As filed with the Securities and Exchange Commission on April 29, 2010

Registration No. 333-166056

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



 

AMENDMENT NO. 1
to
FORM F-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



 

Kingtone Wirelessinfo Solution Holding Ltd

(Exact Name of Registrant as Specified in Its Charter)

   
British Virgin Islands   7371   Not Applicable
(State or Other Jurisdiction of
Incorporation or Organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

3rd Floor, Borough A, Block A. No.181, South Taibai Road, Xi’an, Shaanxi Province,
People’s Republic of China 710065
Tel: (86) 29-88266368

(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant’s Principal Executive Offices)

Corporation Service Company
1133 Avenue of the Americas, Suite 3100
New York, NY 10036
(212) 299-5600

(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)



 

Copies to:

   
Elizabeth Chen, Esq.
Pryor Cashman LLP
7 Times Square
New York, New York 10036-6569
Telephone: (212) 421-4100
Facsimile: (212) 326-0806
  
  
  Larry Liu
Global Law Office
15/F, Tower 1, China Central Place
No. 81 Jianguo Road,
Chaoyang District
Beijing, China
Telephone: (86) 10-6584-6688
Facsimile: (86) 10-6584-6666
  Mitchell S. Nussbaum, Esq.
Loeb & Loeb LLP
345 Park Avenue
New York, New York 10154
Telephone: (212) 407-4159
Facsimile: (212) 407-4990
  
  

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  o

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o



 
 

 


 
 

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CALCULATION OF REGISTRATION FEE

   
Title of Each Class of Securities to Be Registered   Proposed Maximum Aggregate Offering Price (1) (2)   Amount of Registration Fee (1)
Ordinary shares, par value $.001 per share (2) (3)   $ 30,000,000     $ 2,139.00  

(1) Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Acts of 1933, as amended. This fee was previously paid in connection with the filing of this Registration Statement on Form F-1 on April 13, 2010.
(2) Includes ordinary shares initially offered and sold outside the United States that may be resold from time to time in the United States either as part of their distribution or within 40 days after the later of the effective date of this registration statement and the date the shares are first bona fide offered to the public, and also includes ordinary shares that may be purchased by the underwriters pursuant to an option to purchase additional ADSs. The ordinary shares are not being registered for the purpose of sales outside the United States.
(3) American Depositary Shares issuable upon deposit of the ordinary shares registered hereby will be registered under a separate registration statement on Form F-6 (Registration No. 333-166063). Each American depositary share represents one (1) ordinary share.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.


 
 

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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting any offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 
PRELIMINARY PROSPECTUS   SUBJECT TO COMPLETION, DATED ______, 2010

4,615,385 American Depositary Shares

[GRAPHIC MISSING]

Kingtone Wirelessinfo Solution Holding Ltd

REPRESENTING 4,615,385 ORDINARY SHARES

Kingtone Wirelessinfo Solution Holding Ltd is offering 4,615,385 American Depositary Shares, or ADSs, in its initial public offering. Each ADS represents the right to receive one (1) ordinary share, par value $.001 per share. We anticipate that the public offering price per share will be between $6.00 and $7.00 per share.

We have applied to list our ADSs on the Nasdaq Capital Market under the symbol “KONE”. No assurance can be given that our application will be approved. If the application is not approved, we will not complete this offering.

Investing in our ADSs involves risks. See “Risk Factors” beginning on page 11 .

Price $    Per ADS

     
  Price to Public   Underwriting Discounts and Commissions   Proceeds to Company
Per ADS   $     $     $  
Total   $     $     $  

We have granted the underwriters a 30-day option to purchase up to an aggregate of 692,308 additional ADSs on the same terms set forth above. See the section of this prospectus entitled “Underwriting.”

The Securities and Exchange Commission and state securities regulators have not approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the ADSs to purchasers on or about __, 2010 through the book-entry facilities of The Depository Trust Company.

Sole Book-Running Manager

Roth Capital Partners

Co-Manager

Maxim Group LLC

  
Prospectus dated , 2010


 
 

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  Page
Prospectus Summary     1  
The Offering     7  
Summary Consolidated and Combined Financial Information     8  
Risk Factors     11  
Special Note Regarding Forward-Looking Statements     32  
Use of Proceeds     33  
Dividend Policy     33  
Exchange Rate Information     34  
Capitalization     35  
Dilution     36  
Selected Consolidated and Combined Financial Data     37  
Corporate History and Structure     39  
Management’s Discussion and Analysis of Financial Condition and Results of Operations     45  
Business     58  
PRC Government Regulations     71  
Management     75  
Principal Shareholders     83  
Related Party Transactions     86  
Description of Share Capital     88  
Description of American Depositary Shares     93  
Shares Eligible for Future Sale     100  
Taxation     103  
Enforceability of Civil Liabilities     109  
Underwriting     110  
Legal Matters     113  
Experts     113  
Expenses Related to this Offering     113  
Where You Can Find More Information     114  
Index to Consolidated and Combined Financial Statements     F-1  


 

You should rely only on the information contained in this prospectus, any free writing prospectus prepared by or on behalf of us or any other information to which we have referred you in connection with this offering. We have not, and the underwriters have not, authorized any other person to provide you with information different from that contained in this prospectus. Neither the delivery of this prospectus nor sale of the ADSs means that information contained in this prospectus is correct after the date of this prospectus. This prospectus is not an offer to sell or solicitation of an offer to buy these ADSs in any circumstances under which the offer or solicitation is unlawful.



 

Through and including ______, 2010 (25 days after the date of this prospectus), all dealers that buy, sell or trade our ADSs, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

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PROSPECTUS SUMMARY

The following summarizes information contained elsewhere in this prospectus and does not contain all of the information you should consider in making your investment decision. For a more complete understanding of this offering, we encourage you to read this entire prospectus. The following summary should be read in conjunction with the more detailed information and financial statements (including the related notes) appearing elsewhere in this prospectus. For a discussion of certain factors you should consider before deciding to invest in our shares, see “Risk Factors.”

Overview

We are a China based software and solutions developer focused on wirelessly enabling businesses and government agencies to more efficiently manage their operations. Our products, known as mobile enterprise solutions, extend a company’s or enterprise’s information technology, or IT, systems to include mobile participants. We develop and implement mobile enterprise solutions for customers in a broad variety of sectors and industries, to improve efficiencies by enabling information management in wireless environments. At the core of our many diverse packaged solutions is our proprietary middleware, which enables wireless interactivity across many protocols, devices, and platforms.

The ability for an enterprise’s office, factory and field personnel to be continuously connected with all of its participants creates many opportunities for new efficiencies. For example, using a mobile enterprise solution, a company’s accounting and enterprise resource planning, or ERP, systems can be extended to seamlessly integrate data collected in the field by sales and delivery personnel, in real time. Mobile enterprise solutions can also be used in short distance applications such as factory automation and production control systems, where wireless data connections can be used to simplify and enhance system operation and control.

The recent deployment of third generation, or 3G, wireless networks in China is resulting in increased interest and demand for mobile enterprise solutions. The increased bandwidth of 3G enables more comprehensive applications and feature sets. In addition, the wireless carriers in China are motivated to generate greater bandwidth sales, in part, by encouraging enterprises and government agencies to adopt mobile enterprise solutions in their daily operations. We collaborate with each of the three Chinese telecom carriers, namely China Telecom, China Mobile and China Unicom, making joint presentations to potential business and governmental customers. The carrier provides the network service and we provide the mobile software, which we customize for the specific customer application and package with third party hardware and complete system installation. These collaborative relationships are informal and are not memorialized in contract. However, we have a formal co-marketing agreement with China Telecom to co-promote next-generation mobile solutions for law enforcement applications.

We have completed mobile enterprise solutions for customers in 30 out of China’s 32 provinces, municipalities and autonomous regions in the PRC, with a primary focus on the western provinces. As of September 30, 2009, we had 112 employees, including 60 engineers dedicated to research, development and implementation, and 32 engineers and professional in sales and marketing. We are headquartered in Xian, China.

In the past two years, we have experienced significant growth. Our revenue grew from $4.3 million in fiscal 2008 to $11.2 million in fiscal 2009, representing an increase of 162%. Our net income grew from $1 million to $5.3 million during the same period, representing an increase of 422%. Our gross and net margins in fiscal 2009 were above 65% and 47%, respectively, both representing an improvement from those levels achieved during fiscal 2008. A material portion of the increases in our revenue and net income for this period was due to a related party transaction.

Our Industry and Market

We operate in the mobile enterprise software industry in China. We believe the mobile enterprise market in China benefits from compelling industry fundamentals such as increasing investment in IT, the country’s 3G rollout, and increasing demand for wireless applications within working environments.

Government bureaus and corporations are investing heavily in China in IT systems to improve operating efficiencies, focus on core competencies and maximize returns. Investment in information technology in China is rapidly growing. According to an October 22, 2009 article published by IDC, a leading provider of market

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data and intelligence, IT spending by the PRC government in 2009 is expected to total RMB 53.65 billion, and is predicted to reach RMB 73.36 billion in 2013. Gradually, we expect the focus of such investment to shift from hardware infrastructure to software applications. From 2008 to 2013, the annual compound growth rate of IT hardware is projected to be 5.6%, compared to the annual compound growth rates of software and IT services of 13.2% and 14%, respectively, during the same period, according to IDC.

On January 7, 2009, the Ministry of Industry and Information Technology (MIIT) officially issued three 3G licenses to Chinese wireless telecom carriers. Compared to services developed under prior generation standards, 3G communications allow simultaneous use of speech and data services at higher data rates. According to a January 2009 report by CITIC Jiantou Securities, it is estimated that investment in 3G between 2009 and 2011 by the three Chinese telecom carriers will total $44.0 billion. According to the MIIT, the 3G industry is expected to generate RMB 1 trillion, or $146.5 billion, in demand in the next three years. We believe the 3G rollout and the upcoming commercial deployment will both inspire and facilitate new and diversified customer applications for mobile enterprise software. According to a 2008 report by IDC, the enterprise mobility market in China will reach $15.56 billion in 2011.

Our Strengths

We believe that the following strengths greatly assist our business:

Proprietary suite of mobile enterprise solutions offerings
Strong development capability
Industry expertise
Growing track record
Joint efforts with Chinese wireless telecom carriers

Our Strategy

Specific elements of our growth strategy include:

Seize the opportunity presented by 3G adoption in China
Recruit, train and retain engineering professionals
Expand operations
Invest more in research and development to create more successful software products
Pursue strategic acquisition opportunities

Risks

We face certain risks, challenges and uncertainties that may materially affect our business, financial condition, results of operations and prospects. You should consider the risks discussed in “Risk Factors” and elsewhere in this prospectus before investing in our ADSs.

Recent Developments

Certain Estimated Results for First Quarter Ended February 28, 2010

We estimate our net revenues for the quarter ended February 28, 2010, which presents Kingtone Information’s fiscal quarter ended December 31, 2009 (entities with the different quarter periods are permitted to combine or consolidate their financial statements under Regulation S-X Rule 3a-02(b)(1)), to be approximately $2.9 million, representing an increase of $0.9 million, or 43.7%, from the first quarter of Kingtone Information’s fiscal year ended September 30, 2009, or fiscal 2009. The increase was attributable to higher software solution sales revenue of $0.4 million, or 23%, and wireless system sales of $0.5 million, or 154%, as compared to our first fiscal quarter of 2009. The increase in software solutions sales was primarily attributable to the addition of new customers in the first quarter 2010. The primary reason for the increase in wireless system sales was that we recorded revenue associated with the completion and delivery of two projects that were started in previous quarters. As a result of the completion of these projects and due to our

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increased focus on software solutions sales (as discussed below), we expect that wireless system sales will represent a small percentage of total revenues in future periods. As a percentage of total revenues, software solutions sales decreased from 84.3% to 72.2% and wireless system sales increased from 15.7% to 27.8% as compared to our first fiscal quarter of 2009. There is no related party transaction in the first fiscal quarter of 2010.

We estimate our gross profit for the quarter ended February 28, 2010 to be approximately $2.5 million, representing an increase of $0.7 million, or 38%, from the first quarter of fiscal 2009. Of such increase, $0.5 million, or 28.9%, was from software solutions sales and $0.2 million, or 97.1%, was from wireless system sales. The total gross margin for the first quarter of fiscal 2010 is estimated to be 83.2%, which is less than our total gross margin of 86.7% for the first quarter of fiscal 2009. The gross margin for software solutions sales is estimated to be 93.3%, which is slightly higher than our gross margin of 89.2% for the first quarter of fiscal 2009. The gross margin for wireless system sales is estimated to be 42.8%, which is significantly less than our gross margin of 73.5% for the first quarter of fiscal 2009. The decrease in gross margin percentage was mainly attributable to the greater use of third party purchased hardware in our wireless system sales in the first quarter of 2010, as compared to same period in fiscal 2009. As we are requested by customers to supply a turn-key wireless system, it means that we must purchase third party hardware to combine with other system components, which puts downward pressure on our margins for such systems. We have recently begun to place a greater focus on software solutions sales because such sales provide higher gross margins. As such, we believe there will be more gross profit contribution from the software solutions than from the wireless systems solutions in future periods, which will help sustain or improve our total gross margin.

We estimate our net income from operations to be approximately $2.2 million, representing an increase of $0.7 million, or 45.3%, from the first quarter of fiscal 2009. The operating margin for the first fiscal quarter of 2010 is estimated to be 74.0%, which is slightly higher than our operating margin of 73.2% for the same period in fiscal 2009. With our plan to increase investment in sales and marketing and research and development using proceeds from this offering, we expect that operating expense as a percentage of net income will increase in the near term which will cause operating margin to decline.

We estimate our net income to be approximately $1.72 million to $1.78 million, representing an increase of $0.59 million to $0.65 million or 51% to 57% from the first quarter of fiscal 2009. Net margin for the first fiscal quarter of 2010 is estimated to be 57.8% to 60.0%, which is slightly higher than net margin of 55% for the same period in fiscal 2009. The main reason for the improved net margin is that we had lower interest expense we paid in the first fiscal quarter of 2010. We believe that our net margin will be consistent with the historical trend as the lower interest expense should offset the lower operating margin.

The above estimated results are preliminary and are subject to the completion of our normal quarter-end closing procedures. Our actual results may differ from these estimates; however, nothing has come to our attention that has caused us to believe that our actual results materially differ from these estimated results.

We have not included in this prospectus the financial statements for our first fiscal or second quarter of 2010 and the related management’s discussion and analysis of financial condition, or MD&A, because, as of the date hereof, we have not completed the preparation of such financial statements and MD&A. As a foreign private issuer, the applicable SEC rules regarding the age of financial statements are different from those applicable to domestic issuers and do not require us to include interim financial statements for subsequent periods when the audited financial statements are not older than nine months at the time the registration statement becomes effective. The financial statements included in this prospectus are for the year ended November 30, 2009 and no financial information for any subsequent period is included other than the estimated results above for our first fiscal quarter of 2010. Because we believed we would consummate our public offering in the first quarter of calendar 2010, and in light of the more relaxed age of financial statement requirements applicable to us, we did not commence the preparation of our first fiscal quarter financial statements and MD&A sufficiently in advance so as to allow for inclusion in this prospectus. Instead, we have been devoting our resources, including finance and accounting personnel, to other tasks associated with our public offering, including due diligence and the preparation of our registration statement. For future reporting periods applicable to us as a foreign private issuer, we do not foresee any difficulty in preparing our financial statements and MD&A within the prescribed periods.

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Appointment of Ying Yang as Chief Financial Officer

As of April 23, 2010, Ms. Li Wu resigned from her position as chief financial officer of our company. As of the same day, Ms. Ying Yang was appointed by our board of directors to serve as the chief financial officer of our company. See the section entitled “Management” for Ms. Yang’s biographical information.

Corporate History and Structure

We conduct our operations through a contractually-controlled entity in the PRC named “Xi’an Kingtone Information Technology Co., Ltd.”, a PRC limited liability company (“Kingtone Information”). Kingtone Information commenced operations in December 2001 and is mainly engaged in the enterprise software solutions for the wireless environment in the PRC. In December 2009, we consummated a number of related transactions through which we acquired contractual control of Kingtone Information. We serve as a holding company and have no operations other than the operations of Kingtone Information. See the section entitled “Corporate History and Structure”.

We were incorporated under the name of ReiZii Capital Management Ltd. in the British Virgin Islands on October 27, 2009, and changed our name to Kingtone Wirelessinfo Solution Holding Ltd (“Kingtone Wireless”) on December 17, 2009. Topsky Info-tech Holdings Pte Ltd. (“Topsky”), was incorporated in Singapore on November 3, 2009. Kingtone Wireless is the sole shareholder of Topsky. Topsky incorporated Xi’an Softech Co., Ltd. (“Softech”) as a wholly foreign-owned enterprise (“WFOE”) in China on November 27, 2009. Pursuant to a series of control agreements between Kingtone Information and Softech dated December 15, 2009, Kingtone Information became a contractually-controlled subsidiary of Softech. See the section entitled “Corporate History and Structure – Contractual Arrangements with Kingtone Information and Its Respective Shareholders.”

As a result of the restructuring, four of our record shareholders, Xtra Heights Management Ltd. (“Xtra”), SCGC Capital Holding Company Limited (“SCGC Capital”), Big Leap Enterprises Limited (“Big Leap”), and Silver Avenue Overseas Inc. (“Silver Avenue”) hold our ordinary shares as nominees on behalf of the record shareholders of Kingtone Information. Through their nominee shareholder at the level of our parent company, the shareholders of Kingtone Information received, as part of the restructuring, rights to acquire our ordinary shares in the same relative ownership percentages as they hold in Kingtone Information prior to the offering and before giving effect to the 100,000 ordinary shares issued to Millennium Group, Inc. as described in “Corporate History and Structure”. For more detailed information on our restructuring, see the section entitled “Corporate History and Structure”.

The following diagrams illustrate our corporate structure and the place of formation and affiliation of each of our subsidiaries and affiliates upon consummation of the offering.

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Organizational Chart — Upon Consummation of the Offering

[GRAPHIC MISSING]

(1) Assumes the issuance of 4,615,385 ADSs at a price of $6.50 per ADS, the midpoint of the estimated range of the public offering price.

Corporate Information

Our principal executive offices are located at 3/F, Block A, No. 181 South Taibai Road, Xi’an 710065, the People’s Republic of China. Our telephone number at this address is +86-29-8823-1591. Our agent for service of process in the British Virgin Islands is Portcullis TrustNet (BVI) Limited with an address at Portcullis TrustNet Chambers, P.O. Box 3444, Road Town, Tortola, British Virgin Islands. Our agent for service of process in the United States is Corporation Service Company, located at 1180 Avenue of the Americas, Suite 210, New York, NY 10036.

Investors should contact us for any inquires through the address and telephone number of our principal executive office. Our principal website is www.kingtone.cn. The information contained on our website is not a part of this prospectus.

Risk Factors

Our business is subject to numerous risks, as more fully described in the section entitled “Risk Factors.” We urge you to carefully consider all the information presented in the “Risk Factors” section of this prospectus beginning on page 11 .

Conventions that Apply to this Prospectus

Unless otherwise indicated and except where the context otherwise requires, references in this prospectus to:

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“we,” “us,” “our company,” “the company” and “our” are to Kingtone Wirelessinfo Solution Holding Ltd, a company incorporated under the laws of the British Virgin Islands, and its subsidiaries;
“PRC” is the People’s Republic of China, excluding Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan for the purpose of this prospectus;
“RMB” is the lawful currency of the PRC; and
“fiscal 2009” and “fiscal 2008” are to our fiscal years ended November 30, 2009 and November 30, 2008, respectively.

Unless otherwise indicated and except where the context otherwise suggests, our financial information presented in this prospectus, including our audited consolidated financial statements and related notes, has been prepared in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”).

For fiscal 2009 and fiscal 2008, our income statements were translated at the average rates of RMB 6.8451 to US$1.00 and RMB 7.1106 to US$1.00, respectively. We make no representation that the Renminbi or U.S. dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all. See “Risk Factors — Risks Related to Doing Business in China — Government control of currency may affect the value of your investment” for discussions of the effects of currency control and fluctuating exchange rates on the value of our ADSs. Any discrepancies in any table between totals and sums of the amounts listed are due to rounding.

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THE OFFERING

ADSs offered by us    
    4,615,385 ADSs
Over-allotment option    
    692,308 ADSs
Ordinary shares to be outstanding immediately after this offering    
    14,615,385
Offering Price    
    We currently estimate that the initial public offering price will be between $6.00 and $7.00 per ADS.
Use of proceeds    
    We estimate we will receive net proceeds from this offering of approximately $27.9 million, assuming an initial public offering price of $6.50 per ADS, the midpoint of the estimated range of the public offering price. If the underwriters exercise their over-allotment option in full, we estimate that our net proceeds will be approximately $32.2 million. We intend to use our net proceeds from this offering as follows:
   

•  

$13.6 million for product development;

   

•  

$5.6 million to expand research and development center;

   

•  

$5.0 million to develop customer relations management (CRM) systems; and

   

•  

the balance of the proceeds for working capital.

    For further information, see the section of this prospectus entitled “Use of Proceeds.”
The ADSs    
    Each ADS represents the right to receive one (1) ordinary share. The ADSs may be evidenced by American Depositary Receipts, or ADRs. As an ADS holder, we will not treat you as one of our shareholders. The depositary will be the holder of the shares underlying your ADSs. You will have ADS holder rights as provided in the deposit agreement. Under the deposit agreement, you may instruct the depositary to vote the shares underlying your ADSs. The depositary will pay you the cash dividends or other distributions it receives on shares after deducting its fees and expenses and applicable withholding taxes. You must pay a fee for issuance or cancellation of ADSs, distribution of shares by the depositary and other depositary services, as provided in the deposit agreement. You are entitled to the delivery of the shares underlying your ADSs upon the surrender of such ADSs at the depositary’s office, the payment of applicable fees and expenses and the satisfaction of applicable conditions set forth in the deposit agreement. To better understand the terms of the ADSs, you should carefully read the section in this prospectus entitled “Description of American Depositary Shares.” We also encourage you to read the deposit agreement, which is an exhibit to the registration statement that includes this prospectus.
Depositary    
    The Bank of New York Mellon
Risk factors    
    See “Risk Factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our ADSs.

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Lock-Up    
    Of our outstanding ordinary shares not being offered in this offering, 10,000,000 shares are subject to 180-day lock-up agreements with our underwriters, ROTH Capital Partners, LLC, or ROTH Capital Partners. Subject to certain exceptions, neither we nor any of our directors, executive officers, employees and existing shareholders who are subject to these contractual lock-ups will, for a period of 180 days following the date of this prospectus, offer, sell or contract to sell any ADSs, ordinary shares or similar securities. See “Underwriting.”
Dividend Policy    
    We do not anticipate paying any cash dividends in the near future.
Ticker Symbol    
    We have applied to list our ADSs on the Nasdaq Capital Market under the symbol “KONE”.

Unless we specifically state otherwise, the share information in this prospectus does not give effect to the underwriters’ option to purchase up to an aggregate of 692,308 additional ADSs.

SUMMARY CONSOLIDATED AND COMBINED FINANCIAL INFORMATION

You should read the summary consolidated and combined financial information set forth below in conjunction with our consolidated and combined financial statements and related notes, “Selected Consolidated and Combined Financial Information,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The summary consolidated and combined statements of income and comprehensive income for each of the two years ended November 30, 2009 and 2008, the summary consolidated and combined balance sheets as of November 30, 2009 and 2008, and the summary consolidated and combined statements of cash flows for each of the two years ended November 2009 and 2008 have been derived from our audited consolidated and combined financial statements that are included elsewhere in this prospectus. The consolidated and combined financial statements are prepared and presented in accordance with U.S. GAAP. Our historical results are not necessarily indicative of results to be expected for future periods.

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CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME DATA

KINGTONE WIRELESSINFO SOLUTION HOLDING LTD AND SUBSIDIARIES
Consolidated and Combined Statements of Income and Comprehensive Income
(In thousands of U.S. Dollars)

   
  For the Years Ended November 30,
     2009   2008
Revenues   $ 11,240     $ 4,286  
Cost of sales     3,894       1,621  
Gross margin     7,346       2,665  
Operating expenses
                 
Selling and marketing expenses     350       301  
General and administrative expenses     537       355  
Research and development expense     139       79  
       1,026       735  
Income from operations     6,320       1,930  
Other income (expense)
                 
Subsidy income     307       163  
Interest expenses     (340 )       (531 )  
Other income     24       16  
Other expenses     (79 )       (372 )  
       (88 )       (724 )  
Income before income tax expense     6,232       1,206  
Income tax expense     (935 )       (191 )  
Net income     5,297       1,015  
Other comprehensive income
                 
Foreign currency translation gain (loss)     22       544  
Comprehensive income   $ 5,319     $ 1,559  
Gross Margin Percentage     65.4 %       62.2 %  
Operating Margin Percentage     56.2 %       45.0 %  
Net Margin Percentage     47.1 %       23.7 %  

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CONSOLIDATED AND COMBINED BALANCE SHEET DATA

KINGTONE WIRELESSINFO SOLUTION HOLDING LTD AND SUBSIDIARIES
Consolidated and Combined Balance Sheets
(In thousands of US Dollars)

   
  As of November 30,
     2009   2008
Cash   $ 344     $ 9  
Accounts receivable, net of allowance     2,353       499  
Other receivables and prepayments     1,012       781  
Total assets     17,907       14,677  
Total liabilities     8,781       6,953  
Total stockholders’ equity     9,126       7,724  

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RISK FACTORS

An investment in our ADSs involves a high degree of risk. You should carefully consider the risks and uncertainties described below together with all other information contained in this prospectus, including the matters discussed under “Special Note Regarding Forward-Looking Statements,” before you decide to invest in our ADSs. You should pay particular attention to the fact that we are a holding company with substantial operations in China and are subject to legal and regulatory environments that in many respects differ from those of the United States. If any of the following risks, or any other risks and uncertainties that are not presently foreseeable to us, actually occur, our business, financial condition, results of operations, liquidity and our future growth prospects would be materially and adversely affected. You should also consider all other information contained in this prospectus before deciding to invest in our ADSs.

Risks Related to Our Company and Our Industry

If demand for enterprise remote and mobile connectivity does not continue to expand in China, we may experience a shortfall in revenues or earnings or otherwise fail to meet public market expectations.

The growth of our business is dependent, in part, upon the increased migration by enterprises to wireless connectivity services in China and our ability to capture a higher proportion of this market. If the demand in China for enterprise connectivity services does not continue to grow, or grows in ways that do not use our services, then we may not be able to grow our business, maintain our profitability or meet public market expectations. Increased usage of enterprise connectivity services depends on numerous factors, including:

the willingness of enterprises to make additional information technology expenditures;
the availability of security products necessary to ensure data privacy over the public networks;
the quality, cost and functionality of these services and competing services;
the increased adoption of wired and wireless broadband access methods;
the proliferation of electronic devices such as handhelds and smart-phones and related applications; and
the willingness of enterprises to invest in our services during the current world-wide economic crisis.

We depend on a single customer for a significant portion of our revenues, the loss of which could have a material adverse impact on our business, results of operations or financial condition.

In fiscal year 2009 and fiscal year 2008, we derived approximately 44.7% and 57%, respectively, of our revenues from a single customer. The loss of that customer or a material reduction in the revenue or gross profit generated from that customer could have a material adverse impact on our business, results of operations and financial condition. We also maintain a significant receivable balance with this customer. If this customer becomes unable or unwilling to pay amounts owed to us, our financial condition and results of operations could be adversely affected.

We face intense competition from other software development and IT service companies and, if we are unable to compete effectively, we may lose customers and our revenues may decline.

The market for software products and IT services, including wireless IT application products and solutions, is highly competitive and subject to rapid changes in technology. In the future, we expect significant competition from both established and emerging software companies. In addition, our growth opportunities in new product markets could be limited to the extent established and emerging software companies enter or have entered those markets. We believe the principal competitive factors in our markets are industry experience, quality of the products and services offered, reputation, marketing and selling skills, as well as price. We face significant competition from various competitors, including:

other Chinese wireless data communication and exchange software application and service providers, such as Beijing Silu Innovation Technology Co., Ltd. and Cyber Technologies (Suzhou) Co., Ltd.
other Chinese software developers and IT service provider, that may decide to add wireless data communication and exchange programming capability;

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telecommunication equipment producers and suppliers; and
multi-national service providers.

Many of our current and prospective competitors have significantly greater financial, marketing, service, support, technical and other resources than we do. As a result, they may be able to adapt more quickly than we to new or emerging technologies and changes in customer requirements or to devote greater resources to the promotion and sale of their products. Announcements of competing products by large competitors or other vendors could result in the cancellation of orders by customers in anticipation of the introduction of such new products. In addition, some of our competitors currently make complementary products that are sold separately. Such competitors could decide to enhance their competitive position by bundling their products to attract customers seeking integrated, cost-effective software applications. We also expect competition to increase as a result of software industry consolidations, which may lead to the creation of additional large and well-financed competitors. Increased competition is likely to result in price reductions, fewer customer orders, reduced margins and loss of market share.

We may be unable to effectively manage our rapid growth, which could place significant strain on our management personnel, systems and resources. We may not be able to achieve anticipated growth, which could materially and adversely affect our business and prospects.

We have experienced rapid growth in our application implementations and revenues recently. Our sales grew to $11.24 million in fiscal 2009 from $4.29 million in fiscal 2008. With the forecasted increased market demand for wireless information management applications created by the recent deployment of 3G networks, we are actively developing our business and expanding our workforce to pursue existing and potential market opportunities.

Our rapid growth places a significant strain on our management personnel, system and resources. To accommodate our growth, we will need to implement a variety of new and upgraded operational and financial systems, procedures and controls, including the improvement of our accounting and other internal management systems, all of which require substantial management efforts. We also will need to continue to expand, train, manage and motivate our workforce and manage our customer relationships. Moreover, as we introduce new solutions or services or enter into new markets, we may face new market, technological and operational risks and challenges with which we are unfamiliar or cannot foresee. All of these endeavors will involve risks and require substantial management efforts and skills. As a result of any of these problem associated with growth, our business, results of operations and financial condition could be materially and adversely affected. Furthermore, we may not be able to achieve anticipated growth, which could materially and adversely affect our business and prospects.

We may undertake acquisitions, investments, joint ventures or other strategic alliances, which could have a material adverse effect on our ability to manage our business. In addition, such undertakings may not be successful.

Our strategy includes plans to grow both organically and through acquisitions, participation in joint ventures or other strategic alliances. Joint ventures and strategic alliances may expose us to new operational, regulatory and market risks, as well as risks associated with additional capital requirements. We may not be able, however, to identify suitable future acquisition candidates or alliance partners. Even if we identify suitable candidates or partners, we may be unable to complete an acquisition or alliance on terms commercially acceptable to us. If we fail to identify appropriate candidates or partners, or complete desired acquisitions, we may not be able to implement our strategies effectively or efficiently.

In addition, our ability to successfully integrate acquired companies and their operations may be adversely affected by a number of factors. These factors include:

diversion of management’s attention;
difficulties in retaining customers of the acquired companies;
difficulties in retaining personnel of the acquired companies;
entry into unfamiliar markets;

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unanticipated problems or legal liabilities; and
tax and accounting issues.

If we fail to integrate acquired companies efficiently, our earnings, revenues growth and business could be negatively affected.

Due to intense competition for highly-skilled personnel, we may fail to attract and retain enough sufficiently trained employees to support our operations; our ability to bid for and obtain new projects may be negatively affected and our revenues could decline as a result.

The IT industry relies on skilled employees, and our success depends to a significant extent on our ability to attract, hire, train and retain qualified employees. Wireless information management application development is a relatively new area in the IT industry. There is a small pool of experienced developers. As the market demand picks up and more IT companies enter this market, there is significant competition in China for professionals with the skills necessary to develop the products and perform the services we offer to our customers. Increased competition for these professionals, in the wireless information management application development areas or otherwise, could have an adverse effect on us if we experience significant increase in the attrition rate among employees with specialized skills, which could decrease our operating efficiency and productivity and could lead to a decline in demand for our services.

In addition, our ability to serve existing customers and business partners and obtain new business will depend, in large part, on our ability to attract, train and retain skilled personnel that enable us to keep pace with growing demands for wireless information management application, evolving industry standards and changing customer preferences. Our failure to attract, train and retain personnel with the qualifications necessary to fulfill the needs of our existing and future customers or to assimilate new employees successfully could have a material adverse effect on our business, financial condition and results of operations. Our failure to retain our key personnel on business development or find suitable replacements of the key personnel upon their departure may lead to shrinking new implementation projects, which could materially adversely affect our business.

Our business depends substantially on the continuing efforts of our senior executives and other key personnel, and our business may be severely disrupted if we lose their services.

Our future success heavily depends upon the continued services of our senior executives and other key employees. In particular, we rely on the expertise and experience of Mr. Tao Li, our chairman. In addition, we rely on Mr. Peng Zhang, our chief executive officer, Ms. Ying Yang, our chief financial officer, and Mr. Pengguo Xi, our chief technology officer, to run our business operations. If one or more of our senior executives or key employees is unable or unwilling to continue in his or her present position, we may not be able to replace such employee easily or at all, we may incur additional expenses to recruit, train and retain replacement personnel, our business may be severely disrupted, and our financial condition and results of operations may be materially adversely affected.

If Mr. Li’s other professional duties interfere or conflict with his duties for our company, our business, results of operations and financial condition could be materially and adversely affected.

Mr. Li, our chairman, currently serves as the chairman and chief executive officer of China Green Agriculture, Inc. (“CGA”), a producer of humic acid based compound fertilizer in the PRC whose common stock is listed on the New York Stock Exchange. Mr. Li’s duties as chairman and chief executive officer of CGA require the devotion of a substantial amount of his professional time and attention. Li currently devotes approximately 70% of his professional time to his duties for CGA. Similarly, our success and the execution of our growth strategy will require his significant efforts and the devotion of a substantial amount of his professional time and attention. If the performance of his duties on behalf of CGA interfere or conflict with his duties as chairman of our company, we may not be able to achieve our anticipated growth and our business, results of operations and financial condition could be materially adversely affected.

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Our business could suffer if our executives and directors compete against us and our non-competition agreements with them cannot be enforced.

If any of our senior executives or key employees joins a competitor or forms a competing company, we may lose customers, know-how and key professionals and staff members to them. Also, if any of our business development managers who keep a close relationship with our customers and business partners joins a competitor or forms a competing company, we may lose customers, and our revenues may be materially adversely affected. Most of our executives have entered into employment agreements with us that contain non-competition provisions. However, if any dispute arises between our executive officers and us, such non-competition provisions may not be enforceable, especially in China, where all of these executive officers and key employees reside, in light of the uncertainties with China’s legal system. See “— Risks Related to Doing Business in China — Uncertainties with respect to the PRC legal system could adversely affect us.”

A significant portion of the software development, ongoing system support and enhancement service revenues we generate are fixed amounts according to our sales contracts. If we fail to accurately estimate costs and determine resource requirements in relation to our projects, our margins and profitability could be materially and adversely affected.

A significant portion of the software development, ongoing system support and enhancement service revenues we generate are fixed amounts according to our sales contracts or bids we submit. Our projects often involve complex technologies and must often be completed within compressed timeframes and meet increasingly sophisticated customer requirements. We may be unable to accurately assess the time and resources required for completing projects and price our projects accordingly. If we underestimate the time or resources required, we may experience cost overruns and mismatches in project staffing. Conversely, if we over-estimate requirements, our bids may become uncompetitive and we may lose business as a result. Furthermore, any failure to complete a project within the stipulated timeframe could expose us to contractual and other liabilities and damage our reputation.

Our computer networks may be vulnerable to security risks that could disrupt our services and adversely affect our results of operations.

Our computer networks may be vulnerable to unauthorized access, computer hackers, computer viruses and other security problems caused by unauthorized access to, or improper use of, systems by third parties or employees. A hacker who circumvents security measures could misappropriate proprietary information or cause interruptions or malfunctions in operations. Computer attacks or disruptions may jeopardize the security of information stored in and transmitted through computer systems of our customers. Actual or perceived concerns that our systems may be vulnerable to such attacks or disruptions may deter telecom operators and consumers from using our solutions or services. As a result, we may be required to expend significant resources to protect against the threat of these security breaches or to alleviate problems caused by these breaches, which could adversely affect our results of operations.

If we do not continually enhance our solution and service offerings, we may have difficulty in retaining existing customers and attracting new customers.

We believe that our future success will depend, to a significant extent, upon our ability to enhance our existing solutions and to introduce new solutions and features to meet the requirements of our customers in a rapidly developing and evolving market. We currently devote significant resources to refining and expanding our base software modules and to developing solutions that operate in accordance with our customers’ networks and systems. Unexpected technical, operational, distribution or other problems could delay or prevent the introduction of one or more of these products or services or any products or services that we may plan to introduce in the future. Our present or future products may not satisfy the evolving needs of the telecom industry, and these solutions and services may not achieve anticipated market acceptance or generate incremental revenue. If we are unable to anticipate or respond adequately to the need for solutions and services enhancements due to resource, technological or other constraints, our business, financial condition and results of operations could be materially and adversely affected.

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If we are unable to develop competitive new products and service offerings our future results of operations could be adversely affected.

Our future revenue stream depends to a large degree on our ability to utilize our technology in a way that will allow us to offer new types of software applications and services to a broader client base. We will be required to make investments in research and development in order to continue to develop new software applications and related service offerings, enhance our existing software applications and related service offerings and achieve market acceptance of our software applications and service offerings. We may incur problems in the future in innovating and introducing new software applications and service offerings. Our development-stage software applications may not be successfully completed or, if developed, may not achieve significant customer acceptance. If we are unable to successfully define, develop and introduce competitive new software applications, and enhance existing software applications, our future results of operations would be adversely affected. Development schedules for software applications are difficult to predict. The timely availability of new applications and their acceptance by customers are important to our future success. A delay in new the development of new applications could have a significant impact on its results of operations.

Changes in technology could adversely affect our business by increasing our costs, reducing our profit margins and causing a decline in our competitiveness.

China’s wireless telecom industry, in which we operate, is characterized by rapidly changing technology, evolving industry standards, frequent new services and solutions introductions and enhancements as well as changing customer demands. New solutions and new technologies often render existing solutions and services obsolete, excessively costly or otherwise unmarketable. As a result, our success depends on our ability to adapt to the latest technological progress, such as the 3G standard and technologies, and to develop or acquire and integrate new technologies into our software solutions and IT-related services. Advances in technology also require us to commit substantial resources to developing or acquiring and then deploying new technologies for use in our operations. We must continuously train personnel in new technologies and in how to integrate existing hardware and software systems with these new technologies. We may not be able to adapt quickly to new technologies or commit sufficient resources to compete successfully against existing or new competitors in bringing to market solutions and services that incorporate these new technologies. We may incur problems in the future in innovating and introducing new software applications and service offerings. Our development-stage software applications may not be successfully completed or, if developed, may not achieve significant customer acceptance. If we fail to adapt to changes in technologies and compete successfully against established or new competitors, our business, financial condition and results of operations could be adversely affected.

Returns on our investment in new technologies, such as 3G technology, and new solutions may not materialize as expected.

We have invested and will invest in the future a substantial amount of capital, manpower and other resources to develop new solutions and acquire technologies in preparation for the adoption by the wireless telecom industry in China of new standards and technologies, such as the 3G standard and technologies. However, our abilities to successfully develop and commercialize these new solutions and technologies are subject to a number of risks and uncertainties, including uncertainty surrounding the timing of the adoption of these new standards and technologies by China’s telecom industry and the receptiveness to these new technologies by their customer base, as well as our abilities to develop and market these new solutions cost-effectively and to deliver these solutions ahead of our competitors. Any of the above risks and uncertainties could jeopardize our ability to successfully realize a significant return on our investment in the 3G and other new technologies and solutions, if at all.

Problems with the quality or performance of our solutions may cause delays in the introduction of new solutions or result in the loss of customers and revenues, which could have a material and adverse effect on our business, financial condition and results of operations.

Our software solutions are complex and may contain defects, errors or bugs when first introduced to the market or to a particular customer, or as new versions are released. Because we cannot test for all possible scenarios, our solutions may contain errors which are not discovered until after they have been installed, and

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we may not be able to timely correct these problems. These defects, errors or bugs could interrupt or delay completion of projects or sales to our customers. In addition, our reputation may be damaged and we may fail to acquire new projects from existing customers or new customers. Errors may occur when we provide systems integration and maintenance services. Some of the contracts with our customers do not have provisions setting forth limitations on liability for consequential damages. Even in cases where we have agreements with our customers that contain provisions designed to limit our exposure to potential claims and liabilities arising from customer problems, these provisions may not effectively protect us against such claims in all cases and in all jurisdictions. In addition, as a result of business and other considerations, we may undertake to compensate our customers for damages arising from the use of our solutions, even if our liability is limited by these provisions. Moreover, claims and liabilities arising from customer problems could also result in adverse publicity and materially and adversely affect our business, results of operations and financial condition. We currently do not carry any product or service liability insurance and any imposition of liability on us may materially and adversely affect our business and increase our cost, resulting in reduced revenues and profitability.

Our products may contain undetected software defects, which could negatively affect our revenues.

Our software products are complex and may contain undetected defects. In the past, we have discovered software defects in certain of our products and have experienced delayed or lost revenues during the period it took to correct these problems. Although we test our products, it is possible that errors may be found or occur in our new or existing products after we have commenced commercial shipment of those products. Defects, whether actual or perceived, could result in adverse publicity, loss of revenues, product returns, a delay in market acceptance of our products, loss of competitive position or claims against us by customers. Any such problems could be costly to remedy and could cause interruptions, delays, or cessation of our product sales, which could cause us to lose existing or prospective customers and could negatively affect our results of operations.

We may be subject to infringement, misappropriation and indemnity claims in the future, which may cause us to incur significant expenses, pay substantial damages and be prevented from providing our services or technologies.

Our success depends, in part, on our ability to carry out our business without infringing the intellectual property rights of third parties. Patent and copyright law covering software-related technologies and IT marketing is evolving rapidly and is subject to a great deal of uncertainty. Our self-developed or licensed technologies, processes or methods may be covered by third-party patents or copyrights, either now existing or to be issued in the future. Any potential litigation may cause us to incur significant expenses. Third-party claims, if successfully asserted against us may cause us to pay substantial damages, seek licenses from third parties, pay ongoing royalties, redesign our services or technologies, or prevent us from providing services or technologies subject to these claims. Even if we were to prevail, any litigation would likely be costly and time-consuming and divert the attention of our management and key personnel from our business operations.

Additionally, most of our software development contracts signed with our customers contain indemnity clauses whereby we will indemnify our customers for any loss or damages suffered as a result of any third-party claims against them for any infringement of intellectual property rights in connection with the installation and use of the customized software solutions we develop for them. We may still be exposed to significant liabilities under these indemnity clauses agreed with our customers.

Our failure to protect our intellectual property rights may undermine our competitive position, and subject us to costly litigation to protect our intellectual property rights.

Any misappropriation of our technology or the development of competitive technology could seriously harm our business. We regard a substantial portion of our software solutions and systems as proprietary and rely on statutory copyright, trademark, patent, trade secret laws, customer license agreements, employee and third-party non-disclosure agreements and other methods to protect our proprietary rights. Nevertheless, these resources afford only limited protection and the actions we take to protect our intellectual property rights may not be adequate. In particular, third parties may infringe or misappropriate our proprietary technologies or other intellectual property rights, which could have a material adverse effect on our business, financial

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condition and results of operations. In addition, intellectual property rights and confidentiality protection in China may not be as effective as in the United States, and policing unauthorized use of proprietary technology can be difficult and expensive. In addition, litigation may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of the proprietary rights of others. The outcome of any such litigation may not be in our favor. Furthermore, any such litigation may be costly and may divert management attention as well as our other resources away from our business. An adverse determination in any such litigation will impair our intellectual property rights and may harm our business, prospects and reputation. In addition, we have no insurance coverage against litigation costs and would have to bear all litigation costs in excess of the amount recoverable from other parties. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.

Our solutions incorporate a portion of and work in conjunction with third-party hardware and software solutions. If these third-party hardware or software solutions are not available to us at reasonable costs or at all, our results of operations could be adversely impacted.

Although our solutions primarily rely on our own core technologies, some of our solutions incorporate a small portion of third-party hardware and software solutions. In addition, our solutions are designed to work in conjunction with the third-party hardware and software in our customers’ existing systems. If any third party were to discontinue making their solutions available to us or our customers on a timely basis, or increase materially the cost of their solutions, or if our solutions failed to properly function or interoperate with replacement hardware or software solutions, we may need to incur costs in finding replacement third-party solutions and/or redesigning our solutions to replace or function with or on replacement third-party solutions. Replacement solutions may not be available on terms acceptable to us or at all, and we may be unable to develop alternative solutions or redesign our solutions on a timely basis or at a reasonable cost. If any of these were to occur, our results of operations could be adversely impacted.

Our ability to sell our products is highly dependent on the quality of our service and support offerings, and our failure to offer high quality service could have a material adverse effect on our ability to market and sell our products.

Our customers depend upon our customer service and support staff to resolve issues relating to our products. High-quality support services are critical for the successful marketing and sale of our products. If we fail to provide high-quality support on an ongoing basis, our customers may react negatively and we may be materially and adversely affected in our ability to sell additional products to these customers. This could also damage our reputation and prospects with potential customers. Our failure to maintain high-quality support services could have a material and adverse effect on our business, results of operations and financial condition.

If we fail to establish or maintain an effective system of internal controls, we may be unable to accurately report our financial results or prevent fraud, and investor confidence and the market price of our shares may, therefore, be adversely impacted.

We will be subject to reporting obligations under the U.S. securities laws. Our reporting obligations as a public company will place a significant strain on our management, operational and financial resources and systems for the foreseeable future. Beginning with our annual report on Form 20-F for the fiscal year ending September 30, 2010, we will be required to prepare a management report on our internal controls over financial reporting containing our management’s assessment of the effectiveness of our internal controls over financial reporting. In addition, depending on our market capitalization, our independent registered public accounting firm may be required to attest to and report on our management’s assessment of the effectiveness of our internal controls over financial reporting. Our management may conclude that our internal controls over our financial reporting are not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may still decline to attest to our management’s assessment or may issue a report that is qualified if it is not satisfied with our controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us.

Prior to this offering, we have been a private company with a limited number of accounting personnel and we have accounted for our business using PRC accounting standards similar for small growing PRC

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companies. Our accounting staff has limited experience with U.S. GAAP standards and reporting requirements and the rules and regulations as promulgated by the U.S. Public Company Accounting Oversight Board, or PCAOB. Our current staff is not experienced in U.S. GAAP requirements and we may experience difficulties or problems in developing strong internal controls and internal documentation, accounting, auditing and reporting systems. It is possible that our weaknesses in these areas could lead to errors and mistakes that are damaging to the Company. We have begun the process to improve our U.S. GAAP reporting capabilities and we plan to hire additional accounting personnel with U.S. GAAP experience to improve our ability to apply U.S. GAAP. We prepared and are in the process of implementing formal accounting policies and procedures to address key accounting areas for routine and non-routine transactions. We are working to implement these measures in fiscal 2010, although we cannot assure you that we will complete such implementation by then. The process of designing and implementing an effective financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments.

We will continue to implement measures to identify and, if necessary, to remedy any material weaknesses and significant deficiencies to meet the deadline imposed by Section 404 of the Sarbanes-Oxley Act. If we fail to timely achieve and maintain the adequacy of our internal controls, we may not be able to conclude that we have effective internal controls over financial reporting. Moreover, effective internal controls over financial reporting are necessary for us to produce reliable financial reports and are important to help prevent fraud. As a result, our failure to achieve and maintain effective internal controls over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the market price of our ADSs. Furthermore, we anticipate that we will incur considerable costs and use significant management time and other resources in an effort to comply with Section 404 of the Sarbanes-Oxley Act. We estimate that the cost of improving our U.S. GAAP reporting capabilities and establishing effective internal controls will be $250,000 to $350,000 per year, which includes the cost of hiring additional qualified chief financial officer and qualified accounting personnel.

We have very limited insurance coverage which could expose us to significant costs and business disruption.

We do not maintain any insurance coverage for our leased properties. Should any natural catastrophes such as earthquakes, floods, typhoons or any acts of terrorism occur in Shaanxi Province, where our head office is located and most of our employees are based, or elsewhere in China, we might suffer not only significant property damages, but also loss of revenues due to interruptions in our business operations, which could have a material adverse effect on our business, operating results or financial condition.

The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited business insurance products, and do not, to our knowledge, offer business liability insurance. As a result, we do not have any business liability insurance coverage for our operations. Moreover, while business disruption insurance is available, we have determined that the risks of disruption and cost of the insurance are such that we do not require it at this time. Any business disruption, litigation or natural disaster might result in substantial costs and diversion of resources, particularly if it affects our technology platforms which we depend on for delivery of our software and services, and could have a material adverse effect on our financial condition and results of operations.

We may be liable to our customers for damages caused by unauthorized disclosure of sensitive and confidential information, whether through our employees or otherwise.

We are typically required to manage, utilize and store sensitive or confidential customer data in connection with the products and services we provide. Under the terms of our customer contracts, we are required to keep such information strictly confidential. We seek to implement specific measures to protect sensitive and confidential customer data. We require our employees to enter into non-disclosure arrangements to limit access to and distribution of our customer’ sensitive and confidential information as well as our own trade secrets. We can give no assurance that the steps taken by us in this regard will be adequate to protect our customer’ confidential information. If our customers’ proprietary rights are misappropriated by our employees, in violation of any applicable confidentiality agreements or otherwise, our customer may consider us liable for that act and seek damages and compensation from us. However, we currently do not have any insurance coverage for mismanagement or misappropriation of such information by our employees. Any

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litigation with respect to unauthorized disclosure of sensitive and confidential information might result in substantial costs and diversion of resources and management attention.

We may face intellectual property infringement claims that could be time-consuming and costly to defend. If we fail to defend ourselves against such claims, we may lose significant intellectual property rights and may be unable to continue providing our existing products and services.

It is critical that we use and develop our technology and products without infringing the intellectual property rights of third parties, including patents, copyrights, trade secrets and trademarks. Intellectual property litigation is expensive and time-consuming and could divert management’s attention from our business. A successful infringement claim against us, whether with or without merit, could, among others things, require us to pay substantial damages, develop non-infringing technology, or re-brand our name or enter into royalty or license agreements that may not be available on acceptable terms, if at all, and cease making, licensing or using products that have infringed a third party’s intellectual property rights. Protracted litigation could also result in existing or potential customers deferring or limiting their purchase or use of our products until resolution of such litigation, or could require us to indemnify our customers against infringement claims in certain instances. Also, we may be unaware of intellectual property registrations or applications relating to our services that may give rise to potential infringement claims against us. Parties making infringement claims may be able to obtain an injunction to prevent us from delivering our services or using technology containing the allegedly infringing intellectual property. Any intellectual property litigation could have a material adverse effect on our business, results of operations or financial condition.

We have transferred intellectual property rights to a number of our customized software solutions to our customers in the past and may not own all these intellectual property rights. We may be subject to intellectual property infringement claims from these customers and others, which may force us to incur substantial legal expenses and, if determined adversely against us, may disrupt our business and materially and adversely affect our revenues and net income.

Our business involves the development and customization of software solutions for customers. While we retain ownership in the intellectual property rights underlying the core technologies required to develop our customized finished software solutions, in most cases, our contracts for custom-designed projects provided that our customers own, or share with us, intellectual property rights to the finished software solutions developed under such contracts. Under these circumstances, we may not have the right to reuse the related finished software in projects involving other customers nor can we unilaterally apply for copyright registrations, patents or other intellectual property rights for these software solutions. To the extent that we are unable to reuse the software and to the extent that the use of such software is important to the growth of our business with other customers, the inability to reuse such software could hinder the growth of our business. Furthermore, a portion of these contracts provide that our customers have ownership rights to any substantial improvements we subsequently make to the software solutions developed under these contracts. As a result, we may be subject to intellectual property infringement or profit sharing claims in the future from these customers. Any such claims could subject us to costly litigation and may require us to pay damages and develop non-infringing intellectual property or acquire licenses to the intellectual property that is the subject of the alleged infringement. These could harm our reputation and materially and adversely affect our business and net income.

Our balance sheet includes a deposit for a single significant commercial real estate asset, the Kingtone Center, which is the planned future site of the company’s operations. A significant, long-term decline in the estimated fair value of this property could result in an asset impairment charge, which would be recorded as an operating expense in our Consolidated and Combined Statement of Income and could be material.

Under current accounting standards, real estate, including related improvements, is stated at cost, less any accumulated depreciation. These standards require us to evaluate real estate assets for possible impairment whenever events or circumstances indicate that their carrying value might not be recoverable and exceed the assets’ fair value. The carrying value is deemed unrecoverable if it is greater than the sum of undiscounted cash flows expected to result from the use (including rental income) and eventual disposition of the asset. An impairment loss is equal to the excess of the carrying value over the fair value of the asset. Although we plan

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to use consistent methodologies in developing the assumptions and estimates underlying the fair value calculations used in impairment tests for our real estate assets, these estimates are uncertain by nature and can vary from actual results. If we determine that the fair value is less than its carrying value on our balance sheet, we will recognize an impairment charge for the difference.

In April 2008, Kingtone Information contracted to purchase the Kingtone Center, a 20,000 square meter warehouse and industrial facility in Xian, Shaanxi Province, PRC, for approximately $12 million (RMB83,417,200) in an all-cash transaction. We paid the purchase price and are currently in the process of obtaining the property ownership certificate from the provincial government. We plan to move our entire operations to this facility by the end of 2010, at which time we plan to evaluate our immediate needs for existing operations and, if feasible, we may seek to lease out a portion of any unused space. This asset is recorded on Kingtone Information’s balance sheet as of September 30, 2009 as “Deposit to purchase building” and once the certificate is received the asset will be re-characterized accordingly. At September 30, 2009, we had approximately $12,200,000 of deposits for real estate assets on our balance sheet, all of which was attributable to Kingtone Center, which represented 68% of our total assets at September 30, 2009. It is possible that we could have an impairment charge for real estate assets in future periods if the commercial real estate market in the PRC, or in our region of the PRC, suffers a general and sustained decline, which would result in a lower value for our real estate assets. Any such future impairment charge for real estate assets could have a material adverse effect on our financial position or results of operations.

The title transfer for the Kingtone Center has been delayed because certain transfer taxes and fees have not been paid by the seller. A further delay could also delay our possession of the Premises.

Kingtone Information entered into a purchase agreement on April 22, 2008 to purchase the land use right and building ownership of the premises located at No.17 Huoju Road, Beilin District, Xi’an (the “Premises”) for approximately $US12 million (RMB83,417,200) in an all-cash transaction. Kingtone Information has already paid 100% of the purchase price to the seller; however, the title transfer of the Premises has not been consummated because the seller has not yet paid transfer taxes and fees of approximately $US600,000 (RMB 4 million) to the relevant local PRC authorities. We have confirmed with the local authorities that the payment of the taxes and fees is the only outstanding requirement before the issuance of the new certificates for the Premises. Despite Kingtone Information’s efforts to compel the seller to pay such taxes and fees, it has not done so. Further delays in such payment will likely delay the consummation of the title transfer which could also delay our possession of the Premises. Furthermore, until the title transfer is completed, there exists a risk that the Premises could be subjected to competing third-party claims, liens or encumbrances, which could adversely affect the completion of the transfer process. As of the date of this Prospectus, we have no knowledge of any pending or threatened third-party claims or encumbrances relating to the Premises. If the title transfer is further delayed due to the seller’s failure to make the outstanding payment, we may be forced to pay the outstanding amount on seller’s behalf in order to complete the title transfer and take possession of the Premises. In such event, we may consider pursuing a claim for money damages against the seller, although there can be no assurance of a successful recovery.

Seasonality and fluctuations in our customers’ annual IT budget and spending cycle and other factors can cause our revenues and operating results to vary significantly from quarter to quarter and from year to year.

Our revenues and operating results will vary significantly from quarter to quarter and from year to year due to a number of factors, many of which are outside of our control. A large number of our engineers take leave around the Chinese New Year holiday, which typically falls between late January and February of each year. The lack of man-hours during this holiday period usually leads to relatively lower revenues during the first calendar quarter. We typically experience higher revenues during the fourth quarter of the year as more of our software solutions are delivered and installed close to the year-end, the timing of which delivery and installation is influenced by the calendar-year-based IT budget and spending cycle of many of our customers. Due to the annual budget cycles of most of our customers, we also may be unable to accurately estimate the demand for our solutions and services beyond the immediate calendar year, which could adversely affect our business planning. Moreover, our results will vary depending on our customers’ business needs from year to year. Due to these and other factors, our operating results have fluctuated significantly from quarter to quarter

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and from year to year. These fluctuations are likely to continue in the future, and operating results for any period may not be indicative of our future performance in any future period.

Our corporate actions are substantially controlled by our principal shareholders, who can cause us to take actions in ways you may not agree with.

Mr. Tao Li, our chairman, beneficially owns and has voting control over 60.1% of our ordinary shares, and our other officers and directors beneficially own and have voting control over an aggregate of 2.5% of our ordinary shares, pursuant to certain Call Option Agreements with Xtra Heights Management Ltd., the record holder of the shares. See the section entitled “Corporate History and Structure”. Even after the completion of this offering, our officers, directors and principal shareholders will hold approximately 44.0% of our outstanding shares (assuming no exercise of the underwriters’ over-allotment option). These shareholders, acting individually or as a group, could exert control and substantial influence over matters such as electing directors, amending our constitutional documents, and approving acquisitions, mergers or other business combination transactions. This concentration of ownership and voting power may also discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and might reduce the price of our shares. Alternatively, our controlling shareholders may cause a merger, consolidation or change of control transaction even if it is opposed by our other shareholders, including those who purchase shares in this offering.

Risk Related to Doing Business in China

Adverse changes in political and economic policies of the PRC government could have a material adverse effect on the overall economic growth of China, which could reduce the demand for our services and materially and adversely affect our competitive position.

Substantially all of our business operations are conducted in China. Accordingly, our business, results of operations, financial condition and prospects are subject to a significant degree to economic, political and legal developments in China. Although the Chinese economy is no longer a planned economy, the PRC government continues to exercise significant control over China’s economic growth through direct allocation of resources, monetary and tax policies, and a host of other government policies such as those that encourage or restrict investment in certain industries by foreign investors, control the exchange between RMB and foreign currencies, and regulate the growth of the general or specific market. These government involvements have been instrumental in China’s significant growth in the past 30 years. The reorganization of the telecommunications industry encouraged by the PRC government has directly affected our industry and our growth prospect. In response to the recent global and Chinese economic downturn, the PRC government has adopted policy measures aimed at stimulating the economic growth in China. If the PRC government’s current or future policies fail to help the Chinese economy achieve further growth or if any aspect of the PRC government’s policies limits the growth of the telecommunications industry in China or our industry or otherwise negatively affects our business, our growth rate or strategy, our results of operations could be adversely affected as a result.

Our business benefits from certain government tax incentives. Expiration, reduction or discontinuation of, or changes to, these incentives will increase our tax burden and reduce our net income.

Under the PRC Enterprise Income Tax Law passed in 2007 and the implementing rules, both of which became effective on January 1, 2008, or the New EIT Law, a unified enterprise income tax rate of 25% and unified tax deduction standard is applied equally to both domestic-invested enterprises and foreign-invested enterprises, or FIEs. Enterprises established prior to March 16, 2007 eligible for preferential tax treatment in accordance with the then tax laws and administrative regulations shall gradually become subject to the New EIT Law rate over a five-year transition period starting from the date of effectiveness of the New EIT Law. However, certain qualifying high-technology enterprises may still benefit from a preferential tax rate of 15% if they own their core intellectual properties and they are enterprises in certain State-supported high-tech industries to be later specified by the government. As a result, if our PRC subsidiaries qualify as “high-technology enterprises,” they will continue to benefit from the preferential tax rate of 15%, subject to transitional rules implemented from January 1, 2008. Furthermore, if our PRC subsidiaries, including Kingtone Information qualify as “key software enterprises,” they will enjoy a further reduction to their preferential tax

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rate to 10%. Kingtone Information has been qualified as a “high-technology enterprise” for a three year period from November 21, 2008 and therefore it has benefited from the preferential tax rate of 15%, subject to transitional rules implemented on January 1, 2008. Otherwise, the applicable tax rate of our PRC subsidiaries may gradually increase to the unified tax rate of 25% by January 1, 2013 under the New EIT Law and the Implementing Rules. Currently, the value-added taxes we pay on our software products are refunded to us by the tax authorities as part of the PRC state policies to encourage the development of the PRC software industry. If Kingtone Information ceases to qualify as a “high-technology enterprise” or “key software enterprise,” or if the refund of the value-added taxes ceases to apply, our financial condition and results of operations could be materially and adversely affected.

If we and/or Topsky were deemed a “resident enterprise” by PRC tax authorities, we and/or Topsky could be subject to tax on our global income at the rate of 25% under the New EIT Law and our non-PRC shareholders could be subject to certain PRC taxes.

Under the New EIT Law and the implementing rules, both of which became effective January 1, 2008, an enterprise established outside of the PRC with “de facto management bodies” within the PRC may be considered a PRC “resident enterprise” and will be subject to the enterprise income tax at the rate of 25% on its global income as well as PRC enterprise income tax reporting obligations. The implementing rules of the New EIT Law define “de facto management” as “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise. If we and/or Topsky were to be considered a “resident enterprise” by the PRC tax authorities, our and/or Topsky’s global income would be taxable under the New EIT Law at the rate of 25% and, to the extent we and/or Topsky were to generate a substantial amount of income outside of PRC in the future, we and/or Topsky would be subject to additional taxes. In addition, the dividends we pay to our non-PRC enterprise shareholders and gains derived by such shareholders or ADS holders from the transfer of our shares or ADSs may also be subject to PRC withholding tax at the rate up to 10%, if such income were regarded as China-sourced income. However, as of the date of this prospectus, no final interpretations on the implementation of the “resident enterprise” designation are available. Moreover, any such designation, when made by PRC tax authorities, will be determined based on the facts and circumstances of individual cases. As a result, we cannot determine the likelihood of our being designated a “resident enterprise” as of the date of this prospectus.

Our holding company structure may limit the payment of dividends.

We have no direct business operations, other than our ownership of our subsidiaries and our contractual control of Kingtone Information. While we have no current intention of paying dividends, should we decide in the future to do so, as a holding company, our ability to pay dividends and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiaries and other holdings and investments. Current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, each of our subsidiaries in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. These reserves are not distributable as cash dividends. Furthermore, if our subsidiaries in China incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us. As a result, there may be limitations on the ability of our PRC subsidiaries to pay dividends or make other investments or acquisitions that could be beneficial to our business, or otherwise fund and conduct our business.

In addition, under the New EIT Law and the implementing rules that became effective on January 1, 2008, dividends generated from the business of our PRC subsidiaries after January 1, 2008 and payable to us and/or Topsky may be subject to a withholding tax rate of 10% if the PRC tax authorities subsequently determine that we and/or Topsky is a non-resident enterprise, unless there is a tax treaty with China that provides for a different withholding arrangement. Topsky, the direct holder of 100% of the equity interests of Softech, is organized in Singapore. Under the Notice of the State Administration of Taxation on Delivering the Table of Negotiated Dividends and Interest Rates to Lower Levels of People’s Republic of China, such dividend withholding tax rate is reduced to 5% if a Singapore resident enterprise owns over 25% of the PRC company distributing the dividends. As Topsky is a Singapore company and owns 100% of Softech, under the

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aforesaid notice, any dividends that Softech pays to Topsky will be subject to a withholding tax at the rate of 5%, provided that Topsky is not considered to be PRC tax resident enterprises. If, however, Topsky is regarded as a resident enterprise, the dividends payable to Topsky from Softech may be exempt from the PRC income tax, and the dividends payable from Topsky to us will be subject to a 10% PRC withholding tax (unless we are considered to be a PRC tax resident enterprise). Any such taxes could thus materially reduce the amount of funds available to us to meet our cash requirements, including the payment of dividends to our shareholders.

Uncertainties with respect to the PRC legal system could adversely affect us.

We conduct all of our business through our subsidiaries in China. Our operations in China are governed by PRC laws and regulations. Our PRC subsidiaries are generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws and regulations applicable to wholly foreign-owned enterprises. The PRC legal system is based on statutes. Prior court decisions may be cited for reference but have limited precedential value.

Since 1979, PRC legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, because these laws and regulations are relatively new, and because of the limited volume of published decisions and their nonbinding nature, the interpretation and enforcement of these laws and regulations involve uncertainties. In addition, the PRC legal system is based in part on government policies and internal rules (some of which are not published on a timely basis or at all) that may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until some time after the violation. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention.

PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our PRC operating subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

In utilizing the proceeds of this offering in the manner described in “Use of Proceeds,” as an offshore holding company of our PRC operating subsidiaries, we may make loans to our PRC subsidiaries, or we may make additional capital contributions to our PRC subsidiaries. Any loans to our PRC subsidiaries are subject to PRC regulations. For example, loans by us to our subsidiaries in China, which are FIEs, to finance their activities cannot exceed statutory limits and must be registered with the State Administration of Foreign Exchange, or SAFE. On August 29, 2008, SAFE promulgated Circular 142, a notice regulating the conversion by a foreign-invested company of foreign currency into RMB by restricting how the converted RMB may be used. The notice requires that RMB converted from the foreign currency-denominated capital of a foreign-invested company may only be used for purposes within the business scope approved by the applicable governmental authority and may not be used for equity investments within the PRC unless specifically provided for otherwise. The foreign currency-denominated capital shall be verified by an accounting firm before converting into RMB. In addition, SAFE strengthened its oversight over the flow and use of RMB funds converted from the foreign currency-denominated capital of a foreign-invested company. To convert such capital into RMB, the foreign-invested company must report the use of such RMB to the bank, and the RMB must be used to the reported purposes. According to Circular 142, change of the use of such RMB without approval is prohibited. In addition, such RMB may not be used to repay RMB loans if the proceeds of such loans have not yet been used. Violations of Circular 142 may result in severe penalties, including substantial fines as set forth in the Foreign Exchange Administration Rules.

We may also decide to finance our subsidiaries by means of capital contributions. These capital contributions must be approved by the PRC Ministry of Commerce, or MOFCOM, or its local counterpart. We may not be able to obtain these government approvals on a timely basis, if at all, with respect to future capital contributions by us to our PRC subsidiaries. If we fail to receive such approvals, our ability to use the proceeds of this offering and to capitalize our PRC operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business.

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Governmental control of currency conversion may affect the value of your investment.

The PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially all of our revenues in RMB. Under our current corporate structure, our income is primarily derived from dividend payments from our PRC subsidiaries. Shortages in the availability of foreign currency may restrict the ability of our PRC subsidiaries to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions, can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. However, approval from appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs or ordinary shares.

Fluctuation in the value of the RMB may have a material adverse effect on the value of your investment.

The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar. Under the new policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change in policy has resulted in an approximately 21.2% appreciation of the RMB against the U.S. dollar between July 21, 2005 and June 30, 2009. Provisions on Administration of Foreign Exchange, as amended in August 2008, further changed China’s exchange regime to a managed floating exchange rate regime based on market supply and demand. Since reaching a high against the U.S. dollar in July 2008, however, the RMB has traded within a narrow band against the U.S. dollar, remaining within 1% of its July 2008 high but never exceeding it. As a consequence, the RMB has fluctuated sharply since July 2008 against other freely-traded currencies, in tandem with the U.S. dollar. It is difficult to predict how long the current situation may continue and when and how it may change again. Substantially all of our revenues and costs are denominated in the RMB, and a significant portion of our financial assets are also denominated in RMB. We principally rely on dividends and other distributions paid to us by our subsidiaries in China. Any significant revaluation of the RMB may materially and adversely affect our cash flows, revenues, earnings and financial position, and the value of, and any dividends payable on, our ADSs or ordinary shares in U.S. dollars. Any fluctuations of the exchange rate between the RMB and the U.S. dollar could also result in foreign currency translation losses for financial reporting purposes.

Softech’s contractual arrangements with Kingtone Information may result in adverse tax consequences to us.

We could face material and adverse tax consequences if the PRC tax authorities determine that Softech’s contractual arrangements with Kingtone Information were not made on an arm’s length basis and adjust our income and expenses for PRC tax purposes in the form of a transfer pricing adjustment. A transfer pricing adjustment could result in a reduction, for PRC tax purposes, of adjustments recorded by Kingtone Information, which could adversely affect us by increasing Kingtone Information’s tax liability without reducing Softech’s tax liability, which could further result in late payment fees and other penalties to Kingtone Information for underpaid taxes.

We control Kingtone Information through contractual arrangements which may not be as effective in providing control over Kingtone Information as direct ownership, and if Kingtone Information or its shareholders breach the contractual arrangements, we would have to rely on legal remedies under PRC law, which may not be available or effective, to enforce or protect our rights.

We conduct substantially all of our operations, and generate substantially all of our revenues, through contractual arrangements with Kingtone Information that provide us, through our ownership of Topsky and its ownership of Softech, with effective control over Kingtone Information. We have no direct ownership interest in Kingtone Information. We depend on Kingtone Information to hold and maintain contracts with our

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customers. Kingtone Information also owns substantially all of our intellectual property, facilities and other assets relating to the operation of our business, and employs the personnel for substantially all of our business. Neither our company nor Softech has any ownership interest in Kingtone Information. Although we have been advised by Global Law Office, our PRC legal counsel, that each contract under Softech’s contractual arrangements with Kingtone Information is valid, binding and enforceable under current PRC laws and regulations in effect, these contractual arrangements may not be as effective in providing us with control over Kingtone Information as direct ownership of Kingtone Information would be. In addition, Kingtone Information may breach the contractual arrangements. For example, Kingtone Information may decide not to make contractual payments to Softech, and consequently to our company, in accordance with the existing contractual arrangements. In the event of any such breach, we would have to rely on legal remedies under PRC law. These remedies may not always be available or effective, particularly in light of uncertainties in the PRC legal system.

PRC laws and regulations governing our businesses and the validity of certain of our contractual arrangements are uncertain. If we are found to be in violation of such PRC laws and regulations, we could be subject to sanctions. In addition, changes in such PRC laws and regulations may materially and adversely affect our business.

There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including, but not limited to, the laws and regulations governing our business, or the enforcement and performance of Softech’s contractual arrangements with Kingtone Information. Softech is considered a foreign invested enterprise under PRC law. As a result, Softech is subject to PRC law limitations on its businesses and foreign ownership of Chinese companies. These laws and regulations are relatively new and may be subject to change, and their official interpretation and enforcement may involve substantial uncertainty. The effectiveness of newly enacted laws, regulations or amendments may be delayed, resulting in detrimental reliance by foreign investors. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively.

The PRC government has broad discretion in dealing with violations of laws and regulations, including levying fines, revoking business and other licenses and requiring actions necessary for compliance. In particular, licenses and permits issued or granted to us by relevant governmental bodies may be revoked at a later time by higher regulatory bodies. We cannot predict the effect of the interpretation of existing or new PRC laws or regulations on our businesses. We cannot assure you that our current ownership and operating structure would not be found in violation of any current or future PRC laws or regulations. As a result, we may be subject to sanctions, including fines, and could be required to restructure our operations or cease to provide certain services. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention. Any of these or similar actions could significantly disrupt our business operations or restrict us from conducting a substantial portion of our business operations, which could materially and adversely affect our business, financial condition and results of operations.

If we are required to obtain the prior approval of the China Securities Regulatory Commission, or CSRC, of the listing and trading of our ADSs on the Nasdaq Capital Market, this offering could be delayed indefinitely.

On August 8, 2006, six PRC regulatory agencies, including the Ministry of Commerce, the State Assets Supervision and Administration Commission, the State Administration for Taxation, the State Administration for Industry and Commerce, the CSRC and the SAFE, jointly issued the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, which became effective on September 8, 2006 (the “New M&A Rules”). This regulation, among other things, includes provisions that purport to require that an offshore special purpose vehicle formed for the purposes of overseas listing of equity interests in PRC companies and controlled directly or indirectly by PRC companies or individuals obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. On September 21, 2006, the CSRC published on its official website procedures regarding its approval of overseas listings by special purpose vehicles. The CSRC approval procedures require the filing of a number of documents with the CSRC and it would take several months to complete the approval process, if

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practicable at all. The application of this new PRC regulation remains unclear with no consensus currently existing among leading PRC law firms regarding the scope of the applicability of the CSRC approval requirement.

Our PRC counsel has advised us that, based on its understanding of the current PRC laws and regulations as well as the procedures announced on September 21, 2006: (i) Softech was directly incorporated by Topsky as a foreign investment enterprise under PRC law; therefore, there was no acquisition of the equity of a “PRC domestic company” as defined under the New M&A Rules; and (ii) the contractual arrangements between Kingtone Information and Softech are not clearly defined and considered as the transaction which shall be applied to the New M&A Rules. Therefore, we did not seek prior CSRC approval for this offering.

However, if the CSRC requires that we obtain its approval prior to the completion of this offering, this offering will be delayed until we obtain CSRC approval, which may take several months, if practicable at all. If prior CSRC approval is required but not obtained, we may face regulatory actions or other sanctions from the CSRC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in the PRC, limit our operating privileges in the PRC, delay or restrict the repatriation of the proceeds from this offering into the PRC, or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our shares. The CSRC or other PRC regulatory agencies also may take actions requiring us, or making it advisable for us, to halt this offering before settlement and delivery of the shares offered hereby. Consequently, if you engage in market trading or other activities in anticipation of and prior to settlement and delivery, you do so at the risk that settlement and delivery may not occur.

Also, if the CSRC subsequently requires that we obtain its approval, we may be unable to obtain a waiver of the CSRC approval requirements if and when procedures are established to obtain such a waiver. Any uncertainties and/or negative publicity regarding this CSRC approval requirement could have a material adverse effect on the trading price of our shares.

PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident shareholders to penalties and limit our ability to inject capital into our PRC subsidiary, limit our PRC subsidiary’s ability to distribute profits to us, or otherwise adversely affect us.

On October 21, 2005, the SAFE issued the Notice on Issues Relating to the Administration of Foreign Exchange in Fund-raising and Reverse Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, or Notice 75, which became effective as of November 1, 2005. According to Notice 75, prior registration with the local SAFE branch is required for PRC residents to establish or to control an offshore company for the purposes of financing such offshore company with assets or equity interests in an onshore enterprise located in the PRC, or an offshore special purpose company. An amendment to registration or filing with the local SAFE branch by such PRC resident is also required for the injection of equity interests or assets of an onshore enterprise in the offshore special purpose company or overseas funds raised by such offshore company, or any other material change involving a change in the capital of the offshore special purpose company. Moreover, Notice 75 applies retroactively. As a result, PRC residents who have established or acquired control of offshore special purpose companies that have made onshore investments in the PRC in the past are required to have completed the relevant registration procedures with the local SAFE branch by March 31, 2006. To further clarify the implementation of Circular 75, the SAFE issued Circular 106 on May 29, 2007. Under Circular 106, PRC subsidiaries of an offshore special purpose company are required to coordinate and supervise the filing of SAFE registrations by the offshore holding company’s shareholders or beneficial owners who are PRC residents in a timely manner.

Our current shareholders and/or beneficial owners may fall within the ambit of the SAFE notice and be required to register with the local SAFE branch as required under the SAFE notice. If so required, and if such shareholders and/or beneficial owners fail to timely register their SAFE registrations pursuant to the SAFE notice, or if future shareholders and/or beneficial owners of our company who are PRC residents fail to comply with the registration procedures set forth in the SAFE notice, this may subject such shareholders, beneficial owners and/or our PRC subsidiaries to fines and legal sanctions and may also limit our ability to

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contribute additional capital (including using the proceeds from this offering) into our PRC subsidiaries, limit our PRC subsidiaries’ ability to distribute dividends to our company, or otherwise adversely affect our business.

Risks Associated with this Offering and our ADSs

The market price of our ADSs may be highly volatile, and you may not be able to resell at or above the initial public offering price.

Prior to this offering, there has not been a public market for our ordinary shares or ADSs. We cannot assure you that an active trading market for our ADSs will develop following this offering. You may not be able to sell your ADSs quickly or at the market price if trading in our ADSs is not active. The initial public offering price for the ADSs will be determined by negotiations between us and representatives of the underwriters and may not be indicative of prices that will prevail in the trading market.

The trading price of our ADSs is likely to be volatile. The price of our ADSs could be subject to wide fluctuations in response to a variety of factors, including the following:

Introduction of new products, services or technologies offered by us or our competitors;
Failure to meet or exceed revenue and financial projections we provide to the public;
Actual or anticipated variations in quarterly operating results;
Failure to meet or exceed the estimates and projections of the investment community;
General market conditions and overall fluctuations in United States equity markets;
Announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors;
Disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;
Additions or departures of key management personnel;
Issuances of debt or equity securities;
Significant lawsuits, including patent or shareholder litigation;
Changes in the market valuations of similar companies;
Sales of our ADSs by us or our shareholders in the future;
Trading volume of our ADS; and
Other events or factors, many of which are beyond our control.

In addition, the stock market in general, and the Nasdaq Capital Market and software products and services companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our ADS, regardless of our actual operating performance.

If you purchase our ADSs in this offering, you will incur immediate and substantial dilution in the book value of your ADSs.

The public offering price is substantially higher than the net tangible book value per share. Investors purchasing ADSs in this offering will pay a price per ADS that substantially exceeds the book value of our tangible assets after subtracting our liabilities. As a result, investors purchasing ADSs in this offering will incur immediate dilution of $3.98 per ADS, assuming an initial public offering price of $6.50 per ADS. Further, investors purchasing ADSs in this offering will contribute approximately 76.7% of the total amount invested by shareholders since our inception, but will own only approximately 31.6% of the outstanding shares.

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This dilution is due to the substantial lower price paid by our investors who purchased their ordinary shares prior to this offering as compared to the price offered to the public in this offering. As a result of the dilution to investors purchasing ADSs in this offering, investors may receive significantly less than the purchase price paid in this offering, if anything, in the event of our liquidation.

Sales of a substantial number of ordinary shares or ADSs in the public market by our existing shareholders could cause the price of our ADSs to fall.

Sales of a substantial number of our ordinary shares or ADSs in the public market or the perception that these sales might occur, could depress the market price of our ADSs and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the prevailing market price of our ADSs.

All of our existing shareholders prior to this offering are subject to lock-up agreements with the underwriters of this offering that restrict the shareholders’ ability to transfer ordinary shares or ADSs for at least 180 days from the date of this prospectus. The lock-up agreements limit the number of ordinary shares or ADSs that may be sold immediately following the public offering. Subject to certain limitations, approximately 10,000,000 of our total outstanding shares will be eligible for sale upon expiration of the lock-up period. Sales of ordinary shares by these shareholders could have a material adverse effect on the trading price of our ADSs.

Future sales and issuances of our ordinary shares or ADSs or rights to purchase our ordinary shares or ADSs, including pursuant to our 2010 Omnibus Incentive Plan, could result in additional dilution of the percentage ownership of our shareholders and could cause the price of our ADSs to fall.

We expect that significant additional capital will be needed in the future to continue our planned operations. To the extent we raise additional capital by issuing equity securities, our shareholders may experience substantial dilution. We may sell ordinary shares, ADSs, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell ordinary shares, ADSs, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing shareholders, and new investors could gain rights superior to our existing shareholders.

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

Our management will have broad discretion in the application of the net proceeds, including for any of the purposes described in the section entitled “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to our shareholders.

We do not intend to pay dividends on our ordinary shares so any returns will be limited to the value of our ADSs.

We have never declared or paid any cash dividend on our ordinary shares. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return shareholders will therefore be limited to the value of their ADSs.

As the rights of shareholders under British Virgin Islands law differ from those under U.S. law, you may have fewer protections as a shareholder.

Our corporate affairs will be governed by our memorandum of association and articles of association, the BVI Business Companies Act, 2004, or the BVI Act, of the British Virgin Islands and the common law of the British Virgin Islands. The rights of shareholders to take legal action against our directors, actions by minority

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shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law are to a large extent governed by the BVI Act and the common law of the British Virgin Islands. The common law of the British Virgin Islands is derived in part from comparatively limited judicial precedent in the British Virgin Islands as well as from English common law, which has persuasive, but not binding, authority on a court in the British Virgin Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law are not as clearly established as they would be under statutes or judicial precedents in some jurisdictions in the United States. In particular, the British Virgin Islands has a less developed body of securities laws as compared to the United States, and some states (such as Delaware) have more fully developed and judicially interpreted bodies of corporate law.

As a result of all of the above, holders of our ADSs may have more difficulty in protecting their interests through actions against our management, directors or major shareholders than they would as shareholders of a U.S. company. For a discussion of significant differences between the provisions of the BVI Act and the laws applicable to companies incorporated in the United States and their shareholders, see “Description of Share Capital — Differences in Corporate Law.”

British Virgin Islands companies may not be able to initiate shareholder derivative actions, thereby depriving shareholders of the ability to protect their interests.

British Virgin Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States. The circumstances in which any such action may be brought, and the procedures and defenses that may be available in respect to any such action, may result in the rights of shareholders of a British Virgin Islands company being more limited than those of shareholders of a company organized in the United States. Accordingly, shareholders may have fewer alternatives available to them if they believe that corporate wrongdoing has occurred. The British Virgin Islands courts are also unlikely to recognize or enforce against us judgments of courts in the United States based on certain liability provisions of U.S. securities law; and to impose liabilities against us, in original actions brought in the British Virgin Islands, based on certain liability provisions of U.S. securities laws that are penal in nature. There is no statutory recognition in the British Virgin Islands of judgments obtained in the United States, although the courts of the British Virgin Islands will generally recognize and enforce the non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits.

The laws of the British Virgin Islands provide little protection for minority shareholders, so minority shareholders will have little or no recourse if the shareholders are dissatisfied with the conduct of our affairs.

Under the law of the British Virgin Islands, there is little statutory law for the protection of minority shareholders other than the provisions of the BVI Act dealing with shareholder remedies. The principal protection under statutory law is that shareholders may bring an action to enforce the constituent documents of the corporation, our memorandum of association and articles of association. Shareholders are entitled to have the affairs of the company conducted in accordance with the general law and the memorandum of association and articles of association.

There are common law rights for the protection of shareholders that may be invoked, largely dependent on English company law, since the common law of the British Virgin Islands is limited. Under the general rule pursuant to English company law known as the rule in Foss v. Harbottle, a court will generally refuse to interfere with the management of a company at the insistence of a minority of its shareholders who express dissatisfaction with the conduct of the company’s affairs by the majority or the board of directors. However, every shareholder is entitled to have the affairs of the company conducted properly according to law and the company’s constituent documents. As such, if those who control the company have persistently disregarded the requirements of company law or the provisions of the company’s memorandum of association and articles of association, then the courts will grant relief. Generally, the areas in which the courts will intervene are the following: (1) an act complained of which is outside the scope of the authorized business or is illegal or not capable of ratification by the majority; (2) acts that constitute fraud on the minority where the wrongdoers control the company; (3) acts that infringe on the personal rights of the shareholders, such as the right to vote;

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and (4) where the company has not complied with provisions requiring approval of a majority of shareholders, which are more limited than the rights afforded minority shareholders under the laws of many states in the United States.

Anti-takeover provisions in our memorandum of association and articles of association and our right to issue preference shares could make a third-party acquisition of us difficult.

Some provisions of our memorandum of association and articles of association may discourage, delay or prevent a change in control of our company or management that shareholders may consider favorable, including provisions that authorize our board of directors to issue preference shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preference shares.

You may not have the same voting rights as the holders of our ordinary shares and must act through the depositary to exercise your rights.

Except as described in this prospectus and in the deposit agreement, holders of our ADSs will not be able to exercise voting rights attaching to the shares evidenced by our ADSs on an individual basis. Holders of our ADSs will appoint the depositary or its nominee as their representative to exercise the voting rights attaching to the shares represented by the ADSs. You may not receive voting materials in time to instruct the depositary to vote, and it is possible that you, or persons who hold their ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote. Upon our written request, the depositary will mail to you a shareholder meeting notice which contains, among other things, a statement as to the manner in which your voting instructions may be given, including an express indication that such instructions may be given or deemed given to the depositary to give a discretionary proxy to a person designated by us if no instructions are received by the depositary from you on or before the response date established by the depositary. However, no voting instruction shall be deemed given and no such discretionary proxy shall be given with respect to any matter as to which we inform the depositary that (i) we do not wish such proxy given, (ii) substantial opposition exists, or (iii) such matter materially and adversely affects the rights of shareholders. See “Description of American Depositary Shares.” We will make all reasonable efforts to cause the depositary to extend voting rights to you in a timely manner, but you may not receive the voting materials in time to ensure that you can instruct the depositary to vote your ADSs. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, you may not be able to exercise your right to vote and you may lack recourse if your ADSs are not voted as you requested. In addition, in your capacity as an ADS holder, you will not be able to call a shareholders’ meeting.

You may not be able to participate in rights offerings and may experience dilution of your holdings as a result.

We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we may not, and under the deposit agreement for the ADSs, the depositary will not, offer those rights to ADS holders unless both the rights and the underlying securities to be distributed to ADS holders are registered under the Securities Act, or the distribution of them to ADS holders is exempted from registration under the Securities Act with respect to all holders of ADSs. We are under no obligation to file a registration statement with respect to any such rights or underlying securities or to endeavor to cause such a registration statement to be declared effective. In addition, we may not be able to rely on an exemption from registration under the Securities Act to distribute such rights and securities. Accordingly, holders of our ADSs may be unable to participate in our rights offerings and may experience dilution in their holdings as a result.

You may be subject to limitations on transfer of your ADSs.

Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deem it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

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We may be a passive foreign investment company, of PFIC, which could lead to additional taxes for U.S. holders of our ADSs or ordinary shares.

We do not expect to be, for U.S. federal income tax purposes, a passive foreign investment company, or a PFIC, which is a foreign company for which, in any given taxable year, either at least 75% of its gross income is passive income, or investment income in general, or at least 50% of its assets produce or are held to produce passive income, for the current taxable year and we expect to operate in such a manner so as not to become a PFIC for any future taxable year. However, because the determination of PFIC status for any taxable year cannot be made until after the close of such year and requires extensive factual investigation, including ascertaining the fair market value of our assets on a quarterly basis and determining whether each item of gross income that we earn is passive income, we cannot assure you that we will not become a PFIC for the current taxable year or any future taxable year. If we are or become a PFIC, a U.S. holder of our ADSs or ordinary shares could be subject to additional U.S. federal income taxes on gain recognized with respect to the ADSs or ordinary shares and on certain distributions, plus an interest charge on certain taxes treated as having been deferred under the PFIC rules. Non-corporate U.S. holders will not be eligible for reduced rates of taxation on any dividends received from us if we are a PFIC in the taxable year in which such dividends are paid or in the preceding taxable year. See “Taxation — United States Federal Income Taxation — Tax Consequences to U.S. Holders — Passive Foreign Investment Company.”

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve risks and uncertainties. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

You can identify these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “likely to” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this prospectus. These forward-looking statements include:

our expansion plans;
our anticipated growth strategy;
our plans to recruit more employees;
our plans to invest in research and development to enhance our product or service lines;
our future business development, results of operations and financial condition;
expected changes in our net revenues and certain cost or expense items;
our ability to attract and retain customers; and
trends and competition in the enterprise mobile software application market.

You should read thoroughly this prospectus with the understanding that our actual future results may be materially different from and/or worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements. Other sections of this prospectus include additional factors which could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

This prospectus also contains estimates, projections and statistical data related to the enterprise mobile software and IT services market in China. This market data, including data from IDC, speaks as of the date it was published and includes projections that are based on a number of assumptions and are not representations of fact. The enterprise mobile software and IT services market may not grow at the rates projected by the market data, or at all. The failure of the market to grow at the projected rates may materially and adversely affect our business and the market price of our ADSs. In addition, the rapidly changing nature of the software and IT services market subjects any projections or estimates relating to the growth prospects or future condition of our market to significant uncertainties. If any one or more of the assumptions underlying the market data proves to be incorrect, actual results may differ from the projections based on these assumptions.

You should not rely upon forward-looking statements as predictions of future events. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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USE OF PROCEEDS

We estimate that we will receive $27.9 million in net proceeds from our sale of ADSs sold by us in this offering. Our net proceeds from this offering represent the amount we expect to receive after paying the underwriting discounts and commissions and other expenses of the offering payable by us. For purposes of estimating our net proceeds, we have assumed that the initial public offering price of our ADSs will be $6.50 per ADS, which is the midpoint of the price range set forth on the cover page of this prospectus. A $1.00 increase, or decrease, in the assumed initial public offering price would increase, or decrease, net proceeds to us from this offering by approximately $4.4 million after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

Our management will have significant flexibility in applying the net proceeds of this offering. We intend to use our net proceeds from this offering as follows:

$13.6 million for product development;
$5.6 million to expand research and development center;
$5.0 million to develop customer relations management (CRM) systems; and
the balance of $3.7 million for working capital.

We pursue acquisitions of other businesses as part of our business strategy and may use a portion of the net proceeds to fund acquisitions. We have no agreement with respect to any future acquisition, although we assess opportunities on an ongoing basis and from time to time have discussions with other companies about potential transactions.

Pending their use, we will invest the net proceeds of this offering in a variety of capital preservation investments, including short-term or long-term interest-bearing, marketable securities.

DIVIDEND POLICY

We have not declared or paid any dividends on our ordinary shares and we do not anticipate paying any cash dividends in the near future. The timing, amount and form of future dividends, if any, will depend, among other things, on our future results of operations and cash flows, our general financial condition and future prospects, our capital requirements and surplus, contractual restrictions, the amount of distributions, if any, received by us from our Chinese subsidiaries, and other factors deemed relevant by our board of directors. Any future dividends on our ADSs or ordinary shares would be declared by and subject to the discretion of our board of directors.

We are a holding company incorporated in the British Virgin Islands. In order to pay dividends, if any, to our shareholders, we rely primarily on dividends from our subsidiaries in China. Current PRC regulations permit our subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, each of our subsidiaries in China is required to set aside a certain amount of their accumulated after-tax profits each year, if any, to fund certain statutory reserves. These reserves may not be distributed as cash dividends. Further, if our subsidiaries in China incur debt on their own behalf, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us.

In addition, under the New EIT Law and the Implementing Rules, both of which became effective on January 1, 2008, dividends generated from the business of our PRC subsidiaries after January 1, 2008 and payable to us and/or Topsky may be subject to a withholding tax rate of 10% if the PRC tax authorities subsequently determine that we and/or Topsky are a non-resident enterprise, unless there is a tax treaty with China that provides for a different withholding arrangement. Under a special treaty between China and Singapore, such dividend withholding tax rate is reduced to 5% if a Singapore resident enterprise owns over 25% of the PRC company distributing the dividends. As Topsky is a Singapore company and owns 100% of Softech, under the aforesaid treaty, any dividends that Softech pays to Topsky will be subject to a withholding tax at the rate of 5%, provided that we and Topsky are not considered to be PRC tax resident enterprises. If, however, Topsky is regarded as a resident enterprise, dividends payable to Topsky from Softech may be exempt from PRC income tax, and the dividends payable from Topsky to us will be subject to a 10% PRC

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withholding tax (unless we are considered to be a PRC tax resident enterprise). Any such taxes could thus materially reduce the amount of funds available to us to meet our cash requirements, including the payment of dividends to our shareholders. See “Risk Factors—Risks Related to Doing Business in China—Our holding company structure may limit the payment of dividends.”

EXCHANGE RATE INFORMATION

Our business is primarily conducted in China and all of our revenues are denominated in RMB. However, this prospectus contains translations of RMB amounts into U.S. dollars at specific rates solely for the convenience of the reader. The conversion of RMB into U.S. dollars in this prospectus is based on the noon buying rate in The City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York. Unless otherwise noted, all translations from RMB to U.S. dollars and from U.S. dollars to RMB in this prospectus were made at a rate of RMB 6.8262 to $1.00, the noon buying rate in effect as of September 30, 2009. We make no representation that any RMB or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or RMB, as the case may be, at any particular rate, the rates stated below, or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of RMB into foreign exchange and through restrictions on foreign trade. On April 23, 2010, the noon buying rate was RMB 6.8270 to $1.00.

The following table sets forth information concerning exchange rates between the RMB and the U.S. dollar for the periods indicated. These rates are provided solely for your convenience and are not necessarily the exchange rates that we used in this prospectus or will use in the preparation of our periodic reports or any other information to be provided to you. The source of these rates is the Federal Reserve Bank of New York.

       
  Noon Buying Rate
Period   Period End   Average (1)   Low   High
     (RMB per $1.00)
2004     8.2765       8.2768       8.2774       8.2764  
2005     8.0702       8.1826       8.2765       8.0702  
2006     7.8041       7.9579       8.0702       7.8041  
2007     7.2946       7.5806       7.8127       7.2946  
2008     6.8225       6.9193       7.2946       6.7800  
2009
                                   
May     6.8278       6.8235       6.8326       6.8176  
June     6.8302       6.8334       6.8371       6.8264  
July     6.8319       6.8317       6.8342       6.8300  
August     6.8299       6.8323       6.8358       6.8299  
September     6.8262       6.8277       6.8303       6.8247  
October     6.8264       6.8267       6.8292       6.8248  
November     6.8265       6.8271       6.8300       6.8255  
December     6.8259       6.8275       6.8299       6.8244  
2010
                                   
January     6.8268       6.8269       6.8295       6.8258  
February     6.8258       6.8285       6.8330       6.8258  
March     6.8258       6.8262       6.8270       6.8254  
April (through April 23, 2010)     6.8270       6.8256       6.8275       6.8229  

(1) Averages for a period are calculated by using the average of the exchange rates on the end of each month during the period. Monthly averages are calculated by using the average of the daily rates during the relevant period.

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CAPITALIZATION

The following table sets forth our capitalization as of November 30, 2009:

on an actual basis;
on a pro forma basis to reflect the corporate reorganization of our Chinese subsidiaries, including the incorporation of Kingtone Wirelessinfo Solution Holding Ltd in the British Virgin Islands, if it had occurred on November 30, 2009:
pro forma as adjusted to reflect the following events as if they had occurred on November 30, 2009:
(i) the pro forma adjustments discussed above; and
(ii) the issuance and sale of 4,615,385 ordinary shares in the form of ADSs by us in this offering, at the public offering price of $6.50 per share, the midpoint of the range set forth on the cover of this prospectus, less estimated underwriting discounts and offering expenses payable by us.

You should read the information below in conjunction with the financial statements and the related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

     
     As of November 30, 2009
     Actual   Pro Forma   Pro Forma As Adjusted
     (in thousands, except per share data)
Cash and Cash Equivalent (1)   $ 344     $ 344     $ 28,259  
Debt:
                          
Capital lease obligations (including current portion)   $ 3,637     $ 3,637     $ 3,637  
Shareholders’ (deficiency) equity     9,126       9,126       37,041  
Ordinary Shares $.001 par value
100,000,000 shares authorized, 10,000,000 shares issued and outstanding, actual; 100,000,000 shares authorized, 10,000,000 shares issued and outstanding, pro forma; and 100,000,000 shares authorized, 14,615,385 shares issued and outstanding, pro forma as adjusted
    10       10       15  
Additional paid-in capital     7,113       7,113       35,023  
Accumulated gain     2,003       2,003       2,003  
Total shareholders’ (deficiency) equity     9,126       9,126       37,041  
Total capitalization   $ 12,763     $ 12,763     $ 40,678  

(1) A $1.00 increase (decrease) in the assumed initial public offering price of $6.50 per ADS, the midpoint of the range set forth on the cover of this prospectus, would increase (decrease) the net proceeds to us from this offering by $4.4 million, assuming the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

As of the date of this prospectus, we have not granted any options to purchase our ordinary shares. Concurrently with the completion of this offering, we will grant Ms. Ying Yang, our chief financial officer, under our 2010 Omnibus Incentive Plan (i) 100,000 restricted ordinary shares which shall vest in equal installments on April 23, 2011 and April 23, 2012, and (ii) options to purchase 150,000 ordinary shares at an exercise price equivalent to the relative offering price per ordinary share in the offering, 1/3 of which shall vest on the grant date, 1/3 of which shall vest on April 23, 2011, and 1/3 of which shall vest on April 23, 2012.

Concurrently with the completion of this offering, we will also grant to each of Lili Dong, Melody Shi and James Fong, our independent directors, under our 2010 Omnibus Incentive Plan, options to purchase 10,000 ordinary shares at an exercise price equivalent to the relative offering price per ordinary share in the offering, 1/3 of which shall vest on the grant date, 1/3 of which shall vest on the first anniversary of the grant date, and 1/3 of which shall vest on the second anniversary of the grant date.

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DILUTION

If you invest in our ADSs, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our ADSs and the pro forma net tangible book value per share of our ADSs after this offering. Dilution results from the fact that the per share offering price of our ADSs is substantially in excess of the net tangible book value per share attributable to the existing shareholders. Net tangible book value represents net book equity excluding intangible assets, if any.

Our pro forma net tangible book value before completion of this offering as of November 30, 2009, before giving effect to the sale of 4,615,385 ADSs, was $9.126 million or $0.91 per ordinary share.

In addition, after giving effect to the sale of 4,615,385 ADSs at an assumed initial public offering price of $6.50 per ADS, which is the mid-point of the price range set forth on the cover page of this prospectus, in this offering after deducting underwriting discounts and commissions, estimated offering expenses and other related transaction costs payable by us, our pro forma as adjusted net tangible book value as of November 30, 2009 would have been $36.891 million or $2.52 per ordinary share, including ordinary shares underlying our ADSs, and $2.52 per ADS.

The following table illustrates as of November 30, 2009 the pro forma immediate increase in book value of $1.61 per ordinary share for the existing shareholders and the immediate dilution of $3.98 per ordinary share to new shareholders purchasing ADSs in this offering, assuming the underwriters do not exercise their option to purchase additional ADSs:

   
  Ordinary Share   ADS
Assumed public offering price per share   $ 6.50     $ 6.50  
Net tangible book value per share as of November 30, 2009   $ 0.91        
Pro forma net tangible book value per share as of November 30, 2009, as adjusted            $ 2.52  
Dilution in net tangible book value per share to new investors   $ 3.98     $ 3.98  

A $1.00 increase (decrease) in the assumed initial public offering price of $6.50 per ADS, which is the mid-point of the price range set forth on the cover of this prospectus, would increase (decrease) our net tangible book value by $0.12 per ordinary share and $0.12 per ADS.

The following table summarizes, on the same pro forma basis as of November 30, 2009, the differences between the existing equity holder and the new shareholders in this offering with respect to the number of shares purchased from us, the total consideration paid, and the average price per share paid before deducting the underwriting discount and estimated offering expenses:

           
  Ordinary Shares Purchased   Total Consideration   Average Price per Ordinary Share   Average Price per ADS
  Number   Percentage   Amount   Percentage
     (In Thousands)   (In Thousands)   (In Thousands)               
Existing shareholders     10,000       68.4     $ 9,126       23.3     $ 0.91     $ 0.91  
New investors     4,615       31.6       30,000       76.7     $ 6.50     $ 6.50  
Total     14,615       100.0 %     $ 39,126       100.0 %              

A $1.00 increase (decrease) in the assumed initial public offering price of $6.50 per ADS, the mid-point of the price range set forth on the cover page of this prospectus, would increase (decrease) total consideration paid by new investors in this offering and by all investors by $4.6 million, and would increase (decrease) the average price per share paid by new investors by $1.00, assuming the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same and without deducting the estimated underwriting discounts and offering expenses payable by us in connection with this offering.

The above discussion and tables assume no exercise of the underwriters’ option to purchase up to an additional 692,308 ADSs.

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If the underwriters' exercise their option to purchase additional ADSs in full, the pro forma net tangible book value per share as of November 30, 2009, would be approximately $2.69 per ADS and the dilution in pro forma net tangible book value per share to new shareholders would be $3.81 per ADS. Furthermore, the percentage of our ordinary shares held by existing shareholders would decrease to approximately 65.3% and the percentage of our ordinary shares, in the form of ADSs, held by new shareholders would increase to approximately 34.7%.

As of the date of this prospectus, 1,500,000 ordinary shares have been reserved for issuances in the future under our 2010 Omnibus Incentive Plan, none of which have been issued. Concurrently with the completion of this offering, we will grant Ms. Ying Yang, our chief financial officer, under our 2010 Omnibus Incentive Plan (i) 100,000 restricted ordinary shares which shall vest in equal installments on April 23, 2011 and April 23, 2012, and (ii) options to purchase 150,000 ordinary shares at an exercise price equivalent to the relative offering price per ordinary share in the offering, 1/3 of which shall vest on the grant date, 1/3 of which shall vest on April 23, 2011, and 1/3 of which shall vest on April 23, 2012.

Concurrently with the completion of this offering, we will also grant to each of Lili Dong, Melody Shi and James Fong, our independent directors, under our 2010 Omnibus Incentive Plan, options to purchase 10,000 ordinary shares at an exercise price equivalent to the relative offering price per ordinary share in the offering, 1/3 of which shall vest on the grant date, 1/3 of which shall vest on the first anniversary of the grant date, and 1/3 of which shall vest on the second anniversary of the grant date. If we issue additional shares or options that are exercised under our 2010 Omnibus Incentive Plan, new investors will experience further dilution.

SELECTED CONSOLIDATED AND COMBINED FINANCIAL DATA

The following selected consolidated and combined financial data are presented on a combined basis with our affiliate Kingtone Information which was incorporated in Xi’an, ShaanXi province, China on December 30, 2001. We and Kingtone Information are under common control which has established the basis to consolidate and combine our selected financial data from the earliest date presented. The selected financial data are those of Kingtone information through October 27, 2009 when we were formed and, thus, are shown on a combined basis with Kingtone information from October 27, 2009 to November 30, 2009. The selected consolidated and combined statements of income and comprehensive income data for the years ended November 30, 2009 and 2008 and the selected consolidated and combined balance sheets data as of November 30, 2009 and 2008 have been derived from our audited combined and consolidated financial statements included elsewhere in this prospectus. The selected consolidated and combined statement of income and comprehensive income data for the years ended November 30, 2007, 2006 and 2005 and the selected consolidated and combined balance sheet data as of November 30, 2007, 2006 and 2005 have been derived from our books and records and are unaudited. The selected consolidated and combined financial data should be read in conjunction with our audited financial statements and the accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below. Our consolidated and combined financial statements are prepared and presented in accordance with United States generally accepted accounting principles, or U.S. GAAP. Our historical results do not necessarily indicate our results expected for any future periods. You should not view our historical results as an indicator of our future performance.

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Kingtone Wirelessinfo Solution Holding Ltd and Subsidiaries
Selected Consolidated and Combined Statements of Income and Comprehensive Income Data

         
  For the Years Ended November 30,
     2009
Audited
  2008
Audited
  2007 Unaudited   2006
Unaudited
  2005
Unaudited
     ($ in Thousands, Except per Share Data)
Total revenues     11,240       4,286       4,012       1,472       1,505  
Cost of revenues     3,894       1,621       2,972       775       775  
Gross margin     7,346       2,665       1,040       697       730  
Operating expenses:
                                            
Sales and marketing     350       301       239       237       199  
General and administrative     537       355       644       504       459  
Research and development     139       79       0       0       0  
Total operating expenses     1,026       735       883       740       658  
Operating (loss) profit     6,320       1,930       157       (44 )       72  
Subsidy income     307       163                    
Interest expense     (340 )       (531 )       (608 )       (506 )       (181 )  
Other income     24       16             2       2  
Other expense     (79 )       (372 )             (0 )       (112 )  
(Loss) income before income tax expense     6,232       1,206       (451 )       (547 )       (219 )  
Income tax expense     (935 )       (191 )                    
Net (loss) income     5,297       1,015       (451 )       (547 )       (219 )  
Other comprehensive income
                                            
Foreign currency translation gain     22       544       267       0       0  
Comprehensive income     5,319       1,559       (184 )       (547 )       (219 )  
Earnings (loss) per share:
                                            
Basic     0.53       0.10       (0.05 )       (0.05 )       (0.02 )  
Diluted     0.53       0.10       (0.05 )       (0.05 )       (0.02 )  
Weighted average ordinary shares:
                                            
Basic     10,000,000       10,000,000       10,000,000       10,000,000       10,000,000  
Diluted     10,000,000       10,000,000       10,000,000       10,000,000       10,000,000  

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Kingtone Wirelessinfo Solution Holding Ltd and Subsidiaries
Selected Consolidated and Combined Balance Sheets Data

         
  As of November 30
     2009
Audited
  2008
Audited
  2007
Unaudited
  2006
Unaudited
  2005
Unaudited
     ($ in Thousands)
Cash and bank deposits     344       9       7       98       1,683  
Total current assets     4,014       12,884       17,360       11,745       9,993  
Total assets     17,907       14,677       18,687       13,833       12,294  
Advances from customers     1,398       2,817       3,168       315       467  
Dividend payable     1,117                          
Total current liabilities     8,781       6,953       13,601       8,794       6,707  
Total shareholders’ equity     9,126       7,724       5,086       5,039       5,586  
Total liabilities and shareholders’ equity     17,907       14,677       18,687       13,833       12,294  

CORPORATE HISTORY AND STRUCTURE

We are a holding company and conduct our operations through a contractually-controlled entity in the PRC named Xi’an Kingtone Information Technology Co., Ltd., a PRC limited liability company (“Kingtone Information”). Kingtone Information was incorporated in Xi’an province as a company limited by stocks on December 30, 2001. When it was incorporated, it had a registered capital of RMB 50 million and its name was Xi’an TechTeam Intelligent Technology Stock Co., Ltd. Kingtone Information increased its registered capital to RMB 56,000,000 on June 16, 2008 and changed its name to the current name on November 5, 2003. Kingtone Information is majority-owned by Mr. Tao Li, our chairman.

In December 2009, we consummated a number of related transactions through which we acquired control of Kingtone Information. Xi’an Softech Co., Ltd. (“Softech”), a company incorporated on November 27, 2009 under the laws of the PRC as a wholly foreign-owned enterprise (“WFOE”), entered into a series of agreements (the “Control Agreements”) with Kingtone Information and the shareholders of Kingtone Information pursuant to which Softech was granted full managerial and economic control over Kingtone Information, effectively rendering Kingtone Information a contractual subsidiary of Softech. We entered into this contractual control relationship in order to comply with certain PRC regulations relating to the nature and sensitivity of certain aspects of Kingtone Information’s business; namely, its work on PRC government projects. See the subsection below entitled “Contractual Arrangements with Kingtone Information and Its Respective Shareholders” for further information on these contractual arrangements.

Softech is a wholly-owned subsidiary of Topsky Info-tech Holdings Pte Ltd. (“Topsky”), a company incorporated under the laws of Singapore on November 3, 2009. Topky, in turn, is our wholly-owned subsidiary. We were incorporated under the name ReiZii Capital Management Ltd. in the British Virgin Islands on October 27, 2009 and changed our name to Kingtone Wirelessinfo Solution Holding Ltd (“Kingtone Wireless”) on December 17, 2009.

Xtra Heights Management Ltd. (“Xtra”), which was incorporated in the British Virgin Islands on September 29, 2009, owns 6,806,250 shares of Kingtone Wireless, representing approximately 68.06% of the total issued and outstanding shares of Kingtone Wireless; SCGC Capital Holding Company Limited (“SCGC Capital”), which was incorporated in the British Virgin Islands on November 16, 2006, owns 1,060,714 shares of Kingtone Wireless, representing approximately 10.61% of the total issued and outstanding shares of Kingtone Wireless; Big Leap Enterprises Limited (“Big Leap”), which was incorporated in the British Virgin Islands on October 28, 2009, owns 1,060,714 shares of Kingtone Wireless, representing approximately 10.61% of the total issued and outstanding shares of Kingtone Wireless; Silver Avenue Overseas Inc. (“Silver Avenue”), which was incorporated in the British Virgin Islands on October 28, 2009, owns 972,322 shares of Kingtone Wireless representing, approximately 9.72% of the total issued and outstanding shares of Kingtone Wireless; Millennium Group Inc. (“Millennium ”), a California corporation incorporated on June 29, 1994, owns 100,000 shares of Kingtone Wireless representing approximately 1% of the total issued and outstanding shares of Kingtone Wireless. Millennium received such shares in consideration for consulting services provided to Kingtone Information.

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In exchange for causing Kingtone Information to enter into the Control Agreements, the shareholders of Kingtone Information received the right to acquire ordinary shares of Kingtone Wireless, through their nominee entities (Xtra, SCGC, Big Leap and Silver Avenue), in the same relative ownership percentage as they hold in Kingtone Information prior to the offering and before giving effect to the 100,000 ordinary shares issued to Millennium. As part of the restructuring, certain of the shareholders of Kingtone Information entered into a Call Option Agreement dated as of December 15, 2009 with Xtra and Sha Li, Xtra’s sole shareholder, pursuant to which the shareholders of Kingtone Information are entitled to purchase up to an aggregate of 6,806,250 shares of Kingtone Wireless over time if certain conditions are satisfied. See the subsection below entitled “Call Option Agreements between Xtra Heights Management Ltd. and Shareholders of Kingtone Information” for further information on the Call Option Agreements. The remaining Kingtone Information shareholders have unwritten understandings with SCGC, Big Leap and Silver Avenue, as applicable, and their respective nominee shareholders, pursuant to which the Kingtone Information shareholders are entitled to purchase up to an aggregate of 3,093,750 of our ordinary shares upon the satisfaction of conditions similar to those set forth in the Call Option Agreements with Xtra.

Xtra is owned by Sha Li, a Singapore resident. However, pursuant to the call options agreements, the beneficial owners of our ordinary shares held by Xtra are as set forth in the table below, which share amounts are equal to each beneficial owner’s respective pro rata equity interest in Kingtone Information:

   
Name   Relationship to Kingtone Wireless   Shares
Tao Li     Chairman       6,099,107  
Peng Zhang     Chief Executive Officer       35,357  
Li Wu     Director       107,839  
Jun Ma     Chief Technology Officer       35,357  
Pengguo Xi     Vice President of Research and Development       35,357  
Xianying Chen     Vice President of Application Development       35,357  
Wei Pu     Softech employee       102,536  
Jian Ping Li     Softech employee       88,393  
Yu Fan Zhang     Softech employee       88,393  
Wei Zhang     Softech employee       88,393  
Xiao Bin Zhang     Softech employee       53,036  
Wei Wang     Softech employee       37,125  

SCGC Capital is owned by Shenzhen Capital (Hong Kong) Company Limited, a Hong Kong company. Big Leap is owned by Xuetao Chen, a PRC resident. Silver Avenue is owned by Hu Gao, a PRC resident. Millennium is owned by Jonathon Mork, a U.S. resident. None of our officers or directors is the beneficial owner of the ordinary shares held of record by SCGC Capital, Big Leap or Silver Avenue.

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The following diagrams illustrate our corporate structure and the place of formation and affiliation of each of our subsidiaries and affiliates before the offering and upon the consummation of the offering.

Organizational Chart — Before the Offering

[GRAPHIC MISSING]

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Organizational Chart — Upon Consummation of the Offering

[GRAPHIC MISSING]

(1) Assumes the issuance of 4,615,385 ADSs at a price of $6.50 per ADS, the midpoint of the estimated range of the public offering price.

Contractual Arrangements with Kingtone Information and Its Respective Shareholders

Our relationship with Kingtone Information and each of its respective shareholders is governed by a series of contractual arrangements. Some of the businesses in which Kingtone Information is engaged deal with classified government information in China. Current PRC laws and regulations do not allow companies with foreign equity holders to carry out such business activities. If we had a direct or indirect ownership in Kingtone Information, it could materially and adversely affect Kingtone Information’s ability to perform existing contracts and to win future contracts. Therefore, Softech and Kingtone Information entered into the following contractual arrangements to allow us to effectively control Kingtone Information but without violating relevant PRC laws and regulations. Under PRC laws, each of Softech and Kingtone Information is an independent legal person and neither of them is exposed to liabilities incurred by the other party. Pursuant to the contractual arrangements between Softech and Kingtone Information, as applicable, Kingtone Information transfers any and all net profits generated from its operations to Softech. Effective December 15, 2009, Softech entered into several control agreements with Kingtone Information, which agreements are summarized below. The following is a summary of the material terms of the agreements and investors should review the terms of the actual agreements filed as exhibits to the registration statement, of which this prospectus is a part.

Entrusted Management Agreement

Pursuant to the terms of a certain Entrusted Management Agreement dated December 15, 2009 among Kingtone Information, Softech and the shareholders of Kingtone Information (the `Entrusted Management Agreement`), Kingtone Information and its shareholders agreed to entrust the operations and management of

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its business to Softech. According to the Entrusted Management Agreement, Softech possesses the full and exclusive right to manage Kingtone Information’s operations, assets and personnel, has the right to control all of Kingtone Information's cash flows through an entrusted bank account, is entitled to Kingtone Information's net profits as a management fee, is obligated to pay all of Kingtone Information’s payables and loan payments, and bears all losses of Kingtone Information. The Entrusted Management Agreement will remain in effect until (i) the parties mutually agree to terminate the agreement, (ii) the dissolution of Kingtone Information or (iii) Softech acquires all of the assets or equity of Kingtone Information (as more fully described below under “Exclusive Option Agreement”). Prior to that acquisition, Kingtone Information will continue to own all of its assets. We anticipate that Kingtone Information will continue to be the contracting party under its customer contracts, banks loans and certain other assets until such time as those may be transferred to Softech.

Exclusive Technology Service Agreement

Pursuant to the terms of a certain Exclusive Technology Service Agreement dated December 15, 2009 between Kingtone Information and Softech (“the Exclusive Technology Services Agreement”), Softech is the exclusive technology services provider to Kingtone Information. Kingtone Information agreed to pay Softech all fees payable for technologies services prior to making any payments under the Entrusted Management Agreement. Any payment from Kingtone Information to Softech must comply with applicable Chinese laws. Further, the parties agreed that Softech shall retain sole ownership of all intellectual property developed in connection with providing technology services to Kingtone Information. The Exclusive Technology Services Agreement shall remain in effect until (i) the parties mutually agree to terminate the agreement, (ii) the dissolution of Kingtone Information or (iii) Softech acquires Kingtone Information (as more fully described below under “Exclusive Option Agreement”).

Shareholders’ Voting Proxy Agreement

Pursuant to the terms of a certain Shareholders’ Voting Proxy Agreement dated December 15, 2009 among Softech and the shareholders of Kingtone Information (the “Shareholders’ Voting Proxy Agreement”), each of the shareholders of Kingtone Information irrevocably appointed Softech as their proxy to exercise on each of such shareholder’s behalf all of their voting rights as shareholders pursuant to PRC law and the Articles of Association of Kingtone Information, including the appointment and election of directors of Kingtone Information. Softech agreed that it shall maintain a board of directors the composition of which will be the members of the board of directors of Kingtone Wireless, except those directors that are employed solely for the purpose of satisfying listing or financing requirements of Kingtone Wireless. The Shareholders’ Voting Proxy Agreement will remain in effect until Softech acquires all of the assets or equity of Kingtone Information.

Exclusive Option Agreement

Pursuant to the terms of a certain Exclusive Option Agreement dated December 15, 2009 among Softech, Kingtone Information and the shareholders of Kingtone Information (the “Exclusive Option Agreement”), the shareholders of Kingtone Information granted Softech an irrevocable and exclusive purchase option (the “Option”) to acquire Kingtone Information’s equity interests and/or remaining assets, but only to the extent that the acquisition does not violate limitations imposed by PRC law on such transactions. As discussed above, current PRC law does not allow foreigners to hold equity interests in a PRC entity that engages in business dealing with classified government information. Accordingly, the Option is exercisable at any time at Softech’s discretion so long as such exercise and subsequent acquisition of Kingtone Information does not violate PRC law. The consideration for the exercise of the Option is to be determined by the parties and memorialized in the future by definitive agreements setting forth the kind and value of such consideration. To the extent Kingtone Information shareholders receive any of such consideration, the Option requires them to transfer (and not retain) the same to Kingtone Information or Softech. The Exclusive Option Agreement may be terminated by mutual agreement or by 30 days written notice by Softech.

Equity Pledge Agreement

Pursuant to the terms of a certain Equity Pledge Agreement dated December 15, 2009 among Softech and the shareholders of Kingtone Information (the `Pledge Agreement`), the shareholders of Kingtone Information pledged all of their equity interests in Kingtone Information, including the proceeds thereof, to guarantee all of

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Softech's rights and benefits under the Entrusted Management Agreement, the Exclusive Technology Service Agreement, the Shareholders’ Voting Proxy Agreement and the Exclusive Option Agreement. Prior to termination of the Pledge Agreement, the pledged equity interests cannot be transferred without Softech's prior written consent. The Pledge Agreement may be terminated only upon the written agreement of the parties.

Call Option Agreements between Xtra Heights Management Ltd. and Certain Shareholders of Kingtone Information

In connection with our December 2009 reorganization, twelve individual shareholders (listed below) of Kingtone Information (individually a “Purchaser” and collectively the “Purchasers”) each entered into a Call Option Agreement (collectively the “Call Option Agreements”) with Xtra and its sole shareholder Sha Li (collectively the “Seller”) dated as of December 15, 2009. Pursuant to the terms and conditions of the Call Option Agreements, the Purchasers are entitled to purchase up to an aggregate of 6,806,250 ordinary shares of our company from the Seller at a price of $0.001 per share. Specifically, (i) if the Purchasers enter into an employment agreement to serve for Softech for a term of not less than five years, the Purchasers are entitled to purchase up to 3,403,125 ordinary shares from the Seller; (ii) if Softech achieves not less than $500,000 in consolidated after-tax net income as determined under US GAAP for the fiscal year ending September 30, 2010, the Purchasers are entitled to purchase up to 1,361,250 ordinary shares from the Seller; (iii) if Softech achieves not less than $1,000,000 in consolidated after-tax net income as determined under US GAAP for the fiscal year ending September 30, 2011, the Purchasers are entitled to purchase up to 1,361,250 ordinary shares from the Seller; and (iv) if Softech achieves not less than $2,000,000 in consolidated after-tax net income as determined under US GAAP for the fiscal year ending September 30, 2012, the Purchasers are entitled to purchase up to 680,625 ordinary shares from the Seller. Under the Call Option Agreements, the Seller also irrevocably appoints each corresponding Purchaser with the exclusive right to exercise, on its behalf, all of the voting rights of the Seller’s shares. Additionally, the Call Option Agreements grant the Purchasers the right to all distributions made by us, including without limitation, dividends, in respect of the Seller’s shares.

The Purchasers entered into the Call Option Agreements upon terms substantially similar to the terms set forth in that certain Term Sheet, dated October 27, 2009, between the Purchasers and Ms. Sha Li.

The twelve Purchasers are (i) Tao Li, our chairman, Peng Zhang, our chief executive officer, (ii) Li Wu, a member of our board of directors and our former chief financial officer, (iii) Jun Ma, our chief technology officer, (iv) Pengguo Xi, our vice president of research and development, (v) Xianying Chen, our vice president of application development, and (vi) Jian Ping Li, Wei Pu, Wei Wang, Wei Zhang, Xiao Bin Zhang, and Yu Fan Zhang, all of whom are employees of Softech.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our results of operations and financial condition in conjunction with Selected Consolidated and Combined Financial Data and the audited consolidated and combined financial statements and related notes thereto included elsewhere in this prospectus. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of this prospectus. Actual results may differ materially from those contained in any forward-looking statements.

Overview

We were incorporated on October 27, 2009 under the laws of the British Virgin Islands and act as a holding company. We conduct substantially all of our operations through our contractually-controlled PRC entity, Kingtone Information, which focuses on developing mobile enterprise solutions in China. We provide a suite of applications that enable mission-specific field and long-distance information management in wireless environments.

Kingtone Information commenced its current line of business in 2001 as an industrial automation management and control software system developer. We subsequently developed a core middleware platform consisting of standardized modules. This core middleware platform allows our solutions to seamlessly integrate with our customers’ existing information management systems. The core middleware platform can host an array of standardized and scalable applications developed by us. This structured design allows us to timely and cost-effectively meet our customers’ specific requirements and respond to their operational changes. Customized packages of our middleware platform and applications are marketed as tailored solutions to business and government customers of all kinds.

Due to the recent deployment of 3G telecommunication networks in China, demand for wireless enterprise application solutions has grown exponentially. We believe we are well positioned to capitalize on this market trend to further expand our market share and grow our revenue and profits.

Background

Our consolidated financial statements are presented on a fiscal year end November 30 basis reflecting no historical operations.

In December 2009, through one of our subsidiaries, we entered into a series of agreements with Kingtone Information establishing Kingtone Information as our contractually-controlled Variable Interest Entity. Kingtone Information was formed on December 28, 2001 and its financial statements are presented on a fiscal year end September 30 basis.

We and Kingtone Information were entities under common control for all periods presented. The financial statements presented reflect the consolidation of our subsidiaries for the period ended November 30, 2009 and the combination of Kingtone Information’s financial statements for its years ended September 30, 2009 and 2008. Although we present our financial statements for years ended November 30 throughout the rest of this Prospectus, for the purpose of this management discussion and analysis, we use Kingtone Information's audited financial statements, which ends September 30, 2009 and 2008.

On March 2010, our board of directors approved a change in our fiscal year end from November 30 to September 30 in order to coincide with the fiscal year end of Kingtone Information, our contractually-controlled subsidiary.

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Results of Operations for the fiscal years ended September 30, 2009 compared to fiscal year ended September 30, 2008.

The following table sets forth key components of our results of operations for the periods indicated, in thousands of dollars and percentage of revenue and changes.

         
  For Years Ended September 30  
     2009   2008   Changes
     ($ in Thousands, Except per Share Data)     
Revenue   $ 11,240       100.0 %     $ 4,286       100.0 %       162.2 %  
Cost of sales     3,894       34.6 %       1,621       37.8 %       140.2 %  
Gross margin     7,346       65.4 %       2,665       62.2 %       175.6 %  
Operating expenses
                                            
Selling and marketing expenses     350       3.1 %       301       7.0 %       16.3 %  
General and administrative expenses     537       4.8 %       355       8.3 %       51.3 %  
Research and development expense     139       1.2 %       79       1.8 %       75.9 %  
       1,026       9.1 %       735       17.1 %       39.6 %  
Income from operations     6,320       56.2 %       1,930       45.0 %       227.5 %  
Other income(expense)
                                            
Subsidy income     307       2.7 %       163       3.8 %       88.3 %  
Interest expense     (340 )       -3.0 %       (531 )       -12.4 %       -36.0 %  
Other income     24       0.2 %       16       0.4 %       50.0 %  
Other expenses     (79 )       -0.7 %       (372 )       -8.7 %       -78.8 %  
       (88 )       0.8 %       (724 )       -16.9 %       -87.8 %  
Income before income tax expense     6,232       55.4 %       1,206       28.1 %       416.7 %  
Income tax expense     (935 )       -8.3 %       (191 )       4.5 %       389.5 %  
Net income     5,297       47.1 %       1,015       23.7 %       421.9 %  
Other comprehensive income
                                            
Foreign currency translation gain (loss)     22       0.2 %       544       12.7 %       -96.0 %  
Comprehensive income   $ 5,319       47.3 %     $ 1,559       36.4 %       241.2 %  
WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES OUTSTANDING     10,000,000                10,000,000                0.0 %  
Net earnings per ordinary share:
                                            
Basic and Diluted   $ 0.53              $ 0.10                430.0 %  

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The following is a breakdown of our revenue, cost of sales and gross margin for the years indicated, in thousands of dollars, and our respective gross margin percentages and changes.

         
  For Years Ended September 30  
     2009   2008   Changes
     ($ in Thousands, Except per Share Data)     
Revenue
                                            
Software   $ 5,170       46.0 %     $ 987       23.0 %       423.8 %  
Wireless system solution     6,070       54.0 %       3,299       77.0 %       84.0 %  
Total revenue     11,240       100.0%       4,286       100.0%       162.2 %  
Cost of Sales
                                            
Software     476       12.2 %       183       11.3 %       160.1 %  
Wireless system solution     3,418       87.8 %       1,438       88.7 %       137.7 %  
Total cost of sales     3,894       100.0%       1,621       100.0%       140.2 %  
Goss Margin
                                            
Software     4,694       63.9 %       804       30.2 %       483.8 %  
Wireless system solution     2,652       36.1 %       1,861       69.8 %       42.5 %  
Total gross margin     7,346       100.0%       2,665       100.0%       175.6 %  
Gross Margin Percentage
                                            
Software              90.8 %                81.5 %           
Wireless system solution              43.7 %                56.4 %           
Blended gross margin percentage              65.4%                62.2%           

Revenue

In the past two years, we have experienced rapid growth and significantly expanded our business. Our revenue grew by 162.2% to approximately $11.2 million in the year ended September 30, 2009 from approximately $4.3 million in the year ended September 30, 2008. Excluding a related party transaction, our revenues grew to $10.1 million in the year ended September 30, 2009.

We derived our revenue from the provision of our software solutions and wireless systems. Software sales refer to sales of pure software, support contracts and services without aggregating third-party hardware or software under our contract for delivery. Our customers are responsible for purchasing and providing the necessary hardware and software to work with our software solutions to form enterprise mobile solutions. Software sales are mostly sales to our vertical industry application markets other than the automation telematics application market. These sales are usually performed during a short period of time, from 1-2 weeks to 1-2 months. Wireless system solution sales refer to sales of our software, support contacts and services aggregated with third-party hardware and software under our contract to deliver as turn-key systems. Wireless system solution sales mostly sales to our automation telematics customers. These sales are usually performed over a longer period of time, ranging from approximately two months to approximately two years. The sales process often includes purchase, integration and installation of automation equipments on behalf of our customers and finished with installation and configuration of our software solutions.

Our revenue from software solution sales grew by 423.8% to approximately $5.2 million in the year ended September 30, 2009 from approximately $1.0 million in the year ended September 30, 2008. As a percentage of total revenue, software solution sales revenue grew from 23% to 46%. The significant growth of our software solution revenue was mainly driven by accelerated adoption of mobile enterprises applications by our government agency customers and general business customers.

Our revenue from wireless system sales grew by 84% to approximately $6.1 million in the year ended September 30, 2009 from approximately $3.3 million in the year ended September 30, 2008. This growth was driven by growing mobile application demand from our industrial automation customers and demand for our Kingtone portal mobile video server system solutions. As a percentage of total revenue, wireless system revenue decreased from 77% to 54% of our total revenue.

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In the years ended September 30, 2009 and 2008, we had one significant single customer, which was engaged in the petroleum and petrochemical industry. In the year ended September 30, 2009, approximately $5.0 million revenue was derived from this customer, representing 44.7% of our total revenue, including approximately $0.8 million revenue from one contract related to this customer in software sales, representing 15.4% of our software revenue, and approximately $4.2 million revenue from three contracts related to this customer in wireless system solution sales, representing 69.6% of our wireless system solution revenue. In the year ended September 30, 2008, approximately $2.4 million of our total revenue was derived from one contract with this customer, representing 57% of our total revenue, including 0% of our software revenue and 74% of our wireless system solution revenue.

In the year ended September 30, 2009, we derived approximately $1.1 million of our total revenue from two contracts with Xi’an TechTeam Humic Acid Products Co., Ltd., an indirect subsidiary of China Green Agriculture, Inc., a company that is majority-owned by Mr. Tao Li, our chairman, and whose chairman, president and chief executive officer is Mr. Li. This revenue represented 10.2% of our total revenue and 18.9% of our revenue from wireless system solutions sales. In the year ended September 30, 2008, we did not have any sales to related parties.

Cost of Sales

Our cost of sales increased by 140.2% to approximately $3.9 million in the year ended September 30, 2009 from approximately $1.6 million in the year ended September 30, 2008. The growth in our cost of sales was driven by the growth of our revenue. As a percentage of our revenues, our cost of sales decreased to 34.6% of revenues in the year ended September 30, 2009 from 37.8% of revenues in the year ended September 30, 2008.

Cost of sales for software increased by 160.1% to approximately $0.5 million in the year ended September 30, 2009 from approximately $0.2 million in the year ended September 30, 2008, representing 12.2% and 11.3% of our total cost of sales and 9.2% and 18.5% of our software revenue in the fiscal years ended September 2009 and 2008, respectively. Our software is developed out of our core wireless application software platform with limited secondary development efforts. As a result, the growth of software cost of sales was significantly less than the growth of software revenue.

Cost of sales for wireless system solutions increased by 137.7% to approximately $3.4 million in the year ended September 30, 2009 from approximately $1.4 million in the year ended September 30, 2008, representing 87.8% and 88.7% of total cost of sales and 56.3% and 43.6% of wireless system solutions in the fiscal years ended September 2009 and 2008, respectively.

The principal component of our cost of sales for wireless system solutions is the hardware we purchase from third-party vendors on behalf of our customers. Although we principally provide software solutions to our customers, our customers, especially those using wireless industrial automation applications, expect us to combine our software solution with certain hardware and to deliver a singular complete turn-key wireless system. As a result, we quote a total contract price for both software and hardware and issue a single invoice.

Gross Margin

Our total gross margin increased by 175.6% to approximately $7.3 million in the year ended September 30, 2009 from approximately $2.7 million in the year ended September 30, 2008. Our blended gross margin percentage was 65.4% and 62.2% in the years ended September 30, 2009 and 2008, respectively. The improvement in our blended gross margin percentage was mainly caused by our increased gross margin percentage in, and our proportion of revenue from, our software solution sales in fiscal 2009, which was partially offset by the decreased gross margin percentage in our wireless system solution sales.

Our gross margin for software sales increased by 483.8% to approximately $4.7 million in the year ended September 30, 2009 from approximately $0.8 million in the year ended September 30, 2008. Our gross margin percentage for software solutions sales increased to 90.8% in the year ended September 30, 2009 from 81.5% in the year ended September 30, 2008. This increase of gross margin percentage was primarily due to the adaptability of our existing platform which we can configure and tailor without significant additional expenditure.

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Our gross margin for wireless system sales increased by 42.5% to approximately $2.7 million in the year ended September 30, 2009 from approximately $1.9 million in the year ended September 30, 2008. Our gross margin percentage for wireless system sales decreased to 43.7% in the year ended September 30, 2009 from 56.4% in the year ended September 30, 2008. The decrease in gross margin percentage was mainly attributable to the higher portion of purchased hardware included in our wireless system sales in fiscal 2009.

Operating Expenses

Selling and Marketing Expenses

Our selling and marketing expenses increased by 16.3% to approximately $0.35 million in fiscal 2009 from approximately $0.3 million in fiscal 2008, and represented 3.1% and 7.0% of our revenue for the years ended September 30, 2009 and 2008, respectively. Selling and marketing expenses consist primarily of compensation and benefit expenses relating to our sales and marketing personnel, travel and communication expenses, and selling and marketing-related office expenses.

Although our revenue increased significantly from fiscal year 2008 to fiscal year 2009, our selling and marketing expenses increased moderately because our sales and marketing team improved their efficiency while remaining roughly the same size. We expect our selling and marketing expenses to increase in the near future as we increase our business development efforts, hire additional sales personnel, target additional customers and initiate additional marketing programs to further build our brand. However, we expect our selling and marketing expenses as a percentage of revenue to decrease because we believe our revenue will grow at a faster pace.

General and Administrative Expenses

Our general and administrative expenses increased by 51.3% to approximately $0.54 million in fiscal 2009from approximately $0.36 million in fiscal 2008, and represented 4.8% and 8.3% of our revenue for the years ended September 30, 2009 and 2008, 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, depreciation and amortization expenses and overhead expenses. General and administrative expenses also include legal and other professional fees and other miscellaneous administrative costs. We expect our general and administrative expenses to increase significantly from the year ended September 30, 2009 level as we incur costs to comply with the requirements imposed on a public company in the U.S. and to conduct financing and investor relations activities. As a percentage of revenue, we expect our general and administrative expenses in fiscal 2010 to remain at about the same level as in the year ended September 30, 2009.

Research and Development Expenses

Our research and development expenses increased 75.9% to approximately $0.14 million in fiscal 2009 from approximately $0.08 million in fiscal 2008, and represented 1.2% and 1.8% of our revenue for the years ended September 30, 2009 and 2008, respectively. Research and development expenses consist primarily of compensation and benefit expenses relating to engineers in our research and development center, materials cost in research and development activities, and depreciation and amortization expenses relating to our research and development center. We plan to increase the size of our research and development team and have budgeted a significant portion of our projected cash flow during the near future and a portion of the proceeds from the offering of our ADSs for developing new software solutions, as well as to better equip our research and development center to maintain our technology edge in our industry. Therefore, we expect our research and development expenses will increase in both dollar amount and as a percentage of our revenue.

Income from Operations

Income from operations grew 227.5% to approximately $6.3 million in the year ended September 30, 2009 from approximately $1.9 million in the year ended September 30, 2008. The growth of income from operations was mainly attributed to the growth in our revenue.

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Net Income

Net income grew by 421.9% to approximately $5.3 million in the year ended September 30, 2009 from approximately $1.0 million in the year ended September 30, 2008. The growth of net income was mainly attributed to the growth in our revenue.

Critical Accounting Policies

Revenue Recognition

Revenues consist primarily of sales of wireless system software service solutions and other customized software with support contracts. We recognize revenue when (1) pervasive evidence of an arrangement exists, (2) delivery has occurred and customer acceptance is reasonably assured, (3) the fee is fixed or determinable, and (4) collectability is probable.

We generally provide wireless system software service solutions and customized software under short and long-term fixed-price contracts that require significant production and customization. The contract periods range from two months to approximately two years in length. We recognizes income for these contracts following both the percentage-of-completion method, measured by contract milestones and on the basis of actual costs incurred versus the total estimated contract costs, and on the completed contract method in accordance with the AICPA’s Statement of Position (“SOP”) 81-1 (ASC No. 605-35) and 97-2 (ASC No.985-605).

Provided unapproved change orders or claims occur in the future, in accounting for contracts, we follows Paragraphs 62 and 65 of the AICPA’s Statement of Position 81-1 — Accounting for Performance of Construction-Type and Certain Production-Type Contracts (“SOP 81-1”) (ASC No. 605-35). We will recognize as revenues costs associated with unapproved change orders (Paragraph 62 of SOP 81-1) (ASC No. 605-35) or claims (Paragraph 65 of SOP 81-1) (ASC No. 605-35) to the extent it is probable that such claims and change orders will result in additional contract revenue, and the amount of such additional revenue can be reliably estimated. Contract losses are provided for in their entirety in the period that they become known, without regard to the percentage-of-completion. However, we have not experienced significant unapproved change orders in the past.

The software contracts generally provide for postcontract customer support (“PCS”) for a period of one year from delivery of the software. The value of PCS revenue is not separately reported and is accounted for as part of the entire fee under the contract accounting methods described above since the PCS meets the criteria specified in SOP 97-2 paragraph 59 (ASC No. 985-605-25-71) as follows:

PCS is included in the total contract price;
PCS is for one year or less;
estimated costs are insignificant;
upgrades and enhancements during the PCS term have historically been and are expected to continue to be minimal and infrequent; and
the contract does not include any service elements that are accounted for separately.

All other services are provided under separate agreements and fee arrangements and the related revenue is recognized over the period the services are provided.

Unbilled revenue consists of recognized recoverable costs and accrued profits on contracts for which billings had not been presented to clients as of the balance sheet date.

We present all sales revenue net of a value-added tax (“VAT”) or a sales tax.

Cost of sales .  When the criteria for revenue recognition have been met, costs incurred are recognized as cost of sales. Cost of sales (exclusive of depreciation and amortization) primarily includes the cost of the hardware purchased from the third parties, direct labor, materials and the applicable share of overhead expense directly related to the execution of services and delivery of projects.

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Liquidity and Capital Resources

Cash Flows and Working Capital

As of September 30, 2009, we had a working capital deficit of approximately $4.8 million, including cash of approximately $0.3 million. The following table sets forth a summary of our cash flow for the periods indicated, in thousands of dollars:

   
  For the Year Ended
September 30,
     2009   2008
     ($ in Thousands)
Net cash provided by operating activities   $ 4,000     $ 81  
Net cash used in investing activities     (12,210 )       (644 )  
Net cash provided by financing activities     8,335       563  
Effect of exchange rate fluctuation on cash and cash equivalents     0       2  
Net cash flow     125       2  
Cash and cash equivalents, beginning of year     9       7  
Cash and cash equivalents, end of year     134       9  

Operating Activities

Net cash provided by operating activities was approximately $4 million for the year ended September 30, 2009 as compared to approximately $0.1 million for the year ended September 30, 2008. This increase of net cash provided by operating activities was mainly attributable to the increase in cash collected from sales to our customers, reflecting increased demands for our software products and wireless system solutions and our ability to control costs and manage credit extended to our customers. During the course of operation in fiscal year 2009, we generated approximately $11.2 million in revenue and we actually collected approximately $7.8 million from our customers. Our accounts receivable and unbilled revenue from our customers as of September 30, 2009 aggregated approximately $2.5 million, or about 23.9% of our total revenue in fiscal 2009. Although this balance was a significant increase from about half a million accounts receivable as of September 30, 2008, or about 11.6% of our total revenue in fiscal year 2008, in light of our rapid growth in revenue, we consider the amount and term of credit extended to our customers were well within a healthy range. During the course of operation in fiscal 2009, we incurred approximately $3.9 million in cost of sales and we actually paid approximately $3.2 million to our suppliers, who are mainly third-party hardware suppliers and installation contractors. Our accounts payable to our suppliers as of September 30, 2009 aggregated approximately $1.4 million, or about 43.7% of our total cost of sales in fiscal 2009. This balance was a significant increase from approximately $0.3 million accounts payable as of September 30, 2008, or about 23.4% of our total cost of sales in fiscal 2008. The higher percentage of accounts payable as of September 30, 2009 as fiscal 2009 cost of sales were mainly due to a few large wireless system solution contracts completed during the second half of fiscal 2009 and the account payable was not due on September 30, 2009. We believe that in order for us to maintain a good relationship with our customers, and if the wireless system solution contracts are more evenly spread during a year, we should try to keep the long-term percentage within the range of 20-25%.

Investing Activities

Net cash used in investing activities for the year ended September 30, 2009 was approximately $12.2 million as compared to net cash used in investing activities of approximately $0.6 million for the year ended September 30, 2008. The cash used in investing activities in fiscal year 2009 was mainly attributable to a deposit paid for purchase of new office space in light of our planned expansion.

Financing Activities

Net cash provided by financing activities for the year ended September 30, 2009 totaled approximately $8.5 million as compared to net cash provided by financing activities of approximately $0.6 million for the year ended September 30, 2008. The cash provided by financing activities for the year ended September 30, 2009 was mainly attributable to loan proceeds we received from related parties.

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As a result of the total cash activities, our net cash increased approximately $0.1 million from September 30, 2008 to September 30, 2009. We believe that our cash flow generated from our ongoing operating activities should be adequate to meet our anticipated cash needs and sustain our current operations for at least 12 months. However, the anticipated cash generated from operating activities, especially our available cash, may not be sufficient to fund the cash needs of our anticipated expansion. In order to meet the working capital needs for our anticipated expansion, we are actively exploring the following actions:

Raising more capital from the public or private equity markets; and/or
Borrowing short- and long-term commercial loans from local banks — As of September 30, 2009, we did not have any long-term debt, and we had short-term debt of approximately $3.4 million. We are in the process of obtaining the building ownership certificate for our new office space, which we expect will be an acceptable collateral for banks in connection with any new borrowings. We believe the existence of this collateral, when obtained, will increase our likelihood of securing new debt financing, if necessary.

There can be no assurance that we will be successful in obtaining any such debt or equity financing or that the terms of such financing will be favorable to us.

Current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, each of our subsidiaries in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. These reserves are not distributable as cash dividends. Furthermore, if our subsidiaries in China incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us. Also, our PRC subsidiaries must file the board resolutions authorizing the payment of dividends, the capital verification report of our PRC subsidiaries, the audit report issued by the certified public accountant company and other required materials to the banks entrusted by the local foreign exchange bureau for the examination of the remittance of the dividend. Our PRC subsidiaries can only remit dividends to us after passing the examination. Such examination requirement may limit our PRC subsidiaries’ ability to pay dividends to us which may limit our ability to pay dividends to our shareholders. If we are unable to pay dividends to our shareholders, our ability to secure equity financing in the future may be adversely affected.

Contractual Obligations

The following table sets forth our contractual obligations as of September 30, 2009:

         
  Payments Due by Period
     Total   Less Than
1 Year
  1 – 3 Years   3 – 5 Years   More Than
5 Years
     ($ in Thousands)
Short-term debt obligations (including interest)     3,437       3,437       0       0       0  
Total     3,437       3,437       0       0       0  

As of September 30, 2009, we had a one-year short-term loan due to Xi’an Commercial Banks in the approximate principal amount of $3.4 million with an initial monthly interest rate of 0.6638%, adjustable in line with the basic interest rate announced by the People’s Bank of China (PBOC). This loan is guaranteed by Xi’an Hightech Agricultural Co., Ltd. and Mr. Tao Li, our chairman, and is secured by two land use rights owned by Xi’an Yuansheng Enterprise Co., Ltd. valued at RMB 114.71 million, or approximately $16.78 million.

Off-Balance Sheet Commitments and Arrangements

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity, or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest

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in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

Quantitative and Qualitative Disclosure about Market Risk

Interest Rate Risk

Our exposure to interest rate risk primarily relates to the interest expense incurred as a result of short-term back loans maturing within 12 months. We have not used any derivative financial instruments to manage our interest risk exposure. We carry refinancing risk related to short-term interest-bearing loans. We have not been exposed nor do we anticipate being exposed to material risks due to changes in interest rates. However, our future interest expense may be higher than expected due to changes in market interest rates.

Foreign Exchange Risk

Translation adjustments amounted to $0.02 million and $0.54 million as of September 30, 2009 and September 30, 2008, respectively. The Company translated balance sheet amounts with the exception of equity at September 30, 2009 at RMB 6.8376 to $1.00 as compared to RMB 6.8551 to US$1.00 at September 30, 2008. The Company stated equity accounts at their historical rate. The average translation rates applied to income statement accounts for the year ended September 30, 2009 and September 30, 2008 were RMB 6.8451 and RMB 7.1106 to US$1.00, respectively. So far, the PRC government has been able to manage a stable exchange rate between RMB and the U.S. Dollar. We do not anticipate material translation adjustments due to large fluctuations in exchange rates between RMB and the U.S. Dollar. However, our future downward translation adjustments may occur and can be significant due to changes in such exchange rate.

The PRC government imposes strict restrictions on PRC resident companies regarding converting RMB into foreign currencies and vice versa under capital account transactions, such as receiving equity investments from outside of the PRC, making equity investments outside of the PRC, borrowing money from or lending money outside of the PRC, and repaying debt or remitting liquidated assets and/or accumulated profits outside of the PRC. These transactions have to be approved by the relevant PRC government authorities, including but not limited to the commerce bureau, the tax bureau and the State Administration of Foreign Exchange, or SAFE, and have to be conducted at banks entrusted by the local SAFE branch. Kingtone Information has not conducted any foreign currency transactions during prior fiscal years since its inception. Softech was recently established and had not conducted any foreign currency transactions except for converting a relevantly small amount of foreign currency into RMB as registered capital pursuant to PRC regulations. In anticipation of this offering, we will invest or lend the proceeds as equity or loans into our PRC subsidiaries. As our business continues to grow, we may need to continuously finance our PRC subsidiaries by raising capital from outside of the PRC. The restriction on converting RMB into foreign currencies, and vice versa, may limit our ability to use capital resources from outside of the PRC. Such restrictions may also limit our ability to remit profits from our PRC subsidiaries outside of the PRC, therefore potentially limiting our ability to pay dividends to our shareholders. In addition, such restrictions will limit our ability to freely transfer temporary excess cash in our or our subsidiaries’ bank accounts in and out of the PRC, therefore limiting our ability to conduct cross-border cash management activities to optimize the utilization of our cash.

Inflation

Although China has experienced an increasing inflation rate, inflation has not had a material impact on our results of operations in recent years. According to the National Bureau of Statistics of China, the change in the consumer price index in China was 0.46%, (0.77%), and 1.16% in 2001, 2002 and 2003, respectively. However, in connection with a 3.9% increase in 2004, the PRC government announced measures to restrict lending and investment in China in order to reduce inflationary pressures in China’s economy. Following the government’s actions, the consumer price index decreased to 1.8% in 2005 and to 1.5% in 2006. In 2007, the consumer price index increased to 4.8%. In response, China’s central bank, the People’s Bank of China, announced that the bank reserve ratio would rise half a percentage point to 15.5% in an effort to reduce inflation pressures. China’s consumer price index growth rate reached 8.7% year over year in 2008. The results of the PRC government’s actions to combat inflation are difficult to predict. Adverse changes in the Chinese economy, if any, will likely impact the financial performance of a variety of industries in China that use, or would be candidates to use, our software products and services.

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Recent Accounting Announcements

In January 2010, the Financial Accounting Standards Board (FASB) issued ASU No. 2010-06 — Improving Disclosures about Fair Value Measurements. This update provides amendments to Subtopic 820-10 that requires new disclosure as follows: 1) Transfers in and out of Levels 1 and 2. A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. 2) Activity in Level 3 fair value measurements. In the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present separately information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than as one net number). This update provides amendments to Subtopic 820-10 that clarifies existing disclosures as follows: 1) Level of disaggregation. A reporting entity should provide fair value measurement disclosures for each class of assets and liabilities. A class is often a subset of assets or liabilities within a line item in the statement of financial position. A reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities. 2) Disclosures about inputs and valuation techniques. A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. Those disclosures are required for fair value measurements that fall in either Level 2 or Level 3. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. We are currently evaluating the impact of this ASU; however, we do not expect the adoption of this ASU to have a material impact on our consolidated and combined financial statements.

In January 2010, FASB issued ASU No. 2010-02 — Accounting and Reporting for Decreases in Ownership of a Subsidiary — a Scope Clarification. The amendments in this Update affect accounting and reporting by an entity that experiences a decrease in ownership in a subsidiary that is a business or nonprofit activity. The amendments also affect accounting and reporting by an entity that exchanges a group of assets that constitutes a business or nonprofit activity for an equity interest in another entity. The amendments in this update are effective beginning in the period that an entity adopts SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51.” If an entity has previously adopted SFAS No. 160 as of the date the amendments in this update are included in the Accounting Standards Codification, the amendments in this update are effective beginning in the first interim or annual reporting period ending on or after December 15, 2009. The amendments in this update should be applied retrospectively to the first period that an entity adopted SFAS No. 160. The adoption of this ASU did not have a material impact on our consolidated and combined financial statements.

In January 2010, FASB issued ASU No. 2010-01 — Accounting for Distributions to Shareholders with Components of Stock and Cash. The amendments in this Update clarify that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in EPS prospectively and is not a stock dividend for purposes of applying Topics 505 and 260 (Equity and Earnings Per Share). The amendments in this update are effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis. The adoption of this ASU did not have a material impact on our consolidated and combined financial statements.

In December, 2009, FASB issued ASU No. 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. This Accounting Standards Update amends the FASB Accounting Standards Codification for the issuance of FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R). The amendments in this Accounting Standards Update replace the quantitative-based risks and rewards calculation for determining which reporting entity, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which reporting entity has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. An approach that is expected to be primarily qualitative will be more effective for identifying which reporting entity has a controlling financial interest in a variable interest entity. The amendments in this Update also require

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additional disclosures about a reporting entity’s involvement in variable interest entities, which will enhance the information provided to users of financial statements. This ASU is effective for fiscal years beginning on or after November 15, 2009, and interim periods within those fiscal years. We are currently evaluating the impact of this ASU.

In December 2009, FASB issued ASU No. 2009-16, Accounting for Transfers of Financial Assets. This Accounting Standards Update amends the FASB Accounting Standards Codification for the issuance of FASB Statement No. 166, Accounting for Transfers of Financial Assets — an amendment of FASB Statement No. 140. The amendments in this Accounting Standards Update improve financial reporting by eliminating the exceptions for qualifying special-purpose entities from the consolidation guidance and the exception that permitted sale accounting for certain mortgage securitizations when a transferor has not surrendered control over the transferred financial assets. In addition, the amendments require enhanced disclosures about the risks that a transferor continues to be exposed to because of its continuing involvement in transferred financial assets. Comparability and consistency in accounting for transferred financial assets will also be improved through clarifications of the requirements for isolation and limitations on portions of financial assets that are eligible for sale accounting. We do not expect the adoption of this ASU to have a material impact on our consolidated and combined financial statements.

In October 2009, the Financial Accounting Standards Board (FASB) issued amended revenue recognition guidance for arrangements with multiple deliverables (ASU No. 2009-13) (ASC605-25). The new guidance eliminates the residual method of revenue recognition and allows the use of management’s best estimate of selling price for individual elements of an arrangement when vendor specific objective evidence (VSOE), vendor objective evidence (VOE) or third-party evidence (TPE) is unavailable. For our company, this guidance is effective for all new or materially modified arrangements entered into on or after January 1, 2011 with earlier application permitted as of the beginning of a fiscal year. Full retrospective application of the new guidance is optional. We are currently assessing our implementation of this new guidance, but do not expect a material impact on our consolidated financial statements.

In October 2009, the FASB issued guidance which amends the scope of existing software revenue recognition accounting (ASU No. 2009-14) (ASC985-605). Tangible products containing software components and non-software components that function together to deliver the product’s essential functionality would be scoped out of the accounting guidance on software and accounted for based on other appropriate revenue recognition guidance. For the company, this guidance is effective for all new or materially modified arrangements entered into on or after January 1, 2011 with earlier application permitted as of the beginning of a fiscal year. Full retrospective application of the new guidance is optional. This guidance must be adopted in the same period that the reporting company adopts the amended accounting for arrangements with multiple deliverables described in the preceding paragraph. We are currently assessing our implementation of this new guidance, but do not expect a material impact on our consolidated financial statements.

In September 2009, the FASB issued amended guidance concerning fair value measurements of investments in certain entities that calculate net asset value per share (or its equivalent) (ASU No. 2009-12) (ASC820-10). If fair value is not readily determinable, the amended guidance permits, as a practical expedient, a reporting entity to measure the fair value of an investment using the net asset value per share (or its equivalent) provided by the investee without further adjustment. The amendments are effective for interim and annual periods ending after December 15, 2009. We do not expect a material impact on our consolidated financial statements due to the adoption of this amended guidance.

In August 2009, the FASB issued guidance on the measurement of liabilities at fair value (ASU No. 2009-5) (ASC820-10). The guidance provides clarification that in circumstances in which a quoted market price in an active market for an identical liability is not available, an entity is required to measure fair value using a valuation technique that uses the quoted price of an identical liability when traded as an asset or, if unavailable, quoted prices for similar liabilities or similar assets when traded as assets. If none of this information is available, an entity should use a valuation technique in accordance with existing fair valuation principles. We adopted this guidance in the year ended September 30, 2009 and there was no material impact on our consolidated financial statements.

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In June 2009, the FASB issued Accounting Standard Update No. 2009-02. “Amendments to Various Topics for Technical corrections.” ASU No. 2009-2 is an omnibus update that is effective for financial statements issued for interim and annual periods ending after July 1, 2009. This Statement did not impact our consolidated financial statements.

In June 2009, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 168 (ASC No. 105), “The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162” (the Codification). The Codification, which was launched on July 1, 2009, became the single source of authoritative nongovernmental U.S. GAAP, superseding existing FASB, American Institute of Certified Public Accountants (AICPA), Emerging Issues Task Force (EITF) and related literature. The Codification eliminated the GAAP hierarchy contained in SFAS No. 162 and established one level of authoritative GAAP. All other literature is considered non-authoritative. This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. We adopted this Statement for our year ended September 30, 2009. There was no change to our consolidated financial statements due to the implementation of this Statement.

In June 2009, the FASB issued SFAS No. 167 (ASC No. 810), “Amendments to FASB Interpretation No. 46(R),” and SFAS No. 166 (ASC No. 860), “Accounting for Transfers of Financial Assets — an amendment of FASB Statement No. 140 (ASC No. 860).” SFAS No. 167 amends FASB Interpretation 46(R) to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity and requires ongoing qualitative reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. SFAS No. 166 amends SFAS No. 140 by removing the exemption from consolidation for Qualifying Special Purpose Entities (QSPEs). This Statement also limits the circumstances in which a financial asset, or portion of a financial asset, should be derecognized when the transferor has not transferred the entire original financial asset to an entity that is not consolidated with the transferor in the financial statements being presented and/or when the transferor has continuing involvement with the transferred financial asset. We will adopt these Statements for interim and annual reporting periods beginning on January 1, 2010. We do not expect the adoption of these standards to have any material impact on our consolidated financial statements.

In May 2009, the FASB issued SFAS No. 165 (ASC No. 855), “Subsequent Events.” This Statement sets forth: 1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; 2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and 3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. This Statement is effective for interim and annual periods ending after June 15, 2009. We adopted this Statement in the year ended September 30, 2009. This Statement did not impact our consolidated financial statements.

In April 2009, the FASB issued FASB Staff Position (FSP) FAS 141(R)-1 (ASC No. 805), Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies, which amends the accounting in SFAS 141(R) for assets and liabilities arising from contingencies in a business combination. The FSP is effective January 1, 2009, and requires pre-acquisition contingencies to be recognized at fair value, if fair value can be reasonably determined during the measurement period. If fair value cannot be reasonably determined, the FSP requires measurement based on the recognition and measurement criteria of SFAS 5 (ASC No. 450), Accounting for Contingencies. Adoption of FSP FAS 141(R)-1 did not have an impact on our financial position, results of operations or cash flows.

In April 2009, the FASB issued FSP No. FAS 107-1 (ASC No. 825) and APB 28-1 (ASC No. 270), “Interim Disclosures about Fair Value of Financial Instruments”. This FASB staff position amends FASB Statement No. 107 to require disclosures about fair values of financial instruments for interim reporting periods as well as in annual financial statements. The staff position also amends APB Opinion No. 28 to require those disclosures in summarized financial information at interim reporting periods. This FASB staff position becomes effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. We adopted these standards. The adoption of these standards did not materially impact our consolidated financial statements.

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In April 2009, the FASB issued FSP No. FAS 115-2 (ASC No. 320) and FAS 124-2 (ASC No. 958), “Recognition and Presentation of Other-Than-Temporary Impairments”. This FSP amends the other-than-temporary impairment guidance in GAAP for debt securities. If an entity determines that it has an other-than-temporary impairment on a security, it must recognize the credit loss on the security in the income statement. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. The staff position expands disclosures about other-than-temporary impairment and requires that the annual disclosures in FASB Statement No. 115 and FSP FAS 115-1 and FAS 124-1 be made for interim reporting periods. This FSP becomes effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. We adopted this standard. The adoption of this standard did not materially impact our consolidated financial statements.

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BUSINESS

Overview

We are a China-based developer and provider of mobile enterprise solutions. Mobile enterprise solutions allow company personnel whose work function requires mobility (as opposed to operating from a single work station) to be connected with enterprise information technology, or IT systems, including Enterprise Asset Management (EAM), Enterprise Resource Planning (ERP), Supply Chain Management (SCM), and Customer Relationship Management (CRM). Our software enables such systems to get extended to personnel in the field using wireless devices such as smart phones, PDAs, cameras, barcode scanners, portable printers, GPS devices, and tablet computers. Mobile enterprise solutions also include custom software applications for specific industries and businesses.

Our mobile enterprise solutions are built on our proprietary core middleware platform consisting of standardized modules. This core middleware platform allows our solutions to seamlessly integrate with our customers’ existing information management systems. The core middleware platform can host an array of standardized and scalable applications developed by us or by others. This structured design allows us to timely and cost-effectively meet our customers’ specific requirements, and to respond to their changing needs.

Mobile enterprise solutions are generally aimed at reducing processing times and facilitating the flow of information among people and systems. Mobile computing allows field workers to communicate and interact more efficiently with their central operations, and vice versa. Enterprises are able to capture more accurate and timely information, and to achieve major reductions in paperwork and administration. Mobile enterprise solutions can be used to put important data in the hands of field workers, thus improving decision-making and productivity in the field. Mobile enterprise solutions improve efficiency in everyday functions including work dispatch, sales, inspections, repairs, deliveries, tracking and scheduling. Mobile enterprise solutions can also be used within factory settings, where wireless data connections are used to improve central control and monitoring of production and automations systems. For example, we designed and implemented a solution for a PRC-based petroleum company that allows plant managers to wirelessly monitor its production lines from off-site or remote locations.

The rollout of 3G wireless networks in China is increasing customer interest in mobile enterprise solutions. The increased bandwidth of 3G enables greater functionality and performance. In addition, touchscreen smart phones and other standard consumer devices that utilize 3G are able to be used for many applications that formerly required costly custom devices. These technology trends are positively affecting our business. We are also working with the three PRC telecom carriers, China Telecom, China Mobile, and China Unicom, on joint marketing and sales efforts to enterprises and government agencies. In addition, we are working with China Telecom to jointly develop and promote a custom, next-generation mobile solution for public safety agencies, including police and fire forces in certain provinces in China.

We typically act as a total solution provider, packaging our software with various third-party hardware and related equipment. We are headquartered in Xian, China and sell our products widely throughout China.

Our Industry — Mobile Enterprise Software Industry

We operate in the mobile enterprise software industry in China. We believe the mobile enterprise market in China benefits from compelling industry fundamentals such as increasing investment in IT, the country’s 3G rollout, and increasing demand for wireless applications within working environments.

Information Technology Development in China

Information technology has become an integral part of Chinese society and an important engine of growth for the economy. According to an IDC article dated October 22, 2009, IT spending by the PRC government in 2009 was expected to total RMB 53.65 billion, and is predicted to reach RMB 73.36 billion in 2013. Furthermore, according to an article published by the China Computer Newspaper dated March 3, 2010, government departments and sectors such as transportation, energy, healthcare, and environmental protection are among those with high growth rates in IT investment. IDC states that as the IT hardware market has become more fully developed, the focus of IT investment has gradually shifted from hardware infrastructure to software applications. From 2008 to 2013, the annual compound growth rate of IT hardware is projected to

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be 5.6%, compared to the annual compound growth rates of software and IT services of 13.2% and 14%, respectively, during the same period, according to IDC.

This supports our belief that market acceptance of enterprise mobility applications, solutions and systems usually accelerates when potential customers’ back-end information technology systems are fairly developed and they start to invest in applications. By indentifying sectors with high growth rates of IT investment, we can exploit opportunities to expand our business by capturing the growth in targeted vertical industry markets.

3G Rollout in China

On December 31, 2008, the State Council of the PRC, or the State Council, announced the approval of 3G license issuances to the three telecom operators, namely China Telecom, China Mobile and China Unicom, and the Ministry of Industry and Information Technology (MIIT) officially issued 3G licenses to those entities on January 7, 2009. Third generation wireless standard, or 3G, is a family of standards for mobile telecommunication. 3G communications allow simultaneous use of speech and data services at higher data rates than services developed under prior generation standards.

According to a January 2009 report by CITIC Jiantou Securities, it is estimated that investment in 3G between 2009 and 2011 by the three Chinese telecom carriers will total $44.0 billion. According to the MIIT, the 3G industry is expected to generate RMB 1 trillion, or $146.5 billion, in demand in the next three years. As mobile carriers further invest in applications and content, we believe the demand for enterprise mobile software/middleware will experience significant growth.

We believe the issuance of 3G licenses is expected to drive the growth of an enterprise wireless chain comprised of telecommunications service providers/carriers, converged mobile device providers, IT vendors, and software/middleware providers. Mobile software/middleware provides key platforms across which managed enterprise mobility services are deployed. We believe the 3G rollout and the upcoming commercial deployment will both inspire and facilitate new and diversified customer applications for mobile enterprise software.

Mobile Enterprise Solutions in China

We believe that China's enterprise mobility market is experiencing rapid development, driven primarily by the development of the mobile industry. In its January 2008 report, IDC forecasted the enterprise mobility market in China to reach $15.56 billion in 2011 with a forecasted compound annual growth rate of 6.0% from 2007 to 2011.

The growth of mobile enterprise solutions is driven by the demand for increased business efficiencies and new functionalities. In many modern businesses, operations are distributed over a large area, with individual operating elements. Mobile enterprise solutions allow organizations to enable mission-specific field and long-distance information management on a real-time basis. Mobile enterprise solutions consist of packaged, mission-specific and industry-specific applications and software designed especially for enterprise using wireless connectivity.

Enterprise wireless applications can be tailored to meet the specific needs of many industry sectors, such as manufacturing, energy, transportation, logistics, utilities, healthcare, and government agencies (such as police and emergency services). These custom software solutions include production control automation, sales force automation, field force automation, customer relationship management, enterprise resource planning, supply chain management, operations management, inventory management, time and expense, logistics, and other collaborative items.

Wireless enablement for an enterprise and its many activities is now a prominent trend according to the IDC report. With the rapid growth of the domestic economy, improvements in bandwidth, and increased mobility in working environments, enterprises and government agencies are increasing spending on the construction of mobile platforms and applications to extend their functionality outside of stationary locations. Mobile enterprise solutions including mobile middleware software, mobile security software, mobile device management software, and mobile enterprise applications have fueled the growth of both business data and video/voice usage, which are also major driving factors in communication spending.

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Our Strengths

We believe the following strengths differentiate us from our competitors:

Proprietary suite of mobile enterprise solutions offerings

We are among the first of Chinese companies to focus predominantly on developing mobile enterprise solutions. Since we began our operations in 2001, we have completed many successful client installations (approximately 130) and have accumulated special knowledge and expertise that has directly resulted in the creation and development of our proprietary adaptable middleware platform, and an array of software applications. A client installation is considered “successful” when we have developed the solutions/systems according to the customer’s contractual specifications and have otherwise fulfilled all other material terms set forth in the sales contract, including installing, configuring and making the solutions/systems operational within the specified time periods. Additionally, to be considered “successful”, a customer must have test run the solutions/systems and indicated its satisfaction by signing the acceptance letter.

We believe our mobile enterprise software is superior in breadth of application. Our middleware platform and software applications can be selectively packaged to create tailored solutions that can be installed on both new systems and existing frameworks.

Strong development capability

We have taken advantage of the significant talent pool within the universities and research institutes in Xi’an China, where our operations are located, to establish a dedicated research and development team. As of September 30, 2009, we had 60 engineers dedicated to technology development and customer implementations. Our development engineers have diverse technical background and are led by experienced development practitioners. We have been able to track and incorporate the latest technologies into our software to continuously improve our core middleware platform and applications, and to develop new functionalities.

Industry knowledge

We work closely with our customers to build upon our understanding of our customers’ operational processes and requirements. Our sales teams coordinate closely with our development teams to reflect those requirements in our solutions. As a result, our mobile enterprise solutions fit smoothly into our customers’ operations. In addition, our presence in the mobile enterprise solution market since its inception provides us with domain knowledge which we use to help position us for future growth. We are continually receiving feedback from this evolving market to anticipate emerging sectors and future product requirements.

Growing track record

In its January 2008 report, IDC forecasts the enterprise mobility market in China will reach $15.6 billion in 2011. Virtually all businesses and public service operations have the potential to experience efficiencies and new functionalities with mobile enterprise solutions. We have successfully completed projects for clients, such as the Central Government Security Bureau and Beijing Emergency Respond Center, from many verticals. These serve as high-profile case studies and enhance our reputation in the marketplace and, thus, — providing key endorsement for the quality and stability of our product offerings. Moreover, by having our main corporate office in Xi’an, China, we have benefited from the continued surge in IT investment by the Western provinces.

Joint efforts with Chinese wireless telecom carriers

We benefit from joint business development efforts with China Telecom, China Mobile and China Unicom. These wireless telecom carriers have a strategic interest in the advancement of the mobile enterprise in China. Our sales professionals work closely with those companies to access their large pools of corporate customers. Together we make joint presentations to candidate customers, where the carrier will provide the wireless network and we will provide the mobile enterprise solution. We have unwritten cooperative relationships with all three telecom carriers to co-promote next-generation mobile solutions for various other applications in China. In addition we have a formal co-marketing agreement with China Telecom to co-promote next-generation mobile solutions for law enforcement applications in Shaanxi province. For the

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year ended September 30, 2009, we completed a total of eight customer projects with the three telecom carriers. Typically under these arrangements, we jointly market our products and services for customer applications. Customers contract with the telecom carrier and we provide our solutions to the customer and receive our remuneration from the telecom carrier.

Our Strategy

Seize the opportunity presented by 3G adoption in China

China’s legacy wireless networks (2G, 2.5G and 2.75G) have limited bandwidth and consequently limit the functional potential of mobile enterprise applications. Since the issuance of 3G licenses in January 2009, we have been working with wireless telecom carriers on joint marketing initiatives aimed at increasing the enterprise utilization of 3G. Our telecom partners are seeking new revenue streams to offset the diminishing opportunity for voice services, and we are offering solutions to enable wider forms of mobile computing that take advantage of the 3G bandwidth.

Recruit, train and retain engineering professionals

To sustain our high rate of growth, we must continue to add to our technical and business development teams through selective recruiting of university graduates and qualified lateral hires. Once employed, we provide our technical employees with a comprehensive training program to understand our technologies, market and product offerings.

Expand Operations

We are in the process of completing our purchase of a six-story building in Xi’an to house anticipated expansion of our headcount and business activities. This building, which we plan to name “Kingtone Center”, will house our headquarters and development teams, and provide dedicated facilities for customer demonstrations of our products and abilities. We believe Chinese customers have more confidence in the financial strength of businesses that have their own building. We expect Kingtone Center to have a positive effect on our marketing and expansion activities.

Invest more in research and development to create more successful software products

To keep our competitive edge, we are launching a new research and development program to keep abreast of the latest developments in wireless standards and information management technologies and to anticipate future customer needs. We also plan to invest in developing new applications for anticipated high-growth, vertical industry markets. Spending will be focused on testing equipment, including laboratories and 3G simulation systems, as well as expendable materials used during experiments. We plan to allocate a large portion of space in our new Kingtone Center facility to house our enlarged development team and increased research and development activities.

Pursue strategic acquisition opportunities

We will from time to time consider acquisitions or alliances that enable us to acquire talented and experienced software development personnel, enhance our technological capabilities and competitive advantages or provide licensing or recurring revenue opportunities, and propel our expansion.

Our Products and Solutions

We use various combinations of our existing middleware software modules, together with custom application software that we develop, to create a complete mobile enterprise software solution. For some customers, we provide the mobile enterprise software solution only. For other customers, we provide a complete wireless system solution, including mobile enterprise software and all hardware (our own plus third party hardware such as servers and wireless devices).

An example of our mobile enterprise software products is an insurance industry application that we developed with China Mobile. Our mobile enterprise software for this application enables an insurance company’s field personnel to receive their dispatch information and do accident reporting and claim processing while in the field. Form data is inputted electronically and high-resolution photos can be collected and filed over wireless, from the accident site. For this application, we provide the software only, while China Mobile provides hardware and the network services.

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An example of our complete wireless systems (software and hardware) is a mobile video surveillance system that we developed for the Beijing Emergency Response Center. Using servers and cameras combined with our mobile enterprise software, we provided a complete wireless system that enables the Beijing Emergency Response Center to collect and monitor video from its patrol cars. This system can improve the speed and quality of the emergency response by enabling supervisors to more quickly and completely understand an emergency situation.

Our mobile enterprise software consists of core middleware and a broad array of software applications. Our middleware serves as an intelligent platform that operates on top of our customers’ operating systems and management information systems. Our software applications can be integrated onto our middleware platform as well as attached mobile devices (mobile phones, PDAs, laptops, etc.) to perform essential tasks or extend our customers’ existing applications over wireless to fixed or mobile nodes. We have combined elements of both browser/server and client/server frameworks in our software design to allow for both reliable and flexible access by authorized personnel, virtually at anytime and from anywhere.

Core Middleware Platform

Our core middleware platform resides on the customers’ servers. It is comprised of two layers of modules. The General Purpose Layer consists of mandatory software modules required to support the application software plugged into the middleware platform. The Basic Layer modules are also mandatory components that perform basic functions, such as communicating with a variety of hardware and software platforms, computer operating systems, networking and database products, coordinating and synchronizing the tasks performed by our solutions, and adding information security to data transmission.

The following table summarizes the modules in our middleware:

  

 
General Purpose Layer Modules
•     Information Processing and Distribution
•     Messaging
•     Flow Engine
•     Stream Media (Video and Audio processing)
•     Reporting
 

 
 
Basic Layer Modules
•     Unified Data Center
•     Information Security (authentication, rights approval, encryption & signature)
•     Signal Dispatch
•     Information Exchange
•     Integration Interface

Software Applications

We have developed two types of software applications that can be selectively overlaid with the middleware to complete a packaged solution, namely, Information and Communication-Technology Converged, or ICT-converged, and Vertical Industry Applications.

ICT-converged applications perform generic functionalities that may be applied across multiple industries. Vertical Industry Applications, on the other hand, are non-generic and perform a specific task required by a particular industry. Both types of applications can reside on converged mobile devices (“Terminal-end Applications”), or on computer servers (“Server-end Applications”). Our Terminal-end Applications work on a variety of mobile devices and mobile operating systems.

ICT-converged applications are software products that combine both information processing technologies, or often referred to as computing technologies, and information transmission technologies, or often referred to as telecommunication technologies, to perform desired tasks. In our case, we combine mobile computing technologies with wireless telecommunication technologies. ICT-converged applications often command the available hardware of a system or device, such as various signal collection, processing and transmission chips or peripherals to complete these tasks. ICT-converged applications usually have application programmers’ interfaces, or APIs, which are relatively short pieces of programming codes. By embedding APIs into vertical industry applications, vertical industry applications can invoke, or call, the performance of ICT-converged applications.

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In the terminal-end, we have information security, RFID, location-based service, steam media, information exchange, and management and configuration applications. The information security application encrypts or decrypts the information to ensure sensitive or classified information of our vertical industry customers’ can be transmitted over the public wireless telecommunication network safely. Installed with our RFID application and appropriate chips, mobile phone can be turned into a RFID reader and writer for faster information input in certain vertical industry customers, such as the police and administration of industry and commerce. RFID application can also be used by automation telematics customers in industries such as warehouse management and logistics. Our location-based service application enables a mobile phone to receive information relevant to its location. This application can greatly improve the operating efficiency of the mobile workforce of some of our vertical industry customers’ by pushing timely information to them. Our steam media application turns mobile phone into a moveable video monitor and collector to facilitate decision-making by delivering live pictures anywhere anytime to the decision-maker. The information exchange application automatically synchronizes information in mobile phone and in back-end database. The management and configuration application can configure the application management and control of mobile phones to perform multiple tasks running multiple applications, fully optimizing a phone’s voice and data communication features.

In the server-end, we have stream media service, resource planning, gateway service, location-based service, RFID service and statistics and analysis applications. Our stream media service application at the server-end acts as a video command center. It not only can process and record video signal from sources, selectively display them in smaller windows on the screen, control the remote cameras like most other video surveillance systems do, but also can manage the mobile phones registered with the system, such as automatically detecting the specifications of the phone and distributing selected and correctly-formatted video streams to those mobile phones, working with terminal-end stream media application to take control of the video function of the phone to turn it into a mobile camera.

Our resource planning application stores relevant information about resources available to respond to an issue, such as a crisis or public safety event. When such an issue occurs, our resource planning application automatically provides relevant information at the server-end as well as relevant decision-makers’ mobile devices.. For example, in a sudden emergency response event, a list of specialists who can respond to the emergency may be displayed, including their name, experience, whereabouts, and contact information, etc. Our gateway service application acts as a bridge between our customers’ back-end information system and the mobile workforce. It pulls information from the back-end information system, distributes the information to remote mobile phones or devices in compatible formats and also receives information from mobile phones and devices and input the information into the back-end information system. Our server-end location-based service application detects the location of registered mobile phones and devices, and centrally manages the relevant information to be pushed to those mobile phones and devices installed with terminal-end location-based service applications. Our server-end RFID service application centrally manages and processes information collected from RFID devices. Our statistics and analysis application is mainly used by our automation telematics customers and increasingly by other customers. It processes continuously data flow collected from remote sensors or devices, give real-time statistics and trend prediction, take actions or give warnings if the results reaches a preset critical value.

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The following table summarizes our software applications:

   
  ICT-Converged Applications   Vertical Industry Applications
Terminal-end   Information Security   Police
     RFID   Emergency Response
     Location-Based Service   Administration of Industry and Commerce
     Stream Media   Environmental Protection
     Information Exchange   Automation Telematics
     Management & Configuration*
Server-end   Stream Media Service   Police
     Resource Planning   Emergency Response
     Gateway Service   Administration of Industry and Commerce
     Location-Based Service   Environmental Protection
     RFID Service   Automation Telematics
     Statistics and Analysis     

* Through its management and configuration application, our software can configure the application management and control of mobile phones to perform multiple tasks running multiple applications, fully optimizing a phone’s voice and data communication features.

Our Hardware Products

Portable Video Server

Our portable video server for vehicles or individuals can be integrated into the overall solution or purchased separately to add live mobile video surveillance or transmission functions to our customers’ existing systems.

We design the server, including the breadboard, the layout of internal structures, the specifications of the electronic components, and the I/O specifications. We currently outsource the production of our hardware to third-party manufacturers. We program the embedded software and write the software into the portable video servers. We also program the software loaded on our customers’ central servers to work with our portable video servers. By using our portable video server solution, our customers enjoy higher quality video and experience better transmission compared to the generic webcam solutions available in the marketplace. Many industries and applications require this superior quality.

Tailoring Our Solutions

Our engineers in our internal solution implementation department develop the tailored mobile enterprise solution according to our customer’s requirements. The tailored solution includes our core middleware platform and a selected combination of our software applications, and sometimes hardware developed by ourselves or sourced from third-party vendors. The tailored solution is delivered as a turn-key package. Currently, we do not sell or license our core middleware platform or our mobile enterprise applications separately to our customers to use. Nor do we currently provide software development kit, or SDK, to other software developers or our customers to develop mobile enterprise solution based on our core middleware platform.

We identify our customers by and divide them into vertical industry markets. Our current vertical markets include different industries, such as petrochemical, insurance, transportation and logistics, etc. Our government customers are agencies in different public administrative areas, such as police, emergency response centers and administrative bureaus of industries and commerce. Since each public service area has its own distinctive work flow and information application requirements, we treat each public service area as a vertical industry market. Finally, manufacturers with a high degree of automation are increasingly implementing integrated telecommunication, information and mechanic technologies, or telematics, into their production management and control. We treat these automation customers as a single vertical industry. Customers in each vertical industry market have same or similar work flow and often require same or similar mobile enterprise applications. Our products are delivered as vertical industry specific solutions. Each vertical industry solution has been copyright registered, giving us greater specialist recognition in the marketplace.

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For the automation telematics vertical industry market, we typically integrate our mobile enterprise solution software with automation hardware (sensors, programmable logic controllers, data acquisition systems and mechatronics) purchased from third-party vendors to produce and sell an integrated automation telematics system. We usually contract out the installation work to third-party installers, but perform the software installation and configuration by ourselves. The integrated solution allows our customers to monitor and control variables in their industrial production processes from wireless devices at any time, with authorized control as an option.

Research and Development

At September 30, 2009, we had 60 engineers devoted to developing our software products. They are currently all located in our main corporate office in Xi’an, China.

Our research and development center is responsible for conducting all of our basic research and development activities. The focus of our research and development personnel is on developing and improving our core middleware platform, our CIT-converged applications and our hardware products. Currently, there are 18 professionals in our research and development center, including two with doctorate degrees and two with other post-graduate degrees, with diverse backgrounds in computer science and technology, telecommunication engineering, software engineering and physical electronics.

We believe our professionals are adept at utilizing the latest technical developments in our industry to create new products and functionality. They also receive customer feedback from the sales and marketing team to develop applications demanded by our customers in certain sectors.

We have 28 engineers in our Vertical Industry Application Development Department, which is responsible for developing vertical industry applications. We have 14 engineers in our Automation Telematics Application Development Department, which is responsible for developing automation telematics applications, and which is a sub-group of vertical industry applications required by customers in manufacturing sectors with high degree of automation in their operations. Engineers in these two departments are also responsible for implementing the solutions for our customers.

Sales and Marketing

We sell our products and services mainly through our sales and marketing team, which is primarily based at our headquarters in Xi’an, China and our branch office in Beijing, China. We had 25 professionals in sales and marketing as of September 30, 2009.

To date, we have sold our mobile enterprise solutions to customers in 30 provinces, municipalities and autonomous regions in the PRC. In addition to those in Xi’an and Beijing, we have local sales teams that maintain close contact with our business partners and customers. We ensure that most of our sales and marketing professionals also have a technical background to make them competent for specialized IT sales, such as mobile enterprise solutions. Our sales and marketing professionals are organized into two teams:

Vertical Industry Application team
Automation Telematics team

The Vertical Industry Application sales force targets general business and government customers. They work closely with sales professionals at China’s wireless telecommunication carriers (China Telecom, China Mobile and China Unicom), under general cooperation framework agreements to develop new customers. We believe the carriers are motivated to improve their average revenue per user, or APRU, by selling integrated services to enterprise customers. However, they generally lack the ability to develop applications to overlay on their basic data communication network. In most cases, the carriers directly contract us to provide the wireless application solution. In other cases, we sell directly to our enterprise customers or are engaged as a sub-contract by other IT companies having the customer relationship.

Our Automation Telematics Application sales team focuses on industrial automation projects. These are mainly factory-specific wireless solutions that enable an automated or semi-automated factory production lines, using our proprietary middleware and wireless capability. Automation Telematics utilizes wireless over short distances in a wide variety of usages that enable great automation control and production line monitoring

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and management. For such projects, typically we are contracted directly by the project owners or sub-contracted by the general contractors to provide automation telematics solutions. In most cases, building our software into large and complex physical systems (such as automated production lines) enable us to make a greater profit than if we sold our software independently.

Sales Process

Our sales process begins by explaining to our potential customers the benefit of our wireless application products to the customer’s particular business. Some companies seek mobile functionality for their sales force, others seek cross-company, real-time networking across all fixed and mobile nodes, while others seeks a particular functionality specific by their own trade or business. Our team first seeks to understand each company’s particular needs and then develops a product design proposal. For each project or mandate, we will typically compete against several other companies in an open bid invitation process.

Major Customers

In the years ended September 30, 2009 and 2008, we derived a material portion of our revenues from a small number of customers. In particular, a single customer, Shanxi Yanchang Petroleum Group, provided approximately $5.0 million of our revenue, representing 44.7% of our total revenue in the year ended September 30, 2009. The material terms of our two largest contracts with such customer are summarized below.

On October 15, 2008, Kingtone Information entered into an Installation and Construction Subcontract, to act as a subcontractor with The Refine Chemical Company of Shanxi Yanchang Petroleum Group, as construction party and Shanxi Chemical Construction Co., Ltd., as general contract party. Pursuant to the agreement, Kingtone Information was subcontracted to contribute to the project named “HuiJiaHe Petroleum Product Adjusting Supply Renovation Instrument and Control System and Control System Full Installation and System Adjusting of Yangzhuanghe Refine Chemical Project System.” The term of the project, as set forth in the agreement, is from October 15, 2008 through January 31, 2009 for a fixed amount payable to Kingtone Information of RMB 21,600,000 (approximately $3.2 million) before the deduction of administrative fees, tax and utility fees (2.5% of the fixed amount). The project was completed and all sums were paid.

On April 30, 2009, Kingtone Information, as the supplier, entered into a Material Purchase Contract with Xi’an Product Petroleum Pipe Transportation Project Management Department of Shanxi Huajian Yelian, as the purchaser. Pursuant to the agreement, Kingtone Information supplied a series of software and facilities to the purchaser for a total price of RMB12,200,000 (approximately $1.8 million). According to the agreement, Kingtone Information was required to deliver the subject items by June 25, 2009. The agreement has a one year warranty period. The project was completed and all sums were paid.

In the year ended September 30, 2009, we derived $1.1 million of our revenue, or 10.2% of our total revenue from Xi’an TechTeam Humic Acid Productions Co., Ltd., which is a related party. For a summary of the material terms of our agreements with such related party, see the section entitled “Related Party Transactions”.

Competition

The wireless applications software market is currently a highly-fragmented industry with many players offering industry-specific solutions. We compete with a variety of different companies, some of which do not have a proprietary wireless platform and must therefore outsource and/or do more development and testing. Other companies have developed a wireless system for a single application that is not widely adaptable to usages across many industries. We believe one of our competitive advantages is the versatility of our platform, which allows it to be applied across numerous industries without significant ground-up redevelopment for each customer.

Our main competitors in the wireless application market in China are:

International IT consulting and service providers that have a strong foothold in customized enterprise software and information system design and implementation, such as IBM, Fujitsu, Syclo and Accenture;

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International mobile enterprise software and solution providers that have a significant presence in China, such as Sybase and CDC Software; and
Domestic mobile enterprise solution developers, such as Beijing Silu Innovation Technology Co., Ltd., a mobile application provider that focuses solely on environmental protection areas, and Cyber Technologies (Suzhou) Co., Ltd., a wireless application software and IT service provider that focuses solely on the public securities areas.

We believe we have a superior understanding of our vertical industry markets compared to our international competitors and that our software products have much wider application areas than those of our domestic competitors. We also bring mobile applications to industrial automation management and control. We believe none of our competitors currently has a similar level of sophistication in wireless application in this area.

Intellectual Property

We have registered the following software copyrights, patent and trademark for our business operations. We believe this intellectual property forms an integral part of our competitive strength.

Patent:

Through Kingtone Information, we have been granted one invention patent by the State Intellectual Property Office (“SIPO”) of PRC on September 23, 2009. This patent is “wireless video transmission system based on BREW platform”. The patent code is ZL 200710018138.4. We enjoy a 20-year protection period starting from patent issuance date.

We have also applied for a number of invention patents with SIPO. We have received letters of substantive examination of patent for invention application from SIPO, which is the last step before patents can be issued. The following table summarizes these pending patents:

     
Name of Invention   Application Number   Publication Number   Publication Date
BREW platform based audio-video collection and wireless transmission system   200710018505.0   101159864   April 9, 2008
WINCE platform based audio-video collection and wireless transmission system   200710018506.5   101159865   April 25, 2008
Wireless video transmission system based on Arena platform   200810150745.0   101420597   April 29, 2009
Multilink wireless mobile industrial management and control integrated data transmission system   200810150072.9   101345764   January 14, 2009
Video monitoring information interaction system based on Symbian platform   200810150746.5   101420598   April 29, 2009

We also have applied for a utility model patent with SIPO (application number: 200820228566.X) and have received the notice from SIPO to grant us this patent on September 4, 2009. The name of this utility model invention is “Multi-business Data Collection Equipment”.

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TABLE OF CONTENTS

Software Copyrights:

Through Kingtone Information, we have received the following software copyrights from the National Copyright Administration (“NCA”) of PRC:

   
Name of Software   Registration Number   Date of Issuance
Wireless video monitoring system V1.0   2007SR12909   August 28, 2007
RFID based wireless transportation administration monitoring system V1.0   2007SR17240   November 1, 2007
Wireless emergency command and management system V1.0   2008SR04120   February 26, 2008
Mobile industry management and control integrated system V1.0   2008SR18892   September 10, 2008
Wireless mobile news dispatches system V1.0   2008SR18893   September 10, 2008
Wireless police affairs system V1.0   2009SR04756   November 10, 2009
Wireless OA system V1.0   2009SR07729   February 25, 2009

Trademarks:

We have registered the following trademarks with the Trademark Office, State Administration for Industry and Commerce in the PRC:

     
Registered Trademark   Registration
Number
  Classification
Number
  Valid Period
联合寻呼   1639871   38*   September 21, 2001 to September 20, 2011
KingTone   3559772   9*   November 28, 2004 to November 27, 2014
KingTone   4392291   42*   July 28, 2008 to July 27, 2018

* See the footnotes to the table below for an explanation of each classification number used in the table above.

We have submitted applications for the following trademarks to the Trademark Office of State Administration for Industry and Commerce in the PRC:

       
Pending Trademark   Application Number   Classification
Number
  Application Date   Date of Acceptance
for Application
联合信息   6484024   38*   December 29, 2007   January 17, 2008