Kingtone Wirelessinfo Solution Holding Ltd Reports Fiscal Year 2011 Financial Results; Provides Fiscal Year 2012 Revenue and Net Income Guidance

XI'AN, China, Jan. 4, 2012 /PRNewswire-Asia-FirstCall/ -- Kingtone Wirelessinfo Solution Holding Ltd (Nasdaq: KONE) ("Kingtone", or the "Company"), a China-based developer and provider of mobile enterprise solutions, today announced financial results for its fiscal year ended September 30, 2011. 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").

Fiscal Year 2011 Financial Highlights

• Revenues decreased by 56.3% to approximately $6.3 million from approximately $14.5 million in the prior year period.
• Gross profit decreased by 75.9% to approximately $2.9 million from approximately $12.2 million in the prior year period.
• Gross margin decreased to 46.2% from 83.8% in the prior year period.
• Net loss of approximately $1.0 million as compared to net income of approximately $8.2 million in the prior year period.
• Basic and diluted loss per share were $0.07 as compared to earnings per share of $0.71 in the prior year period with weighted average shares outstanding of 14,050,000 as compared to 11,527,473 in the prior year period.

"We had a difficult fiscal year as business conditions continue to deteriorate and competition in the software solution business became very harsh," said Mr. Peng Zhang, Chief Executive Officer of the Company. "We saw a growing number of small service providers compete very aggressively on price and this negatively affected our ability to win new contracts. We believe that this situation may be temporary and hope our investors can be more patient with our business and capital market performance. In the meantime, we have taken a number of measures to improve our performance and strengthen our business model to achieve sustainable growth."

Fiscal Year 2011 Financial Performance

Results of Operations - The year ended September 30, 2011 compared to the year ended September 30, 2010.

Revenues. For the year ended September 30, 2011, total revenues decreased by 56.3% to approximately $6.3 million from approximately $14.5 million in the year ended September 30, 2010. Revenue from software solution sales decreased by 78.6% to approximately $2.4 million in the year ended September 30, 2011 from approximately $11.3 million in the year ended September 30, 2010. As a percentage of total revenue, software solution sales decreased from 77.7% to 38.0%. The significant decrease in our software solution revenue was mainly due to increased competition from a number of smaller competitors in this industry, which resulted in our inability to continue to win large projects. Another contributing factor was that our new contracts were of substantially smaller value than our contracts in the prior year period. Revenue from wireless system solution sales increased by 21.5% to approximately $3.9 million in the year ended September 30, 2011 from approximately $3.2 million in the year ended September 30, 2010. As a percentage of total revenue, wireless system solution sales increased from 22.3% to 62.0% of our total revenue. Given the competitive circumstances in the software solution industry during the period, we devoted more resources to wireless system solution sales and we continually provided wireless system solution services to certain major customers, including Shaanxi Yanchang Petroleum (Group) CO., LTD.

Cost of Sales. Cost of sales increased by 44.9% to approximately $3.4 million in the year ended September 30, 2011 from approximately $2.4 million in the year ended September 30, 2010. As a percentage of our total revenues, our cost of sales increased to 53.8% of revenues in the year ended September 30, 2011 from 16.2% of our total revenues in the year ended September 30, 2010. The increase in cost of sales was primarily attributable to the increase in revenue from higher-cost wireless system solution sales. In addition, higher inflation also increased labor costs.

Cost of sales for software solution increased by 33.4% to approximately $1.2 million in the year ended September 30, 2011 from approximately $0.9 million in the year ended September 30, 2010, representing 35.4% and 38.4% of the total cost of sales and 50.0% and 8.0% of our software solution revenue in the fiscal years ended September 30, 2011 and 2010, respectively. Cost of sales for wireless system solutions increased by 52.0% to approximately $2.2 million in the year ended September 30, 2011 from approximately $1.4 million in the year ended September 30, 2010, representing 64.6% and 61.6% of the total cost of sales and 56.1% and 44.8% of wireless system solution revenues in the fiscal years ended September 2011 and 2010, respectively.

Gross Profit and Gross Margin. For the year ended September 30, 2011, gross profit decreased by 75.9% to approximately $2.9 million in the year ended September 30, 2011 from approximately $12.2 million in the year ended September 30, 2010. Gross margin was 46.2% and 83.8% in the years ended September 30, 2011 and 2010, respectively. Gross profit for software solution sales decreased by 88.4% to approximately $1.2 million in the year ended September 30, 2011 from approximately $10.4 million in the year ended September 30, 2010. Gross margin for software solutions sales decreased to 50.0% in the year ended September 30, 2011 from 92.0% in the year ended September 30, 2010.  This decrease of gross profit and gross margin was primarily due to the significant decrease of the value of new contracts and the higher compensation costs we incurred to attract and retain software technicians. Gross profit for wireless system solution sales decreased by 3.4% to approximately $1.7 million in the year ended September 30, 2011 from approximately $1.8 million in the year ended September 30, 2010. Our gross margin for wireless system solution sales decreased to 43.9% in the year ended September 30, 2011 from 55.2% in the year ended September 30, 2010.

(Loss) Income from Operations. (Loss) Income from operations decreased by 112.9% to approximately a loss of $1.3 million in the year ended September 30, 2011 from income of approximately $10.0 million in the year ended September 30, 2010. The decrease of income from operations was mainly due to significantly lower revenues from software solutions compounded by increased operating expenses.

Net (Loss) Income and EPS. We incurred a net loss of $1.0 million in the year ended September 30, 2011 as compared to net income of approximately $8.2 million in the year ended September 30, 2010, representing a decrease of 112.6%. Basic and diluted loss per share was $0.07 in the year ended September 30, 2011, compared to earnings per share of $0.71 in the prior year period. The number of weighted average common shares outstanding for the year ended September 30, 2011 was 14,050,000, compared to 11,527,473 a year ago.

Liquidity and Capital Resources.

Cash and Cash Equivalents. As of September 30, 2011, the Company had cash and cash equivalents of $8.7 million, compared to $14.9 million in the prior year period. Cash flows used in operating activities for the year ended September 30, 2011 were approximately $5.1 million, as compared to net cash provided by operating activities of approximately $4.3 million for the year ended September 30, 2010. Depreciation and amortization expenses were $0.53 million and $0.23 million for the years ended September 30, 2011 and 2010, respectively. Net cash used in financing activities for the year ended September 30, 2011 totaled approximately $1.19 million as compared to net cash provided by financing activities of approximately $10.3 million in the prior year period.  

Financial Outlook.

For the fiscal year ending September 30, 2012, management expects revenues of $12.0 million to $15.0 million and net income of $0.85 million to $2.13 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 mobile networks in the PRC.

Conference Call

The Company will host a conference call to discuss its fiscal year 2011 financial results at 8:00 a.m. ET on Thursday, January 5, 2012. Mr. Tao Li, Chairman, Mr. Peng Zhang, Chief Executive Officer, Ms. Li Wu, Chief Financial Officer and Ms. Yao Ti, Assistant to the 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 Jan 7, 2012.

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

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) is a 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. 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 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.

SOURCE Kingtone Wirelessinfo Solution Holding Ltd.