SOURCE: Telestone Technologies Corp.

May 15, 2007 09:09 ET

Telestone Technologies Corporation Announces First Quarter 2007 Results

BEIJING -- (MARKET WIRE) -- May 15, 2007 -- Telestone Technologies Corp.(NASDAQ: TSTC)

Q1 2007 Financial Highlights

--  Revenue increase 27.02% to $4.79 million
--  Gross profit increase 21.71% to $2.39 million
--  Gross margin 49.93%
--  Diluted earnings $0.05
    
Telestone Technologies Corporation (NASDAQ: TSTC), a leading provider of wireless communication coverage solutions primarily in China, announced financial results for its first quarter ending March 31, 2007. Revenues in Q1 were $4.79 million, up 27.02% from $3.77 million in Q1 of 2006. Service sales increased 254.62% as compared to the corresponding period last year as a result of revenue increase in [network-optimization] and project maintenance in the first quarter of 2007. In addition, the rate of project and technologies services increased in the system integrators. Revenues from China Mobile, China Telecom and China Netcom increased 62.63%, 24.26%, and 19.86% respectively from the previous year. For the three months ended March 31, 2007, our revenues generated from our overseas accounted for 4.30% of total revenues due to the expansion of our overseas businesses and the positive progress in Vietnam and the United States. Gross margin for Q1 for 2007 was 49.93% as compared to 52.11% in Q1 2006.

Net income for Q1 in 2007 was $448K or $0.05 per share, as compared to $717K or $0.08 per share for Q1 of 2006, which represented a decrease of 37.52% as compared to the same period in 2006. The period-to-period decrease in net income was primarily due to increased marketing expenses for our efforts to expand our business range and penetrate into new markets, investments related to business expansion in new markets and the R&D center expansion costs for investing in wireless telecommunications research and development, primarily for TD-SCDMA related technologies and applications. The period-to-period increase in general and administrative expenses was attributable to expenses related to the enhancement in management and control systems and the increased expense of compliance requirements of Section 404 of the Sarbanes-Oxley Act of 2002. We expect the increase in our sales and marketing expenses during the reporting period will benefit our income growth in the coming quarters.

For fiscal year 2007, assuming the company's operation continues its improvement, we believe that Telestone can achieve the target of greater than 30% growth in revenue and net earnings after taxes over the results of fiscal year 2006. This is without the inclusion of revenue generated from the upcoming 3G deployments in China.

Mr. Daqing Han, Chairman & CEO of Telestone, stated, "Our first quarter efforts have begun to expand our market share with the help of increased capital expenditures from the major telecommunication operators in China. First Quarter contract wins gives us continued momentum in tracking toward our fiscal goals."

Q1 Business Highlights-Contract Wins

--  New orders in excess of $10 million (USD)
--  Receives Olympic bid award
--  Receives bid awards from 4 regional telecom operators
--  First order for new 3 generation solution "3D"
    
Q1 Business Highlights
--  Closes private placement $5.6million net (USD)
--  Common stock upgraded to NASDAQ Global Market Listing
    

                    Telestone Technologies Corporation
        Condensed Consolidated Statement of Operations (Unaudited)



                                                          (Unaudited)
                                                       Three months ended
                                                           March 31,
                                                     ---------------------
                                                       2007        2006
                                                      US$’000     US$’000
Operating revenues

  Net sales of equipment                                 2,951       3,255

  Service income                                         1,844         520
                                                     ---------   ---------
                                                         4,795       3,775
                                                     ---------   ---------
Operating expenses
  Equipment and services                                 2,401       1,808
  Sales and marketing                                      920         654
  General and administrative                               620         304
  Research and development                                 172         113
  Depreciation and amortization                             59          56
                                                     ---------   ---------
  Total operating expenses                               4,172       2,935
                                                     ---------   ---------

Operating income                                           623         840
Interest expense                                           (24)          -
Other income, net                                            -           5
                                                     ---------   ---------

Income before income taxes                                 599         845
Income taxes                                              (151)       (128)
                                                     ---------   ---------

Net income                                                 448         717
                                                     =========   =========

Earnings per share:                               
Weighted average number of shares outstanding
Basic                                                9,225,199   8,583,439
Dilutive effect of warrants                              5,313      95,987
                                                     ---------   ---------
Diluted                                              9,230,512   8,679,426
                                                     =========   =========

Net income per share of common stock                       US$         US$
Basic:
 Net income                                               0.05        0.08
                                                     =========   =========
Diluted:
 Net income                                               0.05        0.08
                                                     =========   =========


                    Telestone Technologies Corporation
            Condensed Consolidated Balance Sheets (Unaudited)



                                                  (Unaudited)
                                                        As of       As of
                                                     March 31, December 31,
                                                         2007         2006
                                                      US$’000      US$’000
ASSETS
Current assets
   Cash and cash equivalents                             7,718        3,380
   Accounts receivable                                  30,603       29,777
   Due from related parties                              1,618        1,409
   Inventories - Finished goods                          4,165        5,048
   Prepayment                                              107          315
   Other current assets                                    554          373
                                                  ------------ ------------

   Total current assets                                 44,765       40,302

Property, plant and equipment, net                         807          821
                                                  ------------ ------------

Total assets                                            45,572       41,123
                                                  ============ ============

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities

   Short-term bank loan                                  1,279        1,279
   Accounts payable - Trade                              4,627        6,314
   Customer deposits for sales of
    equipment                                              153           20
   Due to related parties                                2,001        2,001
   Taxes payable                                         5,882        2,571
   Accrued expenses and other liabilities                1,407        4,668
                                                  ------------ ------------

   Total current liabilities                            15,349       16,853
                                                  ------------ ------------

Commitments and contingencies                    



Stockholders’ equity
Preferred stock, US$0.001 par value,
 10,000,000 shares authorized, no shares
 issued                                                      -            -
Common stock and paid-in capital,
 US$0.001 par value:
   Authorized - 100,000,000 shares
    as of March 31, 2007 and
    December 31, 2006                                        -            -
   Issued and outstanding - 9,604,550
    shares as of March 31, 2007 and
    8,935,106 shares as of December 31,
    2006                                                    10            9
Dedicated reserves                                       2,619        2,619
Additional paid-in capital                              13,968        8,475
Other comprehensive income                               1,026        1,015
Retained earnings                                       12,600       12,152
                                                  ------------ ------------

   Total stockholders’ equity                           30,223       24,270
                                                  ------------ ------------

Total liabilities and stockholders’ equity              45,572       41,123
                                                  ============ ============


                   Telestone Technologies Corporation
        Condensed Consolidated Statement of Cash Flows (Unaudited)



                                                          (Unaudited)
                                                       Three months ended
                                                            March 31,
                                                      --------------------
                                                         2007       2006
                                                        US$’000    US$’000
Cash flows from operating activities
Net income                                                  448        717
Adjustments to reconcile net income to net cash used
 in operating activities:
  Depreciation and amortization                              59         56
  Provision for doubtful accounts                           339        103
  Exchange difference                                        11          -

Changes in assets and liabilities:
  Accounts receivable                                    (1,165)    (2,850)
  Inventories, net                                          883        (29)
  Due from related parties                                 (209)       (95)
  Prepayment                                                208       (423)
  Other current assets                                     (181)       (33)
  Accounts payable                                       (1,687)       399
  Due to related parties                                      -        (10)
  Customer deposits for sales of equipment                  133          3
  Taxes payable                                           3,311        857
  Accrued expenses and other liabilities                 (3,261)      (235)
                                                      ---------  ---------

  Net cash used in operating activities                  (1,111)    (1,540)
                                                      ---------  ---------

Cash flows from investing activities
Purchase of property, plant and equipment                   (74)        (6)
Proceeds from disposal of property, plant and
 equipment                                                   30          -
                                                      ---------  ---------

   Net cash used in investing activities                    (44)        (6)
                                                      ---------  ---------

Cash flows from financing activities
Proceeds from issuance of shares (net of expenses)        5,493         75
                                                      ---------  ---------

   Net cash provided by financing                         5,493         75
                                                      ---------  ---------

Net increase (decrease) in cash and cash equivalents      4,338     (1,471)

Cash and cash equivalents, beginning of the period        3,380      3,605
                                                      ---------  ---------

Cash and cash equivalents, end of the period              7,718      2,134
                                                      =========  =========

About Telestone Technologies Corporation

Telestone provides wireless communications coverage solutions primarily in the People's Republic of China. These solutions include products such as repeaters, antennas and radio accessories. In addition, the Company provides services that include project design, project management, installation, maintenance and other after-sales services. Telestone Technologies currently has approximately 556 employees. Additional information on the Company can be found at www.telestonecorp.com

Statements about the company's future expectations, including future revenue and earnings and all other statements in this press release, other than historical facts, are "forward looking" statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve risks and uncertainties and are subject to change at any time. The company's actual results could differ materially from expected results. In reflecting subsequent events or circumstances, the company undertakes no obligation to update forward-looking statements.

Contact Information

  • Contact:
    For additional information please contact:
    Telestone Technologies Corporation
    East West Network Group
    Mark Miller
    770-436-7429
    Email Contact