Telestone Technologies Corporation (AMEX: TST),a leading provider of wireless communication coverage solutions primarilyin China, announced financial results for their first quarter ending March31, 2006. Revenues in Q1 were $3.77 million up 6.85% from $3.53 million inQ1 of 2005. Product sales increased 14.13% as compared to thecorresponding period last year as a result of China Mobile and China Netcomincreasing their capital expenditures on 2G networks. Gross margins for Q1for 2006 was 52.11% as compared to 56.24% in Q1 2005.
Net income for Q1 in 2006 was $717K or $0.08 per share as compared to $859Kor $0.10 per share for Q1 of 2005, a decrease of 16.53% as compared to thesame period in 2005. The period-to-period decrease in net income wasprimarily due to the R&D center expansion costs; increased marketingexpenses for expansion into other regions; and increases in income tax paid(In the previous 2 years the Company had tax free status with the PRCgovernment, the effective rate for the first quarter of 2006 was 12%). Forthe three months ended March 31, 2006, sales and marketing expenses were$654,000, accounting for 17.32% of the total revenues, as compared to$590,000, or 16.70% of total revenues for the corresponding period in 2005.Sales and marketing expenses had a period-to-period increase of 10.85%.
Sales and marketing expenses increased because of our efforts to expand ourbusiness range, penetrate into new markets and set up branches andrepresentative offices therein, as well as investments related to businessexpansion in new markets outside of the PRC. We expect the increase insales and marketing expenses during the reporting period will benefit ourincome growth in the coming quarters. A portion of this was realized inthis 3 month period as the Company received its first initial order from aTelecom carrier in the country of Vietnam. Further orders are expectedfrom this carrier and others in other parts of Asia as the Company furtherexpands it marketing base.
For the three months ended March 31, 2006, general and administrativeexpenses were $304,000, accounting for 8.05% of the total revenues, ascompared to $471,000, or 13.33% of the total revenues for the correspondingperiod in 2005. General and administrative expenses had a period-to-perioddecrease of 35.46%. The major reasons for the decrease in general andadministrative expenses were due to our efforts to optimize the structureof the organization and improved work efficiency.
For the three months ended March 31, 2006, R & D expenses were $113,000,accounting for 2.99% of the total revenues, as compared to $8,000, or 0.23%of the total revenues for the corresponding period in 2005. R & D expenseshad a period-to-period increase of 1312.50%. We have directed some of ourR&D efforts towards investing into wireless telecommunications research anddevelopment, primarily 3G related technologies and applications. We expectthese research activities will enhance our technologies, reduce the cost ofexisting products and create future revenue streams through the launch ofnew products.
"The first quarter continued to benefit Telestone in expanding our productrelationships in new markets and increasing our work in progress. Wecontinue to reiterate our earlier guidance for 2006 of 20% to 30% inrevenue and net earnings after taxes as compared to 2005, without theinclusion of revenue generated from the upcoming 3G deployment in China,"stated Han Daqing, Telestone CEO and President.
Telestone Technologies Corporation
Condensed Consolidated Statements of Operation
(Unaudited) Three months ended March 31, 2006 2005 --------- --------- Note US$ '000 US$ '000Operating revenues Net sales of equipment 3,255 2,852 Service income 520 681 --------- ---------
3,775 3,533 --------- ---------Operating expenses Equipment and services 1,808 1,546 Sales and marketing 654 590 General and administrative 304 471 Research and development 113 8 Depreciation and amortization 56 43 --------- ---------
Total Operating expenses 2,935 2,658 --------- ---------
Operating income 840 875Interest expense - (20)Other income, net 5 4
Income before income taxes 845 859Income taxes 3 (128) - --------- ---------
Net income 717 859 ========= =========Earnings per shareWeighted average number of shares outstandingBasic 8,583,439 8,310,995Dilutive effect of warrants 95,987 281,475 --------- ---------
Diluted 8,679,426 8,592,470 ========= =========Net income per share of common stock
Basic: Net income 0.08 0.10 ========= =========Diluted: Net income 0.08 0.10 ========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements.
Telestone Technologies Corporation
Condensed Consolidated Balance Sheets
(Unaudited) As of As of March December 31, 2006 31, 2005
Note US$ ’000 US$ ’000ASSETSCurrent assets 2,134 3,605 Cash and cash equivalents 4 25,277 22,530 Accounts receivable 6 1,417 1,322 Due from related parties Prepayment 2,316 2,287 Inventories - Finished goods 958 535 Other current assets 273 240 ------- -------
Total current assets 32,375 30,519
Property, plant and equipment, net 981 1,031 ------- -------
Total assets 33,356 31,550 ======= =======
Accounts payable - Trade 4,622 2,658Customer deposits for sales of equipment 7 4Due to related parties 2,123 2,133Taxes payable 6,413 5,556Accrued expenses and other liabilities 1,468 1,703 ------- -------
Total current liabilities 14,633 13,619
Commitments and contingencies 8
Stockholders’ equityPreferred stock, US$0 001 par value, 10,000,000 shares authorized, no shares issued - -Common stock and paid-in capital, US$0.001 par value: 3 Authorized - 100,000,000 shares as of March 31, 2006 and December 31, 2005 - - Issued and outstanding- 8,602,106 shares as of March 31, 2006 and 8,577,106 shares as of December 31, 2005 8 8Dedicated reserves 2,131 2,131Additional paid-in capital 7,476 7,401Other comprehensive income 365 365Retained earnings 8,743 8,026
Total stockholders' equity 18,723 17,931 ------- -------
Total liabilities and stockholders' equity 33,356 31,550 ======= =======
The accompanying notes are an integral part of these condensedconsolidated financial statements.
Telestone Technologies Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited) Three months ended March 31, 2006 2005 US$ ’000 US$ ’000Net incomeAdjustments to reconcile net income to net cash used in operating activities: 717 859 Depreciation and amortization 56 43 Provision for doubtful accounts 103 249
Changes in assets and liabilities: Accounts receivable (2,850) (1,423) Inventories, net (29) (4,682) Due from related parties (95) (35) Prepayment (423) (82) Other current assets (33) 83 Accounts payable 399 1,850 Due to related parties (10) (83) Customer deposits for sales of equipment 3 16 Taxes payable 857 (184) Accrued expenses and other liabilities (235) (293) ------- -------
Net cash used in operating activities (1,540) (682) ------- -------
Cash flows from investing activities
Purchase of property, plant and equipment (6) (6) ------- ------- Net cash used in investing activities (6) (6) ------- -------
Cash flows from financing activities 75 795 ------- -------Proceeds from issuance of shares
Net cash provided by financing 75 795 ------- -------
Net decrease in cash and cash equivalents (1,471) (201)Cash and cash equivalents, beginning of the period 3,605 2,230
Cash and cash equivalents, end of the period 2,134 2,029 ======= =======
The accompanying notes are an integral part of these condensedconsolidated financial statements.
About Telestone Technologies Corporation
The Company and its subsidiaries provide wireless communications coveragesolutions primarily in the People's Republic of China. These solutionsinclude products such as repeaters, antennas and radio accessories. Inaddition, the Company provides services that include project design,project management, installation, maintenance and other after-salesservices. Telestone Technologies currently has approximately 414 employees.Additional information on the Company can be found atwww.telestonecorp.com.
SAFE HARBOR Information in this news release or on this website may containstatements about future expectations, plans, prospects or performance ofTelestone Technologies Corporation ("Telestone") that constituteforward-looking statements for purposes of the safe harbor provisions underthe Private Securities Litigation Reform Act of 1995. The words or phrases"can be," "expects," "may affect," "believed," "estimate," "project," andsimilar words and phrases are intended to identify such forward-lookingstatements. Telestone cautions you that any forward-looking informationprovided by or on behalf of Telestone is not a guarantee of futureperformance. None of the information on this website constitutes an offerto sell securities or investment advice of any kind, and visitors shouldnot base their investment decisions on information contained in thiswebsite. Telestone's actual results may differ materially from thoseanticipated in such forward-looking statements as a result of variousimportant factors, some of which are beyond Telestone's control, inaddition 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 uncertaintiesinvolved in estimating market opportunities and, in identifying contractswhich match Telestone's capability to be awarded contracts. All suchforward-looking statements are current only as of the date on which suchstatements were made. Telestone does not undertake any obligation topublicly update any forward-looking statement to reflect events orcircumstances after the date on which any such statement is made or toreflect the occurrence of unanticipated events.
For additional information please contact:Telestone Technologies CorporationMark MillerCorporate Communications275 Madison Avenue, 6th FloorNew York, NY 10016Tel: (212) 880-3794Fax: (212) 880 4241mmeastwest@hotmail.com
SOURCE: Telestone Technologies Corporation