Kingtone Wirelessinfo Solution Holding Ltd (KONE) Reports Fourth Quarter and Fiscal Year 2010 Financial Results

XI’AN, China, Jan. 20, 2011 /PRNewswire-Asia/ — Kingtone Wirelessinfo Solution Holding Ltd (Nasdaq:KONE – News) (“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 financial results for the fourth quarter and 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”).

Fourth Quarter Financial Highlights

• Revenues increased 36.1% to $5.33 million from $3.92 million in the prior year period.
• Gross profit increased 104.7% to $4.64 million from $2.27 million in the prior year period.
• Gross margin increased to 87.0% from 57.9% in the prior year period.
• Net income increased 72.9% to $3.13 million from $1.81 million in the prior year period.
• Basic and diluted earnings per share were $0.22 as compared to $0.18 in the prior year period with weighted average shares outstanding of 14,000,000 as compared to 10,000,000 in the prior year period.

Fiscal Year 2010 Financial Highlights

• Revenues increased 29.1% to $14.51 million from $11.24 million in the prior year period.
• Gross profit increased 65.5% to $12.15 million from $7.35 million in the prior year period.
• Gross margin increased to 83.8% from 65.4% in the prior year period.
• Net income increased 55.5% to $8.24 million from $5.3 million in the prior year period.
• Basic and diluted earnings per share were $0.71 as compared to $0.53 in the prior year period with weighted average shares outstanding of 11,527,473 as compared to 10,000,000 in the prior year period.

“We are pleased with our strong performance in 2010 which demonstrates our ability to expand revenues and profits as we capitalize on our first mover advantage, highly competitive suite of products and renowned customer service quality. Our results also benefited from our strategic shift towards software solutions which enjoy much higher margins than wireless systems solutions” commented Mr. Peng Zhang, Chief Executive Officer of Kingtone. “During the year, we reached several milestones in our corporate history. We became publicly traded on Nasdaq and raised US$16 million in equity capital to strengthen our financial position and support our growth strategy. Our geographic footprint expanded, creating further opportunities to build a stronger business pipeline and we continued to build our scalable infrastructure on the back of targeted cost controls, selective investments and productivity improvements. All these steps enabled us to conclude fiscal 2010 with the strongest growth prospects in our company history.”

“As we move forward, we believe that we are ideally positioned to capture the growing opportunities in front of us as our clients continue to strive for greater efficiency in their business. We will continue to carefully evaluate each new business opportunity on its own merits in the best interest of the company and its shareholders,” concluded Mr. Peng.

Fourth Quarter Financial Performance

Results of Operations – Three months ended September 30, 2010 compared to three months ended September 30, 2009.

Revenues. For the fourth quarter of fiscal year 2010, revenues increased by 36.1% to $5.33 million from $3.92 million in the comparable period of fiscal 2009. Revenue from software solutions increased by 124.5% to $4.1 million in the fourth quarter of fiscal year 2010 compared to $1.82 million in the fourth quarter of fiscal year 2009. Revenue from wireless system solutions decreased by 40.9% to $1.24 million in the fourth quarter of fiscal year 2010 compared to $2.09 million in the prior year period.

Gross Profit and Gross Margin. For the fourth quarter of fiscal year 2010, gross profit increased by 104.7 % to $4.64 million from $2.27 million in the prior year period. Gross margin for the fourth quarter of fiscal year 2010 was 87.0% compared to 57.9% in the fourth quarter of fiscal year 2009.

Income from Operations. Income from operations increased by 90.8% to $3.75 million in the fourth quarter of fiscal year 2010 from $1.97 million in the comparable period of fiscal 2009. Operating margins for the fourth quarter of fiscal year 2010 and 2009 were 70.4% and 50.2%, respectively.

Net Income and EPS. Net income was $3.13 million in the fourth quarter of fiscal year 2010, compared to $1.81 million in the prior year’s fourth quarter, an increase of 72.9%. Net income as a percentage of total net revenues was 58.6% and 46.2% for the fourth quarter of fiscal year 2010 and 2009, respectively. Basic and diluted earnings per share were $0.22 in the fourth quarter of fiscal year 2010, compared to $0.18 in the prior year period. The number of weighted average common shares outstanding for the three months ended September 30, 2010 was 14 million, compared to 10 million a year ago.

Fiscal Year 2010 Financial Performance

Results of Operations – The year ended September 30, 2010 compared to the year ended September 30, 2009.

Revenues. For the year ended September 30, 2010, total revenues increased by 29.1% to $14.51 million from $11.24 million in the comparable period of fiscal 2009. Revenue from software solutions increased by 118% to $11.27 million for the year ended September 30, 2010 compared to $5.17 million for the prior year, mainly driven by mobile enterprise applications in police and emergency agencies in new geographic areas. Revenue from wireless system solution decreased by 46.7% to $3.23 million for the year ended September 30, 2010 compared to $6.07 million in the prior year. This decrease was due primarily to two factors: (1) we had smaller contract value and less recognizable revenue with one major customer in the oil refinery industry this year, even though the number of contracts with its different subsidiaries had increased; and (2) we completed two related party transactions in the prior year with Shaanxi TechTeam Jinong Humic Acid Product Co., Ltd.. As a result, the third-party revenue from wireless system solution sales decreased 34.3% from a year ago without the $1.1 million revenue from these two related party transactions from the prior year.

Gross Profit and Gross Margin. For the year ended September 30, 2010, gross profit increased by 65.5 % to $12.15 million from $7.35 million in the prior year period. Gross margin for the year ended September 30, 2010 was 83.8%, compared to 65.4% for the same period in the prior year.

Income from Operations. Income from operations increased by 58.2% to $10 million for the year ended September 30, 2010 from $6.32 million in fiscal 2009, primarily due to the growth in revenues. Operating margin for the year ended September 30, 2010 and 2009 were 68.9% and 56.2%, respectively.

Net Income and EPS. Net income increased by 55.5% to $8.2 million for the year ended September 30, 2010 from $5.3 million in the fiscal 2009. The growth of net income was mainly attributed to the growth in our revenue. Basic and diluted earnings per share were $0.71 in the fiscal year 2010, compared to $0.53 in the prior year. The number of weighted average common shares outstanding for the year ended September 30, 2010 was 11.5 million, compared to 10 million a year ago.

Liquidity and Capital Resources.

Cash and Cash Equivalents. As of September 30, 2010, the Company had cash and cash equivalents of $14.9 million, compared to $0.34million as of November 30, 2009, the Company’s last fiscal year end. Cash flows provided by operating activities for the year ended September 30, 2010 were approximately$4.3 million, compared to approximately $4 million in the prior year period. Depreciation and amortization expenses were $0.23 million and $0.13 million for the years ended September 30, 2010 and 2009, respectively. Cash flows provided by financing activities were approximately $10.32 million and $8.55 million for the years ended September 30, 2010 and 2009, respectively.

Financial Outlook

For the fiscal year ending September 30, 2011, management expects revenues of $18.8 million to $20.2 million and net income of $10.2 million to $11.6 million. This guidance reflects management’s anticipated increase in sales resulting from the Company’s existing solution offerings and the increasing demand driven by the on-going adoption of 3G in the PRC.

Conference Call

The Company will host a conference call to discuss its fourth quarter and fiscal year 2010 financial results at 9:00 a.m. ET on Thursday, January 20, 2011. 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:

A replay of the call will be available until 11:59 PM ET on January 20, 2011.

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

Replay Passcodes (both required for playback):

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

About Kingtone Wirelessinfo Solution Holding Ltd

Kingtone Wirelessinfo Solution Holding Ltd (Nasdaq:KONE – News) 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 www.kingtoneinfo.com. The Company routinely posts important information on its website.

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 prospectus, dated May 14, 2010 filed with the Securities and Exchange Commission (the “SEC”), and in documents subsequently filed by the Company from time to time with the SEC including the Company’s Transition Report for the transition period from December 1, 2009 to September 30, 2010 to be filed with the SEC. 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.

Note: In March 2010, the Company changed its fiscal year-end from November 30th to September 30th, so that it would have the same fiscal year end as its variable interest entity (“VIE”), Xi’an Kingtone Information Technology Co., Ltd. (“Kingtone Information”).

Note: In March 2010, the Company changed its fiscal year-end from November 30th to September 30th, so that it would have the same fiscal year end as its VIE, Xi’an Kingtone Information Technology Co., Ltd. (“Kingtone Information”). There were no operations in the Company other than in its VIE, Kingtone Information from October 1, 2009 to November 30, 2009. In addition, the consolidated and combined statements of income and comprehensive income for the year ended November 30, 2009 included Kingtone Information for the year ended September 30, 2009. Therefore the Company is presenting its consolidated and combined statements of income and comprehensive income for the years ended September 30, 2010 and 2009 instead of for the ten months ended September 30, 2010 and the year ended November 30, 2009.

Note: In March 2010, the Company changed its fiscal year-end from November 30th to September 30th, so that it would have the same fiscal year end as its VIE, Xi’an Kingtone Information Technology Co., Ltd. (“Kingtone Information”). There were no operations in the Company other than in its VIE, Kingtone Information from October 1, 2009 to November 30, 2009. In addition, the consolidated and combined statements of income and comprehensive income for the year ended November 30, 2009 included Kingtone Information for the year ended September 30, 2009. Therefore the Company is presenting its consolidated and combined statements of income and comprehensive income for the years ended September 30, 2010 and 2009 instead of for the ten months ended September 30, 2010 and the year ended November 30, 2009.