Luokung Technology Corp (LKCO) 2017 Q2 法說會逐字稿

Greetings, and welcome to Kingtone Wirelessinformation Solutions Holding Semiannual 2017 Financial Results. (Operator Instructions) I would now like to turn the conference over to your host, [Frank]. You may begin.

Thank you. Thank you, operator, and thank you for everyone for joining us today for Kingtone Wireless Solution First 6 Months of Fiscal Year 2017 Earnings Conference Call.

The company distribute its first 6 months of fiscal year 2017 earnings release today, Friday, June 30.

On our call today are hosted by Mr. Tao Li, our Chairman; and Ms. Li Wu, our Chief Financial Officer.

But before we continue, please note that the discussion today contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of year of 1995 including certain plans, expectations, goals and projections. The company 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 press packages date 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. And 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 regulations.

And now I want to talk about our financial performance for the 6 months ended March 31, 2017. First is our net revenue. The company's revenue increased by 1.2% to $0.5 million for the 6 months ended March 31, 2017, as compared to $0.49 million for the 6 months ended March 31, 2016.

Company had no revenue from software solutions for the 6 months ended March 31, 2017, comparing to $0.06 million for the 6 months ended March 31, 2016.

Revenues from wireless system solutions increased by 15.7% to $0.5 million for the 6 months ended March 31, 2017, compared to $0.4 million for the 6 months ended March 31, 2016. As a percentage of total revenue, wireless system solution sales increased to 100% from 99.5% of our total revenue. This increase in revenue from wireless system solutions was mainly attributable to the revenue recognized from the contracts signed in the earlier period.

The next is our cost of sales. Cost of sales decreased by 1.7% to approximately $281,000 for the 6 months ended March 31, 2017, from approximately $286,000 for the 6 months ended March 31, 2016. As a percentage of our total revenues, cost of sales decreased to 56% of our total revenue for the 6 months ended March 31, 2017, from 57.7% of our total revenues for the 6 months ended March 31, 2016, which primarily attributable to the fact that the projects the company had worked on were with the old clients so therefore this made our work more efficient.

Cost of sales for wireless system solution increased by 13.3% from approximately $248,000 for the 6 months ended March 31, 2016, to approximately $281,000 for the 6 months ended March 31, 2017. This means 100% and 86.7% of the total cost of sales and 56% and 57.1% of the wireless system solution revenue for the 6 months ended March 31, 2017, and 2016, respectively.

For the 6 months ended March 31, 2017, gross profit increased by 5.2% to $0.22 million from $0.21 million for the 6 months ended March 31, 2016. Gross margin for the 6 months ended March 31, 2017, was 44% compared to 42.3% in the 6 months ended March 31, 2016. Gross profit from wireless system solutions increased by 18.8% for the 6 months ended March 31, 2017, to $0.22 million from $0.19 million, and gross margin increased to 44% from 42.9% for the 6 months ended March 31, 2016.

The total operating expenses for the 6 months ended March 31, 2017, was $0.8 million compared to $1.4 million for the 6 months ended March 31, 2016. This is representing a decrease of 44.3%.

Selling expenses decreased by 20.6% to $0.05 million for the 6 months ended March 31, 2017, compared to $0.07 million for the 6 months ended March 31, 2016, and represented 10.8% and 13.7% of revenues for the 6 months ended March 31, 2017, and 2016, respectively.

The decrease in sales expenses was a direct result of company's cost-control decision to reduce the marketing and traveling expenses, coping with the depression in the software solution market. The demand of -- for software solution products is lower because most of our clients are government companies. With the macro policy in China that controls the spending budget in governmental agencies and fewer clients in such nature were inclined to buy value-added software solutions.

Our general and administrative expenses were approximately $0.7 million for the 6 months ended March 31, 2017, a decrease of 43.3% from $1.3 million for the 6 months ended March 31, 2016, which represented 147% and 262.3% for revenues for the 6 months ended March 31, 2017, and year of 2016, respectively.

General and administrative expenses consist primarily of compensation and benefit expenses relating to personnel other than our engineers and our sales and marketing team members, depreciation and amortization expenses and overhead expenses. General and administrative expenses also include legal and other professional fees, share-based compensation and other miscellaneous and administrative costs.

The great decrease in general and administrative expenses was mainly due to the decreased bad debt expenses caused by the write-off of certain aged receivables and decreased labor cost as a result of the decreased business operation in the 6 months ended March 31, 2017, compared to the same period in the last year.

Research and development expenses were 0 for the 6 months ended March 31, 2017, compared to $54,000 for the same period last year.

Our income from operations, the company had loss from operations of $0.6 million for the 6 months ended March 31, 2017, comparing to the loss from operations of $1.2 million for the 6 months ended March 31, 2016, a decrease of $0.6 million, which primarily due to the great lower general and administrative expenses for the 6 months ended March 31, 2017, comparing to the same period last year.

Our net income -- or net loss and our earnings per share. Net income was approximately USD 50,000 for the 6 months ended March 31, 2017, compared to net loss of $0.7 million for the 6 months ended March 31, 2016. Basic and diluted income per share was $0.03 in the 6 months ended March 31, 2017, comparing to the basic and diluted loss per share of $0.48 for the 6 months ended March 31, 2016.

Our cash as of March 31, 2017, the company had cash and cash equivalents of $5.6 million comparing to $1.2 million as of September 30, 2016, the company's last fiscal year. Net cash provided by operating activities for the 6 months ended March 31, 2017, was approximately $0.05 million comparing to approximately $0.5 million used in operating activities for the 6 months ended March 31, 2016.

For the 6 months ended March 31, 2017, the company had a net income of $50,000 comparing to the net loss of $0.7 million for the same period last year. Net cash provided by financing activities for the 6 months ended March 31, 2017, was approximately $4.4 million compared to approximately $0.7 million used in financing activities for the 6 months ended March 31, 2016.

As of March 31, 2017, the closing balance of due from the related party decreased by $4.6 million to $1.6 million comparing to $6.2 million as of September 30, 2016. Net cash provided by investment activities was 0 for the 6 months ended March 31, 2017, comparing to $1,000 provided by investing activities for the 6 months ended March 31, 2016.

Now it's our financial outlook. Based on the results of the first 6 months of fiscal year 2017, in light of increased competition, pressure and continued negotiations for the new contract that was expected to be signed later in the year so the company updated its previously released guide for the fiscal year 2017. We now expect revenue in the range between $2 million and $4 million, and net income in the range between 0 and $0.5 million.

My speech is over. Thank you, operator.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.