China Expert Technology Reports Financial Results for First Quarter of 2006
Revenue Increases 74%; Gross Margins Improve to 52%
HONG KONG, May 15, 2006 -- China Expert Technology, Inc. (OTC Bulletin Board: CXTI), an emerging leader in providing large scale network infrastructure construction mainly for e-government projects for communities and municipal governments in China, today announced its financial results for the first quarter ended March 31, 2006.
Quarterly and Recent Highlights:
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Revenues for the quarter increased 74% to $15.1 million versus Q105
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Operating income improved 34.9 percent to $4.9 million excluding non-cash employee compensation expenses
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During the quarter, the Company was awarded seven new e-Government contracts totaling $95 million, which included:
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$5 million with Jinjiang City (Fourth Phase)
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$20 million with Dehua City Third and Fourth Phases),
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$31 million with Licheng City
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$37 million, three-year deal with Shishi City starting in October, 2006
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Yinzhou District Ningbo City
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Dehua Unified Command System
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As of May 15th, 2006 the Company’s backlog was $121.4 million, a 207% increase compared to $39.6 million for the year ended December 31, 2005. This backlog is expected to be realized as revenue over the next three years.
Financial Results
Revenue for the quarter ended March 31 2006, increased 74.1 percent to $15.1 million compared to $8.7 million for the first quarter of last year. The increase in revenue was a result of several new projects which began during the quarter, namely the fourth phase of Jinjiang, the third and fourth phases of Dehua and further expansion with the provinces of Nan’an and Huian. Approximately 97 percent of the revenue during the quarter was derived from the deployment of e-Government projects, with the balance derived from provision of application training and system maintenance. Cost of revenue increased by $2.7 million, or 58.2 percent, to $7.3 million as compared to last year. Cost of revenue includes the cost of planning and implementing systems for customer contracts and increased as compared to the first quarter of 2005, although the percentage increase was less than that of overal l revenue growth. As a result, gross profit increased 92.1 percent to $7.8 million, or 51.5 percent of revenue, compared to $4.1 million, or 46.7 percent of revenue for the first quarter of 2005. Gross margin improved due to better control over subcontracting costs and a reduced proportion of subcontract work during the quarter.
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Total operating expenses for the first quarter were $4.5 million and increased significantly from the $0.4 million recorded during the first quarter of 2005. The increase in operating expenses was primarily related to the inclusion of approximately $1.7 million in non-cash compensation expenses related to employees’ benefits included in General and Administrative expense and an additional $2.5 million in Advertising and Marketing expenses associated with the closing of several new contracts. These additional expenses were not included in operating expense last year. Operating income decreased 10.7 percent to $3.3 million as compared to $3.7 million last year primarily due to the expenses discussed above. Excluding the non cash charge, operating income improved 34.9 percent to $4.9 million.
Net income for the quarter was $1.7 million compared to net income of $2.9 million last year. Diluted earnings per share was $0.05 as compared to $0.12 last year with net income impacted by the stock compensation expense and
“Further implementation on both existing and new projects helped us to deliver a significant increase in revenue during the quarter,” commented Mr. Huang Tao, Chairman of the Board of Directors of China Expert Technology, Inc. “We continue to execute on our strategy by winning new business in the Fujian province and layering on incremental business with existing customers as we leverage our recent successes and continue to demonstrate the value proposition of our comprehensive e-government application and systems. We completed the quarter with an active backlog of approximately $121.4 million in contracts compared to $39.6 million as of December 31, 2005. Our increasing backlog provides significant visibility for our business as these contracts translate into revenues during the next three years. Supported by an e-government mandate and solid customer references, China E xpert’s strong reputation, expertise in systems integration and process improvement, and the ability to deliver a quantifiable ROI to our government customers is providing us with a significant competitive advantage in this rapidly growing, high-profile industry.”
The Company completed the quarter with $7.2 million in cash compared to $7.3 million as of December 31, 2005. Working capital as of March 31, 2006 was $26.4 million, compared to $20.2 million as of the end of 2005. The Company’s current ratio as of March 31 was 2.9 to 1, and stockholder’s equity increased
About the e-government project:
The e-government project is aimed to establish a national electronic government system, in which the existing and expecting government networks and applied systems can be combined to form united technology standard and regulation and consequently a united
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About China Expert Technology, Inc:
CHINA EXPERT TECHNOLOGY, INC. ("CXTI") is a company listed on the OTC BB in the USA (Trading Symbol: CXTI), with its subsidiaries (collectively the "Group") situated in Hong Kong and China. The group is specialized in providing large-scale network infrastructure construction (mainly e-government projects) for communities and municipal governments in China. The Group also utilizes its network with experts from various universities in China to deploy business and IT consultancy services to corporations in Hong Kong and China. The Group's existing major clients includes municipal governments, government authorities and other technology firms in China. Its income is derived mainly from four areas, e-government, technology achievement appraisal, expert consultation and project database.
Safe Harbor under the Private Securities Litigation Reform Act of 1995: The statements which are not historical facts contained in this press release are forward-looking statements that involve certain risks and uncertainties including but not limited to risks associated with the uncertainty of future financial results, regulatory approval processes, the impact of competitive products or pricing, technological changes, the effect of economic conditions and other uncertainties as may be detailed in the Company's filings with the Securities and Exchange Commission.
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CHINA EXPERT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| | | | | |
| | | | March 31, 2006 | | December 31, 2005 |
| | | | US$ | | US$ |
ASSETS | | | | | |
Current assets | | | | | |
Cash and cash equivalents | | | 7,174,569 | | 7,326,595 |
Account receivables, net of allowance for doubtful accounts of nil and nil at March 31, 2006 and December 31, 2005, respectively | | |
18,231,084 |
|
15,423,852 |
Cost and estimated earnings in excess of billings | | | 5,862,667 | | 1,082,969 |
Amount due from a director | | | - | | 609 |
Amount due from a former officer | | | 37,477 | | 24,229 |
Prepayments, deposits and other receivables | | | 8,124,170 | | 9,797,938 |
Deferred finance costs | | | 377,829 | | 539,756 |
Current portion of prepaid expenses | | | 500,000 | | 500,000 |
Total current assets | | | 40,307,796 | | 34,695,948 |
| | | | | | |
Deferred tax assets | | | 81,802 | | - |
Property and equipment, net | | | 25,592 | | 28,999 |
Prepaid expenses | | | 937,500 | | 1,062,500 |
Total assets | | | 41,352,690 | | 35,787,447 |
| | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | |
| | | | | | |
Current liabilities | | | | | |
Accounts payable | | | 602,087 | | 644,470 |
Accrued payroll and employees’ benefits | | | 33,310 | | 49,115 |
Other payables and accruals | | | 362,675 | | 687,837 |
Amount due to a director | | | 97,054 | | 97,115 |
Amount due to a former officer | | | 968,551 | | 850,172 |
Amount due to shareholders | | | - | | 730 |
Income taxes payable | | | 1,132,621 | | 1,514,217 |
PRC business tax payable | | | 500,144 | | 641,793 |
Deferred tax liabilities | | | - | | 97,783 |
Convertible debentures, net of discount of US$3,644,070 and US$3,665,439 at March 31, 2006 & December 31, 2005, respectively | | |
754,369 |
|
733,000 |
Embedded derivatives | | | 3,291,000 | | 3,631,000 |
Warrants | | | 6,214,000 | | 5,532,000 |
Total current liabilities | | | 13,955,811 | | 14,479,232 |
| | | | | | |
Commitments and contingencies | | | | | |
| | | | | | |
Stockholders’ equity | | | | | |
Common stock, par value US$0.001, authorized 200,000,000 shares; issued and outstanding March 31, 2006: 27,914,851 shares; December 31, 2005: 25,902,996 shares | | |
27,915 | |
25,903 |
Additional paid-in capital | | | 16,283,608 | | 12,101,755 |
Accumulated other comprehensive income | | | 665,326 | | 450,641 |
Retained earnings | | | 10,420,030 | | 8,729,916 |
Total stockholders’ equity | | | 27,396,879 | | 21,308,215 |
| | | |
| |
|
Total liabilities and stockholders’ equity | | | 41,352,690 | | 35,787,447 |
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CHINA EXPERT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
| | | | | |
| | | | Three months ended March 31, |
| | | | 2006 | | 2005 |
| | | | US$ | | US$ |
| | | | | | |
Revenue | | | 15,108,179 | | 8,682,558 |
Cost of revenue | | | (7,322,581) | | (4,628,678) |
Gross profit | | | 7,785,598 | | 4,053,880 |
| | | | | | |
Advertising and marketing expenses | | | (2,464,900) | | - |
Depreciation and amortization | | | (4,300) | | (4,563) |
General and administrative expenses | | | (2,044,372) | | (288,178) |
Intangible assets amortization | | | - | | (96,401) |
| | | | | | |
Income from operations | | | 3,272,026 | | 3,664,738 |
| | | | | | |
Other income (expenses) | | | | | |
Interest income | | | 13,520 | | 3,937 |
Change in fair value of derivatives | | | (170,000) | | - |
Interest expenses and finance costs | | | (260,269) | | - |
Income before income tax | | | 2,855,277 | | 3,668,675 |
Income tax expenses | | | (1,165,163) | | (753,127) |
Net income | | | 1,690,114 | | 2,915,548 |
| | | | | | |
Other comprehensive income | | | | | |
Foreign currency translation adjustment | | |
214,685 | |
- |
Comprehensive income | | | 1,904,799 | | 2,915,548 |
| | | | | | |
Net income per share | | | | | |
- basic | | | US$0.06 | | US$0.12 |
- diluted | | | US$0.05 | | US$0.12 |
| | | | | | |
Weighted average common stock | | | | | |
Outstanding | | | | | |
- basic | | | 27,383,807 | | 24,414,679 |
- diluted | | | 34,578,011 | | 24,414,679 |
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For more information, please contact:
For the Company: Investors:
Phoebe Lam Matthew Hayden
China Expert Technology, Inc. Hayden Communications, Inc.
Tel: +852-2802-1555 Tel: +858-704-5065
Fax: +852-2583-9222 E-mail:Matt@haydenir.com
Email:phoebe@chinaexpertnet.com
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