Cantronic Systems Inc.
TSX VENTURE : CTS

Cantronic Systems Inc.

November 12, 2008 07:00 ET

Cantronic Executes Binding Agreement to Acquire AEBELL in China

Acquisition to add in excess of $16 million in revenues

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Nov. 12, 2008) - Cantronic Systems Inc., (Cantronic or Company) (TSX VENTURE:CTS) announced today that it has entered into a binding purchase and sale agreement (the Purchase Agreement) for the acquisition of the 100 percent equity interest in Guangzhou AEBELL Electrical Technology Co. Ltd. (AEBELL) in China. The Purchase Agreement stipulates the set of terms being filed with the Chinese authorities to process the transfer of 100 percent equity interest in AEBELL to Cantronic's 100 percent owned subsidiary, which, subject to satisfaction of customary conditions precedents, is expected to be completed during Cantronic's fourth quarter.

Following the acquisition of AEBELL, Cantronic will own a profitable ISO 9001 certified Chinese manufacturer and distributor of CCTV Cameras, surveillance and software security products with forecasted annual revenues in excess of CDN$16 million and net profit in excess of 15 percent in their current fiscal year, ending December 31. This strategic acquisition will significantly broaden Cantronic's existing product portfolio, revenue growth potential and marks Cantronic's first undertaking in the rapidly growing Chinese security and surveillance market.

Under the terms of the Purchase Agreement, the purchase price will be RMB 20 million (approximately CDN$3.0 million, based on the twelve-month average exchange rate in 2008), which shall be made within one month after completion of the business registration certificate (AIC business license) indicating that Cantronic is the new owner of 100 percent of AEBELL. This payment is expected to occur during Cantronic's fourth quarter. The existing majority owner of AEBELL will remain as General Manager until 2011. Over the next three years, subject to the achievement of annual revenue and profitability growth performance milestones, and achieving net profit after tax of RMB 16 million in the current fiscal year, AEBELL management could, in addition to the purchase price, receive up to approximately CDN$19.0 million in common shares of Cantronic, in accordance with the following schedule: 35 percent of the common share portion in 2009, 35 percent in 2010 and 30 percent in 2011. Subject to the terms and conditions, the number of shares to be issued shall be determined using the average closing price for the common shares of Cantronic over the two-week trading period immediately preceding the issuance date of such shares. These shares will be subject to Canadian securities rules trading restrictions and a voluntary management lock-up restricting the sale of shares so issued until one-month after the issuance of the last portion. The Company will have the option to pay the common share portion of the payment in cash, at anytime. In connection with the completion of the acquisition, the Company will prepare and file a business acquisition report containing customary financial disclosure.

"We have worked diligently during the acquisition process to recruit an experienced management team, integrate and address the supply chain and manufacturing needs in order to create an operational platform with the necessary scale to address the requirements of the new CCTV Cameras, surveillance and security software business," stated James Zahn, president and CEO of Cantronic Systems. "China's security and surveillance industry prospects continue to be encouraging due to increasing security and rising surveillance demand. Government spending on security and surveillance is rising throughout the country, to combat riots, terrorist threats, and to protect wealth and lives. More cities, even in the hinterland, have started to build "Safe City Project" security and surveillance networks, creating enormous demand for security and surveillance products and systems. With the AEBELL acquisition, Cantronic is now well positioned to achieve its goal of penetrating the Chinese market."

The highly fragmented Chinese surveillance and security market has been growing at an annual rate in excess of 30 percent and is estimated to reach $43 billion by 2010 according to the China Public Security Guide (published by the Chinese Security and Protection Association). Key industry growth drivers in China include the following:

- On November 10, 2008 China announced a US$586 billion infrastructure stimulus package to help boost the country's slowing economy over the next two years which will provide added resources to the fourth-biggest economy in the world to increase homeland security spending;

- Plan 3111: Approximately 660 cities are required to implement the "Safe City Project" within security and surveillance networks, especially installation of surveillance cameras in areas with heavy traffic. The majority of the "3111" projects began in 2007 and have continued after the 2008 Beijing Olympic Games in preparation for the 2010 World's Fair in Shanghai, and the 2010 Asian Games in Guangzhou;

- Entertainment establishments: In 2006, the Chinese government promulgated Ordinance 458, which mandates all entertainment establishments in China to install surveillance systems; and,

- Real estate and other: Large residential communities and luxury residential buildings are starting to install surveillance systems. Additional entities that require surveillance systems include justice departments and courts of law, coalmines, traffic management, shopping malls, hotels, and banks.

About Cantronic

Cantronic manufactures, distributes, provides training and services in the fields of infrared vision and video security surveillance technologies, specializing in passive and active infrared cameras, infrared illuminators, low light infrared sensitive CCD cameras and long-range night vision surveillance systems for demanding homeland security and surveillance application.

Cantronic, through its US subsidiary QWIP Technologies, Inc. ("QWIPTECH"), holds a worldwide, exclusive license from the California Institute of Technology ("Caltech") to produce and sell infrared detectors and sensors based on Caltech's Quantum Well Infrared Photodetector technology.

Cantronic is a Tier 1 issuer on the TSX-V exchange, trading under the symbol CTS. For further information about Cantronic and QWIPTECH, please visit our websites at www.cantronics.com and www.qwip.com.

Safe Harbor Statement

The Securities offered have not been registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any State in which such offer, solicitation or sale would be unlawful.

Forward-looking statements contained in this press release involves known and unknown risks, uncertainties and other factors that may cause actual results, performance and achievements of Cantronic to be materially different from any future results, performance or achievements expressed or implied by the said forward-looking statements.

TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of the contents of this news release.

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