* Q3 Revenues Increased 16.5% Year-Over-Year to $12.9 Million
* Company to Focus on High-Margin Game and Gaming Technology Business and
Seeks Strategic Alternative for Low-Margin Telecom Business
* Company to Host Conference Call at 8 a.m. Eastern Time Monday to
Discuss Results and New Focus
BEIJING, CHINA, Nov. 20 /Xinhua-PRNewswire/ -- PacificNet, Inc.
(Nasdaq: PACT), a leading provider of Customer Relationship Management (CRM),
mobile internet, e-commerce and gaming technology in China, today reported
unaudited results for the third quarter ended September 30, 2006.
"Q3 2006 marks the beginning of PacificNet's transformation away from the
low-margin telecom business into the new high-margin gaming business," said
Tony Tong, Chairman and CEO of PacificNet. "In recent board and management
meetings, we evaluated the early success of our gaming technology operation
and were satisfied with the rapid progress and financial performance of the
gaming operation. The board of directors and management team have approved
our new strategy to focus on the rapidly growing gaming market in greater
China, Macau, and Asia. With the help of professional financial advisors and
bankers, PacificNet will be seeking strategic alternatives for our low-margin
telecom business units which may include sales, disposition, spin-offs and
mergers."
"Our Q3 performance was significantly impacted by certain unforeseen
events including the well-publicized China Mobile / government policies and
regulations that altered the entire value-added telecom services industry in
China and impacted all VAS players in our industry, and the accrual of an
$800,000 liquidated damages liability in connection with our debenture
financing earlier this year. With the filing of our 10Q and the amended S-1
registration statement, led by our new CFO, we believe the high amount of
damages were short term and we are now well positioned for rapid growth in our
new focus in games and gaming."
"While we are pursuing the higher-margin gaming business, our traditional
businesses are continuing to perform with organic growth," said Victor Tong,
President of PacificNet. "Q3 revenues of $12,875,000 represented an increase
of 16.5% as compared to $11,047,000 from Q3 2005, and quarterly gross profit
was $2,483,000, an increase of 13.1% as compared to $2,195,000 from Q3 2005.
On the negative side, some of our businesses, specifically the telecom
value-added services group, suffered from the Chinese government restrictions
on value-added service providers announced in July."
During Q3, our VAS revenues were impacted by China's policy changes for
all value-added telecom subscription services on China Mobile's Monternet
platform and China Unicom's VAS platform. The changes, implemented under the
policy directives of China's Ministry of Information Industry, aim to address
a number of issues, including reducing customer complaints, increasing
customer satisfaction and promoting the healthy development of value-added
telecom services in the long run. Key details of these new policies related
to subscription services included:
1. Monthly trial period and double reminders for new subscriptions: For
all subscription services (including SMS, MMS and WAP) on China Mobile's
Monternet, China Mobile will offer a one-month free trial period to new
subscribers, where they will be given two reminders: the first at the time of
service registration and the second at the end of the free trial period. For
new users subscribing to services on or before the 20th day of any month, the
content fee for the first month will be waived. For users subscribing after
the 21st day of any month, content fees for that month and the following month
will be waived. Previously, China Mobile sends one reminder immediately after
the subscription is ordered and the free trial period is three to eleven days.
2. Existing user subscription reminders (August to September
implementation) -- From August to September, China Mobile and its provincial
subsidiaries implemented SMS reminders to existing wireless value added
service (WVAS) subscribers about their subscriptions and fees being charged.
Some provincial subsidiaries of China Mobile including Guangdong Mobile, one
of China Mobile's largest provincial subsidiaries, will not charge
subscription fees to existing customers' phone bills unless these customers
reply to the reminders to confirm their subscriptions. In addition, some
provincial subsidiary of China Mobile also cancelled existing WAP
subscriptions that were inactive for more than four months.
"Despite the severe impact by the above-mentioned China Mobile and
government policies on valued-added telecom services, we believe these polices
will greatly increase the barriers of entry and reduce the number of marginal
players, leading to stronger players like us gaining a stronger foothold. And
we anticipate the future of VAS should improve when China officially launches
its 3G telecom services, which is expected to drive demand for value-added
telecom services provided by PacificNet and our various subsidiaries."
"As always, one of our Company's great strengths is the relationships we
have with major companies in Asia. We signed deals with several clients,
including new contracts with CCTV, Nanjing Airlines, China Unicom and China
Telecom. The McDonalds Corporation selected the Company to provide web-based
quality management services and supplier quality management services. The
Company's 18900.com website has become one of the leading Internet e-commerce
distributors of mobile products in China, covering 1,572 cities throughout the
nation. Additionally during the third quarter, PacificNet iMobile entered
into a new agreement with Motorola to become a designated post-sale service
provider for Motorola's mobile products and accessories in China."
"As we have previously announced publicly, we have already begun shifting
to focus more on gaming. The acquisition of Able Entertainment in Macau by
PacificNet Games Limited (PacGames) earlier this year has already gained us a
lot of traction in this market and we see this as a great avenue to deliver
returns to our shareholders by leveraging our existing businesses. We have
excellent existing relationships in Macau and we will continue to very
actively pursue this area. We believe we have many of the tools and the
experience necessary to execute effectively in this market."
Joseph Levinson, CFO of PacificNet, said, "Our traditional businesses
continued to perform this quarter. We have moved quickly to build a stronger
SOX required internal control team. With our several lines of business, it is
essential that we continue to build a financial structure that will meet the
requirements of Section 404 of SOX."
Levinson continued, "There were several new items on our financial
statements this quarter. First, we recorded a charge of $800,000 for
liquidated damages in relation to the convertible note we issued in March.
Since we were unable to register our investors' shares within the requisite
time period, we have a contractual obligation to pay this amount. Although we
may ultimately not need to pay all this money, we have elected to record the
full amount. We believe liquidated damages of such a high amount will not
recur. If you exclude write-downs on inventory and accounts receivable
totaling over $1.1 million, we would have been profitable for the quarter."
"Additionally, especially in light of the China Mobile restrictions
announced in July, after my appointment as CFO in September, I asked my
internal audit team to conduct a thorough review of certain of our
subsidiaries and to consider the effect of these restrictions. Based on the
reports that our internal audit team delivered to me, we identified a
potential need to write down certain receivables and inventory. With audit
committee oversight, we acted swiftly to record the bad debt and inventory
charges on our P&L."
Additional details on the third quarter are as follows:
-- Q3 revenues of $12,875,000 represented an increase of 16.5% as compared
to $11,047,000 from Q3 2005.
-- Quarterly gross profit was $2,483,000, an increase of 13.1% as compared
to $2,195,000 from Q3 2005.
-- Gross profit margin decreased to 19.3% for Q3 2006 from 19.9% for Q3
2005. As part of its strategy of shifting to higher-margin businesses,
the Company is increasingly focusing on the gaming businesses. Gross
profit margins from the Company's new gaming technology unit are
currently more than 40%.
-- Quarterly operating loss was $1,792,000, a decrease of 304.6% as
compared to an operating profit of $876,000 from Q3 2005. The decrease
in operating profit year-over-year was primarily due to increased
capital expenditures and an increase in staff costs, as well as rent
and electricity expenses for the expansion of its call centre. As the
Company expanded its call centre sites in Hong Kong, amortization and
depreciation expenses related to the new leasehold improvement,
furniture & fixtures, computer equipment and software incurred in the
third quarter of 2006 rose also.
-- Quarterly net loss of $1,115,000, or EPS of ($0.10) per basic share,
and ($0.10) per diluted share, represented a decrease of 282% as
compared to net income of $611,000, or $0.06 per basic share or
$0.05 per diluted share in Q3 2005. Net profit margin decreased to
(8.7%) for Q3 2006 from 5.5% for Q3 2005.
-- If you exclude write-downs on inventory and accounts receivable
totaling over $1.1 million, we would have been profitable for the
quarter.
-- With the rapid growth in the Company's business over the last couple of
years, management is now building the groundwork and infrastructure to
meet the challenges of being a larger company. Part of that means an
investment in talent and an emphasis on system controls while retaining
a high degree of flexibility to capture opportunities.
-- Cash and cash equivalents were $7,439,000 as of September 30, 2006,
compared to $9,579,000 at December 31, 2005 as the Company invested its
cash to drive revenue and profit growth.
-- Equity per share of $3.26 and cash per share of $0.67 as of September
30, 2006, as compared to equity per share of $2.91 and cash per share
of $0.9 as of December 31, 2005 respectively.
-- Quarterly revenues of $3,733,000, $2,350,000, and $6,411,000; and
operating profit of $113,000, $(833,000), and $(191,000) were generated
from the Company's three business units: (1) CRM Outsourcing Services,
(2) Value Added Services (VAS) and (3) Products (Telecom & Gaming),
respectively. This compares to revenues of $3,368,000, $2,870,000, and
$4,677,000; and operating profit of $217,000, $824,000, and $172,000,
respectively for Q3 2005.
-- The Company continues to pursue high-quality businesses in its area of
expertise that will drive long-term growth and profitability. While
there are many potential acquisition candidates, the Company continues
to focus its efforts on acquisitions that it believes will generate
long-term shareholder value. In executing this strategy, the Company
has seen continued profitability in the following acquired
subsidiaries: Epro, Guangzhou 3G, PacificNet Communications,
PacificNet AD and PacificNet Games.
-- The Company became Motorola's designated internet e-commerce service
provider and after-sales service provider for Motorola's mobile phones
and accessories online store in China.
9-Month Highlights
-- Total revenues for the first nine months of 2006 were $47,239,000 which
represented an increase of 45.2% as compared to $32,539,000 for the
same period in 2005.
-- Gross profit for the first nine months of 2006 was $13,887,000, an
increase of 111.7% as compared to gross profit of $6,560,000 in 2005.
Gross profit margin increased to 29.4% for the nine months ended
September 30, 2006 from 20.2% for the nine months ended September 30,
2005.
-- Operating profit for the first nine months of 2006 was $1,437,000, a
decrease of 49.4%, as compared to operating profit of $2,842,000 in
2005.
-- Net income for the first nine months of 2006 was $604,000 or EPS of
$0.05 per basic share ($0.05 per diluted share), represented an
decrease of 62.7% as compared to net income of $1,619,000, or $0.16 per
basic share ($0.15 per diluted share) for the same period in 2005, an
EPS decrease of 68.8%. Net profit margin decreased to 1.3% for the nine
months ended September 30, 2006 from 5% for the nine months ended
September 30, 2005.
Business Outlook
At the time of this announcement, the Company anticipates the following
outlook for fiscal 2006:
-- Total revenues projected to be in the range of $60 to $65 million.
-- Net income projected to be in the range of $1.0 to $1.2 million, or
about $0.09 to $0.11 per basic share.
-- Recently issued accounting guidance requires us to record quarterly
changes in the fair value of our $8,000,000 convertible debentures
issued in March. After an evaluation of several factors, we recorded a
fair value change (gain) of $1,212,000.
For fiscal 2007:
-- Total revenues projected to be in the range of $62 to $67 million.
-- Net income projected to be in the range of $3.4 million to $3.8 million
or about $0.31 to $0.35 per basic share.
-- The Company expects continued revenue and profit growth in 2006 through
organic growth and accretive acquisitions in the mobile game, internet
game and gaming markets in China.
-- PacificNet plans to focus on expansion in the higher-margin gaming and
game technology sectors and will seek strategic alternatives and M&A
opportunities to divest or spin-off traditional low margin telecom
business.
In September, PacificNet opened an office in Macau to focus on the rapidly
expanding gaming and entertainment industries in that region. The Macau
office is located in First International Commercial Centre, Macau Special
Administrative Region, China, and is adjacent to the new Galaxy StarWorld
Hotel and is minutes from both the Wynn and Sands Casinos.
"Macau has become the fastest growing part of China and we are very
excited to be moving forward in our pursuit of the Macau gaming technology
business," said Tony Tong, CEO of PacificNet. "The opening of our Macau
office will facilitate our rapid launch into this market. We feel that the
Asian gaming technology market has near-term growth potential and are very
happy to enter this exciting high growth market. We recognize Macau's
remarkable growth potential and have opened an office in this location as a
first step in entering this market. The bulk of Macau's current gaming
revenue comes from VIP rooms and high-roller table games. As the market
matures, it is predicted that lower stakes, electronic versions of these
popular table games played by the masses will exceed the revenue of the table
games, as in Las Vegas. This trend is already visible. PacificNet plans to
aggressively pursue this mass market with the goal of being the leading
provider of electronic adaptations of popular Asian casino table games."
Macau is one of the fastest-growing gaming markets in the world and is
predicted to surpass Las Vegas in total revenues by 2007. According to recent
statistics provided by Macau government, in 2005, Macau's gaming revenues
reached US$5.8 billion, second only to Las Vegas gaming revenues of US$6
billion. Macau borders Zhuhai City of Guangdong Province of China, one of the
country's wealthiest and most developed regions and is an hour away from Hong
Kong via ferry. The number of tourists visiting Macau reached 18.7 million in
2005, of which 56% or 10.5 million visitors were from mainland China. By 2010,
the number of tourists is expected to nearly double to nearly 30 million
visitors per year. Approximately one billion people live within a three-hour
flight of Macau. Numerous hotel, gaming, and other projects are in the works
in Macau which are expected to add over 10,000 guest rooms and over 20,000
live entertainment seats in eight separate venues. The number of hotel-
casinos in operation and in development in Macau continues to grow, including
well-known Chinese names such as Galaxy and Melco, and famous Las Vegas names
such as the Sands, the Venetian, and the newly opened Wynn Resort, which
celebrated its grand opening on September 6. With the disposable income of the
average Chinese on the rise, Macau's gaming and entertainment market is
expected to grow for years to come. Macau is the only area in China where
gambling is legal.
PacificNet's management team will host a conference call at 8:00 am
Eastern Time on Monday, November 20, 2006, to discuss its third quarter
results and its outlook for the remainder of 2006. The conference call is
open to the public and may be accessed by calling (888) 850-5066 or
(206) 315-8587 and entering conference entry code: 877448, followed by the
# key. For those unable to attend the conference call live, an archive of the
call will be available for 30 days. The replay numbers are 1-800-207-7077 or
(314) 255-1301. Please use PIN number: 5121.
About PacificNet
PacificNet Inc. ( http://www.PacificNet.com ) is a leading provider of
Customer Relationship Management (CRM), mobile internet, e-commerce and gaming
technology in China. PacificNet's clients include the leading telecom
companies, banks, insurance, travel, marketing, and business services
companies, and telecom consumers, in Greater China. PacificNet's corporate
clients include China Telecom, China Mobile, Unicom, PCCW, Hutchison Telecom,
Bell24, Motorola, Nokia, SONY, TCL, Huawei, American Express, Citibank, HSBC,
Bank of China, Bank of East Asia, DBS, TNT, and Hong Kong Government.
PacificNet employs over 2,300 staff in its various subsidiaries throughout
China with offices in Hong Kong, Beijing, Shenzhen, Guangzhou, Macau, and
branch offices in 28 provinces in China and is headquartered in Beijing and
Hong Kong.
PacificNet Games Limited (PacGames), is a leading provider of Asian
multi-player electronic gaming machines, gaming technology solutions, gaming
related maintenance, IT and distribution services for the leading hotel,
casino and slot hall operators based in Macau, China and other Asian gaming
markets. PacGames is a leading developer of electronic versions of these
popular table games which are less expensive to run resulting in higher casino
profits with great appeal to the mass market players. Further, the growing
market in Macau is for Asian table games such as Baccarat, Roulette, Fan Tan,
Fish-Prawn-Crab and Sic-Bo Cussec as these games have wider acceptance in the
Asian market than Western games such as poker or slots. The development,
manufacture, maintenance, and service of electronic Asian table games are
underserved areas which are predicted to grow considerably as Macau's gaming
market matures. PacGames products include multi-play electronic gaming
machines such as Baccarat, Fish-Prawn-Crab, Sib-Bo Cussec, Roulette, and Video
Lottery Terminals (VLT) such as Keno and Bingo, as well as other traditional
slot machines.
PacificNet's operations can be classified into the following three main
business units:
(1) Outsourcing Services -- involves human voice services such as Business
Process Outsourcing, CRM, call center, IT Outsourcing and software development
services. These types of services are conducted through our subsidiaries EPRO,
Smartime/Soluteck and PacificNet Solution Ltd.
(2) Telecom Value-Added Services (VAS) -- primarily involves machine voice
services such as Interactive Voice Response, SMS and related VAS, which are
conducted through our subsidiaries such as Linkhead, Clickcom, MOABC and
Guangzhou 3G.
(3) Products (Telecom & Gaming) -- primarily involves communication and
gaming products, GSM/CDMA/3G Products, Multimedia Communication Kiosks. This
Group includes the following subsidiaries: PacificNet Communications Limited,
iMobile, Take1 and PacificNet Games. PacificNet Games Limited (PacGames) is a
leading developer of Asian electronic gaming machines, multi-player electronic
gaming technology solutions and gaming related maintenance, IT, and
distribution services for the leading hotel and casino operators based in the
Macau and other Asian gaming markets. Take1Technologies is a subsidiary of
PacificNet that designs, manufactures, and distributes multimedia interactive
self-service kiosks, bingo and gaming machines for the casino and slot machine
operators Europe and Asia.
(4) Other Business -other administrative, financial and investment
services and non-core businesses such as PacificNet Power Limited (PacPower),
Pacific Financial Services Limited, etc.
SEGMENT INFORMATION
The Company's reportable segments are operating units, which represent the
operations of the Company's significant business operations. Summarized
financial information concerning the Company's reportable segments is shown in
the following table. The "Other" column includes the Company's other
insignificant services and corporate related items, and, as it relates to
segment earnings (loss), income, and expense not allocated to reportable
segments.
For the
Three months
ended
September Group 2. Group 3.
30, 2006 Group 1. Telecom Products Group 4.
Outsourcing Value-Added (Telecom & Other Total
Services Services Gaming) Business
($) ($) ($) ($) ($)
Revenues 3,733,000 2,350,000 6,411,000 381,000 12,875,000
(% of Total
Revenues) 29 % 18 % 50 % 3 % 100 %
Earnings /
(Loss)
from
Operations 113,000 (833,000) (191,000) (881,000) (1,792,000)
(% of Total
Earnings) -6 % 46 % 11 % 49 % 100 %
Total Assets
9,159,000 18,939,000 12,813,000 26,159,000 67,070,000
(% of Total
Assets) 14 % 28 % 19 % 39 % 100 %
Goodwill
3,936,000 12,920,000 1,529,000 -- 18,385,000
Geographic
Area HK, PRC PRC Macau, HK, HK, PRC,
PRC USA
For the
three Group 2. Group 3.
months Group 1. Telecom Products Group 4.
ended Outsourcing Value-Added (Telecom & Other Total
September Services Services Gaming) Business
30, 2005 ($) ($) ($) ($)
Revenues
3,368,000 2,870,000 4,677,000 132,000 11,047,000
(% of Total
Revenues) 31 % 26 % 42 % 1 % 100 %
Earnings /
(Loss) from
Operations 217,000 824,000 172,000 (337,000) 876,000
(% of Total
Earnings) 25 % 94 % 20 % -39 % 100 %
Total
Assets 4,939,000 9,254,000 189,000 28,983,000 43,365,000
(% of Total
Assets) 11 % 21 % 0 % 67 % 100 %
Goodwill
3,542,000 8,702,000 979,000 -- 13,223,000
Geographic HK, PRC PRC Macau, HK, HK, PRC,
Area PRC USA
For the
nine
months Group 2. Group 3.
ended Group 1. Telecom Products Group 4.
September Outsourcing Value-Added (Telecom & Other Total
30, 2006 Services Services Gaming) Business
($) ($) ($) ($) ($)
Revenues
10,312,000 14,907,000 18,262,000 3,758,000 47,239,000
(% of Total
Revenues) 22 % 31 % 39 % 8 % 100 %
Earnings /
(Loss)
from
Operations 515,000 2,011,000 74,000 (1,163,000) 1,437,000
(% of Total
Earnings) 36 % 140 % 5 % -81 % 100 %
Total
Assets 9,159,000 18,939,000 12,813,000 26,159,000 67,070,000
(% of Total
Assets) 14 % 28 % 19 % 39 % 100 %
Goodwill
3,936,000 12,920,000 1,529,000 - 18,385,000
Geographic
Area HK, PRC PRC Macau, HK, HK, PRC,
PRC USA
For the
Nine months Group 2. Group 3.
ended Group 1. Telecom Products Group 4.
September Outsourcing Value-Added (Telecom & Other Total
30, 2005 Services Services Gaming) Business
($) ($) ($) ($)
Revenues 9,860,000 9,024,000 13,408,000 247,000 32,539,000
(% of Total 30 % 28 % 41 % 1 % 100 %
Revenues)
Earnings /
(Loss)
from
Operations 866,000 2,413,000 408,000 (845,000) 2,842,000
(% of Total
Earnings) 30 % 85 % 14 % -30 % 100 %
Total
Assets 4,939,000 9,254,000 189,000 28,983,000 43,365,000
(% of Total
Assets) 11 % 21 % 0 % 67 % 100 %
Goodwill 3,542,000 8,702,000 979,000 -- 13,223,000
Geographic
Area HK, PRC PRC Macau, HK, HK, PRC,
PRC USA
Product and service revenues classified by major geographic areas are as
follows (in US$):
For the three
months ended
September 30, Hong Kong,
2006 Macau PRC United States Total
Product
revenues 5,261,000 2,169,000 -- 7,430,000
Service
revenues 3,435,000 2,010,000 -- 5,445,000
For the three
months ended
September 30, Hong Kong,
2005 Macau PRC United States Total
Product
revenues 4,776,000 1,363,000 -- 6,139,000
Service
revenues 2,305,000 2,603,000 -- 4,908,000
For the nine
months ended
September 30, Hong Kong United
2006 Macau PRC States Total
Product
revenues 17,355,000 7,739,000 -- 25,094,000
Service
revenues 9,970,000 12,175,000 -- 22,145,000
For the nine
months ended
September 30, Hong Kong,
2005 Macau PRC United States Total
Product 13,538,000 4,769,000 -- 18,307,000
revenues
Service 6,990,000 7,242,000 -- 14,232,000
revenues
PACIFICNET INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of United States dollars, except par values and share numbers)
September December
30, 31,
2006 2005
(Unaudited) (Audited)
ASSETS
Current Assets:
Cash and cash equivalents $7,439 $9,579
Restricted cash - pledged bank deposit 232 1,652
Accounts receivables, net of allowances for
doubtful accounts of $622 and $5 13,116 5,998
Inventories 2,039 1,836
Loan receivable from related parties 4,879 2,520
Loan receivable from third parties 1,219 1,572
Other current assets 8,782 7,973
Total Current Assets 37,706 31,130
Property and equipment, net 8,731 4,300
Investments in affiliated companies and
subsidiaries 776 410
Marketable equity securities - available for sale 545 539
Goodwill 18,385 14,824
Other assets - debt issuance costs (net) 927 --
TOTAL ASSETS $67,070 $51,203
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank line of Credit 1,082 1,060
Bank loans-current portion 992 188
Capital lease obligations - current portion 133 126
Accounts payable 3,931 3,186
Accrued expenses and other payables 2,586 4,620
Income tax payable 113 296
Subscription payable 390 775
Loans payable to related party 373 369
Total Current Liabilities 9,600 10,620
Long-term liabilities:
Bank loans - non current portion 1,436 6
Capital lease obligations - non current portion 148 78
Convertible Debenture 8,000 --
Warrant Liability 268 --
Compound Embedded Derivatives Liability 357 --
Interest discount (1,530) --
Liquidated damages liability 800 --
Total long-term liabilities 9,479 84
Total liabilities 19,079 10,704
Minority interest in consolidated subsidiaries 11,586 8,714
Commitments and contingencies
Stockholders' Equity:
Preferred stock, par value $0.0001, Authorized -
5,000,000 shares
Issued and outstanding - none -- --
Common stock, par value $0.0001, Authorized -
125,000,000 shares;
Issued and outstanding:
September 30, 2006 - 13,983,497 shares issued,
11,646,836 outstanding
December 31, 2005 - 12,000,687 issued, 10,831,024
outstanding 1 1
Treasury stock, at cost (2006 Q3: 2,336,661
shares, 2005: 1,169,663 shares) (243) (119)
Additional paid-in capital 62,201 57,690
Cumulative other comprehensive income (loss) 266 247
Accumulated deficit (25,386)(25,990)
Less stock subscription receivable (434) (44)
Total Stockholders' Equity 36,405 31,785
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 67,070 $51,203
PACIFICNET INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(Unaudited. In thousands of United States dollars, except loss per share and
share amounts)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2005 2005
(as (as
2006 restated) 2006 restated)
Revenues $12,875 $11,047 $47,239 $32,539
Services 5,445 4,908 22,145 14,232
Product sales 7,430 6,139 25,094 18,307
Cost of revenues (10,392) (8,852) (33,352) (25,979)
Services (3,352) (3,113) (10,635) (9,314)
Product sales (7,040) (5,739) (22,717) (16,665)
Gross margin 2,483 2,195 13,887 6,560
Selling, general and
administrative expenses (2,482) (1,004) (9,982) (3,261)
Inventory write-down charge (486) -- (486) --
Bad debt expense (657) -- (657) --
Depreciation and amortization (255) (133) (474) (275)
Interest expense (395) (182) (851) (182)
EARNINGS/(LOSS) FROM OPERATIONS (1,792) 876 1,437 2,842
Interest income 96 155 177 155
Gain in change in fair value of
derivatives 1,004 -- 1,212 --
Liquidated damages expense (800) -- (800) --
Sundry income, net (113) 171 173 577
Earnings/(Loss) before Income
Taxes and
Minority Interest (1,605) 1,202 2,199 3,574
Provision for income taxes (119) 13 (319) (51)
Share of earnings of associated
companies 80 8 129 12
Minority interests 529 (612) (1,405) (1,916)
Net Earnings/(Loss) Available to
Common
Stockholders $(1,115) $611 $604 $1,619
BASIC EARNINGS PER SHARE $(0.10) $0.06 $0.05 $0.16
DILUTED EARNINGS PER SHARE $(0.10) $0.05 $0.05 $0.15
Safe Harbor Statement
This Company's announcement contains forward-looking statements. We may
also make written or oral forward-looking statements in our periodic reports
to the SEC on Forms 10-K, 10-Q, 8-K, etc., in our annual report to
shareholders, in our proxy statements, in press releases and other written
materials and in oral statements made by our officers, directors or employees
to third parties. Statements that are not historical facts, including
statements about our beliefs and expectations, are forward-looking statements.
These statements are based on current plans, estimates and projections, and
therefore you should not place undue reliance on them.
Forward-looking statements involve inherent risks and uncertainties. We
caution you that a number of important factors could cause actual results to
differ materially from those contained in any forward-looking statement.
Potential risks and uncertainties include, but are not limited to,
PacificNet's historical and possible future losses, limited operating history,
uncertain regulatory landscape in China, fluctuations in quarterly and annual
operating results. Further information regarding these and other risks is
included in PacificNet's Form 10K and other filings with the SEC.