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Executives

Yao Ti – Chief Financial Officer Assistant

Li Wu – Chief Financial Officer

Kingtone Wirelessinfo Solution Holding Ltd (KONE) F2Q13 Conference Call May 23, 2013 8:00 AM ET

Operator

Greetings and welcome to the Kingtone Wirelessinfo Semiannual Financial Results Call. At this time all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Ms. Yao Ti, Assistant to the Chief Financial Officer for Kingtone. Thank you, Ms. Ti, you may begin.

Yao Ti

Thank you operator and thank you everyone for joining us today for Kingtone Wirelessinfo Solutions’ first six months of fiscal year 2013 earnings conference call. The Company distributed its first six months of fiscal year 2013 earnings release on Wednesday, May 22 after the market closed. On the call today are Mr. Tao Li, Chairman; Ms. Li Wu, Chief Financial Officer. Following the prepared remarks, management will be happy to take your questions.

Before we continue, please note that the discussion today contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including certain trends, expectations, goals, and the projections. The Company’s actual results could differ materially from those contained in the forward-looking statements due to a number of factors; including those described under the heading Risk Factors in the Company’s final prospectus dated May 14, 2010 filed with the Securities and Exchange Commission, and in documents subsequently filed by the Company from time to time with the Securities and Exchange Commission. These forward-looking statements speak only as of the date of this conference call and are subject to change at any time. The Company undertakes no obligation to update or revise any forward-looking statements, except as required by the applicable law or regulation.

So now, let’s look at other financial performance for the six months ended in March 31, 2013. The Company’s revenue increased by 153.1% to $3 million for the six months ended in March 31, 2013, as compared to $1.2 million for the six months ended in March 31, 2012.

Revenues from software solutions increased by 284.6% to $0.2 million in the six months ended in March 31, 2013, compared to $50,000 in the six months ended in March 31, 2012. As a percentage of total revenue, software solutions sales increased from 4.4% to 6.7%.

The increase in our software solutions revenue was mainly due to the fact that the Company has signed the contracts for larger value amounts in the six months ended in March 31, 2013 than those signed in the six months ended in March 31, 2012. Revenues from wireless system solutions increased by 147% to $2.8 million in the six months ended in March 31, 2013, compared to $1.1 million in the six months ended in March 31, 2012.

As a percentage of total revenue, wireless system solution sales decreased from 95.6% to 93.3% of our total revenue. The increase in revenue from wireless system solutions was mainly attributable to revenue recognition from the contracts signed in earlier periods.

Cost of sales increased by 84.1% to approximately $2.5 million for the six months ended in March 31, 2013 from approximately $1.4 million for the six months ended in March 31, 2012. As a percentage of our total revenues, cost of sales decreased from 117.1% of our total revenues for the six months ended in March 31, 2012 to 85.2% of our total revenues for the six months ended in March 31, 2013. The increase in our cost of sales was proportional to the increase in sales for the six months ended in March 31, 2013.

Cost of sales for software solutions decreased by 30.3% to approximately $0.3 million for the six months ended in March 31, 2013, compared to approximately $0.4 million for the six months ended in March 31, 2012. This represented a 9.9% and 26.3% of the total cost of sales, and 126.5% and 698.1% of software solutions revenue for the six months ended in March 31, 2013 and 2012, respectively.

Cost of sales for wireless system solutions increased by 125% from approximately $1 million for the six months ended in March 31, 2012 to approximately $2.3 million for the six months ended in March 31, 2013. This represented a 90.1% and 73.7% of the total cost of sales, and 82.3% and 90.3% of wireless system solution revenues, for the six months ended in March 31, 2013 and 2012 respectively.

In the six months ended in March 31, 2013, gross profit increased by 318.3% to $0.4 million from minus $0.2 million in the six months ended in March 31, 2012. Gross margin for the six months ended in March 31, 2013 was 14.8%, compared to minus 17.1% in the six months ended in March 31, 2012. This increase of gross profit and gross margin was primarily due to the relatively higher profit margin in the contracts we signed in the six months ended in March 31, 2013 compared to those signed in the six months ended in March 31, 2012.

Total operating expenses for the six months ended in March 31, 2013 were $2.3 million, compared to $5 million for the six months ended in March 31, 2012, representing a decrease of 54.5%.Selling and marketing expenses decreased by 38.7% to $0.27 million in the six months ended in March 31, 2013, compared to $0.43 million for the six months ended in March 31, 2012, and represented a 8.9% and 36.8% of revenues for the six months ended in March 31, 2013 and 2012, respectively. The decrease in sales and marketing expenses was a direct result of the Company’s decision to close the representative offices in Tibet and Yan’an to reduce expenses.

General and administrative expenses were approximately $1.7 million in the six months ended in March 31, 2013; a decrease of 59.8% from $4.4 million in the six months ended in March 31, 2013, and represented 58.5% and 369% of revenues for the six months ended in March 31, 2013 and 2012, respectively. The significant decrease in general and administrative expenses was primarily due to the fact that bad debt expenses were only $0.5 million in the six months ended in March 31, 2013, compared to approximately $3.3 million in the six months ended in March 31, 2012.

Research and development expenses were approximately $0.25 million in the six months ended in March 31, 2013; an increase of 28.7% from $0.2 million in the six months ended in March 31, 2012, and represented 8.4% and 16.5% of revenues for the six months ended in March 31, 2013 and 2012, respectively.

The Company had loss from operations of $1.8 million in the six months ended in March 31, 2013, compared to loss from operations of $5.2 million in the six months ended in March 31, 2012, a decrease of $3.4 million, or 64.8%, primarily due to increases in revenues from software solutions and wireless system solutions compounded by a decrease in operating expenses. Operating margins for the six months ended in March 31, 2013 and 2012 were minus 61.1% and minus 439.5%, respectively.

Net loss was $1.8 million during the six months ended in March 31, 2013, compared to net loss of $5.2 million in the six months ended in March 31, 2012, a decrease of $3.4 million, or 65%. Net loss as a percentage of total net revenues was minus 60.6% and minus 438.5% for the six months ended in March 31, 2013 and 2012, respectively.

Basic and diluted loss per share was $1.29 in the six months ended in March 31, 2013, compared to basic and diluted loss per share of $3.7 in the prior year period. The number of weighted average common shares outstanding for the six months ended in March 31, 2013 remained unchanged at 1,405,000.

Now we are moving on to the balance sheet. As of March 31, 2013, the Company had cash and cash equivalents of $8.1 million, compared to $6.4 million as of September 30, 2012, the Company’s last fiscal year-end. Cash flow provided by operating activities for the six months ended in March 31, 2013 was approximately $1.5 million, compared to approximately $1.5 million used in operating activities for the six months ended in March 31, 2012, mainly due to two factors: the $3.4 million decrease in net loss and a $3.9 million increase in advances from customers.

Depreciation and amortization expenses were $0.31 million and $0.29 million for the six months ended in March 31, 2013 and 2012, respectively. Cash flow provided by investing activities was approximately $0.1 million for the six months ended in March 31, 2013, compared to $80,000 used in investing activities for the six months ended in March 31, 2012. This increase in cash flow was attributable to the $0.07 million decrease in payments to purchase property and equipment and the $0.1 million proceeds from collection of due from related parties in the six months ended March 31, 2012.

For the fiscal year ending September 30, 2013, management expects revenues of $8.7 million to $11 million and net loss of $1 million to $1.8 million.

This concludes our prepared remarks. We will now be happy to answer your questions.

Li Wu

Operator, thank you.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) If there are no questions at this time, I’d like to turn the floor back over to management for any further or closing comments.

Yao Ti

Okay. Thank you, Erwin. This is end of the conference call. Thank you.

Operator

Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time. Have a wonderful day. We thank you for your participation today.

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