, to $15.63 million during the six months ended
June 30, 2010, from $11.55 million for the same period in 2009.
Liquidity and Capital Resources
As of June 30, 2010, we had cash and cash equivalents of $17.75
million. The following table summarizes the key cash flow metrics from our
condensed consolidated statements of cash flows for the six months ended June
30, 2010 and 2009.
|
|
Six Months
Ended June 30
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Net Cash Provided by
Operating Activities
|
$
|
3,454,340
|
|
$
|
3,987,953
|
|
Net Cash (Used in) / Provided by
Investing Activities
|
|
(16,969,766
|
)
|
|
4,639,317
|
|
Net Cash Provided by
Financing Activities
|
|
17,611,259
|
|
|
1,153,764
|
|
Effect of Exchange Rate Changes on Cash
and cash equivalents
|
|
170,806
|
|
|
30,757
|
|
Net increase in Cash
and Cash Equivalents
|
|
4,266,639
|
|
|
9,811,791
|
|
Cash and Cash Equivalents, Beginning
|
|
13,478,633
|
|
|
9,565,252
|
|
Cash and Cash
Equivalents, Ending
|
$
|
17,745,272
|
|
$
|
19,377,043
|
|
Operating Activities
Net cash provided by operating activities was $3.45 million for
the six months ended June 30, 2010, a 13.4% decrease from $3.99 million for the
same period of 2009.
The decrease in net cash provided by operating activities
during the current period as compared with the same period in the prior year was
mainly caused during the first quarter of the year, when the seasonally slow
accounts receivable collection was coupled with strong sales revenue. (See
discussion in the 10Q filing for the three months ended March 31, 2010 for
details.)
During the three months ended June 30, 2010, our net cash
provided by operating activities improved significantly to $14.80 million, as
compared with $5.48 million in the same period a year ago. During the current
quarter, our accounts receivable balance increased by $0.50 million, as compared
with an increase of $11.39 million during the second quarter of 2009. Our Days
Sales Outstanding (DSO) for the trailing 12 months, which eliminates seasonality
factor, was 214 days. As of June 30, 2010, accounts receivables were due from
230 customers. Of these, no customers accounted for over 10% of the total
accounts receivable. As of June 30, 2009, accounts receivable were due from 136
customers. Of these, two customers accounted for 22.10% and 10.58% of total
accounts receivable, respectively. Our prudent provision practice continues to
conclude a low level of credit risk, indicated by the 3.46% of provision
relative to gross accounts receivable outstanding as of June 30, 2010. This
compares with 4.17% a year ago. The credit risk is relatively low because most
of the counterparties are government agencies.
- 41 -
Investing Activities
Net cash used in our investing activities was $16.97 million
for the six months ended June 30, 2010, as compared to $4.64 million cash
in-flow provided by investing activities for the same period of 2009. During the
three months ended June 30, 2010, net cash used in our investing activities was
$12.74 million, as compared to net cash provided in investing activities of
$5.72 million in the same period in the prior year.
The net use of cash during the current quarter was primarily
due to $5.00 million used to finish the construction of the plant acquired in
the Huipu transaction and $5.43 million used to purchase software.
Financing Activities
Net cash provided by our financing activities increased to
$17.61 million during the six months ended June 30, 2010, as compared to $1.15
million during the same period of 2009.
The increase was mainly attributable to the net proceeds of
$9.38 million raised in issuing of common stock, and an increase in net bank
borrowings of $8.23 million. During the three months ended June 30, 2010, net
cash provided by financing activities amounted to $4.59 million, representing
the net increase in borrowing. This compares with the $1.17 million net increase
in borrowing during the same period of 2009.
Obligations under Material Contracts
The following table sets forth our material contractual
obligations as of June 30, 2010:
Payment due by
period
|
|
Contractual
Obligations
|
|
Total
|
|
|
Less than
1 year
|
|
|
1-3
years
|
|
|
3-5
years
|
|
|
More than 5
years
|
|
Operating Lease
Obligations
|
|
$ 464,819
|
|
$
|
201,760
|
|
$
|
263,059
|
|
$
|
-
|
|
$
|
-
|
|
Purchase Obligations
|
|
$ 581,835
|
|
$
|
581,835
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
1,046,654
|
|
$
|
783,595
|
|
$
|
263,059
|
|
$
|
-
|
|
$
|
-
|
|
Recent Accounting Pronouncements
In April 2010, the FASB issued Accounting Standards Update No.
2010-17, Revenue Recognition - Milestone Method (Topic 605) - Revenue
Recognition (ASU 2010-17). ASU 2010-17 provides guidance on defining the
milestone and determining when the use of the milestone method of revenue
recognition for research or development transactions is appropriate. It provides
criteria for evaluating if the milestone is substantive and clarifies that a
vendor can recognize consideration that is contingent upon achievement of a
milestone as revenue in the period in which the milestone is achieved, if the
milestone meets all the criteria to be considered substantive. ASU 2010-17 is
effective for interim and annual periods beginning after June 15, 2010 and
should be applied prospectively. Early adoption is permitted. The Company is
currently evaluating the impact of the pending adoption of ASU 2010-17 on our
consolidated financial statements.
In February 2010, the FASB issued ASU 2010-09, Amendments to
Certain Recognition and Disclosure Requirements, as an amendment to Accounting
Standards Codification (ASC) Topic 855, Subsequent Events (ASC 855). As a
result of ASU 2010-09, SEC registrants will not disclose the date through which
management evaluated subsequent events in the financial statements. ASU 2010-09
is effective immediately for all financial statements that have not yet been
issued or have not yet become available to be issued, or June 30, 2010 for the
Company. The adoption of ASU 2010-09 is for disclosure purposes only and did not
have any effect on the Companys financial position or results of operations.
In January 2010, the FASB issued ASU 2010-06, Improving
Disclosures about Fair Value Measurements. ASU 2010-06 amends ASC Topic 820,
Fair Value Measurement and Disclosure (ASC 820) to require a number of
additional disclosures regarding fair value measurements. In addition to the new
disclosure requirements, ASU 2010-06 also amends ASC 820 to clarify that
reporting entities are required to provide fair value measurement disclosures
for each class of assets and liabilities. Prior to the issuance of ASU 2010-06,
the guidance in ASC 820 required separate fair value disclosures for each major
category of assets and liabilities.
- 42 -
ASU 2010-06 also clarifies the requirement for entities to
disclose information about both the valuation techniques and inputs used in
estimating Level 2 and Level 3 fair value measurements. Except for the
requirement to disclose information about purchases, sales, issuance and settlements in the reconciliation of recurring
Level 3 measurements on a gross basis, all of the provisions of ASU 2010-06 are
effective for interim and annual reporting periods beginning after December 15,
2009, or January 1, 2010 for the Company. The requirement to separately disclose
purchases, sales, issuances and settlements of recurring Level 3 measurements
does not become effective until fiscal years beginning after December 15, 2010,
or January 1, 2011 for the Company. The adoption of ASU 2010-06 is for
disclosure purposes only and did not have any effect on the Companys financial
position or results of operations.
Critical Accounting Policies
There have been no changes in our critical accounting policies
from those disclosed in under Item 7, Management's Discussion and Analysis of
Results of Operations and Financial Condition in our Annual Report on Form 10-K
for the fiscal year ended December 31, 2009.
Seasonality of our Sales
The first quarter of the calendar year is typically the slowest
season of the year due to the Chinese New Year holiday. During this period,
accounts receivable collection is very slow and we also need to prepare for
upcoming busier seasons by making payments for inventory.
Inflation
Inflation does not materially affect our business or the
results of our operations.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Foreign Exchange Risk
Although our reporting currency is the U.S. dollars, the
financial records of our operating subsidiaries are maintained in their local
currency, the RMB. Approximately 97.8% of our revenues and 100% of our
consolidated costs and expenses, and consolidated assets for the six months
ended June 30, 2010 are denominated in RMB, which is the functional currency of
our operating subsidiaries. As a result, we are exposed to foreign exchange risk
as our reported revenues and results of operations may be affected by
fluctuations in the exchange rate between U.S. dollars and RMB. If the RMB
depreciates against the U.S. dollar, the value of our RMB revenues, earnings and
assets as expressed in our U.S. dollars financial statements will decline.
Assets and liabilities of our operating subsidiaries are translated into U.S.
dollars at the exchange rate at the balance sheet date, their equity accounts
are translated at historical exchange rates, and their income and expenses items
are translated using the average rate for the period. Any resulting exchange
differences are recorded in accumulated other comprehensive income or loss. An
average appreciation (depreciation) of the RMB against the U.S. dollars of 5%
would increase (decrease) our comprehensive income by $15.47 million based on
our outstanding revenues, costs and expenses, assets, and liabilities
denominated in RMB as of June 30, 2010. As of June 30, 2010, our accumulated
other comprehensive income was $10.44 million. We have not entered into any
hedging transactions in an effort to reduce our exposure to foreign exchange
risk.
Interest Rate Risk
The Company deposits surplus funds with Chinese banks earning
daily interest. The Company does not invest in any instruments for trading
purposes. Most of the Companys outstanding debt instruments carry fixed rates
of interest. The Companys operations generally are not directly sensitive to
fluctuations in interest rates. The amount of long-term debt outstanding as of
June 30, 2010 and December 31, 2009 was $ 4 million and $2 million,
respectively. A hypothetical 1.0% increase in the annual interest rates for all
of our credit facilities under which we had outstanding borrowings at June 30,
2010, would decrease net income before provision for income taxes by
approximately $54,000 or less than 1% for the period ended June 30, 2010.
Management monitors the banks prime rates in conjunction with our cash
requirements to determine the appropriate level of debt balances relative to
other sources of funds. We have not entered into any hedging transactions in an
effort to reduce our exposure to interest rate risk.
Inflation Risk
Inflationary factors such as increases in the cost of our
product and overhead costs may adversely affect our operating results. Although
we do not believe that inflation has had a material impact on our financial
position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to
maintain current levels of gross margin and selling, general and administrative
expenses as a percentage of net revenues if the selling prices of our products
do not increase with these increased costs.
- 43 -
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures refer
to controls and other procedures designed to ensure that information required to
be disclosed in the reports we file or submit under the Securities Exchange Act
is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the SEC and that such information is
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.
As required by Rule 13a-15(e), our management has carried out
an evaluation, with the participation and under the supervision of our Chief
Executive Officer, Mr. Jiang Huai Lin and our Chief Financial Officer, Ms.
Jackie You Kazmerzak, of the effectiveness of the design and operation of our
disclosure controls and procedures, as of June 30, 2010. Based upon, and as of
the date of this evaluation, Mr. Lin and Ms. Kazmerzak, determined that, as of
June 30, 2010, and as of the date of this Report, our disclosure controls and
procedures were effective.
Changes in Internal Controls over Financial
Reporting
We regularly review our system of internal control over
financial reporting and make changes to our processes and systems to improve
controls and increase efficiency, while ensuring that we maintain an effective
internal control environment. Changes may include such activities as
implementing new, more efficient systems, consolidating activities, and
migrating processes.
There were no changes in our internal controls over financial
reporting during the first quarter of fiscal 2010 that have materially affected,
or are reasonably likely to materially affect our internal control over
financial reporting.
PART II
OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS.
|
From time to time, we may become involved in various lawsuits
and legal proceedings, which arise, in the ordinary course of business. However,
litigation is subject to inherent uncertainties, and an adverse result in these,
or other matters, may arise from time to time that may harm our business. We are
currently not aware of any such legal proceedings or claims that we believe will
have a material adverse affect on our business, financial condition or operating
results.
In addition to the risk factor below, please see the risk
factors disclosed in our annual report on Form 10-K for the year ended December
31, 2009.
We face uncertainty from Chinas Circular on
Strengthening the Administration of Enterprise Income Tax on Non-Resident
Enterprises' Share Transfer, or Circular 698, that was released in December 2009
with retroactive effect from January 1, 2008.
- 44 -
The Chinese State Administration of Taxation (SAT) released a
circular (Guoshuihan No. 698 Circular 698) on December 15, 2009 that addresses
the transfer of shares by nonresident companies. Circular 698, which is
effective retroactively to January 1, 2008, may have a significant impact on
many companies that use offshore holding companies to invest in China. Circular
698, which provides parties with a short period of time to comply with its
requirements, indirectly taxes foreign companies on gains derived from the
indirect sale of a Chinese company. Where a foreign investor indirectly
transfers equity interests in a Chinese resident enterprise by selling the
shares in an offshore holding company, and the latter is located in a country or
jurisdiction where the effective tax burden is less than 12.5% or where the
offshore income of his, her, or its residents is not taxable, the foreign
investor is required to provide the tax authority in charge of that Chinese
resident enterprise with the relevant information within 30 days of the
transfers. Moreover, where a foreign investor indirectly transfers equity
interests in a Chinese resident enterprise through an abuse of form of
organization and there are no reasonable commercial purposes such that the
corporate income tax liability is avoided, the PRC tax authority will have the
power to re-assess the nature of the equity transfer in accordance with PRCs
substance-over-form principle and deny the existence of the offshore holding
company that is used for tax planning purposes. There is uncertainty as to the
application of Circular 698. For example, while the term "indirectly transfer"
is not defined, it is understood that the relevant PRC tax authorities have
jurisdiction regarding requests for information over a wide range of foreign
entities having no direct contact with China. Moreover, the relevant authority
has not yet promulgated any formal provisions or formally declared or stated how
to calculate the effective tax in the country or jurisdiction and to what extent
and the process of the disclosure to the tax authority in charge of that Chinese
resident enterprise. In addition, there are not any formal declarations with
regard to how to decide abuse of form of organization and reasonable
commercial purpose, which can be utilized by us to balance if our Company
complies with the Circular 698. As a result, we may become at risk of being
taxed under Circular 698 and we may be required to expend valuable resources to
comply with Circular 698 or to establish that we should not be taxed under
Circular 698, which could have a material adverse effect on our financial
condition and results of operations.
ITEM 2.
UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS.
|
We have not sold any equity securities during the quarter ended
June 30, 2010 which sale was not previously disclosed in a current report on
Form 8-K filed during that period.
ITEM 3.
DEFAULTS UPON SENIOR
SECURITIES.
|
None.
ITEM 4.
(REMOVED AND RESERVED).
|
|
|
ITEM 5.
OTHER INFORMATION.
|
On July 9, 2010, the Company entered into an agreement with the
municipal government of Dongguan City, to purchase a land-use-right for 101,764
square meters of land for a consideration of approximately $22 million (RMB
150 million), to be paid in cash in installments. We plan to use the land for
future construction of facilities to consolidate all of our subsidiaries in
Guangdong province on the same premises. We paid an initial deposit of $737,000 (RMB 5 million) on July 16,
2010. We are obligated to pay 30% of the consideration on or before August 31,
2010, another 30% of the consideration by September 30, 2010 and the remaining
portion of the purchase price by November 31, 2010.
- 45 -
The following exhibits are filed as part of this report or
incorporated by reference:
- 46 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
CHINA INFORMATION SECURITY
TECHNOLOGY, INC.
|
|
|
|
|
Dated: August 4, 2010
|
/s/ Jiang Huai Lin
|
|
Jiang Huai Lin
|
|
Chairman and Chief Executive Officer
|
|
(
Principal Executive Officer
)
|
|
|
|
|
Dated: August 4, 2010
|
/s/ Jackie You Kazmerzak
|
|
Jackie You Kazmerzak
|
|
Chief Financial Officer
|
|
(Principal Financial and Accounting
Officer)
|
- 47 -
EXHIBIT INDEX
- 48 -
China Information Security Technology, Inc. (MM) (NASDAQ:CPBY)
과거 데이터 주식 차트
부터 10월(10) 2024 으로 11월(11) 2024
China Information Security Technology, Inc. (MM) (NASDAQ:CPBY)
과거 데이터 주식 차트
부터 11월(11) 2023 으로 11월(11) 2024