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    SHENZHEN, China, Nov. 9 /PRNewswire-Asia-FirstCall/ --

            - 3Q09 Revenue Increases 32.7% YoY to $28.7 Million -
        - 3Q09 Gross Margin Increases 110 basis points YoY to 52.7% -
      - 3Q09 Operating Margin Increases 400 basis points YoY to 39.2% -
   - 3Q09 Net Income from Continuing Operations Increases 26.6% YoY to $9.5
                                  Million -
               - Raises FY09 Revenue and Net Income Guidance -
                 - Issues FY10 Revenue and Net Income Guidance   C

China Information Security Technology, Inc., (NASDAQ: CPBY) ("China Information Security," or the "Company"), a leading total solutions provider of digital security, geographic information, and hospital information systems in China, today reported its financial results for the third quarter ending September 30, 2009.

Third quarter 2009

Third quarter 2009 revenue increased 32.7% to $28.7 million, from $21.6 million in third quarter of 2008. Software sales grew by $8.7 million, or 75.4% year-over-year, to $20.2 million, driven by the Company's continuing efforts in promoting software sales in 2009. Reflecting the shifting of sales activities toward software and reduced hardware sales to non-government customers, revenues from hardware products and system integration services in the third quarter of 2009 decreased by 22.5% year-over-year and 1.9% year- over-year, respectively.

Beginning in the first quarter of 2009, the Company consolidated revenue into three reporting segments: 1) Digital Information Security Technology ("DIST"), 2) Geographic Information Systems ("GIS") and 3) Digital Hospital Information Systems ("DHIS"), to better reflect its operating structure. DIST, GIS, and DHIS revenues were $15.1 million, $9.8 million, and $3.8 million, respectively, for the third quarter of 2009. During the quarter, the Company signed new contracts totaling $30.1 million from customers in 14 provinces and provincial cities. Of these contracts, 55% were won in the DIST sector, 30% in the GIS sector, and 15% in the DHIS sector. At the end of third quarter 2009, the total value of the Company's backlog increased by $1.4 million sequentially to $36.1 million, from $34.7 million in the previous quarter.

Gross profit increased $4.0 million to $15.1 million, from $11.2 million for the same period last year. Third quarter 2009 gross margin of 52.7% expanded 110 basis points year-over-year from 51.6%, benefiting from a product mix change in favor of software.

Administrative expenses of $2.5 million in the third quarter of 2009 increased 10.5%, from $2.2 million during the same period of last year. As a percentage of revenue, administrative expenses were 8.6% for the third quarter of 2009, a reduction from 10.3% from the same period a year ago, as the Company continued to gain leverage on operating costs. Research and development expenses decreased to $0.69 million, compared with $0.75 million in the prior year's third quarter. Selling expenses of $0.7 million increased 26.6% from the corresponding period in 2008. As a percentage of revenue, selling expenses decreased to 2.5% for the third quarter, from 2.6% in the same period of 2008.

Income from operations increased to $11.3 million, up 47.9% from $7.6 million a year ago. Accordingly, operating margins increased 400 basis points to 39.2%, up from 35.2% for the same period in 2008, driven largely by an improved product mix and gained leverage on operating expenses. Income tax expense was $1.8 million, for an effective tax rate of approximately 16%.

Net income contributable to the Company increased $1.7 million, or 21.1%, to $9.7 million for the three months ended September 30, 2009, from $8.0 million for the same period in 2008. Income from continuing operations increased $2.0 million, or 26.6%, to $9.5 million, from $7.5 million for the same period in 2008. As a percentage of revenues, net income contributable to the Company decreased 330 basis points to 33.9%, from 37.2% for the same period in 2008, primarily due to increased effective tax rate. Consequently, earnings per diluted share in third quarter 2009 increased to $0.20, from $0.17 in the third quarter of 2008. Excluding discontinued operations, earnings per diluted share in the third quarter of 2008 was $0.16.

The Company's cash position at the end of September 30, 2009 decreased to $14.5 million, compared to $19.4 million at the end of June 30, 2009. During the quarter, accounts receivable increased by $7.1 million over the prior quarter's level to $64.2 million. Meanwhile, during the first nine months of 2009, cash provided by operating activities was $8.3 million, more than doubling cash provided by operating activities during the same period in 2008. Working capital decreased by $1.9 million to $67.8 million, from $69.7 million in the previous quarter. The Company has zero long-term debt.

Mr. Jiang Huai Lin, Chairman and CEO of the China Information Security, commented, "We are very pleased with our strong financial performance during the third quarter which we believe demonstrates the resiliency of our market position and the strength of our brand and execution capabilities. Over the past three months, we have seen accelerated momentum in our business pipeline, culminating in our win of a record high value of new contracts this quarter and resulting in record revenues and expanded backlog during the period. Furthermore, we continued to enjoy strong repeat business, with 80% of revenue coming from existing customers. Our national expansion goal is also on track, where 40% of revenue during the quarter came from outside of Guangdong, with the top non-Guangdong markets being Fujian, Beijing, Guangxi, Hainan and Zhejiang. We now rank among the top 3 suppliers to the Shenzhen Municipal Government and operate in 32 regions throughout China.

"Our technological leadership was further reaffirmed by our win of high- level awards for innovation and technological breakthroughs in the surveying and mapping industry this past quarter. We believe that our proven capabilities in providing mission-critical security information systems, our technical expertise in successfully implementing large-scale projects and our competitive pricing continue to be winning criteria in customer contract selection processes. As such, we remain confident with our business outlook for the remainder of 2009 through the coming fiscal year."

Financial Outlook

For fiscal year 2009, the Company is raising its revenue projection to $96-$100 million and pro-forma net income projection to the range of $28.5- $30.0 million, excluding any non-cash expenses as a result of employee stock awards and amortization of intangible assets associated with recent acquisitions. This compares to the previous guidance of $94-98 million in revenue, and $26.8-$28.0 million in pro-forma net income. Additionally, with its higher visibility in the digital security, geographic information, and hospital information market, the Company is issuing guidance for the full year 2010 with projected revenue to be $133-138 million and pro forma net income to be $33.5-37.5 million.

Mr. Lin concluded, "Given our strong performance over the past two quarters, we feel confident about our business outlook. We believe that we have the strong foundation, adequate liquidity and sound business strategy to continue benefiting from strong government support for our industry. We have strategically established a portfolio of offerings in the public security, GIS and digital hospital sectors, all of which are of top priority to the Chinese government, particularly in light of recently announced projects to complete the digital surveying and mapping of almost 300 Chinese cities and to set up health archives for 900 million rural Chinese. We believe that our strong industry reputation, successful execution record in Shenzhen City, and our significant contract wins throughout the Guangdong province have validated our current business strategy. Our goal is to replicate our success with our PGIS programs in Guangdong province in other provinces and to become a national standard setter in the digital security, geographic information, and hospital information space. We are confident that as an emerging leader in each of our business segments with distinct capabilities and first-mover advantages, we are well positioned to grow with the market and capture a significant market share."

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