SHANGHAI, China, Feb. 15 /Xinhua-PRNewswire/ -- The9 Limited (Nasdaq: NCTY)("The9"), a leading online game operator in China, today announced its unaudited financial results for the fourth quarter and fiscal year ended December 31, 2006.
Fourth Quarter 2006 Financial Highlights:
-- Net revenues for the fourth quarter of 2006 increased by 21% quarter-
over-quarter and 33% year-over-year to RMB282.7 million (US$36.2
million).
-- Net revenues attributable to the operations of Blizzard
Entertainment(R)'s World of Warcraft(R) ("WoW")(1), which included
revenues from game playing time, merchandise and installation package
sales, increased by 22% quarter-over-quarter and 33% year-over-year to
RMB281.4 million (US$36.1 million) in the fourth quarter of 2006.
-- Net income for the fourth quarter of 2006 was RMB105.1 million (US$13.5
million), a 63% increase from RMB64.3 million (US$8.2 million) in the
third quarter of 2006, and a 54% increase from RMB68.3 million (US$8.8
million) in the fourth quarter of 2005. Excluding a financial subsidy
of RMB19.8 million (US$2.5 million) received from the local government
in the fourth quarter of 2006, net income for the fourth quarter of
2006 increased by 33% from the previous quarter.
-- EBITDA (non-GAAP) was RMB146.6 million (US$18.8 million) in the fourth
quarter of 2006, a quarter-over-quarter increase of 39% from RMB105.4
million (US$13.5 million) in the third quarter of 2006, and a year-
over-year increase of 35% from RMB 108.9 (US$14.0 million) in the
fourth quarter of 2005.
-- Fully diluted earnings per share (one American Depositary Share "ADS"
represents one ordinary share) were RMB4.25 (US$0.54) for the fourth
quarter of 2006, compared with RMB2.61 (US$0.33) for the third quarter
of 2006, and RMB2.82 (US$0.36) for the fourth quarter of 2005. Fully
diluted EBITDA (non-GAAP) per share were RMB5.93 (US$0.76) for the
fourth quarter of 2006, compared with RMB4.28 (US$0.55) for the third
quarter of 2006 and RMB4.50 (US$0.58) for the fourth quarter of 2005.
Fiscal Year 2006 Financial Highlights:
-- Net revenues for the fiscal year 2006 increased by 112% year-over-year
to RMB985.8 million (US$126.3 million) from RMB465.0 million (US$59.6
million) for the fiscal year 2005.
-- Net income for the fiscal year 2006 was RMB312.5 million (US$40.0
million), a 331% increase year-over-year from RMB72.5 million (US$9.3
million) for the fiscal year 2005. Excluding financial subsidies of
RMB31.0 million (US$4.0 million) and RMB13.4 million (US$1.7 million)
received from the local government in fiscal year 2006 and 2005
respectively, net income for fiscal year 2006 increased by 376% from
fiscal year 2005.
-- EBITDA (non-GAAP) was RMB476.3 million (US$61.0 million) for fiscal
year 2006, compared with EBITDA (non-GAAP) of RMB151.6 million (US$19.4
million) for fiscal year 2005.
-- Fully diluted earnings per share were RMB12.72 (US$1.63) and EBITDA
(non-GAAP) per share were RMB19.39 (US$2.48) for the fiscal year 2006,
compared with fully diluted earnings per share RMB2.92 (US$0.37) and
fully diluted EBITDA (non-GAAP) per share RMB6.11 (US$0.78) for the
fiscal year 2005.
Management Comments:
Commenting on the fourth quarter 2006 results, Jun Zhu, Chairman and Chief Executive Officer of The9 said, "We are very pleased to report record revenues and earnings for our fourth quarter and fiscal year 2006. In the fourth quarter of 2006, Blizzard Entertainment's World of Warcraft game attained peak and average concurrent users of over 680,000 and 340,000, respectively, in mainland China. As of December 31, 2006, approximately 6.8 million paid accounts had been activated(2).
In addition to the World of Warcraft, which continues to experience steady growth, two of our new games, Guild Wars and Soul of The Ultimate Nation(TM) are currently in limited open beta testing and close beta testing respectively. In addition, to date in 2007, we have obtained exclusive licenses to operate in mainland China Ragnarok Online 2 and Emil Chronicle Online, two cartoon-style massively multiplayer online role playing games, and Huxley, a highly-rated massively multiplayer online first-person shooting game. Entering 2007, we believe The9 possesses one of the strongest and most diversified game portfolios in the China online game industry. With our strong pipeline of games, The9 will continue to leverage its solid operating capabilities to deliver multiple high-caliber games in the mainland China market and will provide fulfilling and exciting entertainment to Chinese online game players."
Hannah Lee, Vice President and Chief Financial Officer, commented, "We are encouraged to see Blizzard Entertainment's World of Warcraft game resumed strong growth momentum in the fourth quarter of 2006, proving that the strategy in the third quarter of 2006, such as merging servers and opening new server sites, were worthwhile investments for the WoW game. In the meantime, several of our new games are being prepared for the Chinese market. We expect the year 2007 will be an even more exciting year as we plan to roll out the highly anticipated expansion pack for World of Warcraft: The Burning Crusade(TM), to introduce multiple high-caliber games to the mainland China market, and to further enhance and diversify our product pipeline. Executing on our strategy, we will continue to leverage The9's leading market position as well as operational experiences and strengths to drive long-term sustainable shareholder value."
(1) World of Warcraft and Blizzard Entertainment are trademarks or
registered trademarks of Blizzard Entertainment, Inc. in the U.S.
and/or other countries.
(2) Activated paid accounts represent the number of CD Keys that we sold
to customers and have been activated by customers to log-on to
Blizzard Entertainment's World of Warcraft game in China.
Discussion of The9's Fourth Quarter and Fiscal Year 2006 Results (Preliminary Unaudited)
Revenues
For the fourth quarter of 2006, The9 reported net revenues of RMB282.7 million (US$36.2 million), a 21% increase from the third quarter of 2006 and 33% increase from the fourth quarter of 2005. For fiscal year 2006, net revenues increased by 112% to RMB985.8 million (US$126.3 million) from RMB 465.0 million (US$59.6 million) in fiscal year 2005.
The substantial year-over-year revenue increase is primarily the result of The9 commencing commercial operation of Blizzard Entertainment's World of Warcraft game in mainland China in June 2005. In fiscal year 2005, approximately seven months of revenues from WoW was recorded, whereas in fiscal year 2006, WoW was in full year operations. For the fourth quarter and fiscal year 2006, net revenues attributable to the operations of WoW, including game playing time, merchandise sales and other related revenues, were RMB281.4 million (US$36.1 million) and RMB977.6 million (US$125.3 million), respectively.
For the fourth quarter of 2006, online game services gross revenues were RMB296.7 million (US$38.0 million), a 23% increase from the third quarter of 2006 and 34% increase from the fourth quarter of 2005. For fiscal year 2006, these revenues were RMB1,028.0 million (US$131.7 million), compared with RMB466.6 million (US$59.8 million) in fiscal year 2005.
For the fourth quarter of 2006, gross revenues from game operating support, website solutions and advertisement, were RMB0.5 million (US$0.06 million), a decrease of 81% from the previous quarter and 44% from the same period of last year. For fiscal year 2006, these revenues were RMB4.8 million (US$0.6 million), a decrease of 21% from RMB6.1 million (US$0.8 million) in fiscal year 2005. The decrease in these revenues was mainly due to the decline in revenues of the MU game.
Other gross revenues mainly included sales of WoW related merchandise and installation packages. For the fourth quarter of 2006, other gross revenues decreased to RMB0.6 million (US$0.08 million) from RMB1.9 million (US$0.2 million) in the third quarter of 2006 and RMB1.8 million (US$0.2 million) in the fourth quarter of 2005. For fiscal year 2006, other gross revenues decreased by 66% to RMB5.6 million (US$0.7 million) from RMB16.6 million (US$2.1 million) in fiscal year 2005, primarily due to a decrease of sales of WoW installation packages in fiscal year 2006 compared to such sales in fiscal year 2005, when more installation packages were sold with the commercialization of the WoW game in June 2005.
Gross Profit
Gross profit for the fourth quarter of 2006 increased by 25% quarter-over-quarter and 38% year-over-year to RMB134.7 million (US$17.3 million), mainly due to increased revenues. Gross profit margin increased to 48% for the fourth quarter of 2006 from 46% in both the previous quarter and the same period of last year. The sequential improvement in gross profit margin was mainly because of increased player usage and utilization of server capacities in the fourth quarter of 2006 following the completion of planned server merges and opening of a new server site in the third quarter of 2006.
For fiscal year 2006, gross profit increased by 106% to RMB461.8 million (US$59.2 million) from RMB224.6 million (US$28.8 million) in fiscal year 2005. The year-over-year increase of gross profit was primarily due to full year revenue contribution from operations of Blizzard Entertainment's World of Warcraft in fiscal year 2006 versus only approximately seven months of revenue contribution in fiscal year 2005. Gross profit margin for fiscal year 2006 was 47%, remained relatively stable compared to 48% for fiscal year 2005.
Operating Expenses
For the fourth quarter of 2006, operating expenses were RMB54.7 million (US$7.0 million), a 23% increase from RMB44.6 million (US$5.7 million) in the previous quarter and 22% increase from RMB44.7 million (US$5.7 million) in the same period of last year. The sequential increase in operating expenses was a combined result of increased sales and marketing expenses relating to the preparation for the launch of Guild Wars and the Soul of the Ultimate Nation(TM) games in mainland China, and increased general and administrative expenses due to higher year-end related professional fees.
For fiscal year 2006, operating expenses totaled RMB191.6 million (US$24.6 million), a 16% increase from RMB164.9 million (US$21.1 million) for the fiscal year of 2005. This was primarily due to increased general and administrative expenses primarily related to headcount increase, share-based compensation expenses resulting from the adoption of SFAS 123(R), Share-Based Payment, effective from January 1, 2006, and higher professional fees.
Income from Operations
For the fourth quarter of 2006, profit from operations increased by 26% quarter-over-quarter and 52% year-over-year to RMB80.0 million (US$10.3 million). Operating margin for the fourth quarter of 2006 was 28%, compared to 27% in the third quarter of 2006 and 25% in the fourth quarter of 2005.
For fiscal year 2006, we recorded profit from operations of RMB270.2 million (US$34.6 million), a 352% increase compared with RMB59.7 million (US$7.6 million) in fiscal year 2005. Operating margin for the fiscal year 2006 was 27%, compared to 13% in the fiscal year 2005. Consistent with revenue growth, this significant improvement was primarily due to full year commercial operations of World of Warcraft in fiscal year 2006 versus approximately seven months in fiscal year 2005.
Other Income (Expenses)
Other income for the fourth quarter of 2006 was RMB19.1 million (US$2.5 million) compared to other expenses of RMB1.0 million (US$0.1 million) in the third quarter of 2006 and RMB12.2 million (US$1.6 million) in the fourth quarter of 2005. The sequential improvement was primarily due to the receipt of a financial subsidy of RMB19.8 million (US$2.5 million) from the local government, whereas no similar financial subsidy was received in the third quarter of 2006.
For fiscal year 2006, other income increased by 96% to RMB28.4 million (US$3.6 million) from RMB14.5 million (US$1.9 million) in fiscal year 2005. This was primarily because in fiscal year 2006, we received financial subsidies from the local government which amounted to RMB31.0 million (US$4.0 million), whereas in fiscal year 2005, such financial subsidies only amounted to RMB13.4 million (US$1.7 million).
Gain on Investment Disposal
In the fourth quarter of 2006, we recognized a gain of approximately RMB23.4 million (US$3.0 million) from the sale of our equity interest in the joint venture in Taiwan that operates Blizzard Entertainment's World of Warcraft in other greater China regions.
Impairment Loss on Investment
In the fourth quarter of 2006, we recorded an impairment provision of RMB20.4 million (US$2.6 million) in connection with an investment accounted for by the Company under the equity method. No such impairment was recognized in fiscal year 2005.
Loss on Equity Investments
For the fourth quarter of 2006, loss on equity investments, net of taxes, amounted to RMB1.1 million (US$0.1 million), which remained relatively stable compared to a loss of RMB1.2 million (US$0.2 million) for the third quarter of 2006, but represented a 75% improvement compared to a loss of RMB4.6 million (US$0.6 million) for the fourth quarter of 2005. The significant year-over-year improvement was primarily due to the joint venture that operates World of Warcraft in other greater China regions, which we disposed of in late fiscal year 2006, recorded a profit during the fourth quarter of 2006, which offset, to a large extent, the losses made by other affiliated companies that were still in the development or early game commercialization stages. The joint venture recorded a loss during the same period of last year.
For fiscal year 2006, we recorded RMB0.9 million (US$0.1 million) of loss on equity investments, net of taxes, compared to a loss of RMB13.7 million (US$1.8 million) for fiscal year 2005. This is also due to the reasons explained above.
Net Income
For the fourth quarter of 2006, net income was RMB105.1 million (US$13.5 million), which increased by 63% quarter-over-quarter from RMB64.3 million (US$8.2 million) in the third quarter of 2006 and 54% year-over-year from RMB68.3 million (US$8.8 million) in the fourth quarter of 2005. This was a result of the cumulative effect of the foregoing factors. Fully diluted earnings per share and per ADS for the fourth quarter of 2006 was RMB4.25 (US$0.54), compared to RMB2.61 (US$0.33) in the third quarter of 2006 and RMB2.82 (US$0.36) in the fourth quarter of 2005.
For fiscal year 2006, net income totaled RMB312.5 million (US$40.0 million), a 331% increase from RMB72.5 million (US$9.3 million) for fiscal year 2005. This was a result of the cumulative effect of the foregoing factors. Fully diluted earnings per share and per ADS for fiscal year 2006 was RMB12.72 (US$1.63), compared to RMB2.92 (US0.37) in fiscal year 2005.
EBITDA (non-GAAP) is defined as earnings or loss, respectively, before depreciation of fixed assets, amortization of intangibles and income tax expenses/benefits, as applicable. For the fourth quarter of 2006, EBITDA (non-GAAP) was RMB146.6 million (US$18.8 million) compared to EBITDA (non-GAAP) of RMB105.4 million (US$13.5 million) for the previous quarter and RMB108.9 million (US$14.0 million) for the same period of last year. For fiscal year 2006, EBITDA (non-GAAP) totaled RMB476.3 million (US$61.0 million) compared to EBITDA (non-GAAP) of RMB151.6 million (US$19.4 million) for the fiscal year 2005.
For the fourth quarter of 2006, fully diluted EBITDA (non-GAAP) per share was RMB5.93 (US$0.76) compared with RMB4.28 (US$0.55) for the third quarter of 2006 and RMB4.50 (US$0.58) in the fourth quarter of 2005. For fiscal year 2006, fully diluted EBITDA (non-GAAP) per share was RMB19.39 (US$2.48) compared with EBITDA (non-GAAP) per share of RMB6.11 (US$0.78) for fiscal year of 2005.
As at December 31, 2006, the Company's total cash and cash equivalents balance was RMB937.8 million (US$120.2 million). The increase in cash and cash equivalents from RMB488.2 million (US$62.6 million) as at December 31, 2005 was mainly due to the combined result of increased receipts from prepaid game points, and the above-mentioned financial subsidies, offset in part by purchases of servers, prepaid royalty payments to the licensor relating to WoW's China operations, the final payments in early 2006 relating to the purchase of the remaining interest in the entity that operates WoW in China, and payments relating to the license fees for the Guild Wars and Hellgate: London games as well as an equity investment made during the year.
The conversion of Renminbi (RMB) into U.S. dollars (US$) in this press release is based on the noon buying rate in The City of New York for cable transfers in Renminbi per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York as of December 29, 2006 (the last business day of fourth quarter and fiscal year 2006), which was RMB7.8041 to US$1.00. The percentages stated in this press release are calculated based on the RMB amounts.
Note to the Financial Information
The unaudited financial information disclosed above is preliminary. The audit of the financial statements and related notes to be included in our annual report on Form 20-F for the year ended December 31, 2006 is still in progress. Adjustments to the financial statements may be identified when audit work is completed, which could result in significant difference from the audited financial statements to this preliminary unaudited financial information. In addition, because management's evaluation of our internal controls over financial reporting in connection with of the Sarbanes-Oxley Act of 2002 has not yet been completed, we make no representations as to the effectiveness of those internal controls as of the end of our 2006 fiscal year.
Non-GAAP Measure
To supplement the consolidated financial statements presented in accordance with accounting principles generally accepted in the United States ("GAAP"), The9 uses the non-GAAP measure of EBITDA, which is adjusted from the most directly comparable financial measures calculated and presented in accordance with GAAP to exclude certain expenses. The non-GAAP financial measure is provided to enhance investors' overall understanding of the Company's operating performance.
EBITDA (non-GAAP) is defined as earnings before depreciation of fixed assets, amortization of intangibles and income tax expenses/benefits, as applicable. The Company believes its EBITDA provides useful information to both management and investors as it excludes certain expenses that are not expected to result in future cash payments. The use of EBITDA has certain limitations. Depreciation and amortization expense for various assets and income tax expenses/benefits have been and will be incurred and are not reflected in the presentation of EBITDA. Each of these items should also be considered in the overall evaluation of our results. EBITDA should not be considered as a measure of our liquidity. We compensate for these limitations by providing the relevant disclosure of our depreciation and amortization, and income tax expenses/benefits in our reconciliations to the GAAP financial measure, which should be considered when evaluating our performance. EBITDA is not defined under GAAP, and our EBITDA is not a measure of net income, operating income, operating performance or liquidity presented in accordance with GAAP. When assessing our operating performance, you should not consider this data in isolation or as a substitute for our net income, operating income or any other operating performance measure that is calculated in accordance with GAAP. In addition, our EBITDA may not be comparable to similarly titled measures utilized by other companies since such other companies may not calculate EBITDA in the same manner as we do. For more information on this non-GAAP financial measure, please see the tables captioned "Reconciliation of non-GAAP to GAAP results" set forth at the end of this release.
Management Appointment
The9 today announced that it has appointed Fumin (Benjamin) Lin as Vice President, effective February 14, 2007. Mr. Lin will participate in leading various aspects of The9's game operations.
Before joining The9, since January 2006, Mr. Lin has served as General Manager of Joypark Webstar Technology Co., Ltd. in Beijing, an affiliated company of Softstar Entertainment Inc. From October 2001 to December 2005, Mr. Lin has served various management functions at Square-Enix Webstar Inc., a joint venture between Softstar Entertainment Inc. in Taiwan and Square Enix Co., Ltd. in Japan, and led it to be the leading game developer and publisher in Asia. From October 2000 to September 2001, he had served as Assistant Vice President of Webstar Inc. in Taipei. Prior to that, Benjamin had worked as a product manager at Softstar Entertainment Inc. and Dynalab Inc. Mr. Lin is experienced in leading MMORPG operations in China. Mr. Lin received his Bachelor's degree in Arts & Advertisement from the Chinese Culture University in Taipei, Taiwan.
Other Developments
The9 also announced that it has entered into an agreement to purchase the office building in Shanghai, PRC, in which it is currently headquartered, and has leased since mid 2005. It is expected that The9 will utilize its existing working capital to fund this capital investment.
Conference Call / Webcast Information
The9's management team will host a conference call on Wednesday, February 14, 2007 at 8:00 PM, US Eastern Time, corresponding with Thursday, February 15, 2007 at 9:00 AM, Beijing Time, to present an overview of The9's financial performance and business operations.
Investors, analysts and other interested parties will be able to access the live conference by calling +1-617-597-5325, password "88306312". In the U.S., members of the financial community may also participate in the call by dialing toll-free +1-866-713-8566, password "88306312". A replay of the call will be available through February 22, 2007. The dial-in details for the replay: U.S. toll free number +1-888-286-8010, International dial-in number +1-617-801-6888; Password "34934768".
The9 Limited will also provide a live webcast of the earnings call. Participants in the webcast should log onto the Company's web site http://www.corp.the9.com 15 minutes prior to the call, then click on the icon for "The9 Limited Q4 and Fiscal Year 2006 Earnings Conference Call" and follow the instructions.
About The9 Limited
The9 Limited is a leading online game operator in China. The9's business is primarily focused on operating and developing MMORPGs for the Chinese online game players market. The9 directly or through affiliates operates licensed MMORPGs, consisting of MU(R), Mystina Online, Blizzard Entertainment(R)'s World of Warcraft(R), and its first proprietary MMORPG, Joyful Journey West(TM), in China. It has also obtained exclusive licenses to operate additional MMORPGs in China, including Granado Espada, Soul of The Ultimate Nation(TM), Guild Wars, Hellgate: London, Ragnarok Online 2, Emil Chronicle Online and Huxley. In addition, The9 is also working on the development of a 3D fantasy MMORPG game, Fantasy Melody Online(TM).
Safe Harbor Statement
This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Among other things, the business outlook and quotations from management in this press release contain forward-looking statements. The9 may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission on Forms 20-F and 6-K, etc., in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about The9's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. 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, The9's limited operating history as an online game operator, political and economic policies of the Chinese government, the laws and regulations governing the online game industry, information disseminated over the Internet and Internet content providers in China, intensified government regulation of Internet cafes, The9's ability to retain existing players and attract new players, license, develop or acquire additional online games that are appealing to users, anticipate and adapt to changing consumer preferences and respond to competitive market conditions, and other risks and uncertainties outlined in The9's filings with the U.S. Securities and Exchange Commission, including its annual reports on Form 20-F. The9 does not undertake any obligation to update any forward-looking statement, except as required under applicable law.
THE9 LIMITED
CONSOLIDATED STATEMENTS OF INCOME
(Expressed in Renminbi - RMB and US Dollars - US$, except share data)
Quarter Ended
December 31, September 30, December 31, December 31,
2005 2006 2006 2006
RMB RMB RMB US$
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues:
Online game
services 220,717,384 241,164,777 296,721,036 38,021,173
Game operating
support,
website
solutions and
advertisement 887,822 2,671,945 495,169 63,450
Other revenues 1,795,408 1,917,314 598,872 76,738
223,400,614 245,754,036 297,815,077 38,161,361
Sales Taxes (11,164,248) (12,367,467) (15,138,187) (1,939,774)
Net Revenues 212,236,366 233,386,569 282,676,890 36,221,587
Cost of Services (114,950,079) (125,522,051) (147,970,185) (18,960,570)
Gross Profit 97,286,287 107,864,518 134,706,705 17,261,017
Operating Expenses:
Product
development (7,825,264) (7,749,225) (5,176,455) (663,299)
Sales and
marketing (14,172,398) (11,699,467) (17,982,287) (2,304,210)
General and
administrative (22,666,412) (25,112,296) (31,501,431) (4,036,523)
Total operating
expenses: (44,664,074) (44,560,988) (54,660,173) (7,004,032)
Profit from
operations 52,622,213 63,303,530 80,046,532 10,256,985
Interest income,
net 642,082 2,479,258 3,023,648 387,444
Other income
(expenses), net 12,208,696 (1,034,921) 19,123,592 2,450,455
Income before
income tax
benefit (expense),
gain on investment
disposal, minority
interest and loss
on equity
investments 65,472,991 64,747,867 102,193,772 13,094,884
Income tax benefit
(expense) 733,186 794,368 1,015,569 130,133
Income before gain
on investment
disposal,
impairment loss
on investment and
loss on equity
investments 66,206,177 65,542,235 103,209,341 13,225,017
Gain on investment
disposal 6,715,917 -- 23,409,702 2,999,667
Impairment loss on
investment -- -- (20,401,915) (2,614,256)
Loss on equity
investments, net
of taxes (4,601,416) (1,208,010) (1,148,792) (147,204)
Minority interests -- -- -- --
Net income 68,320,678 64,334,225 105,068,336 13,463,224
Other
comprehensive
income:
Translation
adjustments 1,115,748 -- -- --
Comprehensive
Income 69,436,426 64,334,225 105,068,336 13,463,224
Earnings per share
- Basic 2.82 2.62 4.28 0.55
- Diluted 2.82 2.61 4.25 0.54
Weighted average
shares
outstanding
- Basic 24,206,154 24,508,974 24,564,824 24,564,824
- Diluted 24,218,551 24,615,761 24,713,922 24,713,922
THE9 LIMITED
CONSOLIDATED STATEMENTS OF INCOME
(Expressed in Renminbi - RMB and US Dollars - US$, except share data)
Year ended
December 31, December 31, December 31,
2005 2006 2006
RMB RMB US$
(audited) (unaudited) (unaudited)
Revenues:
Online game services 466,554,760 1,027,963,574 131,720,964
Game operating support,
website solutions and
advertisement 6,050,065 4,800,019 615,064
Other revenues 16,586,027 5,564,186 712,982
489,190,852 1,038,327,779 133,049,010
Sales Taxes (24,164,182) (52,501,980) (6,727,487)
Net Revenues 465,026,670 985,825,799 126,321,523
Cost of Services (240,415,737) (524,031,705) (67,148,256)
Gross Profit 224,610,933 461,794,094 59,173,267
Operating Expenses:
Product development (40,642,275) (30,781,632) (3,944,290)
Sales and marketing (61,805,046) (59,574,787) (7,633,781)
General and administrative (62,450,984) (101,282,708) (12,978,141)
Total operating expenses: (164,898,305) (191,639,127) (24,556,212)
Profit from operations 59,712,628 270,154,967 34,617,055
Interest income, net 10,021,605 9,136,273 1,170,702
Other income (expenses), net 14,467,150 28,416,722 3,641,255
Income before income tax
benefit (expense), gain on
investment disposal, minority
interest and loss on equity
investments 84,201,383 307,707,962 39,429,012
Income tax benefit (expense) (168,255) 2,669,763 342,097
Income before gain on
investment disposal,
impairment loss on investment
and loss on equity investments 84,033,128 310,377,725 39,771,109
Gain on investment disposal 6,715,917 23,409,702 2,999,667
Impairment loss on investment -- (20,401,915) (2,614,256)
Loss on equity investments, net
of taxes (13,736,790) (908,464) (116,409)
Minority interests (4,540,568) -- --
Net income 72,471,687 312,477,048 40,040,111
Other comprehensive income:
Translation adjustments 73,963 -- --
Comprehensive Income 72,545,650 312,477,048 40,040,111
Earnings per share
- Basic 3.00 12.78 1.64
- Diluted 2.92 12.72 1.63
Weighted average shares
outstanding
- Basic 24,192,113 24,456,507 24,456,507
- Diluted 24,804,997 24,565,947 24,565,947
THE9 LIMITED
CONSOLIDATED BALANCE SHEETS
(Expressed in Renminbi - RMB and US Dollars - US$)
As at
December 31, December 31, December 31,
2005 2006 2006
RMB RMB US$
(audited) (unaudited) (unaudited)
Assets
Current Assets
Cash and cash equivalents 488,244,667 937,845,817 120,173,475
Accounts receivable 10,593,866 10,174,484 1,303,736
Due from related parties 12,395,125 -- --
Advances to suppliers 4,289,443 9,036,620 1,157,932
Prepayments and other current
assets 28,395,864 69,153,131 8,861,128
Prepaid royalties 42,995,946 27,558,207 3,531,247
Deferred costs 24,075,214 33,324,942 4,270,184
Total current assets 610,990,125 1,087,093,201 139,297,702
Investments in equity investees 46,835,993 30,117,605 3,859,203
Property, equipment and
software 231,436,683 227,512,006 29,152,882
Goodwill 30,199,751 30,199,751 3,869,729
Intangible assets 289,035,226 244,271,279 31,300,378
Long-term deposits 3,132,338 -- --
Deferred tax assets, non-
current 2,104,464 5,391,123 690,806
Total Assets 1,213,734,580 1,624,584,965 208,170,700
Liabilities and Shareholders'
Equity
Current Liabilities
Accounts payable 15,948,674 12,692,978 1,626,450
Due to related parties 3,181,004 332,797 42,644
Other taxes payable 8,123,356 23,589,754 3,022,739
Advances from customers 61,651,267 88,040,975 11,281,375
Deferred revenue 76,514,940 111,302,531 14,262,059
Other payables and accruals 26,793,070 52,467,643 6,723,085
Acquisition related liability 79,537,653 -- --
Total current liabilities 271,749,964 288,426,678 36,958,352
Minority interests -- -- --
Commitments and contingencies -- -- --
Shareholders' Equity
Common shares (US$0.01 par
value; 24,214,130 and
24,688,038 shares issued and
outstanding as of December 31,
2005 and 2006) 2,004,033 2,041,673 261,615
Additional paid-in capital 860,068,478 941,786,807 120,678,465
Statutory reserves 54,172 20,745,422 2,658,272
Accumulated other comprehensive
income 59,346 -- --
Retained earnings 79,798,587 371,584,385 47,613,996
Total shareholders' equity 941,984,616 1,336,158,287 171,212,348
Total liabilities and
shareholders' equity 1,213,734,580 1,624,584,965 208,170,700
THE9 LIMITED
RECONCILIATION OF NON-GAAP TO GAAP RESULTS
(Expressed in Renminbi - RMB and US Dollars - US$, except share data)
Quarter Ended
December 31, September 30, December 31, December 31,
2005 2006 2006 2006
RMB RMB RMB US$
(unaudited) (unaudited) (unaudited) (unaudited)
GAAP net income 68,320,678 64,334,225 105,068,336 13,463,224
Depreciation of fixed
assets 16,065,956 18,513,748 21,666,970 2,776,357
Amortization of
intangibles 25,248,349 23,306,626 20,885,566 2,676,230
Income tax expense
(benefit) (733,186) (794,368) (1,015,569) (130,133)
EBITDA (Non-GAAP) 108,901,797 105,360,231 146,605,303 18,785,678
GAAP earnings per share
- Basic 2.82 2.62 4.28 0.55
- Diluted 2.82 2.61 4.25 0.54
Non-GAAP EBITDA per
share
- Basic 4.50 4.30 5.97 0.76
- Diluted 4.50 4.28 5.93 0.76
Weighted average shares
outstanding
- Basic 24,206,154 24,508,974 24,564,824 24,564,824
- Diluted 24,218,551 24,615,761 24,713,922 24,713,922
THE9 LIMITED
RECONCILIATION OF NON-GAAP TO GAAP RESULTS
(Expressed in Renminbi - RMB and US Dollars - US$, except share data)
Year ended
December 31, December 31, December 31,
2005 2006 2006
RMB RMB US$
(unaudited) (unaudited) (unaudited)
GAAP net income 72,471,687 312,477,048 40,040,111
Depreciation of fixed assets 39,463,381 76,158,886 9,758,830
Amortization of intangibles 39,521,407 90,286,523 11,569,114
Income tax expense (benefit) 168,255 (2,669,763) (342,097)
EBITDA (Non-GAAP) 151,624,730 476,252,694 61,025,958
GAAP earnings per share
- Basic 3.00 12.78 1.64
- Diluted 2.92 12.72 1.63
Non-GAAP EBITDA per share
- Basic 6.27 19.47 2.50
- Diluted 6.11 19.39 2.48
Weighted average shares outstanding
- Basic 24,192,113 24,456,507 24,456,507
- Diluted 24,804,997 24,565,947 24,565,947
