Telestone Technologies Corporation Ltd. Announces Second Quarter 2008 Results

Telestone Technologies Corporation Ltd. Announces Second Quarter 2008 Results

Net Income Increased 28.6% Year-over-Year

BEIJING, Aug. 13 /Xinhua-PRNewswire-FirstCall/ -- Telestone Technologies Corporation Ltd. ("Telestone" or the "Company") (NASDAQ:TSTC) , a leading developer and provider of wireless communication coverage solutions based in the People's Republic of China, today announced its unaudited financial results for the first quarter of 2008.

   Second Quarter Highlights:   -- There is net income of US $1.8 million, with an increase of 28.6% from      the second quarter of 2007. The increase of our net income is primarily      due to the promotion of our new products which are of the higher prices      and gross margins. Revenue for the quarter of US $6.0, a slight      decrease of 11.8% from the Q2 of 2007.   -- The cost of equipment and services was $2.6 million, consisting of a      decrease of 16.6% compared to $3.7 million in the second quarter of      2007.   -- Gross margins of 57.1%, compared to 54.6% in Q2, 2007.   -- Gross profit decreased 7.8% year-over-year to US $3.7 million.    

"I am very glad to announce our second quarter financial results during the Olympic Games period. And I am pleased to declare Telestone's net income continued to grow with an increase of 28.6% in the second quarter, which is resulting from the promotion of our new products," commented by Mr. Han Daqing, Chairman and Chief Executive Officer of Telestone. "In light of the Restructuring currently under way and the promotion plan for Telestone's new products, we believe that our revenues and profits in the year 2008 will continue to improve and eventually eclipse fiscal year 2007's revenue totals with the continued development and application of our new products, solutions, and the contribution of our newly developing markets."

   Second Quarter Financial Results    Net income  

Net income for the second quarter rose significantly compared to last year to US $1.8 million, from US $1.4 million in the second quarter of 2007. The increase of our net income is due to our business expansion of our new products, which are of higher prices and gross margins compared to the traditional products. This also leads to the decrease of the cost of equipment sale. Therefore, although our revenue decreased, we still encounter a positive quarter with new income increase of 28.6%.

Revenue

There is a slight downward of quarterly revenue of US $6.0 million, 11.8% decline compared to US $6.9 million in Q2 2007, largely due to the decreased network expenditures of China Unicom, China Telecom and China Netcom, which were severely affected during the quarter by the China Telecom Restructuring Plan. However, China Mobile's expenditure increased substantially, as it was not greatly affected by the Restructuring. Consequently, our revenue from China Mobile increased tremendously in the second quarter of 2008. We believe that, with the expected completion of the Restructuring and launch of the 3G wireless network, Chinese carriers' total capital investment in year 2008 will continue to increase over that of 2007.

Revenue from other customers within China totaled US $80,000, an increase compared to $44,000 during the same period of 2007. This increase is primarily due to our system integration business, which was strengthened thanks to the establishment of the Business Department of Private Network Operator concerned specifically with the business of system equipment and special network services.

Revenues generated from overseas were $54,000, a decrease of 14.3% compared to the second quarter of 2007. The decreased revenue from overseas market is mainly contributable to the following reasons: In order to get higher profits in the future, Telestone's product sales in the overseas market began shifting from RF Amplifier products sales to WFDS sales. WFDS is in the exploratory stage. However, we are confident that there will be substantial progress in WFDS sales in the third and forth quarters in light of higher gross profits from our new product with its technological advantages. The decreased revenue is also because of the economic crisis in Vietnam.

Cost of equipment and services

For the three months and six months ended June 30, 2008, our total costs were $2,597,000 and $5,932,000, which represented a decrease of 16.60% and an increase of 7.56%, respectively, compared to the corresponding periods of 2007. The decreased cost of equipment and services in the second quarter is a result of the higher prices and gross margins of new products.

Gross profit and gross margin

Gross profit decreased by 7.8% to US $3.5 million from US $3.7 million in Q2 2007. Our gross profit decrease during the reporting period is attributable to the same factors as the decrease in revenue. Gross margin for Q2 2008 is 57.1% compared to 54.6% in the second quarter of 2007. Our increased gross margin during the reporting period was primarily due to the reduced cost of equipment and services.

Business Outlook

As we mentioned in early July, despite the anticipation of Telestone's domestic business being impacted by the Beijing Olympic Games to be held in August, in light of the Restructuring currently under way and the promotion plan for Telestone's new products, the Company believes that its 2008 full year revenues and net income will grow by at least 20% compared with that of 2007. With the Restructuring expected to be complete in 2009, Chinese telecom operators are expected to increase their capital expenditures in indoor coverage networks and the Company therefore anticipates 2009 revenue increasing around 100% from that of 2008.

Conference Call

The Company's management team will conduct a conference call on Thursday, August 14, 2008 at 5:00 am (Pacific)/8:00 am (Eastern)/8:00 pm (Beijing/Hong Kong).

   U.S. Participants: +1 800 860 2442   International Participants: +1 412 858 4600   Passcode for all: Telestone Call   

A live audio webcast of the conference call will also be available through our new corporate website, please visit: http://www.videonewswire.com/event.asp?id=50658

The audio replay of the conference call will be available for one year following the announcement at the above link.

   A replay will be available after the end of the call until May 20th.    All participants please dial:   +1 877 344 7529 (toll free) or +1 412 317 0088   Passcode: 422120    About Telestone Technologies Corporation  

Telestone provides wireless communications coverage solutions primarily in the PRC. These solutions include products such as repeaters, antennas and radio accessories. Telestone also provides services that include project design, project management, installation, maintenance and other after-sales services. Telestone currently has approximately 800 employees. For more information please visit http://www.telestone.com/ .

Safe Harbor Statement

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.

Telestone Technologies Corporation

Condensed Consolidated Statements of Operations and Other Comprehensive Income

               For the 6 months ended June 30, 2008 and 2007       (Dollars in thousands except share data and per share amounts)                                            (Unaudited)         (Unaudited)                                       Three months ended    Six months ended                                            June 30,             June 30,                                         2008      2007       2008     2007                                  Note US$'000    US$'000   US$'000   US$'000           Operating revenues   Sales of equipments                   2,385     4,760      6,315     7,711   Service income                        3,663     2,096      6,222     3,941    Total operating revenues              6,048     6,856     12,537    11,652        Cost of operating revenues   Cost of net sales                    (1,427)   (2,557)    (3,530)   (4,155)   Cost of service                      (1,170)     (557)    (2,402)   (1,360)    Total cost of operating revenues     (2,597)   (3,114)    (5,932)   (5,515)               Gross income               3,451     3,742      6,605     6,137            Operating expenses   Sales and marketing                   1,083     1,065      2,598     1,985   General and administrative              580       593      1,253     1,213   Research and development                123       325        253       497   Depreciation and amortization            84        64        161       123    Total operating expenses              1,870     2,047      4,265     3,818    Operating income                      1,581     1,695      2,340     2,319   Interest expense                       (107)      (26)      (143)      (51)   Other income, net                       625        11        943        11    Income before income taxes            2,099     1,680      3,140     2,279   Income taxes                           (319)     (279)      (522)     (430)    Net income                            1,780     1,401      2,618     1,849    Other comprehensive income   Foreign currency translation    adjustment                              29        42      1,489        42    Comprehensive income                  1,809     1,443      4,107     1,891    Earnings per share:    Weighted average number of    common stock outstanding   Basic                            10,404,550 9,604,550 10,404,550 9,415,919   Dilutive effect of warrants          62,072   123,606     72,259    91,833    Diluted                          10,466,622 9,728,156 10,476,809 9,507,752    Net income per share of common    stock   Basic (US$)                            0.17      0.15       0.25      0.20   Diluted (US$)                          0.17      0.14       0.25      0.19                        Telestone Technologies Corporation                    Condensed Consolidated Balance Sheets                 As of June 30, 2008 and December 31, 2007       (Dollars in thousands except share data and per share amounts)                                                        (Unaudited)                                                         As of       As of                                                        June 30,  December 31,                                                          2008        2007   ASSETS                                      Note     US$'000     US$'000    Current assets:   Cash and cash equivalents                              4,853       5,473   Accounts receivable, net of allowance                 51,936      45,013   Due from related parties                               1,839       1,792   Inventories                                            7,759       8,023   Prepayment                                             1,611       1,169   Other current assets                                   1,246       1,332    Total current assets                                  69,244      62,802    Goodwill                                               3,119       3,119   Property, plant and equipment, net                     1,092       1,170                                                           4,211       4,289    Total assets                                          73,455      67,091    LIABILITIES AND STOCKHOLDERS' EQUITY    Current liabilities:   Current portion of long term loan from    related parties                                         31          28   Short-term bank loans                                  2,856       2,051   Accounts payable - Trade                               8,328       7,614   Customer deposits for sales of equipment                 793         262   Due to related parties                                 1,855       2,318   Taxes payable                                          5,434       4,741   Accrued expenses and other accrued    liabilities                                           7,211       7,221    Total current liabilities                             26,508      24,235    Non-current liabilities:       Long term loan from related parties                   14          30                                                          26,522      24,265    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$0.001    par value:   Authorized - 100,000,000 shares as of June    30, 2008                                                 --          --   Issued and outstanding - 10,404,550 shares    as of June 30, 2008 and December 31, 2007                11          11   Additional paid-in capital                            18,989      18,989   Dedicated reserves                                     3,199       3,199   Other comprehensive income                             4,506       3,017   Retained earnings                                     20,228      17,610    Total stockholders' equity                            46,933      42,826    Total liabilities and stockholders' equity            73,455      67,091                        Telestone Technologies Corporation     Condensed Consolidated Statements of Changes in Stockholders' Equity                    For the 6 months ended June 30, 2008       (Dollars in thousands except share data and per share amounts)                                        Common stock issued                                                         Additional                                          Number          paid-in   Dedicated                                         of shares Amount capital   reserves                                                  US$'000 US$'000    US$'000    Balance at January 1, 2007            8,935,106     9    8,475     2,619   Issuance of stock (net of expenses)   1,469,444     2   10,514        --   Net income                                   --    --       --        --   Foreign currency translation   adjustment                                   --    --       --        --   Transfer to indicated reserves               --    --       --       580     Balance at December 31, 2007         10,404,550    11   18,989     3,199   Net income                                   --    --       --        --   Foreign currency translation    adjustment                                  --    --       --        --    Balance at June 30, 2008 (unaudited) 10,404,550    11   18,989     3,199                                               Other      Retained     Total                                        comprehensive  earnings                                            income                                            US$'000    US$'000     US$'000    Balance at January 1, 2007                1,015      12,152      24,270   Issuance of stock (net of expenses)          --          --      10,516   Net income                                   --       6,038       6,038   Foreign currency translation   adjustment                                2,002          --       2,002   Transfer to indicated reserves               --        (580)         --     Balance at December 31, 2007              3,017      17,610      42,826   Net income                                   --       2,618       2,618   Foreign currency translation    adjustment                               1,489          --       1,489    Balance at June 30, 2008 (unaudited)      4,506      20,228      46,933                        Telestone Technologies Corporation               Condensed Consolidated Statements of Cash Flows               For the 6 months ended June 30, 2008 and 2007       (Dollars in thousands except share data and per share amounts)                                                           (Unaudited)                                                    Six months ended June 30,                                                        2008          2007                                                      US$'000       US$'000   Cash flows from operating activities   Net income                                           2,618         1,849   Adjustments to reconcile net income to net cash    used in operating activities:       Loss on disposal of property, plant and        equipment                                           1             3       Depreciation and amortization                      161           123   Provision for doubtful accounts                        200           402    Changes in assets and liabilities:       Accounts receivable                             (5,216)       (2,497)       Due from related parties                            34          (235)       Inventories                                        636          (806)       Prepayment                                        (397)          214       Other current assets                               149          (193)       Accounts payable                                   383        (1,051)   Customer deposits for sales of equipment               530           191   Due to related parties                                (579)            3       Taxes payable                                      491         2,660       Accrued expenses and other accrued        liabilities                                      (340)       (3,289)    Net cash used in operating activities               (1,329)       (2,626)    Cash flows from investing activities   Purchase of property, plant and equipment              (27)         (146)   Proceeds from disposal of property, plant and    equipment                                              23            30    Net cash used in investing activities                   (4)         (116)    Cash flows from financing activities   Proceeds from issuance of shares (net of    expenses)                                              --         5,460   Repayment of long-term loan                            (16)       (1,279)   Proceeds from new short-term bank loan raised          714            --    Net cash generated from financing                      698         4,181    Net (decrease) increase in cash and cash    equivalents                                          (635)        1,439    Cash and cash equivalents, beginning of the    period                                              5,473         3,380    Effect on exchange rate changes                         15            42    Cash and cash equivalents, end of the period         4,853         4,861    Supplemental disclosure of cash flows information   Interest received                                        2            14   Interest paid                                          (59)          (51)   Tax paid                                               (50)           --       For further information please contact:    Telestone Technologies Corporation Ltd.   Fang Cui   Tel:   +86-10-8367-0088 x1202   Email: cuifang@telestone.com    Nick Li   Secretary of the Board   Tel:   +86-10-8367-0088 x1002   Email: nickl@telestone.com  

Source: Telestone Technologies Corporation Ltd.

CONTACT: Fang Cui, Telestone Technologies Corporation Ltd. at +86-10-
8367-0088 x1202 or cuifang@telestone.com; or Nick Li, Secretary of the Board
at +86-10-8367-0088 x1002 or nickl@telestone.com

Web site: http://www.telestone.com/

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