ZST Digital Networks, Inc. Responds to Shareholders' Questions

ZHENGZHOU, China, April 29, 2011 /PRNewswire-Asia-FirstCall/ -- ZST Digital Networks, Inc. (NASDAQ: ZSTN) ("ZST" or the "Company"), a major developer, manufacturer and supplier of digital and optical network equipment to cable system operators and provider of GPS tracking devices and support services for transport-related enterprises in China, announces that its Chairman and Chief Executive Officer, Mr. Zhong Bo, has issued a letter to shareholders in response to investor questions regarding the Company's operations and financial disclosure.  The full text of the letter is provided below and can also be accessed on the company's website at www.zstdigital.com/english.  

Chairman's Letter

April 29, 2011

Dear Shareholders,

As I indicated in my letter to you on April 22, we intend to provide honest, factual information to our investors in a timely fashion.  As such, I am writing to answer some of your recent questions regarding our operations and financial disclosure.  

Differences Between SAIC and SEC Reports:

A number of you have asked why it is that our Chinese State Administration of Industry and Commerce (SAIC) and SEC reports do not match, and the answer is that the SAIC filings are a formality, for the purposes of business license renewal with the government, and are not audited.  It is very common for Chinese companies to have differences between these two sets of financials and we would encourage our investors to focus on our audited SEC filings.  Short-sellers, who profit from a decline in our stock price, often point to these differences as a way to undercut the credibility of a particular company, when in fact the real focus should be on audited, SEC filings.  U.S. companies have one set of financials: audited SEC filings; Chinese companies have various other filings for a myriad of purposes, but the SEC filings remain the true measure of financial performance.  Our SEC filings are audited by BDO China Li Xin D Hua CPA Co., Ltd., a BDO Member Firm, a very highly regarded firm, which continues to stand by our audited financials.

For more information on the inherent differences in the SAIC, State Administration and Taxation (SAT), and SEC filings, please refer to Roth Capital Partners' July 12, 2010 research note, titled "Comparing PRC Filings and SEC Filings – A Primer", which gives an overview of the reasons why the PRC filings often do not correspond to the SEC filings.

In an effort to give our shareholders an additional level of comfort, ZST Digital is voluntarily reviewing its 2008 and 2009 SAIC filings to determine if these filings can be amended so that they more closely track the SEC filings.  We will provide you with an update when possible.

Purchase of Office Space

Like all fast-growing companies, we recently purchased additional office space, and we are pleased to answer your questions regarding these recent purchases.  We were fortunate to be able to secure all the needed space in one building, which is the most efficient solution to our need for additional space; and in addition, we are fortunate to have secured both additional spaces at a cost below the average purchase price for comparable space on a per square meter basis.  We purchased the 27th – 29th floors at an average price of 5,300 RMB per square meter (zoned for mixed commercial or residential development) in March 2010, with a subsequent purchase of the 3rd – 4th floors in December 2010 at an average price of 18,000 RMB per square meter (zoned for commercial use-only).  Naturally, the commercial space on lower floors is more desirable and therefore commands a higher price as compared to the mixed-use upper level floors.    

Some of you have also asked how we were able to purchase the property before the developers had obtained a sales license. Based on our knowledge of the property owners and their previous track record in real estate, we were confident that the license would be granted.  Furthermore, through the structuring of a subscription agreement, which committed both buyer and seller to the transaction prior to the seller receiving a sales license, we were able to secure a more favorable per square meter price.  

Please find below a summary of our research on prices per square meter in the

surrounding area.  We have included contact information for each property in an effort to be as transparent as possible; please feel free to contact the property managers directly if you would like to confirm the data we have included herein or simply visit the follow website www.soufun.com,.

Comparable Real Estate:

Clarification Regarding Customer Base

Just as in any state, there are numerous government agencies and market opportunities, and we would like to clarify what our focus is within the Henan province.  As far as we know, VCOM is leasing China Unicom's fiber optic network to develop the IPTV set-top box market in Henan province.  VCOM's main customers are the Party development departments within the local governments, with the goal of providing a comprehensive educational system for party members.  ZST's customers are local government departments, such as the Radio and Television Bureau; cable TV stations; and cable TV networks. The local governments in Yijan, Huaxian, and Kaifeng, for example, are some of our main customers for the set-top box division.  Essentially, we serve a very different customer base as compared to VCOM.

Regarding our market opportunity with the Road Transportation Department of Shangqui City, we reiterate that the total number of commercial vehicles that will potentially use our technology is 60,000.

With regard to a specific customer, Henan Wanli, we have received some inquiries asking us to confirm whether or not this entity is a customer.  To clarify, the Henan Wanli Group is comprised of numerous subsidiaries, one of which is Henan Wanli Auto Trade Co.  We understand that with such a large number of subsidiaries it can be confusing, but we are hereby confirming that our customer is the Henan Wanli Auto Trade Co.  

Some of you have asked what ZST Digital plans to do in response to the short-seller allegations against us.  We are in the process of hiring an independent legal counsel to advise us on our rights, and continue to evaluate various legal options with respect to such baseless statements.  We are focused on delivering operational and financial excellence for our shareholders, and we will not be distracted by unsubstantiated allegations made in an effort to financially profit from a decline in our stock price.  

We are hopeful that the above answers effectively address your questions, and we will continue to communicate openly with our shareholders on an ongoing basis.  We thank you for the support you have shown for ZST, and are looking forward to delivering value to you as a shareholder, as well as to our loyal customers in China.

Sincerely,

About ZST Digital Networks, Inc.

ZST Digital Networks, Inc. (Nasdaq: ZSTN) is a China-based company, principally engaged in (1) supplying digital and optical network equipment and providing installation services to cable system operators in China and (2) providing GPS location and tracking services to local logistics and transportation companies in China.  The Company has developed a line of IPTV devices that are used to provide bundled cable television, Internet and telephone services to residential and commercial customers.  The Company has assisted in the installation and construction of over 400 local cable networks in more than 90 municipal districts, counties, townships, and enterprises. The Company has also launched a commercial line of vehicle tracking devices utilizing our GPS tracking technologies and support services for transport-related enterprises to track, monitor and optimize their businesses.  For more information about ZST Digital Networks, Inc., please visit www.zstdigital.com/english.  

SOURCE ZST Digital Networks, Inc.