XSEL Announces Financial Results for the Third Quarter 2009

BEIJING, Nov. 11 /PRNewswire-Asia-FirstCall/ -- Xinhua Sports & Entertainment Limited (the "Company" or "XSEL") , a leading sports and entertainment group in China, today announced its unaudited financial results for the third quarter ended September 30, 2009.

Third Quarter 2009 Highlights -- Net revenue was $39.6 million -- Adjusted EBITDA (non-GAAP) was $4.6 million -- Adjusted net income (non-GAAP) was $3.4 million -- Adjusted net income per ADS (non-GAAP) was $0.04 -- Net loss attributable to XSEL (GAAP) was $10.6 million -- Net loss per ADS (GAAP) was $0.14

Ms. Fredy Bush, XSEL's CEO said, "Since late 2008, we have been taking significant strategic steps each quarter to position XSEL as the leading sports media company in China. We have focused on strengthening our distribution platforms, expanding our content portfolio and divesting of non-core assets. We have a series of key strategic initiatives we hope to finalize by year end that will bring us closer to our vision in 2010."

Mr. Andrew Chang, XSEL's CFO commented, "The net loss this quarter of $10.6 million included a $7.6 million non-cash charge related to our outstanding convertible loan facility. Under the new accounting rule EITF 07-5 adopted in 2009, we are required to remeasure the conversion feature of this loan at the end of each quarter. Due to the increase in share price between the second and third quarters of 2009, the conversion feature of the loan was remeasured at $3.1 million in the second quarter of 2009 and $10.7 million in the third quarter of 2009. As a result, we were required to record a non-cash fair value charge of $7.6 million in the third quarter of 2009."

Third Quarter 2009 Financial Results Chart 1: Summary of financial results 3 months 3 months 3 months ended ended ended 09Q3 vs 09Q3 vs Sep 30, Sep 30, Jun 30, 08Q3 09Q2 In US$ millions 2009 2008 2009 Growth % Growth % Net revenue(1) 39.6 49.6 38.8 -20% 2% Adjusted EBITDA(2) 4.6 9.5 5.7 -51% -19% Net loss attributable to XSEL (10.6) (15.9) (2.1) 33% -392% One-time items(3) 8.5 17.0 (1.2) N/A N/A Net (loss) income attributable to XSEL before one-time items (2.1) 1.1 (3.3) N/A 34% Adjusted net income(2) 3.4 7.4 2.9 -54% 17% (1) Due to the sale of Shanghai Hyperlink Market Research Co. Ltd ("Hyperlink"), the Company's research services business, in October 2009, the results of operations were separately reported as "discontinued operations" and comparative numbers were reclassified accordingly. (2) Please refer to Chart 8 (Reconciliation of non-GAAP financial results) for details of calculation of adjusted EBITDA (non-GAAP) and adjusted net income (non-GAAP). (3) One-time items are those that we believe are not indicative of future performance. Due to the adoption of EITF 07-5 in 2009, we are required to remeasure the fair value of the conversion feature of the convertible loan (please refer to Note (9) to financial information for details) every quarter. The one-time items of $8.5 million in the third quarter of 2009 mainly represent a non-cash fair value charge of $7.6 million on the conversion feature of the loan. Given the increase in share price between the second and third quarters of 2009, the conversion feature of the loan was remeasured at $3.1 million in the second quarter of 2009 and $10.7 million in the third quarter of 2009. As a result, we recorded a non-cash fair value charge of $7.6 million in the third quarter of 2009. The fair value of the conversion feature may have a recurring impact in subsequent periods. Net Revenue

Net revenue for the third quarter of 2009 was $39.6 million, down 20% year-on-year from $49.6 million in the third quarter of 2008 or up 2% sequentially from $38.8 million in the second quarter of 2009.

Net Revenue by type and business group Chart 2: Net revenue by type and business group In US$ millions Broadcast Advertising Print Total Net revenue: Advertising services 4.2 17.8 0.4 22.4 Content production 0.1 -- -- 0.1 Advertising sales 13.6 0.1 3.3 17.0 Publishing services -- -- 0.1 0.1 Total net revenue 17.9 17.9 3.8 39.6 Broadcast Group

Net revenue for the Broadcast Group for the third quarter of 2009 was $17.9 million, down 1% year-on-year from $18.1 million in the third quarter of 2008 or down 6% sequentially from $19.0 million in the second quarter of 2009.

Chart 3: Revenue breakdown of the Broadcast Group 3 months 3 months 3 months 3 months ended ended ended ended Sep 30, Sep 30, Growth Sep 30, Jun 30, Growth In US$ millions 2009 2008 % 2009 2009 % Broadcast: Television 11.5 6.1 88% 11.5 11.3 2% Radio 2.1 2.7 -23% 2.1 3.2 -35% Mobile 4.2 3.3 27% 4.2 4.3 -2% Production 0.1 6.0 -98% 0.1 0.2 -44% Subtotal: 17.9 18.1 -1% 17.9 19.0 -6% Advertising Group

Net revenue for the Advertising Group for the third quarter of 2009 was $17.9 million, down 37% year-on-year from $28.5 million in the third quarter of 2008 or up 8% sequentially from $16.6 million in the second quarter of 2009. The year-on-year decrease was primarily due to divestments and the economic downturn.

Chart 4: Revenue breakdown of the Advertising Group 3 months 3 months 3 months 3 months ended ended ended ended Sep 30, Sep 30, Growth Sep 30, Jun 30, Growth In US$ millions 2009 2008 % 2009 2009 % Advertising: Print/Online 8.0 15.5 -49% 8.0 7.6 5% Outdoor/Other(1) 2.3 7.4 -69% 2.3 2.2 3% BTL Marketing 7.6 5.6 35% 7.6 6.8 12% Subtotal(2): 17.9 28.5 -37% 17.9 16.6 8% (1) On December 31, 2008, the Company divested its Hong Kong based outdoor advertising business, Convey, which contributed $5.7 million to net revenue in the third quarter of 2008. (2) Due to the sale of Hyperlink, the Company's research services business, in October 2009, the historical results were reported as "discontinued operations" for all periods presented. Hyperlink contributed $1.5 million to net revenue for the Advertising Group in the third quarter of 2008. Print Group

Net revenue for the Print Group for the third quarter of 2009 was $3.8 million, up 27% year-on-year from $3.0 million in the third quarter of 2008 or up 17% sequentially from $3.2 million in the second quarter of 2009.

Chart 5: Revenue breakdown of the Print Group 3 months 3 months 3 months 3 months ended ended ended ended Sep 30, Sep 30, Growth Sep 30, Jun 30, Growth In US$ millions 2009 2008 % 2009 2009 % Print: Newspaper 2.0 1.5 39% 2.0 2.0 2% Magazines 1.8 1.5 15% 1.8 1.2 42% Subtotal: 3.8 3.0 27% 3.8 3.2 17% Gross Profit

Gross profit for the third quarter of 2009 was $9.2 million, down 49% year-on-year from $17.9 million in the third quarter of 2008, or down 7% sequentially from $9.9 million in the second quarter of 2009. Adjusted gross profit (non-GAAP), defined as gross profit before amortization of intangible assets from acquisitions, for the third quarter of 2009 was $10.6 million, down 46% year-on-year from $19.6 million in the third quarter of 2008, or down 6% sequentially from $11.3 million in the second quarter of 2009. The year-on-year decrease of both gross profit and adjusted gross profit was a result of the factors previously described in the net revenue section. We provide the adjusted gross profit metric to break out the amortization of intangible assets from acquisitions charged within the cost of revenue. Chart 6 (Reconciliation for adjusted gross profit by business group) provides the breakdown of adjusted gross profit by business group. Due to the sale of Hyperlink, the Company's research services business, in October 2009, the results of operations were separately reported as "discontinued operations" and comparative numbers were reclassified accordingly.

Chart 6: Reconciliation for adjusted gross profit by business group In US$ millions Advertising Broadcast Print Total Gross Profit 5.0 1.5 2.7 9.2 Amortization of intangible assets from acquisitions(1) -- 1.2 0.2 1.4 Adjusted gross profit 5.0 2.7 2.9 10.6 (1) Amortization of intangible assets from acquisitions includes intangible assets such as trademarks, license rights, exclusive advertising rights, licensing agreement, customer relationships and non-compete agreements. Operating Expenses

Operating expenses are comprised of selling and distribution expenses and general and administrative expenses. Operating expenses for the third quarter of 2009 were $10.4 million, down 31% year-on-year from $15.1 million in the third quarter of 2008, or up 13% sequentially from $9.1 million in the second quarter of 2009. The year-on-year decrease was due to implementation of cost cutting initiatives, divestments and a decrease in share-based compensation expenses.

Selling and distribution expenses for the third quarter of 2009 were $3.9 million, up 11% year-on-year from $3.5 million in the third quarter of 2008, or up 10% sequentially from $3.5 million in the second quarter of 2009.

General and administrative expenses for the third quarter of 2009 were $6.5 million, down 44% year-on-year from $11.6 million in the third quarter of 2008, or up 15% sequentially from $5.6 million in the second quarter of 2009. General and administration expenses for the third quarter of 2009 included $0.4 million of share-based compensation expenses.

Adjusted EBITDA (non-GAAP)

Adjusted EBITDA (non-GAAP), defined as net income (loss) attributable to XSEL before one-time items, other income (expense), taxes, depreciation, amortization of intangible assets from acquisitions, net income (loss) attributable to non-controlling interests and share-based compensation expenses, for the third quarter of 2009 was $4.6 million, down 51% year-on-year from $9.5 million in the third quarter of 2008, or down 19% sequentially from $5.7 million in the second quarter of 2009. The year-on-year decrease was mainly due to divestments and economic downturn.

We provide the adjusted EBITDA metric because it allows management, investors and others to evaluate and compare our core operating results without the impact of certain non-cash items or one-time items that we believe are not indicative of future performance.

Chart 7: Adjusted EBITDA by business group In US$ millions Advertising Broadcast Print Total Adjusted EBITDA by business group 3.4 1.0 1.7 6.1 Less: net head office expenses -- -- -- (1.5) Adjusted EBITDA -- -- -- 4.6 Net Loss attributable to XSEL and Adjusted Net Income (non-GAAP)

Net loss attributable to XSEL for the third quarter of 2009 was $10.6 million, compared to a net loss of $15.9 million in the third quarter of 2008 and a net loss of $2.1 million in the second quarter of 2009. The primary reason for the sequential increase in net loss attributable to XSEL was a non-cash fair value charge of $7.6 million on the conversion feature of the convertible loan (please refer to Note (9) to financial information for details) in the third quarter of 2009. Due to the adoption of EITF 07-5 in 2009, we are required to remeasure the fair value of the conversion feature of the loan every quarter. Given the increase in share price between the second and third quarters of 2009, the conversion feature of the loan was remeasured at $3.1 million in the second quarter of 2009 and $10.7 million in the third quarter of 2009. As a result, we recorded a non-cash fair value charge of $7.6 million in the third quarter of 2009. The fair value of the conversion feature may have a recurring impact in subsequent periods.

Adjusted net income (non-GAAP), defined as net income (loss) attributable to XSEL before one-time items, amortization of intangible assets from acquisitions, share-based compensation expenses and imputed interest, for the third quarter of 2009 was $3.4 million, down 54% year-on-year from $7.4 million in the third quarter of 2008, or up 17% sequentially from $2.9 million in the second quarter of 2009. The year-on-year decrease was mainly due to divestments.

We provide the adjusted net income metric because it allows management, investors and others to evaluate our net income without the impact of possible add backs, deductions and certain material non-cash items or one-time items that we believe are not indicative of future performance.

Other Corporate Developments

On September 28, 2009, XSEL announced the licensing of the exclusive China distribution rights to the movie "More Than A Game" from Lionsgate Film. The movie stars LeBron James of the Cleveland Cavaliers and will be distributed later this year by China Film Group Corporation, the dominant film entertainment company in China.

On September 30, 2009, XSEL announced the signing of an additional agreement with Ultimate Fighting Championship, expanding on our exclusive television rights in China to include rights on mobile and internet platforms.

On October 20, 2009, the Company completed the disposal of the entire equity interests in Hyperlink, the Company's research services business, to INTAGE Inc., a Japan-based market research company, for a purchase price of 1,050,000,000 Japanese Yen (approximately US$10.7 million). The proceeds from the disposal were not reflected in the balance sheet for the third quarter of 2009.

On October 29, 2009, the Company sold 5,514,705 ADS at a price of $1.36 per ADS in a registered direct offering to several select institutional investors, representing gross proceeds of $7.5 million. Investors also received two series of warrants to purchase up to an aggregate of 14,889,703 class A common shares of the Company (equivalent to approximately 7,444,851 ADS). The Series A warrants to purchase up to 3,860,293 class A common shares (equivalent to approximately 1,930,146 ADS) have an initial exercise price of $0.975 per common share ($1.95 per ADS) and are exercisable at any time commencing six months after the closing date and on or prior to the fifth anniversary of this date. The Series B warrants to purchase up to 11,029,410 class A common shares (equivalent to 5,514,705 ADS) have an initial exercise price of $0.68 per common share ($1.36 per ADS) and are exercisable at any time commencing on the closing date and on or prior to the six month anniversary of the closing date.

On November 3, 2009, XSEL shareholders approved the election of Zheng Jingsheng and Harry Nam to serve on the board of directors.

Due to repositioning of the business to focus on the sports and entertainment sector, the Company has sold or may sell certain other non-core segments of its business which may give rise to potential significant non-cash impairment charges on goodwill and intangible assets.

Conference Call Information

Following the earnings announcement, XSEL's senior management will host a conference call on November 11, 2009 at 8:00PM (New York) / November 12, 2009 at 9:00AM (Beijing) to review the results and discuss recent business activities.

Interested parties may dial into the conference call at: (US) [phone] or [phone] (UK) [phone] (Mainland China) + 86 10 800 130 0399 (Hong Kong) [phone] Passcode: 95247814

A telephone replay will be available two hours after the call for one week at:

(US Toll Free) [phone] (International) [phone] Passcode: 74590319

A real-time webcast and replay will be also available at: http://www.xsel.com/en/investor-relations/webcast/

Contacts: Media Contact Ms. Joy Tsang XSEL Tel: [phone] Email: [e-mail] IR Contact Mr. Edward Liu XSEL Tel: [phone] Email: [e-mail] Mr. Howard Gostfrand American Capital Ventures Tel: [phone], toll free [phone] Email: [e-mail] About XSEL

Xinhua Sports & Entertainment Limited ("XSEL;" NASDAQ: XSEL) is a leading sports and entertainment media company in China. Catering to a vast audience of young and upwardly mobile customers, XSEL is well-positioned in China with its unique content and access. Through its key international partnerships, XSEL is able to offer its target audience the content they demand - premium sports and quality entertainment. Through its Chinese partnerships, XSEL is able to deliver this content across a broad range of platforms, including television, the internet, mobile phones and other multimedia assets in China. Along with its integrated advertising resources, XSEL offers a total solution empowering clients at every stage of the media, process linking advertisers with China's young and upwardly mobile demographic.

Headquartered in Beijing, the Company employs more than 1,000 people and has offices and affiliates in major cities throughout China including Beijing, Shanghai, Guangzhou, Shenzhen and Hong Kong. The Company's American Depository Shares are listed on the NASDAQ Global Market . For more information, please visit http://www.xsel.com/ .

Safe Harbor

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 other similar statements. Among other things, the quotations from management in this announcement, as well as XSEL's strategic and operational plans, contain forward-looking statements. XSEL may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission, 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 XSEL's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: our growth strategies; our future business development, results of operations and financial condition; our ability to attract and retain customers; competition in the Chinese advertising and media markets; changes in our revenues and certain cost or expense items as a percentage of our revenues; the outcome of ongoing, or any future, litigation or arbitration, including those relating to copyright and other intellectual property rights; the expected growth of the Chinese advertising and media market and Chinese governmental policies relating to advertising and media. Further information regarding these and other risks is included in our annual report on Form 20-F and other documents filed with the Securities and Exchange Commission. XSEL does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

Non-GAAP Financial Measures

To supplement XSEL's consolidated financial results under U.S. GAAP, XSEL also provides the following non-GAAP financial measures: "adjusted gross profit" defined as gross profit excluding amortization of intangible assets from acquisitions; "adjusted EBITDA" defined as net income (loss) attributable to XSEL before one time items, other income (expense), taxes, depreciation, amortization of intangible assets from acquisitions, net income (loss) attributable to non-controlling interests and share-based compensation expenses; and "adjusted net income" defined as net income (loss) attributable to XSEL before one-time items, amortization of intangible assets from acquisitions, share-based compensation expenses and imputed interest. XSEL believes that these non-GAAP financial measures provide investors with another method for assessing XSEL's underlying operational and financial performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial results under U.S. GAAP. For more information on these non-GAAP financial measures, please refer to Chart 8 (Reconciliation of non-GAAP financial results) of this release.

XSEL believes these non-GAAP financial measures are useful to management and investors in assessing the performance of the Company and assist management in its financial and operational decision making. A limitation of using non-GAAP measures which exclude share-based compensation expenses is that share-based compensation expenses have been and will continue to be a significant recurring expense in our business. A limitation of using non-GAAP adjusted gross profit, adjusted EBITDA and adjusted net income is that they do not include all items that impact our net income for the period. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from each non-GAAP measure. The accompanying tables provide additional details on the reconciliation between GAAP financial measures that are most directly comparable to non-GAAP financial measures.

The following is a reconciliation of our non-GAAP financial results: Chart 8: Reconciliation of non-GAAP financial results 3 months 3 months 3 months ended ended ended Sep 30, Sep 30, Jun 30, In US millions 2009 2008 2009 Net loss attributable to XSEL (10.6) (15.9) (2.1) One-time items(1) 1.1 0.6 -- Amortization of intangible assets from acquisitions 2.2 3.4 2.2 Share-based compensation expenses 0.4 1.3 0.6 Depreciation 0.5 0.8 0.6 Other expenses 11.3 18.6 4.0 Provision for income taxes 0.1 0.5 0.3 Net (loss) income attributable to non-controlling interests (0.4) 0.2 0.1 Adjusted EBITDA 4.6 9.5 5.7 Net loss attributable to XSEL (10.6) (15.9) (2.1) One-time items(1) 8.5 17.0 (1.2) Amortization of intangible assets from acquisitions 2.2 3.4 2.2 Share-based compensation expenses 0.4 1.3 0.6 Imputed interest(2) 2.9 1.6 3.4 Adjusted net income 3.4 7.4 2.9 (1) One-time items are those that we believe are not indicative of future performance. The one-time items of $1.1 million added back to adjusted EBITDA for the third quarter of 2009 mainly represent certain one-time legal and professional fees. The one-time items of $8.5 million added back to adjusted net income for the third quarter of 2009 mainly represent a non-cash fair value charge of $7.6 million on the conversion feature of the convertible loan (please refer to Note (9) to financial information for details). Due to the adoption of EITF 07-5 in 2009, we are required to remeasure the fair value of the conversion feature of the loan every quarter. Given the increase in share price between the second and third quarters of 2009, the conversion feature of the loan was remeasured at $3.1 million in the second quarter of 2009 and $10.7 million in the third quarter of 2009. As a result, we recorded a non-cash fair value charge of $7.6 million in the third quarter of 2009. The fair value of the conversion feature may have a recurring impact in subsequent periods. (2) Imputed interest for the third quarter of 2009 is related to intangible assets from long-term contracts and the convertible loan. Net income (loss) and adjusted net income per ADS are shown in Chart 9: Chart 9: Net income (loss) and adjusted net income per ADS(1) 3 months 3 months 3 months ended ended ended Sep 30, Sep 30, Jun 30, In US dollars 2009 2008 2009 Net income (loss) per ADS - basic from continuing operations $(0.14) $(0.24) $(0.04) Net income (loss) per ADS - basic from discontinued operations $0.00 $0.00 $0.00 Net income (loss) per ADS - basic $(0.14) $(0.24) $(0.04) Net income (loss) per ADS - diluted from continuing operations $(0.14) $(0.24) $(0.04) Net income (loss) per ADS - diluted from discontinued operations $0.00 $0.00 $0.00 Net income (loss) per ADS - diluted $(0.14) $(0.24) $(0.04) 77.6 68.2 76.0 Weighted average number of ADS - basic million million million 77.6 68.2 76.0 Weighted average number of ADS - diluted million million million Adjusted net income per ADS - basic from continuing operations $0.04 $0.10 $0.03 Adjusted net income per ADS - basic from discontinued operations $0.00 $0.00 $0.00 Adjusted net income per ADS - basic $0.04 $0.10 $0.03 Adjusted net income per ADS - diluted from continuing operations $0.04 $0.10 $0.03 Adjusted net income per ADS - diluted from discontinued operations $0.00 $0.00 $0.00 Adjusted net income per ADS - diluted $0.04 $0.10 $0.03 77.6 68.2 76.0 Weighted average number of ADS - basic million million million 77.8 71.8 76.0 Weighted average number of ADS - diluted million million million (1) For computation of the net income (loss) per ADS and adjusted net income per ADS, the amount attributable to holders of common shares should be used. Accordingly, dividends on Series B redeemable convertible preference shares of $0.6 million were taken into account for the second and third quarter of 2009, and the third quarter of 2008. Condensed Consolidated Balance Sheet (In U.S. dollars) Sep 30, 2009 Dec 31, 2008 Unaudited As adjusted (Note 1) (Note 1) Assets Current assets: Cash and cash equivalents 14,002,591 54,088,842 Short term deposit -- 2,940,051 Restricted cash (Note 2) 35,680,000 37,510,000 Accounts receivable, net of allowance for doubtful debts (Note 3) 40,970,893 44,762,902 Prepaid program expenses 3,472,816 2,324,253 Consideration receivable from disposal of subsidiaries (Note 4) 45,640,000 36,970,590 Other current assets 28,908,548 14,902,170 Assets held for sale (Note 5) 8,191,672 -- Total current assets 176,866,520 193,498,808 Content production cost, net 18,507,436 -- Property and equipment, net 5,765,973 6,590,790 Intangible assets, net (Note 6) 280,091,343 200,528,583 Goodwill 92,142,169 46,992,724 Investment 13,508,239 13,508,239 Deposits for investments (Note 7) 15,161,676 14,174,566 Consideration receivable from disposal of subsidiaries (Note 4) 26,756,293 28,285,035 Other long-term assets 8,912,919 4,671,591 Total assets 637,712,568 508,250,336 Liabilities, mezzanine equity and total equity Current liabilities: Bank borrowings (Note 8) 40,884,849 36,374,198 Other current liabilities 100,982,675 69,900,342 Liabilities held for sale (Note 5) 1,246,447 -- Total current liabilities 143,113,971 106,274,540 Deferred tax liabilities 35,380,746 31,679,491 Convertible loan (Note 9) 64,971,085 33,200,000 Long-term liabilities, non-current portion 127,211,464 68,305,496 Total liabilities 370,677,266 239,459,527 Mezzanine equity: Series B redeemable convertible preferred shares 32,485,591 30,605,591 XSEL shareholders' equity: Class A common shares 122,024 104,302 Additional paid-in capital 495,857,809 481,318,345 Accumulated deficits (270,753,657) (252,968,439) Accumulated other comprehensive income 6,428,006 7,165,833 Total 231,654,182 235,620,041 Non-controlling interests 2,895,529 2,565,177 Total equity 234,549,711 238,185,218 Total liabilities, mezzanine equity and total equity 637,712,568 508,250,336 Condensed Consolidated Statement of Operations 3 months 3 months 3 months 9 months ended ended ended ended (In U.S. Dollars) Sep 30, 2009 Sep 30, 2008 Jun 30, 2009 Sep 30, 2009 Unaudited Unaudited Unaudited Unaudited As adjusted (Note 1) (Note 1) (Note 1) (Note 1) Net revenues: Advertising services 22,328,133 25,996,728 21,166,243 57,737,317 Content production 117,123 7,807,840 207,980 1,203,316 Advertising sales 16,989,967 15,696,762 17,300,285 43,545,017 Publishing services 115,137 61,757 133,522 347,771 Total net revenues 39,550,360 49,563,087 38,808,030 102,833,421 Cost of revenues: Advertising services 16,915,624 18,698,951 15,261,154 42,202,851 Content production 174,292 4,192,846 249,872 756,337 Advertising sales 13,184,356 8,457,096 13,204,429 31,902,114 Publishing services 82,740 334,708 221,450 506,785 Total cost of revenues 30,357,012 31,683,601 28,936,905 75,368,087 Operating expenses: Selling and distribution 3,908,095 3,533,088 3,538,980 10,719,637 General and administrative (Note 3) 6,459,019 11,575,614 5,609,771 19,482,856 Total operating expenses 10,367,114 15,108,702 9,148,751 30,202,493 Other operating income 1,436,564 520,057 1,515,604 3,364,316 Operating income from continuing operations 262,798 3,290,841 2,237,978 627,157 Other expenses (Note 10) 11,342,931 18,571,876 3,984,469 16,516,181 Loss from continuing operations before provision for income taxes (11,080,133) (15,281,035) (1,746,491) (15,889,024) Provision for income taxes 147,956 518,027 298,022 829,639 Net loss from continuing operations (11,228,089) (15,799,062) (2,044,513) (16,718,663) Discontinued operations (Note 5): Income from discontinued operations 285,994 195,906 58,566 376,287 Provision for income taxes 57,236 53,797 28,961 108,421 Discontinued operations, net of taxes 228,758 142,109 29,605 267,866 Net loss (10,999,331) (15,656,953) (2,014,908) (16,450,797) Net (loss) income attributable to non-controlling interests (418,687) 217,192 135,029 (585,579) Net loss attributable to XSEL (10,580,644) (15,874,145) (2,149,937) (15,865,218) Dividend declared on Series B redeemable convertible preferred shares 640,000 600,000 640,000 1,920,000 Net loss attributable to holders of common shares (11,220,644) (16,474,145) (2,789,937) (17,785,218) Net income (loss) per share: Basic and diluted from continuing operations - Common shares (0.07) (0.12) (0.02) (0.12) Basic and diluted from discontinued operations - Common shares 0.00 0.00 0.00 0.00 Basic and diluted - Common shares (0.07) (0.12) (0.02) (0.12) Basic and diluted from continuing operations - American Depositary Shares (0.14) (0.24) (0.04) (0.23) Basic and diluted from discontinued operations - American Depositary Shares 0.00 0.00 0.00 0.00 Basic and diluted - American Depositary Shares (0.14) (0.24) (0.04) (0.23) Condensed Consolidated Statement of Cash Flow 3 months 3 months 3 months 9 months ended ended ended ended (In U.S. Dollars) Sep 30, 2009 Sep 30, 2008 Jun 30, 2009 Sep 30, 2009 Unaudited Unaudited Unaudited Unaudited Net cash (used in) provided by operating activities (450,019) 3,196,632 625,814 2,275,276 Net cash (used in) provided by investing activities (5,515,755) 4,983,018 (8,431,705) (28,025,014) Net cash used in financing activities (12,339,519) (20,074,854)(20,089,469) (12,412,944) Effect of exchange rate changes (3,529) 156,411 42,705 (24,925) Net decrease in cash and cash equivalents (18,308,822) (11,738,793)(27,852,655) (38,187,607) Cash and cash equivalents, as at beginning of the period 32,329,314 57,073,797 59,274,949 54,088,842 Less: Cash and cash equivalents at end of period from discontinued operations (17,901) -- 907,020 (1,898,644) Cash and cash equivalents, as at end of the period 14,002,591 45,335,004 32,329,314 14,002,591 Notes to Financial Information 1) Condensed consolidated financial information

Effective from January 1, 2009, the Company adopted Statement of Financial Accounting Standards No. 160, "Non-controlling Interest in Consolidated Financial Statements - An amendment of Accounting Research Bulletin No. 51" ("SFAS No. 160"), which changed the accounting for and the reporting of minority interest, now referred to as non-controlling interests, in our condensed consolidated financial information. The adoption of SFAS No. 160 resulted in the reclassification of amounts previously attributable to minority interest to a separate component of shareholders' equity titled "Non-controlling Interests" in the accompanying condensed consolidated balance sheet. Additionally, net loss attributable to non-controlling interests was shown separately from net loss in the accompanying condensed consolidated statement of operations. Prior period financial information has been reclassified to conform to the current period presentation as required by SFAS No. 160. In addition, due to the sale of Hyperlink, the Company's research services business, in October 2009, the historical operating results were reported as "discontinued operations" for all periods presented in the accompanying condensed consolidated statement of operations.

2) Restricted cash

Restricted cash was US dollar cash deposits pledged for the RMB loan facilities granted by banks for RMB working capital purposes.

3) Accounts receivable, net of allowance for doubtful debts and debtors turnover

Debtors turnover for the second quarter and third quarter of 2009 were 81 days and 89 days respectively. Our business groups generally grant 90 days to 180 days as the average credit period to major customers, which is in line with the industry practices in the PRC. The Company recorded a recovery of doubtful debts of $3.0 million in general and administrative expenses in 2009 and accordingly wrote back the allowance for doubtful debts previously provided in prior periods.

4) Consideration receivable from disposal of subsidiaries

On September 30, 2009, the Company recorded current and non-current consideration receivable from disposal of subsidiaries of $45.6 million and $26.8 million respectively. This represented the consideration receivable for the disposal of our 85% shareholding of Convey in December 2008.

5) Assets and liabilities held for sale and discontinued operations

On September 30, 2009, the Company recorded assets and liabilities held for sale of $8.2 million and $1.2 million respectively. Due to the sale of Hyperlink, the Company's research services business, in October 2009, the results of operations were separately reported as "discontinued operations" and its assets and liabilities have been reclassified as "assets and liabilities held for sale". Such sale was completed on October 20, 2009.

6) Intangible assets

The carrying value of intangible assets on September 30, 2009 was $280.1 million. This mainly represented the carrying value of the long-term advertising agreements for the Broadcast and Print groups. The carrying value of the intangible assets were composed of a $183.2 million advertising license agreement for our TV business, a $73.2 million exclusive advertising agreement for our newspaper business and $23.7 million of other intangible assets.

7) Deposits for investments

The Company has paid a deposit of $10 million and an advance of $5.2 million to provide advertising services to the pay channels in the PRC. These amounts are refundable unless certain closing conditions are met. On September 30, 2009, there were uncertainties as to whether these closing conditions can be met.

8) Bank borrowings

In October 2007, the Company purchased from UBS Financial Services, Inc. a $25.0 million principal protected note issued by Lehman Brothers Holdings Inc., which matured in January 2009. In August 2008, the Company borrowed $14.0 million from UBS AG using the Principal Protected Note as collateral. On September 15, 2008, Lehman Brothers filed for bankruptcy, and, after the Company refused to post additional collateral for the loan, on September 25, 2008, UBS AG filed a demand for arbitration with the American Arbitration Association against the Company seeking repayment of the bank borrowings. On October 28, 2008, the Company filed its defense to the demand as well as a cross claim against UBS Financial Services, Inc. for an amount in excess of $25.0 million. On October 1, 2009, the Company settled this dispute with UBS Financial Services and UBS AG without further financial impact.

9) Convertible loan

The Company entered into a secured convertible loan facility for up to $80.0 million from Patriarch Partners LLC, a global investment firm based in New York and currently one of our major shareholders. As of September 30, 2009, the Company had drawn $57.8 million through this loan facility (the "convertible loan"). In 2009, the Company was required to adopt EITF Issue 07-5, "Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock" ("EITF 07-5") which applies to any freestanding financial instrument or embedded feature that has all the characteristics of a derivative for purposes of determining whether that instrument or embedded feature is indexed to an entity's own stock. EITF 07-5 states that an entity shall evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock using the two-step approach of 1) Evaluating the instrument's contingent exercise provisions, if any; and 2) Evaluating the instrument's settlement provisions. After the adoption of EITF 07-5, the conversion feature of the convertible loan was measured at fair value. The change in fair value was recorded in the other income (expenses) in the consolidated statements of operations. The Company recorded convertible loan of $65.0 million on September 30, 3009 and a non-cash fair value charge on convertible loan of $7.6 million for the third quarter of 2009.

10) Other expenses

Other income (expense) includes net interest income (expense) and net other income (expense). The Company recorded a non-cash fair value charge on convertible loan of $7.6 million in other expenses, in accordance with EITF 07-5, for the third quarter of 2009.

Xinhua Sports & Entertainment Limited

CONTACT: Media Contact: Joy Tsang, XSEL, [phone], or
[phone] (mobile), [e-mail]; IR Contact: Edward Liu, XSEL,
[phone], [e-mail], or Howard Gostfrand American Capital
Ventures, [phone], or toll free [phone],
[e-mail]

Web site: http://www.xsel.com/en/investor-relations/webcast