KONE Kingtone Wirelessinfo Solution Holding Ltd ADS (delisted)

XI'AN, China, June 30, 2016 /PRNewswire-FirstCall/ -- Kingtone Wirelessinfo Solution Holding Ltd (Nasdaq: KONE) ("Kingtone", "we" or the "Company"), a China-based developer and provider of mobile enterprise solutions, today announced the financial results for the six months ended March 31, 2016. 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").

Financial Highlights for the Six Months Ended March 31, 2016:

Revenues decreased 94.1% to $0.5 million from $8.5 million for the six months ended March 31, 2015;

Gross profit decreased 95.2% to $0.2 million from $4.4 million for the six months ended March 31, 2015;

Gross margin decreased to 42.3% from 51.5% for the six months ended March 31, 2015;

Net loss of $0.7 million as compared to net income of $2.6 million for the six months ended March 31, 2015.

Basic and diluted loss per share was $0.48 for the six months ended March 31, 2016 compared to basic and diluted income per share of $1.87 for the six months ended March 31, 2015. Weighted average shares outstanding for the six months ended March 31, 2016 remained unchanged at 1,405,000.

"We had a tough first half of the fiscal year. While the business conditions deteriorated rapidly, we faced strong competition in our wireless system solution business. Since the "Jingbian Integration Project" completed, we have not signed any big contracts which led our revenue significantly dropped in this first half year," said Mr. Peng Zhang, Chief Executive Officer. "In addition, a growing number of small service providers compete very aggressively on price which negatively affected our ability to win new contracts. While we believe that this situation may be temporary, it is difficult to predict how long it will take for the market to return to a better price level. In the meantime, we have taken a number of measures to improve our performance and strengthen our business model to achieve sustainable growth."

Results of Operations - For the Six Months Ended March 31, 2016 Compared to the Six Months Ended March 31, 2015

Net Revenues

The Company's revenues decreased by 94.1% to $0.5 million for the six months ended March 31, 2016, as compared to $8.5 million for the six months ended March 31, 2015.

Revenues from software solutions increased by 40.9% to $0.06 million in the six months ended March 31, 2016, compared to $0.04 million in the six months ended March 31, 2015. As a percentage of total revenue, software solutions sales increased from 0.5% to 12.5%.

Revenues from wireless system solutions decreased by 94.9% to $0.4 million in the six months ended March 31, 2016, compared to $8.4 million in the six months ended March 31, 2015. As a percentage of total revenue, wireless system solution sales decreased from 99.5% to 87.5% of our total revenue. The decrease in revenue from wireless system solutions was caused by the fact that the Company recorded revenue of $6.7 million from Jingbian integration project and Ningxia Bao Ta project in the six months ended March 31, 2015, compared to $0.2 million from Jingbian integration project and Ningxia Bao Ta project in the six months ended March 31, 2016 as the Company has not signed any big contract since these projects were completed last year.

Cost of Sales

Cost of sales decreased by 93.0% to approximately $0.3 million for the six months ended March 31, 2016 from approximately $4.1 million for the six months ended March 31, 2015.  The decrease in cost of sales was primarily in line with the decrease in revenue from wireless system solutions business. As a percentage of our total revenues, cost of sales increased from 48.5% of our total revenues for the six months ended March 31, 2015 to 57.7% of our total revenues for the six months ended March 31, 2016, which was mainly attributable to the fact that the projects the Company had worked on were with new clients and less profitable.

Cost of sales for software solutions increased by 100% to approximately $0.04 million for the six months ended March 31, 2016, compared to approximately $0.02 million for the six months ended March 31, 2015. This represented 13.3% and 0.5% of the total cost of sales, and 61.3% and 43.2% of software solutions revenue, for the six months ended March 31, 2016 and 2015, respectively. Cost of sales for wireless system solutions decreased by 93.9%, from approximately $4.1 million for the six months ended March 31, 2015 to approximately $0.2 million for the six months ended March 31, 2016. This represented 86.7% and 99.5% of the total cost of sales, and 57.1% and 48.5% of wireless system solution revenue, for the six months ended March 31, 2016 and 2015, respectively.

Gross Profit and Gross Margin

In the six months ended March 31, 2016, gross profit decreased by 95.2% to $0.2 million from $4.4 million in the six months ended March 31, 2015. Gross margin for the six months ended March 31, 2016 was 42.3%, compared to 51.5% in the six months ended March 31, 2015. This decrease of gross profit and gross margin was primarily due to the significant decreased volume of new contracts comparing to the same period last year. 

Gross profit from software solutions decreased by 4.0% for the six months ended March 31, 2016, from $25,000 to $24,000, and gross margin decreased to 38.7% from 56.8% in the six months ended March 31, 2015. Gross profit from wireless system solutions decreased by 95.7% for the six months ended March 31, 2016 from $4.3 million to $0.2 million, and gross margin decreased to 42.9% from 51.5% in the six months ended March 31, 2015. The decrease in gross margins in both business sections above was due to the fact that we had projects with lower gross margins comparing to the same period last year.

Operating Expenses

Total operating expenses for the six months ended March 31, 2016 were $1.4 million, compared to $3.4 million for the six months ended March 31, 2015, representing a decrease of 58.3%.

Selling expenses decreased by 31.3% to $0.07 million in the six months ended March 31, 2016, compared to $0.1 million for the six months ended March 31, 2015, and represented 13.7% and 1.2% of revenues for the six months ended March 31, 2016 and 2015, respectively. The decrease in sales expenses was a direct result of the Company's cost-control decision to reduce the related marketing and traveling expenses coping with the depression in the software solution market. The demand for software solutions products is lower because most of our clients are government sponsored companies. With the macro-policy in China that controls the spending budgets in governmental agencies and fewer clients in such nature were inclined to buy value-added software solutions. 

General and administrative expenses were approximately $1.3 million in the six months ended March 31, 2016, a decrease of 58.6% from $3.1 million in the six months ended March 31, 2015, which represented 262.3% and 37.1% of revenues for the six months ended March 31, 2016 and 2015, respectively. General and administrative expenses consist primarily of compensation and benefit expenses relating to personnel other than our engineers and our sales and marketing team, depreciation and amortization expenses and overhead expenses. General and administrative expenses also include legal and other professional fees, share-based compensation and other miscellaneous administrative costs. The significant decrease in general and administrative expenses was mainly due to the decreased bad debt expense caused by the write-off of certain aged receivables, and decreased labor cost as a result of the decreased business operation in the six months ended March 31, 2016.

Research and development expenses were approximately $0.05 million in the six months ended March 31, 2016, a decrease of 68.6% from $0.17 million in the six months ended March 31, 2015, which represented 10.9% and 2.0% of revenues for the six months ended March 31, 2016 and 2015, respectively. The decrease in research and development expense was mainly due to the reduction of the number of R&D staffs.

Income (Loss) from Operations

The Company had loss from operations of $1.2 million in the six months ended March 31, 2016, compared to income from operations of $1.0 million in the six months ended March 31, 2015, a decrease of $2.2 million, which primarily due to the significantly lower revenue and gross profit from wireless system solutions business.

Net income (Loss) and EPS

Net loss was $0.7 million in the six months ended March 31, 2016, compared to net income of $2.6 million in the six months ended March 31, 2015. Basic and diluted loss per share was $0.48 in the six months ended March 31, 2016, compared to basic and diluted income per share of $1.87 for the six months ended March 31, 2015. The number of weighted average common shares outstanding for the six months ended March 31, 2016 remained unchanged at 1,405,000.

Liquidity and Capital Resources

Cash and Cash Equivalents

As of March 31, 2016, the Company had cash and cash equivalents of $1.6 million, compared to $2.7 million as of September 30, 2015, the Company's last fiscal year end.

Net cash used in operating activities for the six months ended March 31, 2016 was approximately $0.5 million, compared to approximately $2.1 million provided by operating activities for the six months ended March 31, 2015. For the six months ended March 31, 2016, the Company had a net loss of $0.7 million compared to net income of $2.6 million for the same period last year, and nil unbilled revenue compared to $5.0 million for the same period last year.

Net cash used in financing activities for the six months ended March 31, 2016 was approximately $0.7 million, compared to approximately $4.5 million for the six months ended March 31, 2015. The decrease is due to the lower amount of loans the made to related parties during the six months ended March 31, 2016 comparing to the same period in the prior year. As of March 31, 2016, the closing balance of due from related parties increased by $0.6 million to $6.4 million, compared to $5.8 million as of September 30, 2015. The Company had $4.4 million of loan to Xi'an Xin Rong Technology Industrial (Group) Co., Ltd. ("Xi'an Xin Rong"), and $1.9 million of loan to Xi'an Teachteam Investment Holdings (Group) Co., Ltd. ("Xi'an Techteam"). Both Xi'an Xin Rong and Xi'an Techteam are indirectly owned and controlled by Mr. Tao Li, Chairman of the Company.  The loans are unsecured, interest free and payable on demand and for business operations. 

Net cash provided by investing activities was approximately $32,000 for the six months ended March 31, 2016, compared to $4,000 provided by investing activities for the six months ended March 31, 2015.

Financial Outlook

Based on the results of the first six months of fiscal year 2016, in light of increased competition, price pressure and continuing negotiations for new contracts that were expected to be signed later in the year, the Company lowered its previously released guidance for fiscal year 2016. We now expect revenues in the range between $2 million and $4 million and net loss in the range between $0 and $1 million.

Conference Call

The Company will host a conference call to discuss the financial results for the six months ended March 31, 2016 at 7:30 a.m. ET on June 30, 2016.

Teleconference Information:

Live Participant Dial In (Toll Free): 877-407-9205
Live Participant Dial In (International): 201-689-8054

Number of Lines: 10

Replay Number (Toll Free): 877-481-4010
Replay Number (International): 919-882-2331
Replay ID: 10041
Teleconference Replay Available Until: July 2, 2016 at 11:59 PM 

The conference call will be webcast live by Vcall and can be accessed at http://www.investorcalendar.com/IC/CEPage.asp?ID=175107.

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, and improves 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 the Company'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 Annual Report for the fiscal year ended September 30, 2015 filed 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.

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SOURCE Kingtone Wirelessinfo Solution Holding Ltd.