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

2QFY10 Revenue Up 3.2% to $2.6 Million from the Prior Year Period

2QFY10 Gross Profits Up 25.1% to $2.0 Million from the Prior Year Period

2QFY10 Basic and Diluted Earnings per share of $0.13

XI'AN, China, July 22 /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 second quarter of fiscal year 2010. The financial statements and other information included in this press release are prepared primarily in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The Company will release the third quarter of fiscal year 2010 in early August along with a conference call.

Second Quarter Financial Highlights

-- Revenue increased 3.2% to $2.6 million from $2.5 million in the prior

year period.

-- Gross profit increased 25.1% to $2.0 million from $1.6 million in the

prior year period.

-- Gross margin increased to 78.1% from 64.5% in the prior year period.

-- Net income increased 16.2% to $1.33 million from $1.15 million in the

prior year period.

-- Basic and diluted earnings per share were $0.13 as compared to $0.11

in the prior year period.

Year-to-Date Financial Highlights

-- Revenue increased 21.5% to $5.6 million from $4.6 million in the prior

year period.

-- Gross profit increased 34.9% to $4.5 million from $3.3 million in the

prior year period.

-- Gross margin increased to 80.9% from 72.8% in the prior year period.

-- Net income increased 39.0% to $3.09 million from $2.22 million in the

prior year period.

-- Basic and diluted earnings per share were $0.31 as compared to $0.22

in the prior year period.

In December 2009, the Company through one of its subsidiaries, Xi'an Softech Co., Ltd. ("Softech"), entered into a series of agreements with Xi'an Kingtone Information Technology Co., Ltd. ("Kingtone Information") for it to qualify as a Variable Interest Entity ("VIE"). Therefore subsequent financial statements will present Kingtone Information on a consolidated basis.

On March 23, 2010, the board has reached a resolution to change the fiscal year end of the Company and its wholly owned subsidiaries, Topsky Info-tech Holdings Pte Ltd. and Softech, from November 30 to September 30 so they have the same fiscal year end as Kingtone Information, the Company's controlled operating subsidiary, or VIE.

"We are pleased with our performance during the second quarter," said Mr. Peng Zhang, Chief Executive Officer of the Company. "We continue to shift our focus from wireless system solutions to software solutions which carry much higher margins. Revenues from this business grew 276.4% in the quarter as we continued to implement mobile police applications in Jilin, Sichuan and Shaanxi provinces, confirming our ability to grow in this sector. While the shift has temporarily slowed down growth in our top line, the impact on gross profit and overall gross margin, the latter reaching 78.1%, has been quite significant. We are confident that we can expand our top line in the future, particularly in software solutions, and further increase shareholder return."

Second Quarter Financial Performance

Net Revenues. Second quarter of fiscal year 2010 revenue increased by 3.2% to $2.59 million from $2.51 million in the comparable period of fiscal 2009. Revenue from software solutions increased by 276.4% to $2.03 million in the second quarter of fiscal year 2010 compared to $0.54 million in the second quarter of fiscal year 2009, mainly due to the increased number of completed mobile police projects. Revenue from wireless system solution decreased by 71.4% to $0.56 million in the second quarter of fiscal year 2010 compared to $1.97 million in the prior year period, as the Company completed a relatively large project in the prior year period.

Gross Profit and Gross Margin. For the second quarter of fiscal year 2010, gross profit increased by 25.1% to $2.03 million from $1.62 million in the prior year period. Gross margin for the second quarter of fiscal year 2010 was 78.1% compared to 64.5% in the second quarter of fiscal year 2009. Gross profit from software solutions increased by 333.3% to $1.93 million from $0.44 million and gross margin increased to 95.0% from 82.6% in the prior year period. Gross profit from wireless system solution decreased by 91.7% to $0.10 million from $1.17 million and gross margin decreased to 17.3% from 59.5% in the prior year period. The increase in total gross margin was mainly due to the increased gross margin from software solutions comparing to the prior year period.

Operating Expenses. Total operating expenses for the second quarter of fiscal year 2010 were $0.45 million, compared to $0.22 million in the prior year period, represented an increase of 105.5%.

Selling and marketing expenses decreased by 4.0% to $0.07 million in the second quarter of fiscal year 2010 from $0.08 million for the same period in the prior year, and represented 2.9% and 3.1% of our revenues for the second quarter of fiscal year 2010 and 2009, respectively. We expect our selling and marketing expenses to increase in the near future as we increase our business development efforts, hire more sales personnel and initiate additional marketing programs to further build our brand.

General and administrative expenses were approximately $0.33 million in the second quarter of fiscal year 2010, an increase of 210.5% from $0.11 million as compared to the same period in the prior year, and represented 12.6% and 4.2% of our revenues for the second quarter of fiscal year 2010 and 2009, respectively. 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 a public company in the U.S. and to conduct financing and investor relations activities.

Research and development expenses were approximately $0.05 million in the second quarter of fiscal year 2010, an increase of 33.3% from $0.04 million as compared to the same period in the prior year, and represented 1.9% and 1.4% of our revenues for the second quarter of fiscal year 2010 and 2009, respectively. The Company expects its research and development expenses will increase in both dollar amount and as a percentage of revenues as it plans to hire more engineers, upgrade our middleware platform and develop new software applications.

Income from Operations. Income from operations increased by 12.6% to $1.58 million in the second quarter of fiscal year 2010 from $1.40 million in the comparable period of fiscal 2009, primarily due to the growth in gross profit. Operating margin for the second quarter of fiscal year 2010 and 2009 were 60.9% and 55.8%, respectively.

Net Income. Net income was $1.33 million in the second quarter of fiscal year 2010, compared to $1.15 million in the prior year's second quarter, an increase of 16.2%. Net income as of total net revenues was 51.5% and 45.7% for the second quarter of fiscal year 2010 and 2009, respectively. Basic and diluted earnings per share were $0.13 in the second quarter of fiscal year 2010, compared to $0.11 in the prior year period.

Year-to-Date Financial Performance

Net Revenues. For the six months ended March 31, 2010, total net revenues increased by 21.5% to $5.57 million from $4.58 million in the comparable period of fiscal 2009. Revenue from software solutions increased by 82.9% to $4.18 million for the six months ended March 31, 2010 compared to $2.28 million for the same period prior year, mainly due to increased projects in mobile police application. Revenue from wireless system solution decreased by 39.5% to $1.39 million for the six months ended March 31, 2010 compared to $2.30 million in the prior year period, as the Company shifted more focus on software applications in an effort to maintain sustainable profit margin.

Gross Profit and Gross Margin. For the six months ended March 31, 2010, gross profit increased by 34.9% to $4.50 million from $3.34 million in the prior year period. Gross margin for the six months ended March 31, 2010 was 80.9%, compared to 72.8% for the same period in the period year. Gross profit from software solutions increased by 96.6% to $3.93 million from $2.00 million and gross margin increased to 94.2% from 87.6% in the prior year period. Gross profit from wireless system solution decreased by 57.4% to $0.57 million from $1.34 million with gross margin decreased to 40.9% to from 58.2% in the prior year period.

Operating Expenses. Total operating expenses for the six months ended March 31, 2010 were $0.72 million, comparing to $0.50 million in the prior year period, representing an increase of 45.1%.

Selling and marketing expenses decreased by 4.6% to $0.17 million for the six months ended March 31, 2010 from $0.18 million for the same period prior year, and represented 3.0% and 3.8% of our revenues for the six months ended March 31, 2010 and 2009, respectively. As mentioned above, the Company expects its selling and marketing expenses to increase in the near future as we increase our business development efforts, hire more sales personnel and initiate additional marketing programs to further build our brand.

General and administrative expenses were approximately $0.47 million for the six months ended March 31, 2010, an increase of 81.4% from $0.26 million comparing to the same period prior year, and represented 8.4% and 5.6% of our revenues for the six months ended March 31, 2010 and 2009, respectively. As mentioned above, 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 a public company in the U.S. and to conduct financing and investor relations activities.

Research and development expenses were approximately $0.09 million for the six months ended March 31, 2010, an increase of 34.4% from $0.06 million comparing to the same period prior year, and represented 1.5% and 1.4% of our revenues for the six months ended March 31, 2010 and 2009, respectively. As mentioned above, the Company expects its research and development expenses will increase in both dollar amount and as a percentage of revenues as it plans to hire more engineers, upgrade our middleware platform and develop new software applications.

Income from Operations. Income from operations increased by 33.1% to $3.78 million for the six months ended March 31, 2010 from $ 2.84 million in the comparable period of fiscal 2009, primarily due to the growth in net revenues. Operating margin for the six months ended March 31, 2010 and 2009 were 67.9% and 62.0%, respectively.

Net Income. Net income was $3.09 million for the six months ended March 31, 2010, compared to $2.22 million in the prior year, an increase of 39.0%. Net income as of total net revenues was 55.5% and 48.5% for the six months ended March 31, 2010 and 2009, respectively. Basic and diluted earnings per share was $0.31 for the six months ended March 31, 2010, compared to $0.22 for the same period prior year.

Cash and Cash Equivalents. As of March 31, 2010, the Company had cash and cash equivalents of $0.55 million, compared to $0.34 million as of November 30, 2009, our last fiscal year end. Cash flows used in operating activities for the six months ended March 31, 2010 were approximately $0.69 million, compared to approximately $1.54 million cash flows provided by operating activities in the prior year period. Depreciation and amortization expenses were $0.07 million for the six months ended March 31, 2010 and 2009, respectively. Cash flows provided by financing activities were approximately $0.90 million for the six months ended March 31, 2010, compared to $1.40 million cash flows used by financing activities a year ago.

Financial Outlook

The Company reaffirms the guidance of total net revenues for the full fiscal year of 2010 in the range of $15.6 million to $17.4 million, as compared to total net revenues of $11.2 million for the full fiscal year of 2009, and net income for the full fiscal year of 2010 in the range of $7.6 million and $8.1 million, as compared to net income of $5.3 million for the full fiscal year of 2009.

Conference Call

The Company will host a conference call to discuss its second quarter of fiscal year 2010 financial results at 8:30a.m. EDT on Thursday, July 22, 2010. Mr. Tao Li, Chairman, Mr. Peng Zhang, Chief Executive Officer, 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) 407-8035

International: (201) 689-8035

Conference ID #: 354334

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 #: 354334

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

KINGTONG WIRELESSINFO SOLUTON HOLDING LTD AND SUBSIDIARIES

CONSOLIDATED AND COMBINED BALANCE SHEETS

(Express in thousands of U.S. Dollars, except shares and per share

data)

As of March 31, 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 $545 $344

Accounts receivable, net of

allowance 5,463 2,353

Advance to suppliers 442 --

Unbilled revenue -- 178

Due from related companies 4 --

Inventories, net 91 127

Other receivables 427 1,012

Total Current Assets 6,972 4,014

Non-current assets

Property and Equipment, net 1,646 1,693

Deposit to purchase building 12,203 12,200

Total asset $20,821 $17,907

LIABILITIES AND STOCKHOLDER'S

EQUITY

Current liabilities

Accounts payable $895 $1,409

Advances from customers 106 1,398

Other payables and accruals 962 559

Taxes payable 896 601

Short-term loan 3,437 3,437

Deferred income 21 --

Due to shareholders 1,100 200

Dividend payable 1,177 1,177

Total Current Liabilities 8,594 8,781

Commitments and contingencies

Stockholders' equity

Common stock ($.001 par value,

100,000,000 shares authorized, $10 $10

and 10,000,000 shares issued

and outstanding)

Paid in capital -- 6,897

Additional paid in capital 7,113 216

Appropriated retained earnings 843 231

Unappropriated retained

earnings 3,135 657

Accumulated other comprehensive

income 1,126 1,115

Total Stockholders' Equity 12,227 9,126

Total liabilities and

stockholders' Equity $20,821 $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 March 31, 2010 of the

Company, its wholly owned subsidiaries and its Variable Interest

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

KINGTONG WIRELESSINFO SOLUTON HOLDING LTD AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

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

For the three months ended March 31,

2010 2009

(Unaudited) (Unaudited)

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

Revenues

Software solution $2,029 $539

Wireless system solution 564 1,974

Total revenues 2,593 2,513

Cost of sales

Software solution 101 94

Wireless system solution 466 799

Total cost of sales 567 893

Gross profit 2,026 1,620

Operating expenses

Selling and marketing

expenses 74 77

General and administrative

expenses 326 105

Research and development

expenses 48 36

448 218

Income from operations 1,578 1,402

Other income(expense)

Subsidy income 44 29

Interest expense (68) (79)

Other income 35 --

11 (50)

Income before income tax expenses 1,589 1,352

Income tax expenses 254 203

Net income $1,335 $1,149

Other comprehensive income

Foreign currency

translation gain 11 12

Comprehensive income $1,346 $1,161

Earnings per common share:

Basic and Diluted $0.13 $0.11

Weighted average number of common

shares outstanding

Basic and Diluted 10,000,000 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.)

KINGTONG WIRELESSINFO SOLUTON HOLDING LTD AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

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

For the six months ended March 31,

2010 2009

(Unaudited) (Unaudited)

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

Revenues

Software $4,176 $2,283

Wireless system solution 1,391 2,299

Total revenues 5,567 4,582

Cost of sales

Software 244 283

Wireless system solution 822 962

Total cost of sales 1,066 1,245

Gross profit 4,501 3,337

Operating expenses

Selling and marketing expenses 167 175

General and administrative

expenses 468 258

Research and development

expenses 86 64

721 497

Income from operations 3,780 2,840

Other expense

Subsidy income 44 29

Interest expense (140) (241)

Other expense (12) --

(108) (212)

Income before income tax expenses 3,672 2,628

Income tax expenses 582 406

Net income $3,090 $2,222

Other comprehensive income

Foreign currency translation

gain 11 13

Comprehensive income $3,101 $2,235

Earnings per common share:

Basic and Diluted $0.31 $0.22

Weighted average number of common

shares outstanding

Basic and Diluted 10,000,000 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.)

KINGTONG WIRELESSINFO SOLUTON HOLDING LTD AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASHFLOWS

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

For the six months ended March 31,

2010 2009

(Unaudited) (Unaudited)

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

Cash flows from operating activities

Net income $3,090 $2,222

Adjustments to reconcile net income

to net cash (used in)/provide by

operating activities

Depreciation and amortization 65 68

Provision for doubtful debts -- 9

Changes in operating assets and

liabilities

Accounts receivable (3,109) (807)

Unbilled revenue 177 --

Other receivables, net (105) (111)

Advance to suppliers 248 (642)

Inventories 36 (979)

Accrued payroll 2 0

Tax payable 294 574

Accounts payable (515) 1,200

Advance from customers (1,293) 82

Other payable 401 (24)

Deferred Income 21 (50)

Net cash (used in)/provided by

operating activities (688) 1,543

Cash flows from investing activities

Purchases of vehicles and office

equipment (18) (7)

Net cash used in investing activities (18) (7)

Cash flows from financing activities

Short-term borrowing (Repayment of

short-term loan) (73)

Decrease in amounts due to related-

party companies (4) (1,619)

Increase in amounts due to

shareholders 900 294

Net cash provided by/(used

in)financing activities 896 (1,398)

Effect of exchange rate changes on

cash 8 (1)

Net increase in cash and cash

equivalents 201 137

Cash and cash equivalents at

beginning of year 344 9

Cash and cash equivalents at end of

year $545 $146

Supplemental disclosure of cash flow

information

Interest paid $139 $240

Income taxes paid $92 $175

( Note c - Represents solely the statements of cashflows of Kingtone

Information.)

( Note d - Represents the statements of cashflows of the Company, its

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

consolidated basis.)