The9 Limited Reports First and Second Quarter 2013 Unaudited Financial Results

SHANGHAI, Sept. 5, 2013 /PRNewswire-FirstCall/ -- The9 Limited (NASDAQ: NCTY) ("The9"), an online game developer and operator, announced its unaudited financial results for the first quarter ended March 31, 2013 and the second quarter ended June 30, 2013 today.

Financial Highlights:

  • Net revenues in the first quarter of 2013 amounted to RMB19.9 million (US$3.2 million), representing a 7% increase from RMB18.6 million (US$3.0 million) in the fourth quarter of 2012. Net revenues in the second quarter of 2013 amounted to RMB26.2 million (US$4.3 million), representing a 32% increase from RMB19.9 million (US$3.2 million) in the first quarter of 2013.
  • In the first quarter of 2013, net loss attributable to holders of ordinary shares was RMB114.1 million (US$18.6 million), representing a 2% decrease from a net loss of RMB115.9 million (US$18.9 million) in the fourth quarter of 2012. In the second quarter of 2013, net loss attributable to holders of ordinary shares was RMB167.8 million (US$27.3 million), representing a 47% increase from RMB114.1 million (US$18.6 million) in the first quarter of 2013, including an impairment loss on investments of RMB32.8 million (US$5.3 million) recorded in the second quarter of 2013.

Management Comments:

Jun Zhu, Chairman and Chief Executive Officer of The9 said, "Our net losses in the first and second quarters of 2013 in part reflected our ongoing investments related to the development and upcoming launch of our widely anticipated new games, Firefall and Qiji2. In the second half of 2013, we expect to commence the marketing campaign for Firefall in the U.S. and Europe. We also plan to launch Qiji2 in China in the second half of 2013. We have great expectation for these two games on which we have invested more than $100 million in the past three years."

Discussion of The9's Unaudited First and Second Quarter 2013 Results

Net Revenues

Our net revenues in the first quarter of 2013 amounted to RMB19.9 million (US$3.2 million), representing a 7% increase from RMB18.6 million (US$3.0 million) in the fourth quarter of 2012 and a 59% decrease from RMB48.6 million (US$7.9 million) in the first quarter of 2012. The increase from the previous quarter was primarily due to an increase in net revenues from Firefall close beta testing. The decrease from the first quarter of 2012 was primarily due to a decrease in net revenues from ShenXianZhuan.

Our net revenues in the second quarter of 2013 amounted to RMB26.2 million (US$4.3 million), representing a 32% increase from RMB19.9 million (US$3.2 million) in the first quarter of 2013 and a 52% decrease from RMB54.8 million (US$8.9 million) in the second quarter of 2012. The increase from the previous quarter was primarily due to an increase in net revenues from the games newly launched in the first quarter, including Firefall close beta testing, Planetside2 and ReXueWuShuang (a new web game). The decrease from the first quarter of 2012 was primarily due to a decrease in net revenues from ShenXianZhuan, partially offset by the net revenues from our newly launched games.

Gross Profit (Loss)

Our gross loss in the first quarter of 2013 amounted to RMB0.8 million (US$0.1 million), representing a 38% decrease from RMB1.3 million (US$0.2 million) in the fourth quarter of 2012. We recorded a gross profit of RMB32.8 million (US$5.3 million) in the first quarter of 2012. The decrease from the fourth quarter of 2012 was primarily due to the increase in net revenues from the games newly launched in the first quarter of 2013. We had a gross loss in the first quarter of 2013 compared to a gross profit in the same quarter in 2012, primarily reflected a decrease in net revenues from ShenXianZhuan and an increase of amortization costs related to Firefall in the first quarter of 2013.

Our gross profit in the second quarter of 2013 amounted to RMB3.0 million (US$0.5 million), compared to gross loss of RMB0.8 million (US$0.1 million) in the first quarter of 2013. Such gross profit in the second quarter of 2013 represented a 92% decrease from a gross profit of RMB38.8 million (US$6.3 million) in the second quarter of 2012. The difference between the first two quarters in 2013 reflected the increase in net revenues from the newly launched games. The year-over-year decrease was primarily due to a decrease in net revenues from ShenXianZhuan and an increase of amortization costs related to Firefall.

Operating Expenses

In the first quarter of 2013, our operating expenses were RMB125.4 million (US$20.4 million), representing a 16% decrease from RMB148.9 million (US$24.3 million) in the fourth quarter of 2012 and a 19% decrease from RMB154.9 million (US$25.2 million) in the first quarter of 2012. The decrease from the fourth quarter of 2012 was primarily due to a decrease in marketing expenses related to Firefall and Planetside 2, as well as a decrease in product development expenses related to Firefall, Qiji2 and mobile games. The decrease from the first quarter of 2012 was primarily due to a decrease in marketing expenses related to ShenXianZhuan, as well as a decrease in product development expenses as a result of our disposal of certain research and development entities in the third quarter of 2012. In the first quarter of 2013, our share-based compensation was RMB7.9 million (US$1.3 million), compared to RMB8.2 million (US$1.3 million) in the fourth quarter of 2012 and RMB9.0 million (US$1.5 million) in the first quarter of 2012.

In the second quarter of 2013, our operating expenses were RMB149.4 million (US$24.3 million), representing a 19% increase from RMB125.4 million (US$20.4 million) in the first quarter of 2013 and a 12% decrease from RMB168.8 million (US$27.5 million) in the second quarter of 2012. The increase from the first quarter of 2013 was primarily due to an increase in marketing expenses related to Planetside 2, an increase in product development expenses related to Firefall, Qiji2 and web games, and an increase in share-based compensation. The decrease from the second quarter of 2012 was primarily due to a decrease in marketing expenses related to ShenXianZhuan, as well as a decrease in product development expenses as a result of our disposal of certain research and development entities in the third quarter of 2012. In the second quarter of 2013, our share-based compensation was RMB11.8 million (US$1.9 million), compared to RMB7.9 million (US$1.3 million) in the first quarter of 2013 and RMB8.9 million (US$1.5 million) in the second quarter of 2012.

Interest Income

Our interest income in the first quarter of 2013 was RMB3.6 million (US$0.6 million), compared to RMB3.6 million (US$0.6 million) in the fourth quarter of 2012 and RMB6.8 million (US$1.1 million) in the first quarter of 2012. The decrease from the first quarter of 2012 was primarily due to a decrease in our cash balance.

Our interest income in the second quarter of 2013 was RMB2.2 million (US$0.4 million), compared to RMB3.6 million (US$0.6 million) in the first quarter of 2013 and RMB6.5 million (US$1.1 million) in the second quarter of 2012. Such decreases were primarily due to decreases in our cash balance.

Impairment Loss on Investments

In the second quarter of 2013, we recognized an impairment loss of RMB32.8 million (US$5.3 million) in relation to our investments in several early–stage mobile game and application development companies in the U.S and China.

Net Loss Attributable to Holders of Ordinary Shares

As a result of the foregoing, in the first quarter of 2013, our net loss attributable to holders of ordinary shares was RMB114.1 million (US$18.6 million), representing a 2% decrease from RMB115.9 million (US$18.9 million) in the fourth quarter of 2012 and a 3% increase from RMB111.4 million (US$18.1 million) in the first quarter of 2012. Our fully diluted loss per share and per ADS in the first quarter of 2013 was RMB4.79 (US$0.78), compared to RMB4.73 (US$0.77) in the fourth quarter of 2012 and RMB4.55 (US$0.74) in the first quarter of 2012.

In the second quarter of 2013, our net loss attributable to holders of ordinary shares was RMB167.8 million (US$27.3 million), representing a 47% increase from RMB114.1 million (US$18.6 million) in the first quarter of 2013 and a 42% increase from RMB118.0 million (US$19.2 million) in the second quarter of 2012. Our fully diluted loss per share and per ADS in the second quarter of 2013 was RMB7.34 (US$1.20), compared to RMB4.79 (US$0.78) in the first quarter of 2013 and RMB4.82 (US$0.79) in the second quarter of 2012.

Convenience Currency Translation

The translation of Renminbi (RMB) into US dollars (US$) in this press release is presented solely for the convenience of readers. The translation was made based on the noon buying rate for U.S. dollars in the City of New York for cable transfers in Renminbi as certified for customs purposes by the H.10 weekly statistical release of the Federal Reserve Board as of June 30, 2013, which was RMB 6.1374 to US$1.00. Such translations should not be construed as any representation that the related RMB amounts represent, have been or could be converted into U.S. dollars at that or any other exchange rate. 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 Thursday, September 5, 2013 at 9:00 PM, U.S. Eastern Time, corresponding to Friday, September 6, 2013 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:

US 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

International Toll:

+65-6723-9381   



Passcode:

32285426

A digital recording of the conference will be available for replay from 12:00 AM ET on September 6, 2013 for 7 days.

The dial-in details for the replay are:

U.S. Toll Free:

+1-855-452-5696

International Toll:

+1-646-254-3697



Passcode:

32285426

The9 will also provide a live webcast of the earnings call. Participants in the webcast may 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 2013 Earnings Conference Call" and follow the instructions.

About The9

The9 Limited is an online game developer and operator. The9 develops and operates, directly or through its affiliates, its proprietary MMO games including Firefall and Qiji2. The9 also develops and operates web games and social games including ReXueWuShuang and Winning Dunk. The9 has also obtained exclusive licenses to operate other MMO games in mainland China such as Planetside 2. In 2010, The9 established its Mobile Internet 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: +86 (21) 5172-9990
Email: IR@corp.the9.com
Website: http://www.corp.the9.com/

- Tables follow -

THE9 LIMITED

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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


 Quarter ended 



March 31,

2012


June 30,

2012


December 31,

2012


March 31,

2013


June 30,

2013


March 31,

2013


June 30, 

2013



RMB


RMB


RMB


RMB


RMB


US$


US$
















Revenues: 















   Online game services 


51,591,154


57,422,981


15,480,802


18,853,262


23,862,119


3,071,865


3,887,985

   Other revenues 


527,388


716,506


3,813,959


1,530,828


2,895,626


249,426


471,800



52,118,542


58,139,487


19,294,761


20,384,090


26,757,745


3,321,291


4,359,785
















Sales Taxes 


(3,510,585)


(3,343,719)


(706,456)


(492,703)


(583,489)


(80,279)


(95,071)
















Net Revenues 


48,607,957


54,795,768


18,588,305


19,891,387


26,174,256


3,241,012


4,264,714
















Cost of Services 


(15,817,867)


(16,045,323)


(19,921,262)


(20,720,433)


(23,169,282)


(3,376,093)


(3,775,097)
















Gross Profit (loss) 


32,790,090


38,750,445


(1,332,957)


(829,046)


3,004,974


(135,081)


489,617
















Operating Expenses: 















   Product development 


(69,261,659)


(78,253,825)


(68,702,039)


(53,510,806)


(59,174,437)


(8,718,806)


(9,641,614)

   Sales and marketing 


(48,703,335)


(44,795,100)


(41,084,956)


(29,319,993)


(37,689,001)


(4,777,266)


(6,140,875)

   General and administrative


(36,952,477)


(45,156,943)


(39,068,639)


(42,530,459)


(52,504,655)


(6,929,719)


(8,554,869)

   Impairment of equipment and intangible assets 


-


(569,139)


-


-


-


-


-







-









Total operating expenses 


(154,917,471)


(168,775,007)


(148,855,634)


(125,361,258)


(149,368,093)


(20,425,791)


(24,337,358)

Other operating Income 


30,000


30,000


30,000


30,000


34,628


4,888


5,642

Loss from operations 


(122,097,381)


(129,994,562)


(150,158,591)


(126,160,304)


(146,328,491)


(20,555,984)


(23,842,099)

Interest income, net 


6,771,491


6,517,258


3,548,297


3,561,357


2,209,606


580,271


360,023

Other (expenses) income, net 


875,783


1,621,895


2,258,930


144,567


2,171,902


23,555


353,880
















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


(114,450,107)


(121,855,409)


(144,351,364)


(122,454,380)


(141,946,983)


(19,952,158)


(23,128,196)

Gain on investment disposal 


-


-


15,725,792


-


-


-


-

Impairment loss on investments 


-


-


-


-


(32,789,319)


-


(5,342,542)

Share of loss in equity investments 


(1,856,783)


(2,521,100)


(31,544)


(920,541)


(1,043,738)


(149,989)


(170,062)
















Net loss 


(116,306,890)


(124,376,509)


(128,657,116)


(123,374,921)


(175,780,040)


(20,102,147)


(28,640,800)

Less: Net loss attributable to noncontrolling 

interest 


(4,953,916)


(6,356,698)


(12,766,951)


(9,280,345)


(7,973,642)


(1,512,097)


(1,299,189)
















Net loss attributable to 
  
holders of ordinary shares 


(111,352,974)


(118,019,811)


(115,890,165)


(114,094,576)


(167,806,398)


(18,590,050)


(27,341,611)
















Net loss 


(116,306,890)


(124,376,509)


(128,657,116)


(123,374,921)


(175,780,040)


(20,102,147)


(28,640,800)

Other Comprehensive loss: 















   Unrealized loss on available-for-sale investments 


-


-


(56,600)


(16,600)


-


(2,705)


-

   Currency translation adjustments 


(41,316)


(111,701)


(1,830,684)


121,010


(1,727,211)


19,717


(281,424)

Comprehensive loss 


(116,348,206)


(124,488,210)


(130,544,400)


(123,270,511)


(177,507,251)


(20,085,135)


(28,922,224)

Less: Comprehensive loss attributable to
   noncontrolling interest 


(4,953,109)


(6,374,414)


(12,621,017)


(9,196,148)


(7,356,438)


(1,498,378)


(1,198,625)

Comprehensive loss attributable to holders of
  ordinary shares 


(111,395,097)


(118,113,796)


(117,923,383)


(114,074,363)


(170,150,813)


(18,586,757)


(27,723,599)
















Net loss attributable to holders of ordinary
  shares per share 















   - Basic and diluted 


(4.55)


(4.82)


(4.73)


(4.79)


(7.34)


(0.78)


(1.20)
















 Weighted average number of shares outstanding 















   - Basic and diluted 


24,459,891


24,474,211


24,518,298


23,838,496


22,850,083


23,838,496


22,850,083


 

THE9 LIMITED

UNAUDITED CONSOLIDATED BALANCE SHEETS INFORMATION

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



 As at 



December 31, 2012


March 31, 2013


June 30, 2013


March 31, 2013


June 30, 2013



RMB


RMB


RMB


US$


US$























Assets











Current Assets











   Cash and cash equivalents


554,278,809


432,629,134


321,210,487


70,490,621


52,336,574

   Short term investment


877,350


279,150


55,830


45,483


9,097

   Accounts receivable


15,621,678


19,437,139


19,990,552


3,166,999


3,257,169

   Due from related parties


-


-


163,863


-


26,699

   Advances to suppliers


2,094,525


3,079,581


6,364,475


501,773


1,036,999

   Prepayments and other current assets


76,022,204


49,836,458


55,009,071


8,120,125


8,962,927

   Prepaid royalties


14,820,331


14,781,163


12,051,430


2,408,375


1,963,605

   Deferred costs


900,961


834,692


2,493,128


136,001


406,219

Total current assets


664,615,858


520,877,317


417,338,836


84,869,377


67,999,289

Restricted cash


737,959


737,959


700,000


120,240


114,055

Investments in equity investees


76,017,792


80,245,745


52,674,765


13,074,876


8,582,586

Available-for-sale investments


6,285,500


6,268,900


-


1,021,426


-

Property, equipment and software


64,575,315


62,002,915


60,630,081


10,102,473


9,878,789

Goodwill


10,011,247


9,984,807


9,841,141


1,626,879


1,603,471

Intangible assets


155,049,811


149,080,004


143,147,821


24,290,417


23,323,854

Land use right


74,115,115


73,634,888


73,154,660


11,997,733


11,919,487

Other long-term assets


60,936,775


51,305,441


50,207,883


8,359,475


8,180,644

Total Assets


1,112,345,372


954,137,976


807,695,187


155,462,896


131,602,175












Liabilities and Shareholders' Equity











Current Liabilities











   Accounts payable


54,947,197


41,236,041


55,715,695


6,718,813


9,078,062

   Other taxes payable


4,148,647


2,681,563


4,369,145


436,922


711,889

   Advances from customers


17,878,053


19,502,390


17,813,636


3,177,631


2,902,473

   Deferred revenue


20,255,327


23,711,065


30,035,379


3,863,373


4,893,828

   Refund of game points


169,998,682


169,998,682


169,998,682


27,698,811


27,698,811

   Other payables and accruals


50,484,656


42,607,932


45,814,808


6,942,342


7,464,856

Total current liabilities


317,712,562


299,737,673


323,747,345


48,837,892


52,749,919

Long-term accounts payable


39,912,925


39,807,515


39,234,745


6,486,055


6,392,731

Deferred tax liabilities, non-current


5,508,341


5,493,793


5,414,746


895,134


882,254

Total Liabilities


363,133,828


345,038,981


368,396,836


56,219,081


60,024,904












Equity











   Common shares (US$0.01 par value; 24,484,634

shares issued and outstanding as of December 31, 2012,

23,080,797 shares issued and outstanding as of March

31, 2013, 22,830,431 shares issued and outstanding as

of June 30, 2013)


1,997,390


1,882,919


1,862,254


306,794


303,427

   Additional paid-in capital


2,148,416,134


2,131,822,657


2,139,927,380


347,349,473


348,670,020

   Statutory reserves


28,071,982


28,071,982


28,071,982


4,573,921


4,573,921

   Accumulated other comprehensive loss


(6,710,971)


(6,690,758)


(9,035,173)


(1,090,162)


(1,472,150)

   Accumulated deficit


(1,386,308,302)


(1,500,402,878)


(1,668,209,276)


(244,468,811)


(271,810,422)

The9 Limited shareholders' equity


785,466,233


654,683,922


492,617,167


106,671,215


80,264,796

Noncontrolling interests


(36,254,689)


(45,584,927)


(53,318,816)


(7,427,400)


(8,687,525)

Total equity


749,211,544


609,098,995


439,298,351


99,243,815


71,577,271

Total liabilities and equity


1,112,345,372


954,137,976


807,695,187


155,462,896


131,602,175


SOURCE The9 Limited



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