Telestone Technologies Corporation Reports Record Third Quarter 2009 Revenues and Earnings

BEIJING, Nov. 12 /PRNewswire-Asia-FirstCall/ -- Telestone TechnologiesCorporation ("Telestone" or the "Company") (Nasdaq: TSTC), a leading developerand provider of wireless communication local access network solutions based inChina, today announced the Company's third quarter financial results for thequarter ending September 30, 2009.

-- Third quarter 2009 revenues increased 124.7% to $18.9 million year-over-year; gross margins were 52.7% -- Third quarter 2009 net income increased 281.8 % to $4.2 million year-over-year with net margins of 22.3%; EPS was $0.41 vs. $0.11 year-over-year -- For the nine months ended September 30, 2009, revenues increased 86.1% to $38.9 million year-over-year; net income increased 96.8% to $7.4 million year-over-year; EPS was $0.71 versus $0.36 year-over-year -- WFDS(TM) product represents about 20% of third quarter revenues -- Accounts receivable decreased 19.6% to $59.2 million for the third quarter ended September 30, 2009, compared to $70.8 million for the second quarter ended June 30, 2009 -- Telestone reaffirms guidance of $70.0 million in revenues for 2009 based on strong order bookings for the balance of the year. SUMMARY FINANCIALS Third Quarter 2009 Results Q3 2009 Q3 2008 CHANGE Net Sales $ 18.9 million $ 8.4 million + 124.7% Gross Profit $ 8.9 million $ 3.9 million + 128.2% Net Income $ 4.2 million $ 1.1 million + 281.8% EPS (Fully Diluted) $0.41 $0.11 +272.7% Nine Month 2009 Results First 9 months First 9 months of 2009 of 2008 CHANGE Net Sales $38.9 million $20.9 million +86.1% Gross Profit $18.6 million $10.5 million +77.1% Net Income $7.4 million $3.7 million +100.0% EPS (Fully Diluted) $0.71 $0.36 +97.2%

Third Quarter Financial Results

Revenues for the third quarter ended September 30, 2009 increased 124.7%to $18.9 million compared to same period of 2008. Telestone revenues are acombination of equipment and service sales. Equipment sales, which totaled$11.1 million, are attributed to the Company's shipments of its proprietary 2Gand 3G local wireless access network equipment, manufactured for specificcustomer site installations. Service revenue, which totaled $7.8 million, is acombination of billable system integration and installation charges byTelestone's project design and implementation engineers. Total revenue growthfor the quarter was directly attributed to the Company's sales of 2G and 3Gnetwork installations throughout China. In addition, a growing contributor tothe Company's revenues is its Wireless Fiber Option Distribution System(TM)(WFDS(TM)) which accounted for about 20% of Telestone's revenues for thequarter. WFDS(TM) systems provide "multi-play" capabilities for media, voice,fax, closed circuit TV, data and all three protocols of Chinese cellularsignals over a fiber optic cable routed directly into an installation site.WFDS(TM) is a certified-technology by the three Chinese telecommunicationscompanies; China Mobile, China Unicom and China Telecom, and was recentlyapproved by the FCC of the United States in September of this year. Thecertification by FCC can allow installation of WFDS(TM) based systems in theU.S.

"We are very pleased with our third quarter results, which represents arecord and key turning point for our business. We are also proud that ourcustomer base in China, including the three major telecommunication suppliers,have accepted our WFDS(TM) technology as a viable market standard for 3Gproducts," opened Han Daqing, CEO and Chairman of Telestone. "We anticipateWFDS(TM) installations will continue to accelerate as carriers come to preferits functionality advantage over the traditional 3G network equipment. Weanticipate this trend will continue throughout the balance of the year andinto 2010 as we gain further market shares," stated Han.

Costs of goods sold were $10.0 million in the third quarter of 2009 whichyielded gross profits of $8.9 million. Costs of goods are comprised ofcomponents used in the manufacturing of Telestone's 2G and 3G product line andinstallation costs of project management and labor costs at commercial andresidential customer locations. Specifically, cost of equipment sales totaled$7.1 million, yielding gross margins of 36.0% while cost of services totaled$2.9 million, yielding gross margins of 62.8%. Blended gross margins were47.2% compared to 46.9% for the third quarter of 2008.

Total operating expenses for the quarter were $3.3 million, or 18.0% ofrevenues. Third quarter operating expenses as a percentage of revenuesdecreased 9.20 percentage points compared to the same quarter in 2008. Thedecrease in percentage for operating expenses is primarily due to the factthat expenses are rather fixed in nature. As a result, operating incomeincreased 223.6% to $5.5 million in the quarter compared to $1.7 millionrecorded in the third quarter of 2008. Telestone maintains a 24% effectiveincome tax rate for the quarter. However the taxes paid in the third quarterwere not only for the net income in the quarter, but also including taxes duein previous quarters. As a High and New Technology Enterprise in China, theCompany expects its income tax rate to be 15% for a three-year period.

Net income for the third quarter ended September 30, 2009 increased 281.8%to $4.2 million compared to $1.1 million in the third quarter of 2008. Netincome margins for the quarter were 22.5% compared to 13.3% recorded in thethird quarter of 2008. Earnings per share were $0.41 on 10.4 million fullydiluted shares issued and outstanding, an increase of 272% compared to $0.11reported in the third quarter of 2008.

Nine-Month Financial Results

For the nine months ended September 30, 2009, revenues increased 86.1% to$38.9 million compared to $20.9 million reported for the same period of 2008.The China-based telecommunications companies' goals to upgrade more than 200cities in China to a 3G network platform by the close of 2009 was one of theprincipal drivers of this growth. As announced in January of 2009, Beijing hasallocated $41 billion as part of a telecommunications stimulus package toupgrade China's more than 700 million cellular subscribers to a 3G networkplatform by 2013. Though Telestone has agent relationships in 28 countriesworldwide and plans to continue increasing this component of revenue streams,over 98% of the nine months in 2009 revenues are China-based.

"Given our visibility into new orders, we are confident that continuedstrong demand in China will enable us to meet our $70 million in revenueguidance for the year," confirmed Han Daqing. "With more than 900 million cellphone subscribers forecasted by 2013 in China, the requirement to upgrade thenetworks to 3G creates a tremendous opportunity for the telecom providers andis our first priority. Securing the U.S.-FCC approval for our WFDS(TM)technologies will enable us to begin both marketing and commercializationroll-out efforts in the Americas. While we recognize China will be theprincipal growth driver for our business in the immediate future, we are alsoexcited about capitalizing on growth opportunities in international markets todrive incremental sales and further diversify our customer base."

Gross profits for the nine month period ended was $18.6 million,representing a 77.1% increase over $10.5 million for the same period of 2008.Gross margins for the first nine months of 2009 were 47.8% compared to 50.4%for the same period of 2008.

Net income for the nine months period was $7.4 million, a 100% increaseover the same period of 2008. Earnings per share for the period were $0.71compared to $0.36 for the same period of 2008.

Balance Sheet and Cash Flow Discussion

As of September 30, 2009, Telestone Technologies had cash and cashequivalents totaling $5.3 million compared to $7.9 million on December 31,2008. The Company maintained a current ratio of 2.0 based on $75.0 million incurrent assets and $38.1 million in current liabilities with a working capitalposition of $36.9 million. On September 30, 2009, Telestone had $59.2 millionin receivables compared to $70.8 million on June 30, 2009, a reduction ofaccounts receivable by 19.6%, while revenues grew significantly. The Companywas able to reduce its days of sales by185 days to 405. However accountreceivables older than a year become long-term receivables which were $18.8million as of the end of September 2009. Even with that included, the totalDSO is still lower than that of the second quarter of 2009. We expect our DSOnumber to be around 360 by the end of the year. Included in accountsreceivable and DSO are 10% of Telestone customers' contract value to providewarranty service on installations for a twenty-four months period, a valuewhich per GAAP must remain on the Company's accounts receivable until paid infull. For the nine months period of 2009, the Company recorded zero (0) baddebts.

Stockholders' equity was $59.9 million as of September 30, 2009, a 14%increase compared to $52.4 million as of December 31, 2008.

Conference Call

To attend the call, please use the dial information below. When prompted,ask for the "Telestone Technologies Call" and/or be prepared to provide theconference ID.

Date: November 13, 2009 Time: 10:00am ET Conference Line Dial-In (U.S.): 1-877-941-8602 International Dial-In: 1-480-629-9811 Conference ID: 4182022

Please dial in at least 10-minutes before the call to ensure timelyparticipation. A playback will be available through November 20th, 2009. Tolisten, please call 1-800-406-7325 within the United States or +1-303-590-3030when calling internationally. Utilize the pass code 4182022 for the replay.

About Telestone Technologies Corporation

Telestone provides Local Access Network Solutions, products andengineering integration to telecom carriers. In terms of 2G technologies,Telestone is a main supplier in wireless access coverage infrastructurebuilding for the GSM and CDMA network base on its RFPA technologies primarilyin the PRC. The products; repeaters, line-amplifiers, antennas and radioaccessories are all based on RFPA technologies. After intensive research onthe demands of carriers in 3G technologies, based on its strong R&Dcapabilities in both wireless and Fiber-Optics, Telestone has invented itsWFDS unification local access network solution and products which are highlywelcomed by all telecom carriers and property owners. Telestone also providesservices that include project design, project manufacturing, installation,maintenance and after-sales services. Telestone currently has approximately1,200 employees.

For further information, please contact: Company: Ren Hu, Board Secretary Tel: +86-137-1872-8163 Email: arenhu@gmail.com Investor Relations: HC International Inc. John Mattio Tel: +1-203-616-5144 Email: john.mattio@hcinternational.net Appendix: Financial Statements of Telestone Technologies Corporation Condensed Consolidated Balance Sheets (Dollars in thousands except share data and per share amounts) (Unaudited) As of As of September 30, December 31, 2009 2008 ASSETS US$'000 US$'000 Current assets: Cash and cash equivalents 5,288 7,866 Accounts receivable, net of allowance 59,208 62,136 Due from related parties 1,662 1,826 Inventories, at lower of cost or market 6,930 7,843 Prepayment 1,770 2,347 Other current assets 98 1,352 Total current assets 74,956 83,370 Long-term receivables 18,774 -- Goodwill 3,119 3,119 Property, equipments and software, net 1,162 1,050 23,055 4,169 Total assets 98,011 87,539 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term bank loans 3,656 2,918 Accounts payable ¨C trade 15,338 11,776 Customer deposits for sales of equipment 1,232 739 Due to related parties 1,708 1,673 Taxes payable 6,700 6,805 Accrued expenses and other accrued liabilities 9,480 11,197 Total current liabilities 38,114 35,108 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$0.001 par value: Authorized - 100,000,000 shares as of September 30, 2009 and December 31, 2008 -- Issued and outstanding - 10,404,550 shares as of September 30, 2009 and December 31, 2008 11 11 Additional paid-in capital 18,989 18,989 Dedicated reserves 4,513 3,787 Other comprehensive income 5,677 5,573 Retained earnings 30,707 24,071 Total stockholders' equity 59,897 52,431 Total liabilities and stockholders' equity 98,011 87,539 Condensed Consolidated Statements of Operations and Other Comprehensive Income Three months ended Nine months ended September 30, September 30, 2009 2008 2009 2008 US$'000 US$'000 US$'000 US$'000 Operating revenues: Net sales of equipment 11,099 5,797 21,504 12,112 Service income 7,792 2,610 17,413 8,832 Total operating revenues 18,891 8,407 38,917 20,944 Cost of operating revenues: Cost of net sales (7,099) (3,586) (13,738) (7,116) Cost of service (2,878) (879) (6,558) (3,281) Total cost of operating revenues (9,977) (4,465) (20,296) (10,397) Gross income 8,914 3,942 18,621 10,547 Operating expenses: Sales and marketing 2,007 1,430 6,035 4,028 General and administrative 1,182 571 2,503 1,824 Research and development 138 208 467 461 Depreciation and amortization 79 76 253 237 Total operating expenses 3,406 2,285 9,258 6,550 Operating income 5,508 1,657 9,363 3,997 Interest expense (40) (112) (170) (255) Other income, net 83 (28) 372 915 Income before income taxes 5,551 1,517 9,565 4,657 Income taxes (1,308) (395) (2,203) (917) Net income 4,243 1,122 7,362 3,740 Other comprehensive income Foreign currency translation adjustment (27) 26 104 1,515 Comprehensive income 4,216 1,148 7,466 5,255 Earnings per share: Weighted average number of common stock outstanding Basic 10,404 10,404 10,404 10,404 Dilutive effect of warrants -- 20 -- 59 Diluted 10,404 10,424 10,404 10,463 Net income per share of common stock Basic and diluted (US$) 0.41 0.11 0.71 0.36 Condensed Consolidated Statements of Changes in Stockholders' Equity (Dollars in thousands except share data and per share amounts) Common stock Additional Number of paid-in shares Amount capital US$'000 US$'000 Balance at January 1, 2009 10,404,550 11 18,989 Net income Foreign currency translation adjustment Transfer to dedicated reserves Balance at September 30, 2009 10,404,550 11 18,989 Other compre- Dedicated hensive Retained reserves income earnings Total US$'000 US$'000 US$'000 US$'000 Balance at January 1, 2009 3,787 5,573 24,071 52,431 Net income 7,362 7,362 Foreign currency translation adjustment 104 104 Transfer to dedicated reserves 726 (726) -- Balance at September 30, 2009 4,513 5,677 30,707 59,897 Condensed Consolidated Statements of Cash Flows (Dollars in thousands except share data and per share amounts) Nine months ended September 30, 2009 2008 US$'000 US$'000 Cash flows from operating activities Net income 7,362 3,740 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Loss on disposal of property, plant and equipment (15) Depreciation and amortization 253 237 Allowance for doubtful accounts 1,163 337 Changes in assets and liabilities: Accounts receivable (17,009) (8,349) Due from related parties 164 55 Inventories 913 881 Prepayment 577 (330) Other current assets 1253 (751) Accounts payable 3,562 1,693 Customer deposits for sales of equipment 493 (64) Due to related parties 35 (595) Taxes payable (105) (66) Accrued expenses and other accrued liabilities (1,718) 3,335 Net cash used in operating activities (3,057) 108 Cash flows from investing activities Purchase of property, plant and equipment (366) (32) Proceeds from disposal of property, plant and equipment -- 49 Net cash used in investing activities (366) 17 Cash flows from financing activities Repayment of short-term bank loans (2,918) (2,142) Repayment of long-term loan from related parties -- (27) Proceeds from new short-term bank loans raised 3,656 2,856 Net cash used in financing activities 738 687 Net increase (decrease) in cash and cash equivalents (2,685) 812 Cash and cash equivalents, beginning of the period 7,866 5,473 Effect on exchange rate changes 107 42 Cash and cash equivalents, end of the period 5,288 6,327 Supplemental disclosure of cash flows information Interest received 7 23 Interest paid (76) 187 Tax paid (2,587) 54

SOURCE Telestone Technologies Corporation