Cantronic Systems Inc.
TSX VENTURE : CTS

Cantronic Systems Inc.

March 09, 2009 08:00 ET

Cantronic Systems Inc. Executes Binding Agreement to Acquire AVINFO in China

Cantronic to pay RMB 9.2 million for a 58.6 percent stake in AVINFO

VANCOUVER, BRITISH COLUMBIA--(Marketwire - March 9, 2009) - Cantronic Systems Inc., ("Cantronic" or the "Company") (TSX VENTURE:CTS) announced today that it has entered into a binding purchase and sale agreement (the "agreement") for the acquisition of a 58.6 percent interest in Beijing Advanced VideoInfo Technology Co., Ltd. ("AVINFO") in Beijing, China. All required share transfer documents have been filed with and accepted by the relevant Chinese authorities to process the transfer of equity interest in AVINFO to Cantronic's newly created 100 percent owned Shanghai, China-based subsidiary Cantronic Security Systems (China) Co., Ltd. ("Cantronic China"), which, subject to satisfaction of customary conditions precedents, is expected to be completed during Cantronic's first fiscal quarter.

Established in 2002, AVINFO is a profitable leading networked digital video platform solution provider for medium to large-scale networked video surveillance applications. AVINFO's patented proprietary software, products and services compliment Cantronic's patented infrared camera technology and business model. AVINFO's technology platform is a mission critical component of China's "Safe City" projects, which endorses video surveillance across various towns and cities to monitor and control crime, violence and terrorism on a full-time basis. 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.

In 2007, AVINFO recorded revenues of RMB 26.1 million (approximately CDN$4.9 million) with net income of RMB 5.9 million (approximately CDN$1.1 million).

Under the terms of the agreement, Cantronic will pay a total of RMB 9.2 million (approximately CDN$1.7 million) in cash in two phases for the acquisition of its 58.6 percent interest in AVINFO.

All of AVINFO management will remain working for either AVINFO or Cantronic China to ensure the smooth and successful integration of AVINFO. Cantronic also commits to issue up to RMB 8.4 million (approximately CDN$1.2 million) worth of stock to AVINFO management and management consultants under an earn-out performance based arrangement. All Cantronic stock issued under such arrangement will be issued one year later with the price to be calculated based on market price at the time of issuance and will have a two-year lock-up period after issuance.

"I am pleased with our progress in finding a quality growth opportunity with strategic product in AVINFO which will allow Cantronic to leverage and combine its strength in gaining significant market share in China's rapidly growing video surveillance market," stated James Zahn, president and CEO of Cantronic. "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 increasing throughout the country to combat riots, terrorist threats, to protect wealth and lives, and most recently to stimulate GDP growth. More cities have started to build "Safe City" security and surveillance networks, creating enormous demand for security and surveillance products and systems. AVINFO is a pioneer and one of the approved vendors for "Safe City Projects" with more than 10 citywide installations to its credit. With the AVINFO acquisition, Cantronic is now well positioned to achieve its China growth strategy."

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-largest 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 have started the installation of surveillance systems. Additional entities that require surveillance systems include justice departments and courts of law, coalmines, traffic management, shopping malls, food and pharmaceutical manufacturers, hotels, and banks.

About Cantronic

Cantronic manufactures, distributes, and 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.

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