China Information Security Technology, Inc. Announces Record Second Quarter 2008...

China Information Security Technology, Inc. Announces Record Second Quarter
2008 Results
Revenue Climbs 134.6% Year-Over-Year to $24.7 Million

SHENZHEN, China, Aug. 12 /Xinhua-PRNewswire-FirstCall/ -- China
Information Security Technology, Inc., (Nasdaq: CPBY) ("China Information
Security," "CIST" or the "Company"), a leading provider of Information
Security and 3S (Geographic Information Systems - GIS, Global Positioning
Systems - GPS and Remote Sensing - RS) services in China, today reported
strong financial results for the second quarter ended June 30, 2008.
Second Quarter 2008 Highlights
On GAAP basis:
-- Revenues increased to $24.7 million, from $5.4 million
-- Gross profit rose to $11.1 million, from $4.8 million
-- Operating income increased to $7.7 million, from $4.1 million
-- Net income was $7.1 million, or $0.15 per basic and diluted share

On a non-GAAP basis*:
-- Revenues increased 134.6% year over year to $24.7 million, from
$10.5 million
-- Gross profit increased 103.6% to $11.1 million
-- Operating income increased 99.7% to $8.3 million, with a 33.5%
operating margin*
-- Net income grew 67.9% to $7.7 million, or $0.17 per basic and diluted
share*

* Includes the consolidation of iASPEC and excludes Stock Based
Compensation ("SBC") and Amortization of Intangible Assets. See
Table 1 for a reconciliation of Net Income and EPS to exclude SBC
and Amortization of Intangible Assets.

"We are pleased to announce record revenues in the second quarter of 2008,
as product line extensions led to new contract wins and increased geographical
presence in China," said Mr. Jiang Huai Lin, Chairman and CEO of the Company.
"In addition, we achieved great improvement in our technological capabilities
through the acquisition of two newly acquired patents and twelve new
registered and copyrighted software products. At this point, we remain
confident in meeting or exceeding our previously stated goals for the year
2008."
During the quarter, the Company achieved the following milestones:

-- Approval on May 21, 2008, to list its securities on The Nasdaq
Global Select Market ("Nasdaq"). The common stock is now traded on
Nasdaq under the symbol "CPBY"
-- Successful expansion of its geographical presence to 20 provinces and
provincial cities across China, including Guangdong, Inner Mongolia,
Fujian, Shanxi, Beijing, Shanghai, Sichuan and Macao
-- Signed new contracts in the second quarter with a combined value of
$25.3 million, including a Police Geographic Information System
("PGIS") contract for Heyuan City, Guangdong Province, valued at
$2.68 million, a PGIS contract for An'xi City, Fujian Province, valued
at $1.55 million, a PGIS contract for the Shenzhen City Traffic Police
Bureau in Guangdong Province, valued at $2.38 million, and the
Intelligent Anti-Stowaway System contract for the Shenzhen General
Station of Exit and Entry Frontier Inspection, valued at $2.3 million
-- Significant improvement of its technological capabilities with two
newly-acquired patents and twelve registered and copyrighted software
products
-- Successful passage of a Quality Assurance inspection by the Ministry
of Public Security of the PRC for its Intelligent Border Control
System, which is expected to enhance the Company's brand recognition
and facilitate market expansion in the intelligent border control
sector
-- Achievement of an estimated $21.92 in backlog contracts, consisting
of $15.34 million related to uncompleted contracts as of June 30,
2008, and $6.58 million related to newly signed, but not yet
implemented contracts

Second Quarter 2008 Results

On a non-GAAP basis*:
Revenue in the second quarter increased to $24.7 million, up 134.6% from
$10.5 million for the same period in 2007. This increase was primarily due to
acquisitions of Information Security Software ("ISS"), Bocom Technology and
Geo, product and geographical expansion, as well as the launch of several
large-scale systems integration projects. During the quarter, the Company
signed new contracts with over twenty provinces and provincial cities in
China.
Gross profit in the second quarter of 2008 increased to $11.1 million, up
103.6% from $5.5 million for the same period in 2007. Gross margin for the
second quarter of 2008 was 45.1% compared with 52.0% in the comparable period
in 2007. This decline in gross margin was due to significantly higher costs
for procured hardware and other subcontracting costs related to the
implementation of several large-scale systems integration projects.
Administrative expenses increased to $2.3 million in the second quarter of
2008, from $0.6 million in the same period last year. The increase was mainly
attributable to an increase in administrative staff and increased
administrative costs such as salary, office operation expenses and legal and
audit fees in connection with the expansion of the Company's operations during
the 2008 period. In addition, $0.31 million of stock-based compensation was
charged to administrative expenses in connection with the Company's 2007
Equity Incentive Plan. As a percentage of revenue, administrative expenses
increased to 9.4% for the three months ended June 30, 2008, from 5.8% for the
same period in 2007, which was generally in line with the increase in revenue.
Research and development expenses for the second quarter of 2008 increased
to $0.5 million from $0.4 million for the same period of 2007. The increase in
research and development expenses was mainly attributable to the consolidation
of Geo.
Selling expenses for the quarter ended June 30, 2008 increased to $0.64
million, from $0.27 million and remained stable as a percentage of revenues.
Income from operations for the second quarter of 2008, increased to $8.3
million, or 99.7%, from $4.1 million for the same period in 2007.* Income
from operations as a percentage of revenue decreased to 33.5% during the
second quarter of 2008, from 39.4% for the same period in 2007. The decrease
was due to higher costs for procured hardware and other subcontracting costs
related to the implementation of several large-scale systems integration
projects, and the increase in expenses due to expansion.
The Company's subsidiaries, Information Security Technology ("IST"), ISS
and Bocom Technology, and its VIE, iASPEC are subject to EIT at a rate of 18%
of assessable profits in 2008. Geo, iASPEC's newly acquired subsidiary, is
subject to EIT at a rate of 15% of assessable profits as a High-Tech
Enterprise. However, after offsetting accumulated losses from prior years, Geo
had no assessable profit subject to EIT for the three months ended June 30,
2008. In addition, IST is a Foreign Investment Enterprise or FIE engaged in
the advanced technology industry which entitles it to a two-year exemption
from EIT followed by a 50% tax exemption for the next three years. Income tax
expenses for the three months ended June 30, 2008 was $0.32 million.
Net income increased 67.9% to $7.7 million in the second quarter of 2008,
or $0.17 per basic and diluted share, compared to $4.6 million during the same
period of 2007, or $0.12 and $0.11 per basic and diluted share, respectively.*
* Includes the consolidation of iASPEC and excludes Stock Based
Compensation ("SBC") and Amortization of Intangible Assets. See
Table 1 for a reconciliation of Net Income and EPS to exclude SBC and
Amortization of Intangible Assets.

Six Month Financial Results

On a non-GAAP basis*:

For the first six months of 2008, revenue increased to $39.1 million, up
149.5%, from $15.7 million for the same period in 2007. Gross profit as a
percentage of revenue decreased to 45.4% for the first six months of 2008,
from 55.1% for the same period in 2007. Net income in the first six months
increased to $11.8 million, or $0.26 per fully diluted share, up 76.7% from
$6.7 million for the same period in 2007, or $0.17 per fully diluted share.
* Includes the consolidation of iASPEC and excludes Stock Based
Compensation ("SBC") and Amortization of Intangible Assets. See Table 1
for a reconciliation of Net Income and EPS to exclude SBC and
Amortization of Intangible Assets.

Financial Condition
As of June 30, 2008, the Company had $25.8 million in cash and cash
equivalents and short term investments. Shareholders' equity increased to
$98.6 million, up from $74.0 million on December 31, 2007.
Recent Developments
(1) iASPEC Equity Transfer
On July 1, 2008, 100% of the equity ownership of iASPEC, CIST's variable
interest entity, was consolidated by Mr. Jiang Huai Lin, CIST's Chairman and
Chief Executive Officer and the previous majority owner of iASPEC, through the
transfer of 1,527,855 shares of restricted common stock of CIST previously
owned by him, to the minority owner Mr. Jin Zhu Cai.
Management believes that the transaction solidifies the economic
relationship between CIST and iASPEC and better aligns Mr. Cai's interests
with the interests of CIST shareholders. CIST will continue to receive 100% of
the economic benefits of iASPEC.
(2) Subsidiaries Name Changes
On May 15, 2008, Fortune Fame International Investment Limited, CIST's
wholly owned Hong Kong subsidiary, changed its name to Information Security
Software Investment Limited, or ISSI, and Information Security Development
Technology (Shenzhen) Company Ltd., ISSI's wholly owned Chinese subsidiary,
changed its name to Information Security Software (China) Co., Ltd., or ISS.
Also on May 15, 2008, Bocom Multimedia Display Company Ltd., the Company's
wholly owned Hong Kong subsidiary, changed its name to Information Security
International Investment and Development Limited.
The name changes were implemented to more accurately reflect CIST's
business and commercial objectives and provide it with a better corporate
image and brand name for expansion.
(3) Management Team Additions & Promotions
To further enhance the management of a rapidly growing enterprise, on Aug
7, 2008, the board of directors approved the following management changes
effective 9/1/2008:
-- Mr. Zhiqiang Zhao was promoted to the position of Chief
Administrative Officer responsible for post-merger integration and for
permits and license compliance issues. Mr. Zhao was also appointed as
a member of the Company's board of directors.

-- Mr. Yifu Liu was promoted to the position of Chief Operating Officer,
responsible for ensuring corporate efficiency and post-merger
operations integration and timely delivery of solutions to clients.

-- Mr. Robin Huang resigned from his position as Chief Operating Officer
and was promoted to the position of Chief Technology Officer,
responsible for integrating intellectual properties and creating
comprehensive technical solutions delivery to clients' sites. Due to
the increased responsibilities associated with his new position, Mr.
Huang also resigned from his position as a member of the Company's
board of directors.

Business Outlook
The Company plans to leverage its strength and brand recognition in
Guangdong Province in order to win business across China. Accordingly, the
Company intends to manage its national operations from five centers located in
Shenzen, Guangzhou, Beijing, Nanchang, Wuhan and five representative offices
located in Changsha, Nanning, Chengdu, Xi'an and Shanghai.
Management expects that the acquisitions of ISS, Bocom Technology, and Geo
will also accelerate the Company's geographical expansion, enhance its
technological capabilities or competitive advantages, provide licensing and
recurring revenue opportunities, and serve to fulfill its planned expansion
into civil-use GIS markets. Furthermore, the Company expects to capitalize on
its strong research and development capabilities and outstanding contract win
ratio, to seize contract opportunities nationwide during Phase II of China's
"Golden Shield Project."
In light of CIST's unique capabilities in the areas of remote sensing and
aerial mapping, the Company was able to provide technical assistance for the
Sichuan earthquake in May 2008 by helping to develop maps with its advanced
digital aerophotographic cameras. This effort has strengthened the Company's
brand recognition and is expected to lead to additional opportunities for the
Company as it continues to be an active participant in the Sichuan rebuilding
process.
Management expects that the Company will continue to see strength in its
PGIS product line due to its dominant national market position, its
geographical expansion to new regions and additional follow-on opportunities
in connection with product line extensions. The Company's success in winning
follow-on orders for Intelligent Border Control products should serve as a
live demonstration model for other port cities in China and also in the civil-
use sector. Similarly, its recent win of the Phase II Shenzhen Residence Card
Management project will serve as a model for large-scale rollouts, positioning
CIST for other follow-on opportunities, should the residence card program be
extended to other cities in China.
"Our business momentum continues to accelerate due to recent success in
expanding geographically, developing new products and acquiring new
technological and software capabilities," said Mr. Lin. "Each successive win
increases our brand recognition, competitive advantages and opportunities for
follow-on orders. We believe that we are uniquely positioned for sustained
future growth."
Fiscal Year 2008 Guidance
The Company is maintaining its 2008 financial guidance for pro forma
revenues of $85 million, and pro forma net income of $27 million, which
excludes any non-cash charges as a result of employee stock option grants in
2007 and 2008, and amortization of intangible assets associated with the
recent acquisitions of ISS, Bocom Technology and Geo.

* Table 1
Q2 2008 Reconciliation of Operating, Net Income and EPS
to Exclude SBC and Amortization of Intangible Assets

3 Mos. Ended 6 Mos. Ended
June 30, 2008 June 30, 2008

Operating income 7,672,046 11,406,767
Stock Based Compensation ("SBC") 310,367 694,332
Amortization 294,323 512,177
Operating income (without SBC and
Amortization) 8,276,736 12,613,276

Net income 7,050,343 10,629,323
Stock Based Compensation ("SBC") 310,367 694,332
Amortization 294,323 512,177
Net income (without SBC and
Amortization) 7,655,033 11,835,832

Weighted Average Shares
Basic 45,738,420 45,611,286
Diluted 46,354,183 46,090,091

Earnings Per Share (without SBC and
Amortization)
Basic $0.17 $0.26
Diluted $0.17 $0.26

Non-GAAP Financial Measures
The Company uses non-GAAP financial measures in this press release due to
the inclusion of financial information of iASPEC which is considered to be the
Company's "Predecessor" for these purposes. Effective as of July 1, 2007,
iASPEC became the Company's variable interest entity, or VIE, whose operation
results began to be reflected in the financial data starting from July 1,
2007. Therefore, the accompanying financial data for the three months ended
June 30, 2008, reflect the results of operations of CIST, its subsidiaries and
its VIE, while the financial data for the three months ended June 30, 2007
only reflects the results of operations of CIST and its subsidiaries. We have
provided non-GAAP financial measures through the reallocation of net related
party revenues from iASPEC before it became a consolidated entity, which is
not in accordance with US GAAP. The reconciliation of these non-GAAP financial
measures to the most directly comparable GAAP measure is provided in the
following section. The Company's management believes that these non-GAAP
financial measures are necessary because the abnormally high financial ratios
calculated using GAAP would be misleading to investors and would not reflect
the substance of the Company's performance.
Conference Call Information
Management will conduct a conference call at 9:00 am EST on Wednesday,
August 13, 2008 to discuss its second quarter 2008 results. To participate in
the live conference call, please dial the call-in number five to ten minutes
prior to the scheduled conference call time:

Date: Wednesday, August 13, 2008
Time: 9:00 am EST
Conference Call-In #: 800 688 0796
International Callers: 617 614 4070
Conference Passcode #: 663 605 25
Webcast Link: http://www.visualwebcaster.com/event.asp?id=50785

For those unable to participate in the call at this time, please call:

Replay Call-In #: 888 286 8010
International Callers: 617 801 6888
Replay Passcode: 802 129 94
Replay Expires on: Wednesday, August 20, 2008

About China Information Security Technology, Inc.
Through its wholly-owned Chinese subsidiary, China Information Security is
focused on the development and implementation of large scale, high-tech
information security and 3S (Geographic Information Systems - GIS, Global
Positioning Systems - GPS and Remote Sensing - RS) related projects. The
Company provides a broad portfolio of fully integrated solutions and services,
including Information Security (First Responder Coordination Platform,
Intelligent Border Control System and Residence Card Information Management
System), 3S and Product Sales and Services. Through its exclusive contractual
arrangement with iASPEC Software Company Limited (iASPEC), China Information
Security has the licenses to numerous registered and copyrighted software
applications in China. In addition, iASPEC is considered the Company's
variable interest entity, and its financial data and information is
consolidated into the Company's accounts. To learn more about the Company,
please visit the corporate website at http://www.chinacpby.com .
Safe Harbor Statement
This press release may contain certain "forward-looking statements"
relating to the business of China Information Security Technology, Inc., and
its subsidiary companies. All statements, other than statements of historical
fact included herein are "forward-looking statements" including statements
regarding: the significance of the Company's contract wins, its newly acquired
intellectual property and its expansion into other regions in China; the
general ability of the Company to achieve its commercial objectives; the
business strategy, plans and objectives of the Company and its subsidiaries;
and any other statements of non-historical information. These forward-looking
statements are often identified by the use of forward-looking terminology such
as "believes," "expects" or similar expressions, involve known and unknown
risks and uncertainties. Although the Company believes that the expectations
reflected in these forward-looking statements are reasonable, they do involve
assumptions, risks and uncertainties, and these expectations may prove to be
incorrect. Investors should not place undue reliance on these forward-looking
statements, which speak only as of the date of this press release. The
Company's actual results could differ materially from those anticipated in
these forward-looking statements as a result of a variety of factors,
including those discussed in the Company's periodic reports that are filed
with the Securities and Exchange Commission and available on its website
(http://www.sec.gov). All forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by these factors. Other than as required under the securities laws,
the Company does not assume a duty to update these forward-looking statements.
-- FINANCIAL TABLES FOLLOW --

China Information Security Technology, Inc.
Consolidated Statements of Income (NON-GAAP)
Three-Months Ended June 30, 2008 and 2007

Non-GAAP
Three Three Reallocation Three
Months Months Of Months
Ended Ended Related Ended
June 30, June 30, Party June 30,
2008 2007 Revenue 2007

Revenue - third parties $24,710,743 $1,750,162 $8,781,422 $10,531,584
Revenue - related party -- 3,657,433 (3,657,433) --
TOTAL REVENUE 24,710,743 5,407,595 5,123,989 10,531,584

Cost of Revenue (13,569,305) (597,831) (4,462,125) (5,059,956)

GROSS PROFIT 11,141,438 4,809,764 661,864 5,471,628

Administrative expenses (2,323,421) (370,218) (243,865) (614,083)
Research and development
expenses (503,622) (74,048) (324,791) (398,839)
Fee to iASPEC under the
Turnkey Agreement -- (45,000) (45,000)
Selling expenses (642,349) (175,132) (93,208) (268,340)

INCOME FROM OPERATIONS 7,672,046 4,145,366 -- 4,145,366

Other income, net 41,698 20,267 20,267
Interest income 23,385 16,077 16,077
Minority interest (364,906) -- --
Income tax expense (321,880) 377,444 377,444

NET INCOME $7,050,343 $4,559,154 $-- $4,559,154

WEIGHTED AVERAGE NUMBER
OF SHARES

Basic 45,738,420 39,418,720 NA

Diluted 46,354,183 39,835,665 NA

EARNINGS PER SHARE
Basic $0.15 $0.12 NA
Diluted $0.15 $0.11 NA

CHINA INFORMATION SECURITY TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

JUNE 30, 2008 AND DECEMBER 31, 2007

JUNE 30, DECEMBER 31,
2008 2007
(UNAUDITED)
ASSETS

CURRENT ASSETS

Cash and cash equivalents $ 19,996,344 $ 19,755,182
Short-term investments 5,820,891 14,966,752
Accounts receivable 29,598,697 11,721,306
Advances to suppliers 2,267,122 1,791,440
Inventories 10,033,264 4,779,930
Other receivables 2,161,116 974,475
TOTAL CURRENT ASSETS 69,877,434 53,989,085

Deposit for business acquisition -- 8,989,022
Long-term investment 2,983,206 --
Property and equipment 23,554,537 13,826,896
Intangible assets 11,402,798 4,894,397
Goodwill 21,075,627 7,154,395

TOTAL ASSETS $ 128,893,602 $ 88,853,795

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES

Short-term loan $ 727,611 --
Accounts payable 10,782,171 $ 3,079,304
Advances payable 1,332,893 394,383
Tax payable 1,042,042 326,026
Amount due to related parties 554,546 --
Other payables and accrued expenses 1,838,880 987,483
TOTAL CURRENT LIABILITIES 16,278,143 4,787,196

MINORITY INTEREST 14,001,871 10,060,657

STOCKHOLDERS' EQUITY

Common stock, par $0.01;
Authorized capital, 75,000,000
shares; Shares issued and
outstanding (June 30, 2008:
47,162,404 and December 31, 2007:
45,639,396) 206,121 190,891
Additional paid-in capital 67,100,252 57,421,150
Reserve 1,755,552 1,755,552
Retained earnings 23,799,872 13,170,549
Accumulated other comprehensive
Income 5,751,791 1,467,800
TOTAL STOCKHOLDERS' EQUITY 98,613,588 74,005,942

TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 128,893,602 $ 88,853,795

CHINA INFORMATION SECURITY TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2008 AND 2007

SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 2008 JUNE 30, 2007

OPERATING ACTIVITIES
Net income $ 10,629,323 $ 6,698,005
Adjustments to reconcile net
income to net cash provided from
(used in) operations:
Depreciation 1,716,543 102,548
Amortization of intangible assets 512,177 --
Stock-based compensation 694,332 --
Minority interest 409,906 --
Gain on disposition of property
and equipment (31,840) --
Changes in operating assets and
liabilities, net of effects of
business acquisitions
Increase in inventories (3,354,664) --
Increase in accounts receivable (12,297,321) (225,893)
Increase in related parties receivable -- (5,465,413)
Increase in prepaid expenses -
related party -- (4,632,036)
Decrease in other receivables 79,190 --
Increase in accounts payable 4,513,062 80,513
(Decrease) in advances payable (1,899,266) --
(Decrease) Increase in other
payables and accrued expenses (449,708) 391,887
Increase (Decrease) in tax payable 364,236 (38,367)

Net cash provided by (used in)
operating activities 885,970 (3,088,756)

INVESTING ACTIVITIES
Cash acquired in Bocom acquisition 713,793 --
Cash acquired in Geo acquisition 2,443,677 --
Consideration paid for business --
acquisition of Geo (6,998,811)
Short-term investments (5,655,605) --
Proceeds from sale of property
and equipment 1,146,671 --
Advances to third parties -- 340,999
Amount due to director -- (22,865)
Advances to related parties -- (335,233)
Purchase of property and equipment (7,644,057) (5,092,775)
Capitalized and purchased
software development costs (162,788) --
Proceeds from sale of marketable
securities 14,966,752 --

Net cash used in investing activities (1,190,368) (5,109,874)

FINANCING ACTIVITIES
Borrowings under short-term loan 727,611 --
Repayment of bank loan (1,086,312) --
Advances repaid to a third party
company -- (205,984)
Proceeds from first private placement -- 13,311,211

Net cash (used in) provided by
financing activities (358,701) 13,105,227

NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (663,099) 4,906,597
EFFECT OF EXCHANGE RATE CHANGES
ON CASH 904,261 309,802
CASH AND CASH EQUIVALENTS, BEGINNING 19,755,182 172,316
CASH AND CASH EQUIVALENTS, ENDING $ 19,996,344 $ 5,388,715

Revenues by segment for the three and six months ended June 30, 2008 and
2007 are as follows:

Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
Revenues (1)

Information $10,038,770 $1,750,162 $13,580,284 $2,963,480
Security
Segment
GIS Segment 9,869,108 3,657,433 16,933,576 5,476,256
Product Sales
Segment 4,802,865 -- 8,601,309 --

$24,710,743 $5,407,595 $39,115,169 $8,439,736

Percentage to
Revenue
Information 41 % 32 % 35 % 35 %
Security
Segment
GIS Segment 40 % 68 % 43 % 65 %
Product Sales
Segment 19 % -- 22 % --

(1) Revenues by operating segments excludes intercompany transactions.

For more information, please contact:

Company Contact:
Mr. Michael Lin
Vice President, Investor Relations
China Information Security Technology, Inc.
Tel: +1-949-743-0868
Email: mlin@chinacpby.com
Web: http://www.chinacpby.com

Investor Relations Contact:
Mr. Crocker Coulson
President
CCG Investor Relations
Tel: +1-646-213-1915 (NY office)
Email: crocker.coulson@ccgir.com
Web: http://www.ccgir.com

SOURCE China Information Security Technology, Inc.

Company, Mr. Michael Lin, Vice President, Investor Relations of China
Information Security Technology, Inc., +1-949-743-0868, or mlin@chinacpby.com;
Investor Relations, Mr. Crocker Coulson, President of CCG Investor Relations
for China Information Security Technology, Inc. +1-646-213- 1915 (NY office),
or crocker.coulson@ccgir.com