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Telestone Technologies Reports Second Quarter Results
NEW YORK --(Business Wire)-- Nov. 14, 2005 -- Telestone Technologies Corporation (AMEX: TST) today announced that, for the third quarter ended September 30, 2005, it achieved revenues of $3.9 million, a 24.1% decrease from revenues of $5.2 million for the same period in 2004. Telestone's net income for the 2005 third quarter was $629,000 or $0.07 per fully diluted share, compared to net income of $1.6 million, or $0.20 per fully diluted share for the corresponding period in 2004.
For the first nine months of 2005, Telestone achieved revenues of $11.9 million, a 6.5% decrease from revenues of $12.7 million for the first nine months of 2004. Telestone's net income for the first nine months of 2005 was $2.3 million, or $0.26 per fully diluted share, compared to net income of $6.3 million, or $0.79 per fully diluted share for the first nine months of 2004.
Nine-month 2004 net income included an extraordinary gain of $2.8 million. Exclusive of this item, Telestone's net income for the nine months ended September 30, 2004 was $3.5 million or $0.44 per fully diluted share.
Current assets at September 30, 2005 were $25.4 million with no long term debt, and inclusive of $1.7 million in cash and short term investments.
Telestone's lower revenue in the third quarter of 2005 was primarily due to several factors including: a reduced revenue contribution from China Unicom; and the implementation of a more controlled customer quality program. During the quarter, China Unicom's capital expenditure deployment plans were hampered by uncertainty relating to news of a possible reorganization at the carrier. As a result, China Unicom reduced its wireless deployment expenditures during the quarter which, in turn, impacted Telestone's third quarter 2005 revenues. Additionally, Telestone exacted greater control over sales to provincial branches at certain carriers, given existing receivables risk, which also influenced the Company's third quarter revenues.
The reduction in Telestone's quarterly earnings was primarily due to: a 13.6% increase in sales and marketing expenses; a 135.5% increase in general and administrative expenses; and an 89% increase in research and development costs. Sales and marketing expenses grew during the quarter as the Company incurred expenses relating to penetrating new markets and opening new offices. Seven domestic offices and branches have been opened since the second quarter of 2004 and the Company has entered several new markets - including Vietnam, India and Indonesia - since the end of 2004. General and administrative expenses grew during the quarter due to an allowance of $289,000 for doubtful accounts and $198,000 in legal and professional fees relating to Telestone's listing on AMEX in May of 2005. Through the first nine months of 2005, the Company has taken an allowance of $707,000 for doubtful accounts. Telestone has never experienced a write-off and recently adopted a more conservative approach in regards to managing its receivables. Research and development costs increased due to the development of 3G-related technologies and applications.
As of September 30, 2005, Telestone's accounts receivable totaled $25.4 million compared to $23.2 million as of June 30, 2005 and $21.0 million as of March 31, 2005. Telestone has never experienced a write-off despite the length of its average receivables. However, the Company has taken measures designed to lower the turnover period of its accounts receivable balances including, but not limited to, offering special discounts to certain debtors with prolonged balances and implementing a strict customer quality control system. In addition, Telestone is exploring the possibility of obtaining third-party financing and other capital market alternatives.
Looking forward, revenue growth is expected to come from a number of areas including continued expansion into underdeveloped provinces within the PRC, an increase in business from existing customers in preparation for the awarding of 3G licenses in the PRC, additional PHS contracts and further expansion into other nations in Southeast Asia. The Company will also continue to explore opportunities in new markets in Western Asia, the Middle East and Eastern Europe.
Telestone Technologies Corporation is a leading provider of wireless technology coverage solutions and equipment to major telecommunications companies in the Peoples Republic of China. The company's solutions and equipment are applied in a variety of indoor and outdoor environments including hotels, residential estates, office buildings, airports, exhibition centers, underground stations, highways and tunnels. For additional information, please go to www.telestonecorp.com.
SAFE HARBOR Information in this news release may contain statements about future expectations, plans, prospects or performance of Telestone Technologies Corporation ("Telestone") that constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. The words or phrases "can be", "expects", "may affect", "believed", "estimate", "project", and similar words and phrases are intended to identify such forward-looking statements. Telestone cautions you that any forward-looking information provided by or on behalf of Telestone is not a guarantee of future performance. Telestone's actual results may differ materially from those anticipated in such forward-looking statements as a result of various important factors, some of which are beyond Telestone's control, in addition to those discussed in Telestone's press releases, public filings, and statements by Telestone's management, including, but not limited to, Telestone's estimate of the sufficiency of its existing capital resources, Telestone's ability to raise additional capital to fund future operations, Telestone's ability to repay its existing indebtedness, the uncertainties involved in estimating market opportunities and, in identifying contracts which match Telestone's capability to be awarded contracts. All such forward-looking statements are current only as of the date on which such statements were made. Telestone does not undertake any obligation to publicly update any forward-looking statement to reflect events or circumstances after the date on which any such statement is made or to reflect the occurrence of unanticipated events. -0- *T Telestone Technologies Corporation Statement of Operations ---------------------------------------------------------------------- (Unaudited) (Unaudited) Three months ended Nine months ended September 30, September 30, --------------------- --------------------- 2005 2004 2005 2004 US$'000 US$'000 US$'000 US$'000 Operating revenues Net sales of equipment 3,131 4,584 8,766 11,113 Service income 819 624 3,121 1,606 ---------- ---------- ---------- ---------- 3,950 5,208 11,887 12,719 ---------- ---------- ---------- ---------- Operating expenses Equipment and services 1,751 2,491 5,643 5,938 Sales and marketing 844 743 2,064 1,456 General and administrative 518 220 1,434 669 Research and development 155 82 309 162 Depreciation and amortization 54 42 150 94 ---------- ---------- ---------- ---------- Total operating expenses 3,322 3,578 9,600 8,319 ---------- ---------- ---------- ---------- Operating income 628 1,630 2,287 4,400 Interest expense (3) (25) (25) (42) Other income, net 4 5 10 5 ---------- ---------- ---------- ---------- Income before income taxes, minority interest and extraordinary item 629 1,610 2,272 4,363 Income taxes - - - 433 ---------- ---------- ---------- ---------- Income before minority interest and extraordinary item 629 1,610 2,272 3,930 Minority interest - - - (368) ---------- ---------- ---------- ---------- Income before extraordinary item 629 1,610 2,272 3,562 Extraordinary gain - - - 2,773 ---------- ---------- ---------- ---------- Net income 629 1,610 2,272 6,335 ========== ========== ========== ========== Earnings per share: Weighted average number of shares outstanding Basic 8,574,280 8,000,106 8,472,253 8,000,106 Dilutive effect of warrants 137,005 - 172,116 - ---------- ---------- ---------- ---------- Diluted 8,711,285 8,000,106 8,644,369 8,000,106 ========== ========== ========== ========== Net income per share of common stock Basic: Income before extraordinary gain 0.07 0.20 0.27 0.45 ========== ========== ========== ========== Net income 0.07 0.20 0.27 0.79 ========== ========== ========== ========== Diluted: Income before extraordinary gain 0.07 0.20 0.26 0.45 ========== ========== ========== ========== Net income 0.07 0.20 0.26 0.79 ========== ========== ========== ========== The accompanying notes are an integral part of these condensed consolidated financial statements. Telestone Technologies Corporation Balance Sheet ---------------------------------------------------------------------- (Unaudited) As of As of September 30, December 31, 2005 2004 US$'000 US$'000 ASSETS Current assets Cash and cash equivalents 1,658 2,230 Accounts receivable 25,434 19,845 Due from related parties 1,281 1,218 Inventories - Finished goods 2,182 2,502 Prepayment 72 95 Other current assets 268 531 -------------- -------------- Total current assets 30,895 26,421 Property, plant and equipment, net 1,052 790 -------------- -------------- Total assets 31,947 27,211 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Debts maturing within one year - 605 Accounts payable - Trade 4,607 3,952 Customer deposits for sales of equipment 14 47 Due to related parties 2,040 2,183 Taxes payable 7,134 6,447 Accrued expenses and other accrued liabilities 2,045 1,243 -------------- -------------- Total current liabilities 15,840 14,477 -------------- -------------- Commitments and contingencies Minority interests Stockholders' equity Preferred stock, US$0.001 par value, 10,000,000 shares authorized, no shares issued - - Common stock and paid-in capital, US$0.001 par value: Authorized - 100,000,000 shares as of September 30, 2005 and December 31, 2004 - - Issued and outstanding - 8,577,106 shares as of September 30, 2005 and 8,060,106 shares as of December 31, 2004 8 8 Reserved and to be issued - Nil shares as of September 30, 2005 and 150,000 shares as of December 31, 2004 - - Dedicated reserves 1,642 1,642 Additional paid-in capital 7,401 6,300 Retained earnings 7,056 4,784 -------------- -------------- Total stockholders' equity 16,107 12,734 -------------- -------------- Total liabilities and stockholders' equity 31,947 27,211 ============== ============== Telestone Technologies Corporation Statement of Cash Flows ---------------------------------------------------------------------- (Unaudited) Nine months ended June 30, --------------------- 2005 2004 US$'000 US$'000 Cash flows from operating activities Net income 2,272 6,335 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 150 94 Provision for doubtful accounts 707 - Extraordinary gain - (2,773) Minority interests - 368 Gain on disposal of PPE (66) - Changes in assets and liabilities: Accounts receivable (6,296) (8,582) Inventories, net 320 1,109 Due from related parties (63) 309 Prepayment 23 (285) Other current assets 263 (27) Accounts payable 655 891 Due to related parties (143) 398 Customer deposits for sales of equipment (33) 115 Taxes payable 687 1,681 Accrued expenses and other accrued liabilities 802 236 ---------- ---------- Net cash used in operating activities (722) (131) ---------- ---------- Cash flows from investing activities Purchase of property, plant and equipment (346) (423) ---------- ---------- Net cash used in investing activities (346) (423) ---------- ---------- Cash flows from financing activities Proceeds from issuance of shares 1,101 - Borrowings of short-term debts - 605 Repayment of short-term debts (605) (484) ---------- ---------- Net cash provided by financing activities 496 121 ---------- ---------- Net decrease in cash and cash equivalents (572) (433) Cash and cash equivalents, beginning of the period 2,230 1,226 ---------- ---------- Cash and cash equivalents, end of the period 1,658 793 ========== ========== *T
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