China Fire & Security Group, Inc. Announces Second Quarter 2008 Financial Results and Raises 2008 Full Year Guidance

  -- Record revenue of $16.7 million, an increase of 44.2% versus Q2 2007

              -- Gross margin of 61.2% versus 54.6% of Q2 2007

 -- Record GAAP net income of $6.7 million, an increase of 57.4% versus Q2

                                    2007

             -- Record GAAP EPS of $0.24 on fully diluted basis

        -- Backlog of $71 million by the end of the first half 2008

                     -- Raised 2008 Full Year Guidance

      -- Conference call on Wednesday, August 13, 2008 at 8:00 am EST



    BEIJING, Aug. 12 /Xinhua-EMWNews/ -- China Fire & Security

Group, Inc. (Nasdaq: CFSG) ("China Fire" or "the Company"), a leading

industrial fire protection product and solution provider in China,

announced its financial results for the second quarter of 2008. The Company

reported record quarterly revenue of $16.7 million, up 44.2 percent

year-over-year, compared with $11.5 million in the second quarter of 2007.

Gross margin for the second quarter 2008 reached 61.2 percent, compared

with 54.6 percent in the second quarter of 2007. GAAP net income for the

second quarter of 2008 was a record $6.7 million and the earnings per share

(EPS) on fully diluted basis was $0.24.






                           Key Financial Indicators

                         (All numbers in US dollars)



                                   Q2/2008           Q2/2007         Percent

                                                                      Change

    Revenue                     16,653,724        11,547,185           44.2%

    Gross Profit                10,184,293         6,309,513           61.4%

    Operating Expenses           3,585,029         2,785,091           28.7%

    Income from

     Operations                  6,599,264         3,524,422           87.2%

    GAAP Net Income              6,676,100         4,242,521           57.4%

    Non-GAAP Net Income          6,676,100         3,870,893           72.5%

    EPS Diluted                       0.24              0.16           51.6%

    Non-GAAP EPS Diluted              0.24              0.14           66.1%



    Financial Results



    Revenue increased to a record $16.7 million in the second quarter of

2008, up 44.2% percent from $11.5 million in the second quarter of 2007.

This increase was mainly attributable to the execution of increased number

of total solution contracts during this quarter and also reflected a

significant increase in revenue from maintenance service.



    Gross profit for the second quarter increased 61.4 percent to $10.2

million from $6.3 million for the same period of last year. The gross

margin was 61.2 percent, compared with 54.6 percent for the second quarter

of last year. The improvement in gross margin for the second quarter of

2008 was mainly due to two reasons: 1) the execution of contracts for an

iron and steel company which contributed higher gross margin; 2) the higher

percentage of revenue contribution from the sales of the Company's

self-manufactured proprietary products, including through direct sales as

well as through OEM channels.



    "We are very pleased to report a strong quarter as both of our revenue

and net income reached another record high due to our strong top line

growth and the improvement in our gross margin," commented Mr. Brian Lin,

Chief Executive Officer of China Fire.



    Operating income was approximately $6.6 million for the second quarter

of 2008, compared to $3.5 million for the same period of last year,

representing 87.2 percent growth of operating income in the second quarter

of 2008. The improvement in operating income was mainly attributable to the

increase in the Company's revenue and gross margin.



    GAAP net income was approximately $6.7 million for the second quarter

of 2008 as compared to approximately $4.2 million for the same period of

2007, which represents an increase of 57.4 percent. Excluding a one-time

non-cash gain of $0.4 million for the change in fair value of derivative

instrument in the second quarter of 2007, the non-GAAP net income for the

second quarter of 2007 was $3.9 million. GAAP net income for the second

quarter of 2008 increased 72.5 percent in comparison to the non-GAAP net

income of the second quarter of 2007. Non-GAAP diluted EPS was $0.24 for

the second quarter of 2008 as compared to the non-GAAP diluted EPS of $0.14

for the second quarter of 2007, an increase of 66.1 percent.



    Total revenue for the six months ended June 30, 2008 was $31.4 million,

compared with $21.0 million for the same period of 2007, representing an

increase of 49.0 percent. Gross profit for the six months ended June 30,

2008 increased 61.0 percent to $18.2 million from $11.3 million for the

same period of last year. The gross margin was 58.1 percent, compared with

53.8 percent for the same period of last year. Operating income for the six

months was $11.2 million, an increase of 65.4 percent compared with $6.8

million in the same period of last year. GAAP net income for the six months

was $11.4 million, compared with $8.4 million for the same period of last

year, representing 36.4 percent growth. The non-GAAP net income was $11.4

million, compared to $7.2 million for the same period of last year.

Non-GAAP diluted EPS was $0.41 for the six months ended June 30, 2008 as

compared to the non-GAAP diluted EPS of $0.26 for the same period of 2007,

an increase of 53.1 percent.



    Balance Sheet and Cash Flow



    As of June 30, 2008, China Fire had working capital of $ 54.2 million

including cash and cash equivalents of $20.5 million. Net cash provided by

operating activities was approximately $3.5 million during the first half

of 2008, compared with $62,359 net cash used in operating activities for

the same period of 2007. Days sales outstanding or DSOs were 108 days for

the second quarter of 2008, compared with 122 days for the same period of

last year.



    As of June 30, 2008, total liabilities stood at $31.6 million, while

shareholders' equity totaled $65.0 million, improved from $50.2 millions in

beginning of 2008. Currently the Company has no debt on balance sheet.



    Business Update



    "The outlook for our business going forward remains very strong as we

continue to benefit from the industrialization and urbanization processes

in China," commented Brian Lin, Chief Executive Officer of China Fire.



    "In addition to our strong organic growth shown in our financial

numbers and current backlog, we have also seen significant progress in the

implement of our expansion strategies. We are very excited about our

successful penetration into nuclear power plant sector, where we were

notified that we won a bid for a contract valued at approximately $7.3

million. We will provide fire suppression systems for multiple nuclear

power plants owned by a nuclear power group. We also made preliminary

progress in M&A by signing a memorandum of understanding (MOU) where China

Fire will become a majority shareholder of a fire protection special

equipment company. This special equipment company is expected to generate

more than $25 million revenue in 2009. On the international market fronts,

we recently signed a partnership agreement with an India company whose

principals have over 25 years experience in India's fire protection

industry. The partnership will provide local support for China Fire's EPC

(Engineering, Procurement, and Construction) fire protection projects in

India. The partnership will also be responsible for sales of China Fire's

fire protection products in India," concluded Mr. Brian Lin.



    Increase of 2008 Financial Guidance



    Based on the current visibility where the Company had a backlog of $71

million by the end of the first half 2008 and the strong project pipelines

that the Company sales teams are tracking, China Fire announces an upward

revision of its 2008 full year guidance as follows: Revenues at least $68

million from previously announced $66.6 million; GAAP net income at least

$24 million from previously announced $22.3 million; Fully diluted GAAP EPS

at least 84 cents from previously announced 78 cents.






    Teleconference Information

    China Fire & Security Group, Inc. 2008 Q2 Earnings Results Conference Call



    Date/Time:

    August 13, 2008 (Wednesday) 8:00 a.m. EST



    Conference Call:

    Unite States: 1-800-860-2442

    International: 1-412-858-4600

    Passcode: China Fire

    Webcast /Audio Recording:



    This call is being web cast by MultiVu and can be accessed by clicking

on this link http://www.videonewswire.com/event.asp?id=50571 .

    About China Fire & Security Group, Inc.



    China Fire & Security Group, Inc. (Nasdaq: CFSG), through its wholly

owned subsidiaries, Sureland Industrial Fire Safety Limited ("Sureland")

and Tianjin Tianxiao Fire Safety Equipment ("Tianxiao"), is a leading total

solution provider of industrial fire protection systems in China.

Leveraging on its proprietary technologies, China Fire is engaged primarily

in the design, manufacture, sale and maintenance services of a broad

product portfolio including the detectors, controllers, and fire

extinguishers. Via its nationwide direct sales force, China Fire has built

a solid client base including major companies in the iron and steel, power

and petrochemical industries throughout China. China Fire has a seasoned

management team with strong focus on industrial standards and technologies.

Currently, China Fire has 52 issued patents covering fire detection, system

control and fire extinguishing technologies. Founded in 1995, China Fire is

headquartered in Beijing with about 500 employees in more than 30 sales

offices throughout China.



    Cautionary Statement Regarding Forward-Looking Information



    This presentation may contain forward-looking information about China

Fire & Security Group, Inc. and its wholly owned subsidiary Sureland which

are intended to be covered by the safe harbor for forward-looking

statements provided by the Private Securities Litigation Reform Act of

1995.



    Forward-looking statements are statements that are not historical

facts. These statements can be identified by the use of forward-looking

terminology such as "believe," "expect," "may," "will," "should,"

"project," "plan," "seek," "intend," or "anticipate" or the negative

thereof or comparable terminology, and include discussions of strategy, and

statements about industry trends and China Fire & Security Groups' future

performance, operations and products. This and other "Risk Factors" are

contained in China Fire & Security Groups' public filings with the SEC.












               CHINA FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES



        CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME

        FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007

                                   (UNAUDITED)



                    For the Three Months Ended   For the Six Months Ended

                             June 30,                   June 30,

                         2008         2007         2008         2007

    REVENUES

      System

       contracting

       projects      $14,557,008   $9,887,878 $25,886,388  $17,164,386



      Products         1,533,965    1,538,049   4,415,136    3,639,805

      Maintenance

       services          562,751      121,258   1,048,826      242,456

          Total

           revenues   16,653,724   11,547,185  31,350,350   21,046,647



    COST OF REVENUES

      System

       contracting

       projects        5,971,745    4,379,902  11,541,955    8,024,570



      Products           217,498      811,081   1,059,380    1,639,783

      Maintenance

       services          280,188       46,689     520,327       56,874

          Total cost of

           revenues    6,469,431    5,237,672  13,121,662    9,721,227





    GROSS PROFIT      10,184,293    6,309,513  18,228,688   11,325,420



    OPERATING

     EXPENSE

      Selling and

       marketing       1,676,315    1,210,100   3,010,041    1,761,509

      General and

       administrative  1,126,074    1,174,309   2,753,120    2,185,353

      Depreciation

       and

       amortization      154,688      133,056     321,950      259,539

      Research and

       development       627,952      267,626     894,601      317,921

          Total

           operating

           expense     3,585,029    2,785,091   6,979,712    4,524,322



    INCOME FROM

     OPERATIONS        6,599,264    3,524,422  11,248,976    6,801,098



    OTHER INCOME

    (EXPENSE)



       Other income      110,237      323,702     221,643      327,998



       Other expense     -85,332       -2,146     -85,388       (6,417)

       Interest

        income            63,384       24,915      91,744       44,170

       Change in

        fair value

        of derivative

        instruments           --      371,628          --    1,205,791

          Total

           other

           income         88,289      718,099     227,999    1,571,542



    INCOME BEFORE

     PROVISION FOR

     INCOME TAXES      6,687,553    4,242,521  11,476,975    8,372,640



    PROVISION FOR

     INCOME TAXES        11,453            --      60,095           --







    NET INCOME        6,676,100     4,242,521  11,416,880    8,372,640



    OTHER

     COMPREHENSIVE

     INCOME:

       Foreign

        currency

        translation

        adjustment    1,293,683       514,775   3,360,599      810,334





    COMPREHENSIVE

     INCOME          $7,969,783    $4,757,296 $14,777,479   $9,182,974



    BASIC EARNINGS

     PER SHARE

       Weighted

        average

        number of

        shares       27,557,297    26,461,678  27,557,095   26,461,678

       Earnings per

        share             $0.24         $0.16       $0.41        $0.32



    DILUTED EARNINGS

     PER SHARE

       Weighted

        average

        number of

        shares       28,200,785    27,164,207  28,179,595   27,085,807

       Earnings per

        share             $0.24        $0.16        $0.41        $0.31









               CHINA FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES



                           CONSOLIDATED BALANCE SHEETS

                    AS OF JUNE 30, 2008 AND DECEMBER 31, 2007



                                   A S S E T S

                                                  June 30,       December 31,

                                                    2008             2007

    CURRENT ASSETS:                             (Unaudited)



     Cash                                    $   20,518,916  $    17,110,449

     Restricted cash                              4,563,344        3,829,927

     Accounts receivable, net of allowance

      for doubtful accounts of $2,827,972

       and $2,483,359 as of June 30, 2008

       and December 31, 2007, respectively       18,321,528       16,525,161

     Notes receivable                             6,209,671        3,315,811

     Other receivables                            1,182,323          748,195



     Other receivable - related party               325,177               --

     Inventories                                  5,548,967        4,048,283

     Costs and estimated earnings in excess

      of billings                                25,067,016       13,068,036

     Employee advances                              776,472        1,307,433

     Employee advances - officers and

      directors                                      25,438           18,682

     Prepayments and deferred expenses            3,203,575        2,218,391



       Total current assets                      85,742,427       62,190,368



    PLANT AND EQUIPMENT, net                      7,559,581        6,568,250



    OTHER ASSETS:



     Accounts receivable - retention                776,859          193,029

     Deferred expenses - non current                 30,049           21,234

     Advances on building and equipment

      purchases                                     185,395          366,317

     Investment in joint ventures                 1,166,326        1,156,294

     Intangible assets, net of accumulated

      amortization                                1,150,733        1,150,935



       Total other assets                         3,309,362        2,887,809





         Total assets                        $   96,611,370  $    71,646,427



    L I A B I L I T I E S    A N D    S H A R E H O L D E R S'   E Q U I T Y



    CURRENT LIABILITIES:



     Accounts payable                        $    6,892,119  $     6,327,182

     Customer deposits                           13,105,751        4,757,179

     Billings in excess of costs and

      estimated earnings                          2,820,444        4,882,217

     Other payables                                 988,413          168,868

     Accrued liabilities                          6,315,280        4,214,530

     Taxes payable                                1,470,764        1,088,335



       Total current liabilities                 31,592,771       21,438,311





    COMMITMENTS AND CONTINGENCIES                        --               --



    SHAREHOLDERS' EQUITY:

     Common stock, $0.001 par value,

      65,000,000 shares authorized,

      27,560,527 and 27,556,893 shares

      issued and outstanding as of

      June 30, 2008 and December 31,

       2007, respectively                            27,560           27,556



     Additional paid-in-capital                  19,350,287       19,317,287



     Statutory reserves                           5,067,061        5,067,061



     Retained earnings                           33,644,975       22,228,095



     Accumulated other comprehensive income       6,928,716        3,568,117



       Total shareholders' equity                65,018,599       50,208,116



         Total liabilities and shareholders'

          equity                             $   96,611,370  $    71,646,427