The9 Limited Reports First and Second Quarter 2011 Unaudited Financial Results

SHANGHAI, Aug. 16, 2011 /PRNewswire-Asia/ -- The9 Limited (NASDAQ: NCTY) ("The9"), an online game developer and operator in China, announced its unaudited financial results for the quarters ended March 31 and June 30, 2011 today.

Financial Highlights:

First Quarter 2011

• Net revenues for the first quarter of 2011 decreased by 10% from the fourth quarter of 2010, and increased by 17% from the first quarter of 2010 to RMB25.8 million (US$4.0 million).

• Net loss available to ordinary shareholders for the first quarter of 2011 decreased by 82% from the fourth quarter of 2010 and decreased by 31% from the first quarter of 2010 to RMB52.6 million (US$8.1 million).

Second Quarter 2011

• Net revenues for the second quarter of 2011 decreased by 1% from the first quarter of 2011, and increased by 1% from the second quarter of 2010 to RMB25.5 million (US$3.9 million).

• Net loss available to ordinary shareholders for the second quarter of 2011 decreased by 77% from the first quarter of 2011 and decreased by 82% from the second quarter of 2010 to RMB12.0 million (US$1.9 million).

Management Comments:

Commenting on the results of the first half of 2011, Jun Zhu, Chairman and Chief Executive Officer of The9 said, "With one year dedicated effort to implement our global strategy, we are very pleased to report that we have made good progress in diversifying our business into multiple fields in the online gaming industry. Our new game titles, Shen Xian Zhuan and Firefall are expected to launch in the third and fourth quarter this year respectively. Our web games and social games have shown high growth potential. The9 Game Zone was officially launched in the second quarter which will enhance our core competitiveness in mobile gaming field. With our new business structure as well as our gaming platform and contents, we believe The9 is now entering into a new phase of development and the coming year will be a fruitful one despite many challenges we may have."

Discussion of The9's Unaudited First and Second Quarter 2011 Results

Revenues

For the first quarter of 2011, net revenues were RMB25.8 million (US$4.0 million), equaled to a decrease by 10% compared to RMB28.8 million (US$4.5 million) in the fourth quarter of 2010 and an increase by 17% compared to RMB22.1 million (US$3.4 million) in the first quarter of 2010. The decrease from the fourth quarter of 2010 was primarily due to the decrease in revenue from several old games, partly offset by the increase in revenue from social games and IPTV games. The increase from the first quarter of 2010 was mainly due to new revenue streams from the games recently launched.

For the second quarter of 2011, net revenues were RMB25.5 million (US$3.9 million), equaled to a decrease by 1% compared to RMB25.8 million (US$4.0 million) in the first quarter of 2011 and an increase by 1% compared to RMB25.4 million (US$3.9 million) in the second quarter of 2010. The changes were primarily due to increase in revenue generated from the web games and social games which were partly offset by the decrease in revenues from several old games.

Gross Profit (Loss)

Gross profit for the first quarter of 2011 was RMB27.7 million (US$4.3 million), equaled to an increase by 1,582% compared to gross profit of RMB1.6 million (US$0.3 million) in the fourth quarter of 2010 and an increase by 1,489% compared to gross profit of RMB1.7 million (US$0.3 million) in the first quarter of 2010. The significant increase in gross profit in the first quarter was mainly due to the one-off waiver of royalty payment in relation to a licensed game amounted to RMB16.1 million (US$2.5 million) recorded in the first quarter of 2011.

Gross profit for the second quarter of 2011 was RMB12.7 million (US$2.0 million), equaled to a decrease by 54% compared to gross profit of RMB27.7 million (US$4.3 million) in the first quarter of 2011 and improved from gross loss of RMB4.6 million (US$0.7 million) in the second quarter of 2010. The decrease from the first quarter of 2011 was mainly due to the aforementioned waiver of royalty payment in the first quarter. The improvement from the second quarter of 2010 was primarily due to the decrease in running royalty as a percentage of the total revenue because The9 had more in-house developed games in the revenue mix compared to last year.

Operating Expenses

For the first quarter of 2011, operating expenses were RMB92.1 million (US$14.3 million), equaled to a 22% decrease from RMB118.7 million (US$18.4 million) in the fourth quarter of 2010 and a 14% increase from RMB80.7 million (US$12.5 million) in the first quarter of 2010. The decrease from the fourth quarter of 2010 was the combined result of (i) no asset impairment being recorded in the first quarter while RMB38.0 million (US$5.9 million) impairment loss being recorded in the fourth quarter of 2010; (ii) decrease in marketing and exhibition expenses; (iii) increase in development costs including Red 5; and (iv) increase in share-based compensation and professional fees. The increase from the first quarter of 2010 was mainly due to the increase in share-based compensation and development costs including Red 5.

In the first quarter of 2011, share-based compensation was RMB16.4 million (US$2.5 million), equaled to an increase from RMB8.4 million (US$1.3 million) in the fourth quarter of 2010 and RMB11.9 million (US$1.8 million) in the first quarter of 2010.

For the second quarter of 2011, operating expenses were RMB103.6 million (US$16.0 million), equaled to a 12% increase from RMB92.1 million (US$14.3 million) in the first quarter of 2011 and a 38% increase from RMB75.0 million (US$11.6 million) in the second quarter of 2010. The increase from the first quarter of 2011 was primarily due to increased marketing expenses for Firefall and increased development costs due to the increase in headcount. The increase from the second quarter of 2010 was primarily due to the increase in marketing expenses for Firefall, increase in development costs due to increased headcount, and increase in share-based compensation.

In the second quarter of 2011, share-based compensation was RMB16.1 million (US$2.5 million), compared to RMB16.4 million (US$2.5 million) in the first quarter of 2011 and RMB7.7 million (US$1.2 million) in the second quarter of 2010.

Interest Income

Interest income for the first quarter of 2011 was RMB7.2 million (US$1.1 million), compared to RMB5.8 million (US$0.9 million) in the fourth quarter of 2010 and RMB6.4 million (US$1.0 million) in the first quarter of 2010. Interest income for the second quarter of 2011 was RMB7.5 million (US$1.2 million), compared to RMB7.2 million (US$1.1 million) in the first quarter of 2011 and RMB5.4 million (US$0.8 million) in the second quarter of 2010. The increase was due to increase in bank interest rate.

Other (Expenses) Income, net

Other expenses for the first quarter of 2011 was RMB0.9 million (US$0.1 million), compared to other income of RMB22.6 million (US$3.5 million) in the fourth quarter of 2010 and other expenses of RMB2.2 million (US$0.3 million) in the first quarter of 2010. Other expenses in the first quarters of 2011 and 2010 mainly represented exchange loss. Other income in the fourth quarter of 2010 mainly represented a government subsidy amounted to RMB23.0 million (US$3.6 million).

Other income for the second quarter of 2011 was RMB6.7 million (US$1.0 million), compared to other expenses of RMB0.9 million (US$0.1 million) in the first quarter of 2011 and other expenses of RMB1.0 million (US$0.2 million) in the second quarter of 2010. Other expenses in the first quarter of 2011 and second quarter of 2010 mainly represented exchange loss. Other income in the second quarter of 2011 mainly represented a one-off settlement fee income.

Gain on Investment Disposal

In the second quarter of 2011, the Group recognized a one-off gain on the investment disposal of RMB60.1 million (US$9.3 million). The gain on investment disposal represented the sale of our equity investment in Openfeint Inc.

Net (Loss) Income attributable to ordinary shareholders

For the first quarter of 2011, net loss attributable to ordinary shareholders was RMB52.6 million (US$8.1 million), equaled to a 82% decrease from the net loss attributable to ordinary shareholders of RMB289.5 million (US$44.8 million) in the fourth quarter of 2010 and a 31% decrease from the net loss attributable to ordinary shareholders of RMB75.8 million (US$11.7 million) in the first quarter of 2010.

Fully diluted loss per share and per ADS for the first quarter of 2011 was RMB2.09 (US$0.32), compared with RMB11.52 (US$1.78) in the fourth quarter of 2010 and RMB3.02 (US$0.47) in the first quarter of 2010.

For the second quarter of 2011, net loss attributable to ordinary shareholders was RMB12.0 million (US$1.9 million), equaled to a 77% decrease from the net loss attributable to ordinary shareholders of RMB52.6 million (US$8.1 million) in the first quarter of 2011 and decreased by 82% from the net loss attributable to ordinary shareholders of RMB65.8 million (US$10.2 million) in the second quarter of 2010.

Fully diluted loss per share and per ADS for the second quarter of 2011 was RMB0.48 (US$0.07), compared with RMB2.09 (US$0.32) in the first quarter of 2011 and RMB2.62 (US$0.41) in the second 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 Federal Reserve Bank of New York as of June 30, 2011, which was RMB6.4635 to US$1.00. The percentages stated in this press release are calculated based on the RMB amounts.

Conference Call / Webcast Information

The9's management team will host a conference call on Tuesday, August 16, 2011 at 9:00 PM, U.S. Eastern Time, corresponding to Wednesday, August 17, 2011 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 [phone], password "56104293". In the U.S., members of the financial community may also participate in the call by dialing toll-free number [phone], password "56104293". A replay of the call will be available through August 23, 2011. The dial-in details for the replay: U.S. toll free number [phone], International dial-in number [phone]; Password "80455695".

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 1Q & 2Q 2011 Earnings Conference Call" and follow the instructions.

About The9 Limited

The9 Limited is an online game operator and developer in China. The9 directly, or through affiliates, operates licensed MMORPGs including Soul of The Ultimate Nation', Atlantica and Kingdom Heroes 2 Online in mainland China. The9 has also obtained exclusive licenses to operate other online games in mainland China, including Seoyugi, Planetside 2 and Free Realms. In addition, The9 operates its proprietary MMORPG World of Fighter, web and social games Tiny Kingdoms and Winning Goal in mainland China and overseas. The9 is also developing various proprietary games, including ShenXianZhuan, Firefall and other MMORPGs, web and social games. In 2010, The9 established its Mobile Business Unit to focus on mobile internet business.

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: [phone]
Email: [e-mail]
Website: http://www.corp.the9.com/

- Tables follow -

THE9 LIMITED

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME INFORMATION

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

　

Quarter ended

　

　

March31, 2010

　

June30, 2010

　

December31, 2010

　

March31 2011

　

June30, 2011

　

March31, 2011

　

June30, 2011

　

　

RMB

　

RMB

　

RMB

　

RMB

　

RMB

　

US$

　

US$

　

　

Revenues:

　

Online game services

　

22,257,214

　

25,927,886

　

28,710,174

　

24,062,300

　

22,944,110

　

3,722,797

　

3,549,797

Other revenues

　

1,074,250

　

847,357

　

1,776,925

　

3,214,728

　

4,126,587

　

497,366

　

638,445

　

　

23,331,464

　

26,775,243

　

30,487,099

　

27,277,028

　

27,070,697

　

4,220,163

　

4,188,242

　

　

Sales Taxes

　

(1,214,374)

　

(1,407,912)

　

(1,719,965)

　

(1,495,740)

　

(1,546,057)

　

(231,413)

　

(239,198)

　

　

Net Revenues

　

22,117,090

　

25,367,331

　

28,767,134

　

25,781,288

　

25,524,640

　

3,988,750

　

3,949,044

　

　

Cost of Services

　

(20,374,564)

　

(29,944,864)

　

(27,120,332)

　

1,912,084

　

(12,862,044)

　

295,828

　

(1,989,950)

　

　

　

　

　

　

　

　

Gross Profit (loss)

　

1,742,526

　

(4,577,533)

　

1,646,802

　

27,693,372

　

12,662,596

　

4,284,578

　

1,959,094

　

　

Operating Expenses:

　

Product development

　

(27,965,714)

　

(39,089,303)

　

(34,971,378)

　

(39,433,294)

　

(47,026,273)

　

(6,100,920)

　

(7,275,667)

Sales and marketing

　

(18,293,758)

　

(11,486,818)

　

(17,456,542)

　

(10,426,370)

　

(14,918,667)

　

(1,613,115)

　

(2,308,141)

General and administrative

　

(34,417,006)

　

(24,434,288)

　

(28,295,880)

　

(42,250,309)

　

(41,614,830)

　

(6,536,754)

　

(6,438,436)

Impairment of equipment, intangible assets and goodwill

　

-

　

-

　

(37,949,452)

　

-

　

-

　

-

　

-

　

　

Total operating expenses:

　

(80,676,478)

　

(75,010,409)

　

(118,673,252)

　

(92,109,973)

　

(103,559,770)

　

(14,250,789)

　

(16,022,244)

　

　

Loss from operations

　

(78,933,952)

　

(79,587,942)

　

(117,026,450)

　

(64,416,601)

　

(90,897,174)

　

(9,966,211)

　

(14,063,150)

Interest income

　

6,420,997

　

5,381,655

　

5,812,347

　

7,230,594

　

7,459,877

　

1,118,681

　

1,154,154

Other (expenses) income , net

　

(2,186,512)

　

(1,036,375)

　

22,622,595

　

(912,117)

　

6,731,736

　

(141,118)

　

1,041,500

　

　

Loss before income tax expense, gain on investmentdisposal,impairmentlossoninvestment and share of loss in equity investments

　

(74,699,467)

　

(75,242,662)

　

(88,591,508)

　

(58,098,124)

　

(76,705,561)

　

(8,988,648)

　

(11,867,496)

Income tax expense

　

(186)

　

(3,074)

　

(7,406,910)

　

(165)

　

-

　

(26)

　

-

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

　

(74,699,653)

　

(75,245,736)

　

(95,998,418)

　

(58,098,289)

　

(76,705,561)

　

(8,988,674)

　

(11,867,496)

Gain on investment disposal

　

-

　

6,827,900

　

-

　

-

　

60,121,453

　

-

　

9,301,687

Impairment loss on investment

　

-

　

-

　

(196,115,321)

　

-

　

-

　

-

　

-

Share of loss in equity investments, net of taxes

　

(4,400,847)

　

(1,933,730)

　

(2,699,207)

　

(186,566)

　

(589,218)

　

(28,865)

　

(91,161)

　

　

Net loss

　

(79,100,500)

　

(70,351,566)

　

(294,812,946)

　

(58,284,855)

　

(17,173,326)

　

(9,017,539)

　

(2,656,970)

Less: Net loss attributable to non-controlling interests

　

(3,297,940)

　

(4,533,331)

　

(5,358,832)

　

(5,713,717)

　

(5,138,494)

　

(883,997)

　

(795,002)

　

　

Net loss attributable to holders of ordinary shares

　

(75,802,560)

　

(65,818,235)

　

(289,454,114)

　

(52,571,138)

　

(12,034,832)

　

(8,133,542)

　

(1,861,968)

　

　

Net loss attributable to holders of ordinary shares per share

　

- Basic and diluted

　

(3.02)

　

(2.62)

　

(11.52)

　

(2.09)

　

(0.48)

　

(0.32)

　

(0.07)

　

　

Weighted average number of shares outstanding

　

- Basic and diluted

　

25,121,645

　

25,121,645

　

25,121,781

　

25,124,726

　

25,131,874

　

25,124,726

　

25,131,874

　

　

Amount attributable to holders of ordinary shares

　

(75,802,560)

　

(65,818,235)

　

(289,454,114)

　

(52,571,138)

　

(12,034,832)

　

(8,133,542)

　

(1,861,968)

THE9 LIMITED
CONSOLIDATED BALANCE SHEETS INFORMATION
(Expressed in Renminbi - RMB and US Dollars - US$)
　		As at
　	　	December31, 2010	　	March31, 2011	　	June30, 2011	　	March31, 2011	　	June30, 2011
　	　	RMB	　	RMB	　	RMB	　	US$	　	US$
　	　	(unaudited)	　	(unaudited)	　	(unaudited)	　	(unaudited)	　	(unaudited)
　										　
Assets										　
Current Assets										　
Cash and cash equivalents	　	1,416,189,294	　	1,341,523,310	　	1,344,963,136	　	207,553,695	　	208,085,885
Accounts receivable	　	10,712,252	　	18,346,814	　	12,276,373	　	2,838,526	　	1,899,338
Advances to suppliers	　	52,054,494	　	45,421,364	　	50,932,811	　	7,027,366	　	7,880,067
Prepayments and other current assets	　	63,969,737	　	72,480,117	　	74,454,867	　	11,213,757	　	11,519,280
Prepaid royalties	　	15,615,493	　	15,459,166	　	16,011,151	　	2,391,764	　	2,477,164
Deferred costs	　	2,911,937	　	1,804,831	　	1,592,528	　	279,234	　	246,388
Total current assets	　	1,561,453,207	　	1,495,035,602	　	1,500,230,866	　	231,304,342	　	232,108,122
Investments in equity investees	　	74,843,710	　	74,662,484	　	63,237,554	　	11,551,402	　	9,783,794
Property, equipment and software	　	58,061,464	　	56,597,678	　	55,045,872	　	8,756,506	　	8,516,419
Goodwill	　	10,548,323	　	10,442,724	　	10,307,658	　	1,615,645	　	1,594,749
Intangible assets	　	17,647,842	　	17,064,109	　	19,910,591	　	2,640,073	　	3,080,466
Land use right	　	77,956,936	　	77,476,709	　	76,996,481	　	11,986,804	　	11,912,506
Other long-term assets	　	56,827,902	　	47,123,189	　	57,381,017	　	7,290,661	　	8,877,700
Total Assets	　	1,857,339,384	　	1,778,402,495	　	1,783,110,039	　	275,145,433	　	275,873,756
　								　		　
Liabilities and Shareholders' Equity										　
Current Liabilities										　
Accounts payable	　	46,948,658	　	17,873,088	　	13,809,413	　	2,765,234	　	2,136,522
Other taxes payable	　	5,437,764	　	4,352,392	　	4,297,771	　	673,380	　	664,929
Advances from customers	　	7,101,645	　	6,988,398	　	16,854,023	　	1,081,210	　	2,607,569
Deferred revenue, current	　	18,508,169	　	19,554,801	　	16,142,064	　	3,025,420	　	2,497,418
Refund of game points	　	195,993,716	　	195,992,701	　	195,991,686	　	30,322,999	　	30,322,841
Other payables and accruals	　	42,328,817	　	36,384,309	　	41,522,905	　	5,629,196	　	6,424,214
Total current liabilities	　	316,318,769	　	281,145,689	　	288,617,862	　	43,497,439	　	44,653,493
Deferred tax liabilities, non-current	　	5,803,848	　	5,745,746	　	5,671,431	　	888,953	　	877,455
Total Liabilities	　	322,122,617	　	286,891,435	　	294,289,293	　	44,386,392	　	45,530,948
　										　
Equity										　
Common shares (US$0.01 par value; 25,124,147 shares issued and outstanding as of December 31, 2010, 25,127,557 shares issued and outstanding as of March 31,2011, 25,120,032 shares issued and outstanding as of June 30, 2011)	　	2,051,878	　	2,052,101	　	2,051,324	　	317,491	　	317,370
Additional paid-in capital	　	2,091,113,883	　	2,102,925,514	　	2,118,643,876	　	325,353,990	　	327,785,855
Statutory reserves	　	28,071,982	　	28,071,982	　	28,071,982	　	4,343,155	　	4,343,155
Accumulated other comprehensive income	　	(2,096,698)	　	(2,650,706)	　	(3,741,967)	　	(410,104)	　	(578,938)
Retained deficit	　	(587,976,279)	　	(640,547,417)	　	(652,582,249)	　	(99,102,254)	　	(100,964,222)
Total The9 Limited shareholders' equity	　	1,531,164,766	　	1,489,851,474	　	1,492,442,966	　	230,502,278	　	230,903,220
Non-controlling interests	　	4,052,001	　	1,659,586	　	(3,622,220)	　	256,763	　	(560,412)
Total equity	　	1,535,216,767	　	1,491,511,060	　	1,488,820,746	　	230,759,041	　	230,342,808
Total liabilities and equity	　	1,857,339,384	　	1,778,402,495	　	1,783,110,039	　	275,145,433	　	275,873,756

SOURCE The9 Limited