-          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, August 12 -- 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)

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 margins; 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 $54.1 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.

    For more information, please contact:

     Robert Yuan, Chief Accounting Officer

     China Fire & Security Group, Inc.

     Tel:   +86-10-8441-7848

     Email: ir@chinafiresecurity.com