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Kingtone Wirelessinfo Solution Holding Ltd Reports Third Fiscal Quarter 2010 Unaudited Financial Results

3QFY10 Revenue Up 31.5% to $3.6 Million from the Prior Year Period

3QFY10 Gross Profits Up 73.0% to $3.0 Million from the Prior Year Period

3QFY10 Basic and Diluted Earnings per share of $0.17

XI'AN, China, Aug. 3 /PRNewswire-Asia/ -- Kingtone Wirelessinfo Solution Holding Ltd (Nasdaq: KONE) ("Kingtone", or the "Company"), a leading China-based software and solutions developer focused on wirelessly enabling businesses and government agencies to more efficiently manage their operations, today announced unaudited financial results for the third quarter of fiscal year 2010. The financial statements and other financial information included in this press release are prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP").

Third Quarter Financial Highlights

-- Revenue increased 31.5% to $3.61 million from $2.74 million in the

prior year period.

-- Gross profit increased 73.0% to $3.02 million from $1.74 million in the

prior year period.

-- Gross margin increased to 83.6% from 63.6% in the prior year period.

-- Net income increased 59.7% to $2.02 million from $1.27 million in the

prior year period.

-- Basic and diluted earnings per share were $0.17 as compared to $0.13 in

the prior year period.

Year-to-Date Financial Highlights

-- Revenue increased 25.3% to $9.18 million from $7.32 million in the

prior year period.

-- Gross profit increased 48.0% to $7.52 million from $5.08 million in the

prior year period.

-- Gross margin increased to 81.9% from 69.4% in the prior year period.

-- Net income increased 46.6% to $5.11 million from $3.49 million in the

prior year period.

-- Basic and diluted earnings per share were $0.48 as compared to $0.35 in

the prior year period.

"The trends reflected in our third quarter results are in line with our strategic shift towards greater emphasis on software solutions as well as our efforts to diversify into new verticals and expand business geographically. Revenues for the quarter in the software solutions business almost tripled from a year ago while its higher margins helped our bottom line grow 59.7% despite a substantial reduction in wireless systems solutions revenues," said Mr. Peng Zhang, Chief Executive Officer. "We are particularly satisfied with our development and implementation in non-Mobile Police solutions such as solutions for Mobile Environmental Protection, Mobile News Media, Mobile Insurance and Mobile City Administration. This, coupled with a growing geographical footprint, positions us well for further growth."

Mr. Zhang concluded: "With net income for the nine months up 46.6% on a 25.3% increase in total revenues, we believe our strategic shift is paying off and we look confidently to the future and our ability to further increase shareholder value."

Third Quarter Financial Performance

Results of Operations - Three months ended June 30, 2010 compared to three months ended June 30, 2009.

Net Revenues. Third quarter of fiscal year 2010 revenue increased by 31.5% to $3.61 million from $2.74 million in the comparable period of fiscal 2009. Revenue from software solutions increased by 182.0% to $3.0 million in the third quarter of fiscal year 2010 compared to $1.06 million in the third quarter of fiscal year 2009, mainly due to the recently completed software solutions in Mobile Environmental Protection, Mobile News Media, Mobile Insurance and Mobile City Administration. Revenue from wireless system solutions decreased by 63.8% to $0.61 million in the third quarter of fiscal year 2010 compared to $1.68 million in the prior year period, when the Company recognized approximately $1.15 million in revenue from two related party transactions in the prior year period. There were no related party transactions in the third fiscal quarter this year.

Gross Profit and Gross Margin. For the third quarter of fiscal year 2010, gross profit increased by 73.0% to $3.02 million from $1.74 million in the prior year period. Gross margin for the third quarter of fiscal year 2010 was 83.6% compared to 63.6% in the third quarter of fiscal year 2009. Gross profit from software solutions increased by 176.4% to $2.76 million from $1.00 million and gross margin decreased to 91.8% from 93.7% in the prior year period. Gross profit from wireless system solution decreased by 65.1% to $0.26 million from $0.75 million and gross margin decreased to 42.9% from 44.5% in the prior year period. The increase in total gross margin was mainly due to the increased gross profit from software solutions compared to the prior year period.

Operating Expenses. Total operating expenses for the third quarter of fiscal year 2010 were $0.55 million, compared to $0.23 million in the prior year period, representing an increase of 138.7%.

Selling and marketing expenses increased by 4.8% to $0.09 million in the third quarter of fiscal year 2010 from $0.08 million for the same period in the prior year, and represented 2.4% and 3.1% of revenues for the third quarter of fiscal year 2010 and 2009, respectively. The Company expects its selling and marketing expenses to increase in the future reporting periods as it increases its business development efforts, hires more sales personnel and initiates additional marketing programs to further build its brand.

General and administrative expenses were approximately $0.42 million in the third quarter of fiscal year 2010, an increase of 288.8% from $0.11 million as compared to the same period in the prior year, and represented 11.5% and 3.9% of revenues for the third quarter of fiscal year 2010 and 2009, respectively. The main reason for the increase is a $0.19 million share-based compensation expense in the third quarter of fiscal year 2010. The Company expects its general and administrative expenses to increase further in the near future as it incurs costs to comply with the requirements imposed on it as a public company in the U.S., to conduct investor relations activities and to motivate management and employees by granting additional equity awards under its 2010 incentive plan.

Research and development expenses were approximately $0.05 million in the third quarter of fiscal year 2010, an increase of 15.4% from $0.04 million as compared to the same period in the prior year, and represented 1.2% and 1.4% of revenues for the third quarter of fiscal year 2010 and 2009, respectively. The Company expects its research and development expenses to increase both in dollar amount and as a percentage of revenues as it hires more engineers, upgrades its middleware platform and develops new software applications.

Income from Operations. Income from operations increased by 63.0% to $2.47 million in the third quarter of fiscal year 2010 from $1.51 million in the comparable period of fiscal 2009, primarily due to increased sales of its higher-margin software solutions. Operating margins for the third quarter of fiscal year 2010 and 2009 were 68.4% and 55.2%, respectively.

Net Income. Net income was $2.02 million in the third quarter of fiscal year 2010, compared to $1.27 million in the prior year's third quarter, an increase of 59.7%. Net income as a percentage of total net revenues was 56.0% and 46.2% for the third quarter of fiscal year 2010 and 2009, respectively. Basic and diluted earnings per share was $0.17 in the third quarter of fiscal year 2010, compared to $0.13 in the prior year period. The number of weighted average common shares outstanding for the three months ended June 30, 2010 was 12.09 million, compared to 10 million a year ago.

Year-to-Date Financial Performance

Results of Operations - Nine months ended June 30, 2010 compared to nine months ended June 30, 2009.

Net Revenues. For the nine months ended June 30, 2010, total net revenues increased by 25.3% to $9.18 million from $7.32 million in the comparable period of fiscal 2009. Revenue from software solutions increased by 114.5% to $7.18 million for the nine months ended June 30, 2010 compared to $3.35 million for the same period prior year, mainly due to increased projects in new mobile applications. Revenue from wireless system solution decreased by 49.8% to $2.0 million for the nine months ended June 30, 2010 compared to $3.98 million in the prior year period, as the Company shifted its focus to software applications in an effort to maintain sustainable profit margin.

Gross Profit and Gross Margin. For the nine months ended June 30, 2010, gross profit increased by 48.0 % to $7.52 million from $5.08 million in the prior year period. Gross margin for the nine months ended June 30, 2010 was 81.9%, compared to 69.4% for the same period in the period year. Gross profit from software solutions increased by 123.2% to $6.69 million from $3.00 million and gross margin increased to 93.2% from 89.6% in the prior year period. Gross profit from wireless system solution decreased by 60.2% to $0.83 million from $2.08 million with gross margin decreasing to 41.5% to from 52.4% in the prior year period.

Operating Expenses. Total operating expenses for the nine months ended June 30, 2010 were $1.27 million, comparing to $0.73 million in the prior year period, representing an increase of 74.6%.

Selling and marketing expenses decreased by 1.5% to $0.255 million for the nine months ended June 30, 2010 from $0.259 million for the same period prior year, and represented 2.8% and 3.5% of revenues for the nine months ended June 30, 2010 and 2009, respectively. As mentioned above, the Company expects its selling and marketing expenses to increase in the near future.

General and administrative expenses were approximately $0.88 million for the nine months ended June 30, 2010, an increase of 142.6% from $0.36 million compared to the same period prior year, and represented 9.6% and 5.0% of revenues for the nine months ended June 30, 2010 and 2009, respectively. As mentioned above, the Company expects its general and administrative expenses to increase further in the near future.

Research and development expenses were approximately $0.13 million for the nine months ended June 30, 2010, an increase of 26.0% from $0.10 million comparing to the same period prior year, and represented 1.4% and 1.4% of revenues for the nine months ended June 30, 2010 and 2009, respectively. As mentioned above, the Company expects its research and development expenses will increase both in dollar amount and as a percentage of revenues.

Income from Operations. Income from operations increased by 43.5% to $6.25 million for the nine months ended June 30, 2010 from $4.35 million in the comparable period of fiscal 2009, primarily due to the growth in net revenues. Operating margin for the nine months ended June 30, 2010 and 2009 were 68.1% and 59.4%, respectively.

Net Income. Net income was $5.11 million for the nine months ended June 30, 2010, compared to $3.49 million in the prior year, an increase of 46.6%. Net income as of total net revenues was 55.7% and 47.6% for the nine months ended June 30, 2010 and 2009, respectively. Basic and diluted earnings per share was $0.48 for the nine months ended June 30, 2010, compared to $0.35 for the same period prior year. The number of weighted average common shares outstanding for the nine months ended June 30, 2010 was 10.69 million, compared to 10 million a year ago.

Liquidity and Capital Resources.

Cash and Cash Equivalents. As of June 30, 2010, the Company had cash and cash equivalents of $16.0 million, compared to $0.34 million as of November 30, 2009, the Company's last fiscal year end. Cash flows provided by operating activities for the nine months ended June 30, 2010 were approximately $1.17 million, compared to approximately $2.86 million in the prior year period. Depreciation and amortization expenses were $0.10 million for the nine months ended June 30, 2010 and 2009, respectively. Cash flows provided by financing activities were approximately $14.49 million for the nine months ended June 30, 2010, compared to $1.25 million cash flows used in financing activities a year ago.

Financial Outlook

With the recent business shift to software solutions from wireless system solutions, the Company reaffirms its previously announced guidance of net income which is expected to be in the range of $7.6 million and $8.1 million for fiscal year 2010, compared to $5.3 million for fiscal year of 2009.

Conference Call

The Company will host a conference call to discuss its third quarter of fiscal year 2010 financial results at 9a.m. EDT on Tuesday, August 3, 2010. Mr. Tao Li, Chairman, Mr. Peng Zhang, Chief Executive Officer and Ms. Ying Yang, Chief Financial Officer, will be on the call.

To participate in the conference call, please dial any of the following numbers:

USA Toll Free: (877) 407-9205

International: (201) 689-8054

Conference ID #: 354704

A replay of the call will be available until 11:59 PM EDT on August 4, 2010.

To access the replay, please dial any of the following numbers:

USA Toll Free: (877)-660-6853

International: (201) 612-7415

Replay Passcodes (both required for playback):

Account #: 286

Conference ID #: 354704

The conference call will be webcast live by Vcall and can be accessed http://www.InvestorCalendar.com .

About Kingtone Wirelessinfo Solution Holding Ltd

Kingtone Wirelessinfo Solution Holding Ltd (Nasdaq: KONE) is a leading China-based software and solutions developer focused on wirelessly enabling businesses and government agencies to more efficiently manage their operations. The Company's products, known as mobile enterprise solutions, extend a company's or enterprise's information technology systems to include mobile participants. The Company develops and implements mobile enterprise solutions for customers in a broad variety of sectors and industries, to improve efficiencies by enabling information management in wireless environments. At the core of its many diverse packaged solutions is proprietary middleware that enables wireless interactivity across many protocols, devices and platforms.

For more information, please visit Kingtone's website at http://www.kingtoneinfo.com .

Safe Harbor Statements

This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including certain plans, expectations, goals, and projections, which are subject to numerous assumptions, risks, and uncertainties. These forward-looking statements may include, but are not limited to, statements containing words such as "may," "could," "would," "plan," "anticipate," "believe," "estimate," "predict," "potential," "expects," "intends", "future" and "guidance" or similar expressions. These forward-looking statements speak only as of the date of this press release and are subject to change at any time. These forward-looking statements are based upon management's current expectations and are subject to a number of risks, uncertainties and contingencies, many of which are beyond the Company's control that may cause actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. The Company's actual results could differ materially from those contained in the forward-looking statements due to a number of factors, including those described under the heading "Risk Factors" in the Company's final prospectus, dated May 14, 2010, filed with the Securities and Exchange Commission, and in documents subsequently filed by the Company from time to time with the Securities and Exchange Commission. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required under applicable law.

Statement Regarding Unaudited Financial Information

The unaudited financial information set forth above is preliminary and subject to adjustments. Adjustments to the financial statements may be identified when audit work is performed for the year-end audit, which could result in significant differences from this preliminary unaudited financial information.

Contact Information

Kingtone Wirelessinfo Solution Holding Ltd

Ms. Ying Yang, Chief Financial Officer

Tel: +1-626-623-2575 (US)

+86-134-6895-0909 (China)

Email: yangying@kingtoneinfo.com

Christensen

Tip Fleming

Tel: +852-9212-0684

Email: tfleming@christensenir.com

Yuanyuan Chen

Tel: +86-10-5971-2001

Email: ychen@christensenir.com

Kathy Li

Tel: +1-480-614-3036

Email: kli@christensenir.com

KINGTONE WIRELESSINFO SOLUTION HOLDING LTD AND SUBSIDIARIES

CONSOLIDATED AND COMBINED BALANCE SHEETS

(Expressed in thousands of U.S. Dollars, except shares and per share data)

As of June 30, As of November 30,

2010 2009

(Unaudited) (Consolidated and

(Consolidated) combined)

(see Note b below)(see Note a below)

ASSETS

Current assets

Cash and cash equivalents $15,989 $344

Accounts receivable, net of allowance 6,179 2,353

Advance to suppliers 491 --

Unbilled revenue -- 178

Due from related companies 4 --

Inventories, net 188 127

Other receivables 466 1,012

Total Current Assets 23,317 4,014

Non-current assets

Property and Equipment, net 1,660 1,693

Deposit to purchase building 12,252 12,200

Total Assets $37,229 $17,907

LIABILITIES AND STOCKHOLDER'S EQUITY

Current liabilities

Accounts payable $727 $1,409

Advances from customers 192 1,398

Other payables and accruals 1,287 559

Taxes payable 1,300 601

Short-term loan 3,452 3,437

Deferred income 72 --

Due to shareholders -- 200

Dividend payable 1,182 1,177

Total Current Liabilities 8,212 8,781

Commitments and contingencies

Stockholders' equity

Common stock ($.001 par value,

100,000,000 shares authorized,

and 14,000,000 shares issued and

outstanding) (note e) $14 $10

Paid in capital -- 6,897

Additional paid in capital 21,806 216

Appropriated retained earnings 843 231

Unappropriated retained earnings 5,156 657

Accumulated other comprehensive income 1,198 1,115

Total Stockholders' Equity 29,017 9,126

Total Liabilities and Stockholders'

Equity $37,229 $17,907

( Note a - Represents the balance sheets as of November 30, 2009 of the

Company and its wholly owned subsidiaries on a consolidated basis which

are combined with the balance sheet as of September 30, 2009 of the

Company's affiliate, Kingtone Information)

( Note b - Represents the balance sheets as of June 30, 2010 of the

Company, its wholly owned subsidiaries and its Variable Interest Entity

("VIE"), Kingtone Information, on a consolidated basis.)

( Note e - Includes 10,000,000 common shares and 4,000,000 ADS. Each ADS

represents one ordinary share, par value $0.001 per share)

KINGTONE WIRELESSINFO SOLUTION HOLDING LTD AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Expressed in thousands of U.S. Dollars, except shares and per share data)

For the three months ended June 30,

2010 2009

(Unaudited) (Unaudited)

(see Note d below)(see Note c below)

Revenues

Software solution $3,001 $1,064

Wireless system solution 607 1,679

- Related party -- 1,148

- Third Party 607 531

Total revenues 3,608 2,743

Cost of sales

Software solution 245 67

Wireless system solution 346 932

Total cost of sales 591 999

Gross profit 3,017 1,744

Operating expenses

Selling and marketing expenses 88 84

General and administrative expenses 416 107

Research and development expenses 45 39

549 230

Income from operations 2,468 1,514

Other income(expense)

Interest expense (69) (88)

Other income 16 64

(53) (24)

Income before income tax expenses 2,415 1,490

Income tax expenses 393 224

Net income $2,022 $1,266

Other comprehensive income

Foreign currency translation gain 70 13

Comprehensive income $2,092 $1,279

Earnings per common share:

Basic and Diluted $0.17 $0.13

Weighted average number of common

shares outstanding

Basic and Diluted (note f) 12,088,889 10,000,000

( Note c - Represents solely the statements of income and comprehensive

income of Kingtone Information.)

( Note d - Represents the statements of income and comprehensive income of

the Company, its wholly owned subsidiaries and its VIE, Kingtone

Information, on a consolidated basis.)

( Note f - No dilutive effect from options issued as the exercise price of

these options was higher than the average market price during the period)

KINGTONE WIRELESSINFO SOLUTION HOLDING LTD AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Expressed in thousands of U.S. Dollars, except shares and per share data)

For the nine months ended June 30,

2010 2009

(Unaudited) (Unaudited)

(see Note d below)(see Note c below)

Revenues

Software $7,177 $3,346

Wireless system solution 1,998 3,978

- Related party -- 1,148

- Third Party 1,998 2,830

Total revenues 9,175 7,324

Cost of sales

Software 490 350

Wireless system solution 1,169 1,894

Total cost of sales 1,659 2,244

Gross profit 7,516 5,080

Operating expenses

Selling and marketing expenses 255 259

General and administrative expenses 883 364

Research and development expenses 131 104

1,269 727

Income from operations 6,247 4,353

Other expense

Subsidy income 44 29

Interest expense (209) (329)

Other expense 5 64

(160) (236)

Income before income tax expenses 6,087 4,117

Income tax expenses 975 630

Net income $5,112 $3,487

Other comprehensive income

Foreign currency translation gain 81 26

Comprehensive income $5,193 $3,513

Earnings per common share:

Basic and Diluted $0.48 $0.35

Weighted average number of common

shares outstanding

Basic and Diluted (note f) 10,691,176 10,000,000

( Note c - Represents solely the statements of income and comprehensive

income of Kingtone Information.)

( Note d - Represents the statements of income and comprehensive income of

the Company, its wholly owned subsidiaries and its VIE, Kingtone

Information, on a consolidated basis.)

( Note f - No dilutive effect from options issued as the exercise price of

these options was higher than the average market price during the period)

KINGTONE WIRELESSINFO SOLUTION HOLDING LTD AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in thousands of U.S. Dollars, except shares and per share data)

For the nine months ended June 30,

2010 2009

(Unaudited) (Unaudited)

Cash flows from operating activities (see Note d below) (see Note c below)

Net income $5,112 $3,487

Adjustments to reconcile net income

to net cash (used in)/provide by

operating activities

Depreciation and amortization 98 103

Provision for doubtful debts -- 9

Share-based compensation expense 185

Changes in operating assets and liabilities

Accounts receivable (3,801) (922)

Unbilled revenue 177 --

Other receivables, net (142) (143)

Advance to suppliers 201 116

Inventories (60) (115)

Tax payable 867 644

Accounts payable (685) 556

Advance from customers (1,207) (886)

Other payables and accruals 501 64

Deferred Income 72 (50)

Net cash provided by operating

activities 1,316 2,863

Cash flows from investing activities

Purchases of vehicles and office equipment (58) (21)

Prepayment to purchase building -- (1,584)

Net cash used in investing activities (58) (1,604)

Cash flows from financing activities

Short-term borrowing (Repayment of

short-term loan) -- (73)

Decrease in amounts due from

related-party companies (4) (1,472)

(Decrease)/Increase in amounts due to

shareholders (200) 294

Proceeds from issuance of shares 14,522 --

Net cash provided by/(used

in)financing activities 14,318 (1,251)

Effect of exchange rate changes on cash 69 1

Net increase in cash and cash equivalents 15,645 9

Cash and cash equivalents at

beginning of year 344 9

Cash and cash equivalents at end of

year $15,989 $18

Supplemental disclosure of cash flow

information

Interest paid $209 $328

Income taxes paid $92 $175

( Note c - Represents solely the statements of cash flows of Kingtone

Information.)

( Note d - Represents the statements of cash flows of the Company, its

wholly owned subsidiaries and its VIE, Kingtone Information, on a

consolidated basis.)

Source: Kingtone Wirelessinfo Solution Holding Ltd
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