omniture

The9 Limited Reports Third and Fourth Quarter 2011 Unaudited Financial Results

2012-03-22 06:00 1163

SHANGHAI, March 22, 2012 /PRNewswire-Asia-FirstCall/ -- The9 Limited (NASDAQ: NCTY) ("The9"), an online game developer and operator, announced its unaudited financial results for the third quarter ended September 30, 2011 and the fourth quarter ended December 31, 2011 today.

Financial Highlights:

  • Net revenues in the second half of 2011 amounted to RMB55.1 million (US$8.7 million), representing an increase of 7% from the first half of 2011 and a slight decrease of 1% from the second half of 2010.
  • Net revenues for the fiscal year 2011 amounted to RMB106.4 million (US$16.9 million), representing an increase of 3% from the fiscal year 2010.
  • Net loss attributable to holders of ordinary shares in the second half of 2011 amounted to RMB219.7 million (US$34.9 million), representing an increase of 240% from the first half of 2011 and a decrease of 39% from the second half of 2010.
  • Net loss attributable to holders of ordinary shares for the fiscal year 2011 amounted to RMB284.3 million (US$45.2 million), representing a decrease of 43% from the fiscal year 2010.

Management Comments:

Commenting on the results of the second half and fiscal year of 2011, Jun Zhu, Chairman and Chief Executive Officer of The9 said, "In 2011, we are still undergoing the strategic transition from a domestic online game operator to an international online game developer and operator with diversified platforms. In the second half of 2011, we further strengthened our MMORPG and web and social game pipeline by following our strategy of focusing on games with the highest quality. Among our robust game pipeline, Firefall, a revolutionary next-generation triple-A title MMOFPS game, will be presented to online gaming enthusiasts worldwide."

Discussion of The9's Unaudited Third and Fourth Quarter 2011 Results

Net Revenues

Our net revenues in the third quarter of 2011 amounted to RMB27.2 million (US$4.3 million), representing an increase of 6% from RMB25.5 million (US$4.1 million) in the second quarter of 2011 and an increase of 2% from RMB26.6 million (US$4.2 million) in the third quarter of 2010. These increases were primarily due to an increase in net revenues from our TV game platform and overseas licensing operations.

Our net revenues in the fourth quarter of 2011 amounted to RMB27.9 million (US$4.4 million), representing an increase of 3% from RMB27.2 million (US$4.3 million) in the third quarter of 2011 and a decrease of 3% from RMB28.8 million (US$4.6 million) in the fourth quarter of 2010. The increase from the third quarter of 2011 was primarily due to an increase in net revenues from ShenXianZhuan. The year-over-year decrease was primarily due to a decrease in net revenues from our then operating MMORPGs.

Gross Profit

Our gross profit in the third quarter of 2011 amounted to RMB13.6 million (US$2.2 million), representing an increase of 8% from RMB12.7 million (US$2.0 million) in the second quarter of 2011 and an increase by 17 times compared to RMB0.8 million (US$0.1 million) in the third quarter of 2010. The year-over-year increase in gross profit in the third quarter was primarily due to a decrease in royalties, as we have more games in our games portfolio developed in-house compared to last year.

Our gross profit in the fourth quarter of 2011 amounted to RMB13.3 million (US$2.1 million), representing a decrease of 3% from RMB13.6 million (US$2.2 million) in the third quarter of 2011 and an increase by 7 times from RMB1.6 million (US$0.3 million) in the fourth quarter of 2010. The year-over-year increase in gross profit in the fourth quarter of 2011 was primarily due to a decrease in royalties, as we have more games in our games portfolio developed in-house compared to last year.

Operating Expenses

In the third quarter of 2011, our operating expenses were RMB141.4 million (US$22.5 million), representing a 37% increase from RMB103.6 million (US$16.5 million) in the second quarter of 2011 and a 79% increase from RMB79.0 million (US$12.6 million) in the third quarter of 2010. The increase in operating expenses was mainly due to an increase in marketing expenses relating to Chinajoy game exhibition and our online game promotion efforts, as well as an increase in development expenses, including those incurred by Red5 Studios, Inc.

In the third quarter of 2011, share-based compensation was RMB10.8 million (US$1.7 million), compared to RMB16.1 million (US$2.6 million) in the second quarter of 2011 and RMB2.1 million (US$0.3 million) in the third quarter of 2010.

In the fourth quarter of 2011, our operating expenses were RMB140.2 million (US$22.3 million), representing a 1% decrease from RMB141.4 million (US$ 22.5 million) in the third quarter of 2011 and an 18% increase from RMB118.7 million (US$18.9 million) in the fourth quarter of 2010. The increase from the fourth quarter of 2010 was primarily due to an increase in marketing expenses for Firefall and G-star game exhibition in Korea, an increase in development expenses due to the increased research and development headcount and an increase in general and administrative expenses as a result of our establishment of overseas offices and increased share-based compensation.

In the fourth quarter of 2011, share-based compensation was RMB10.0 million (US$1.6 million), compared to RMB10.8 million (US$1.7 million) in the third quarter of 2011 and RMB8.4 million (US$1.3 million) in the fourth quarter of 2010.

Other Operating Income

As a result of non-renewal of WoW license in 2009, we announced a refund plan for the unactivated WoW game point cards, which we recorded as advance from customers in September 2009. The legal liability relating to the unactivated WoW game point cards was extinguished in September 2011 under applicable laws and the associated liability amounting to RMB26.0 million (US$4.1 million) was recognized as other operating income for the year ended December 31, 2011.

Interest Income

Interest income in the third quarter of 2011 was RMB8.6 million (US$1.4 million), compared to RMB7.5 million (US$1.2 million) in the second quarter of 2011 and RMB5.6 million (US$0.9 million) in the third quarter of 2010. Such increase was due to an increase in bank interest rate.

Interest income in the fourth quarter of 2011 was RMB7.1 million (US$1.1 million), compared to RMB8.6 million (US$1.4 million) in the third quarter of 2011 and RMB5.8 million (US$0.9 million) in the fourth quarter of 2010. The decrease from the third quarter of 2011 was due to a decrease of cash balance and the increase from the fourth quarter of 2010 was due to an increase in bank interest rate.

Other (Expenses) Income, net

Other expenses in the third quarter of 2011 was RMB5.7 million (US$0.9 million), compared to other income of RMB6.7 million (US$1.1million) in the second quarter of 2011 and other expenses of RMB0.1 million (US$0.02 million) in the third quarter of 2010. Other expenses in the third quarters of 2010 and 2011 primarily represented the foreign exchange loss. Other income in the second quarter of 2011 primarily represented the income from a one-off settlement fee.

Other expenses in the fourth quarter of 2011 was RMB0.8 million (US$0.1 million), compared to other expenses of RMB5.7 million (US$0.9 million) in the third quarter of 2011 and other income of RMB22.6 million (US$3.6 million) in the fourth quarter of 2010. The decrease from the third quarter of 2011 was primarily due to a decrease of foreign exchange loss. Other income in the fourth quarter of 2010 mainly represented a government subsidy of RMB23.0 million (US$3.6 million).

Gain on Investment Disposal

In the fourth quarter of 2011, we reversed RMB15.7 million (US$2.5 million) from the gain on investment disposal. In April 2011, we disposed of our equity interest in OpenFeint Inc. and recognized a gain on investment disposal with a total amount of RMB60.1 million in the second quarter of 2011. As a result of third parties' claims against OpenFeint Inc. and our potential indemnification obligations to the buyer of OpenFeint Inc., we made a provision of RMB15.7 million on the receivable from the disposal withheld in an escrowed account established to secure our indemnification obligations and reversed the gain on investment disposal accordingly.

Net (Loss) Income attributable to holders of ordinary shares

In the third quarter of 2011, net loss attributable to holders of ordinary shares was RMB93.7 million (US$14.9 million), representing a 678% increase from RMB12.0 million (US$1.9 million) in the second quarter of 2011 and a 37% increase from RMB68.5 million (US$10.9 million) in the third quarter of 2010.

Fully diluted loss per share and per ADS in the third quarter of 2011 was RMB3.74 (US$0.59), compared to RMB0.48 (US$0.08) in the second quarter of 2011 and RMB2.73 (US$0.43) in the third quarter of 2010.

In the fourth quarter of 2011, net loss attributable to holders of ordinary shares was RMB126.0 million (US$20.0 million), representing a 35% increase from RMB93.7 million (US$14.9 million) in the third quarter of 2011 and a 56% decrease from RMB289.5 million (US$46.0 million) in the fourth quarter of 2010.

Fully diluted loss per share and per ADS for the fourth quarter of 2011 was RMB5.14 (US$0.82), compared to RMB3.74 (US$0.59) in the third quarter of 2011 and RMB11.52 (US$1.83) in the fourth quarter of 2010.

Currency Convenience Translation

The conversion of Renminbi (RMB) into US 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 H.10 weekly statistical release of the Federal Reserve Board as of December 31, 2011, which was RMB 6.2939 to US$1.00. The percentages stated in this press release are calculated based on the RMB amounts.

Form 20-F

The9 will file its annual report on Form 20-F for the fiscal year ended December 31, 2011 with the U.S. Securities and Exchange Commission on or about March 22, 2011, U.S. Eastern Time. The annual report may be accessed in the Investor Relations section of the The9's website at http://www.corp.the9.com. Upon request, The9 will provide a hard copy of its annual report to its shareholders free of charge. Requests should be made to The9 Limited, No. 3 Building, No. 690, Bibo Road, Pu Dong New Area, Shanghai 201203, People's Republic of China.

Conference Call / Webcast Information

The9's management team will host a conference call on Wednesday, March 21, 2012 at 9:00 PM, U.S. Eastern Time, corresponding to Thursday, March 22, 2012 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:

U.S. Toll Free:

+1-866-519-4004

Mainland China (mobile users):

400-620-8038

Mainland China (fixed line users):

800-819-0121

Hong Kong Toll:

+852-2475-0994

Singapore Toll / International Toll:

+65-6723-9381

Conference ID #:

57490859

A telephone replay of the call will be available from 12:00am ET on March 22, 2012 for 7 days.

The dial-in details for the replay are:

U.S. Toll Free:

+1-866-214-5335

U.S. Toll / International Toll:

+1-718-354-1232

The9 will also provide a live webcast of the earnings call. Participants in the webcast should log onto the Company's Investor Relations website http://www.corp.the9.com/ 15 minutes prior to the call, then click on the icon for "The9 Limited 3Q & 4Q 2011 Earnings Conference Call" and follow the instructions.

About The9 Limited

The9 Limited is an online game developer and operator. The9 operates, directly or through its affiliates, its proprietary massively multiplayer online role playing games, or MMORPGs, and web and social games including ShenXianZhuan, World of Fighter, Winning Goal and Q Jiang San Guo, as well as licensed MMORPGs, including Soul of The Ultimate Nation™, Atlantica and Kingdom Heroes 2 Online, in mainland China. The9 is developing various proprietary games, including FireFall, Era Zero and other MMORPGs and web and social games. In addition, it has obtained exclusive licenses to operate various other games in mainland China, including Seoyugi, Rosh, Free Realms and Planetside 2. The9 also commenced its mobile internet business operations and launched The9 Game Zone, a mobile social gaming platform in China which is powered by OpenFeint.

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, 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.

For further information, please contact:

Ms. Phyllis Sai
Manager, Investor Relations
The9 Limited
Tel: +86 (21) 5172-9990
Email: IR@corp.the9.com
Website: http://www.corp.the9.com/

THE9 LIMITED

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME INFORMATION

(Expressed in Renminbi - RMB and US Dollars - US$, except share data)

Quarter ended

September 30,
2010

December 31, 2010

June 30,
2011

September 30, 2011

December 31, 2011

September 30, 2011

December 31, 2011

RMB

RMB

RMB

RMB

RMB

US$

US$

Revenues *:

Online game services

27,690,830

29,885,623

26,107,123

28,056,590

28,209,598

4,457,743

4,482,054

Other revenues

228,946

601,476

963,574

579,521

1,272,164

92,077

202,126

27,919,776

30,487,099

27,070,697

28,636,111

29,481,762

4,549,820

4,684,180

Sales Taxes

(1,333,741)

(1,719,965)

(1,546,057)

(1,484,459)

(1,562,788)

(235,857)

(248,302)

Net Revenues

26,586,035

28,767,134

25,524,640

27,151,652

27,918,974

4,313,963

4,435,878

-

-

Cost of Services

(25,816,583)

(27,120,332)

(12,862,044)

(13,524,873)

(14,643,160)

(2,148,886)

(2,326,564)

Gross Profit

769,452

1,646,802

12,662,596

13,626,779

13,275,814

2,165,077

2,109,314

Operating Expenses:

Product development

(37,405,254)

(34,971,378)

(47,026,273)

(57,132,228)

(68,530,135)

(9,077,397)

(10,888,342)

Sales and marketing

(16,053,768)

(17,456,542)

(14,918,667)

(38,402,213)

(26,749,450)

(6,101,497)

(4,250,059)

General and administrative

(25,545,598)

(28,295,880)

(41,614,830)

(45,867,096)

(44,933,064)

(7,287,548)

(7,139,145)

Impairment of equipment,
intangible assets and
goodwill

-

(37,949,452)

-

-

-

-

-

Total operating expenses:

(79,004,620)

(118,673,252)

(103,559,770)

(141,401,537)

(140,212,649)

(22,466,442)

(22,277,546)

Other operating Income

-

-

-

25,993,004

-

4,129,873

-

Loss from operations

(78,235,168)

(117,026,450)

(90,897,174)

(101,781,754)

(126,936,835)

(16,171,492)

(20,168,232)

Interest income

5,568,241

5,812,347

7,459,877

8,601,860

7,124,036

1,366,698

1,131,896

Other income (expenses), net

(141,422)

22,622,595

6,731,736

(5,691,396)

(781,216)

(904,272)

(124,123)

Loss before income tax benefit (expense), gain on
investment disposal, impairment loss on invstment
and share of loss in equity investments

(72,808,349)

(88,591,508)

(76,705,561)

(98,871,290)

(120,594,015)

(15,709,066)

(19,160,459)

Income tax benefit (expense)

42,150

(7,406,910)

-

-

-

-

-

Loss before gain on investment disposal,
impairment loss on investment and share
of loss in equity investments

(72,766,199)

(95,998,418)

(76,705,561)

(98,871,290)

(120,594,015)

(15,709,066)

(19,160,459)

Gain (loss) on investment disposal

-

-

60,121,453

-

(15,686,651)

-

(2,492,358)

Impairment loss on investment

-

(196,115,321)

-

-

-

-

-

Share of loss on equity investments, net of taxes

(1,679,511)

(2,699,207)

(589,218)

(1,531,814)

(1,034,009)

(243,381)

(164,287)

Net loss

(74,445,710)

(294,812,946)

(17,173,326)

(100,403,104)

(137,314,675)

(15,952,447)

(21,817,105)

Less:Net loss attributable to noncontrolling
interest

(5,909,026)

(5,358,832)

(5,138,494)

(6,728,394)

(11,265,424)

(1,069,034)

(1,789,896)

Net loss attributable to holders of ordinary shares

(68,536,684)

(289,454,114)

(12,034,832)

(93,674,710)

(126,049,251)

(14,883,413)

(20,027,209)

Net loss attributable to holders of ordinary
shares per share

- Basic and Diluted

(2.73)

(11.52)

(0.48)

(3.74)

(5.14)

(0.59)

(0.82)

Weighted average number of shares outstanding

- Basic and Diluted

25,121,645

25,121,781

25,131,874

25,055,096

24,518,712

25,055,096

24,518,712

Amount attributable to holders of ordinary shares

(68,536,684)

(289,454,114)

(12,034,832)

(93,674,710)

(126,049,251)

(14,883,413)

(20,027,209)

* Prior to 2011, we reported revenues from our Internet Protocol TV game, or TV Game services and overseas licensing revenue under other revenues item amounted to RMB0.5 million and RMB4.7 million for the years ended December 31, 2009 and 2010, respectively. Starting from January 1, 2011, as revenue from such businesses related to online game services and became more significant, we have reclassified such revenue and reported it under online game services item, and our financial information has been retrospectively adjusted to reflect such reclassification.

THE9 LIMITED

CONSOLIDATED BALANCE SHEETS INFORMATION

(Expressed in Renminbi - RMB and US Dollars - US$)

As at

December 31, 2010

September 30, 2011

December 31, 2011

September 30, 2011

December 31, 2011

RMB

RMB

RMB

US$

US$

Assets

Current Assets

Cash and cash equivalents

1,416,189,294

1,209,175,999

1,071,725,828

192,118,718

170,280,085

Accounts receivable

10,712,252

17,254,779

10,054,911

2,741,508

1,597,564

Advances to suppliers

52,054,494

5,000,889

3,365,755

794,561

534,765

Prepayments and other current assets

63,969,737

84,447,235

66,060,141

13,417,314

10,495,900

Prepaid royalties

15,615,493

16,157,989

15,556,270

2,567,246

2,471,642

Deferred costs

2,911,937

1,697,723

1,903,099

269,742

302,372

Total current assets

1,561,453,207

1,333,734,614

1,168,666,004

211,909,089

185,682,328

Investments in equity investees

74,843,710

64,705,740

72,051,143

10,280,707

11,447,774

Available-for-sale investment

-

-

6,342,100

-

1,007,658

Property, equipment and software

58,061,464

57,946,952

60,513,021

9,206,843

9,614,551

Goodwill

10,548,323

10,121,784

10,035,775

1,608,190

1,594,524

Intangible assets

17,647,842

15,937,175

159,493,400

2,532,162

25,340,949

Land use right

77,956,936

76,516,253

76,036,026

12,157,208

12,080,908

Other long-term assets

56,827,902

107,746,957

75,756,603

17,119,267

12,036,512

Total Assets

1,857,339,384

1,666,709,475

1,628,894,072

264,813,466

258,805,204

Liabilities and Equity

Current Liabilities

Accounts payable

46,948,658

19,179,062

44,149,842

3,047,246

7,014,703

Refund of game points

195,993,716

169,998,682

169,998,682

27,010,070

27,010,070

Other taxes payable

5,437,764

7,674,642

5,797,785

1,219,378

921,175

Advances from customers

7,101,645

15,797,587

27,010,571

2,509,984

4,291,548

Deferred revenue

18,508,169

15,638,128

16,661,791

2,484,648

2,647,292

Other payables and accruals

42,328,817

46,736,815

47,906,323

7,425,732

7,611,548

Total current liabilities

316,318,769

275,024,916

311,524,994

43,697,058

49,496,336

Long-term accounts payable

-

-

60,016,072

-

9,535,594

Deferred tax liability

5,803,848

5,569,160

5,521,837

884,851

877,332

Total Liabilities

322,122,617

280,594,076

377,062,903

44,581,909

59,909,262

Equity

Common shares (US$0.01 par value; 25,124,147 shares issued and outstanding as of December 31, 2010, 24,782,491 shares issued and outstanding as of September 30, 2011, and 24,456,805 shares issued and outstanding as of December 31, 2011)

2,051,878

2,023,080

1,996,367

321,435

317,191

Additional paid-in capital

2,091,113,883

2,117,615,849

2,110,986,623

336,455,274

335,401,996

Statutory reserves

28,071,982

28,071,982

28,071,982

4,460,189

4,460,189

Accumulated other comprehensive income

(2,096,698)

(5,056,254)

(5,968,056)

(803,358)

(948,229)

Accumulated deficit

(587,976,279)

(746,256,959)

(872,306,210)

(118,568,290)

(138,595,499)

Total The9 shareholders' equity

1,531,164,766

1,396,397,698

1,262,780,706

221,865,250

200,635,648

Noncontrolling interest

4,052,001

(10,282,299)

(10,949,537)

(1,633,693)

(1,739,706)

Total equity

1,535,216,767

1,386,115,399

1,251,831,169

220,231,557

198,895,942

Total liabilities and equity

1,857,339,384

1,666,709,475

1,628,894,072

264,813,466

258,805,204

Source: The9 Limited
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