2014

The9 Limited Reports Third and Fourth Quarter 2013 Unaudited Financial Results

SHANGHAI, March 25, 2014 /PRNewswire-FirstCall/ -- The9 Limited (NASDAQ: NCTY) ("The9"), an online game developer and operator, announced its unaudited financial results for the third quarter ended September 30, 2013 and the fourth quarter ended December 31, 2013 today.

Financial Highlights:

  • Net revenues in the third quarter of 2013 amounted to RMB33.9 million (US$5.6 million), representing a 29.5% increase from RMB26.2 million (US$4.3 million) in the second quarter of 2013. Net revenues in the fourth quarter of 2013 amounted to RMB24.8 million (US$4.1 million), representing a 26.8% decrease from RMB33.9 million (US$5.6 million) in the third quarter of 2013
  • In the third quarter of 2013, net loss attributable to holders of ordinary shares was RMB121.5 million (US$20.1 million), representing a 27.6% decrease from a net loss of RMB167.8 million (US$27.7 million) in the second quarter of 2013. In the fourth quarter of 2013, net loss attributable to holders of ordinary shares was RMB122.9  million (US$20.3 million), representing a 1.1% increase from RMB121.5 million (US$20.1 million) in the third quarter of 2013.

Management Comments:

Jun Zhu, Chairman and Chief Executive Officer of The9 said, "We are very excited to introduce Fun Box to the China market. Fun Box is the home entertainment set top box developed by our joint venture ZTE9. Unlike the typical online video and music, Fun Box also enables video conferencing on TV. More importantly, with the gamepad and high-end built-in hardware, Fun Box provides excellent video game experience on TV. We are considering different plans to share the maximum business opportunities of Fun Box to The9 shareholders. For our existing online game business, with the signing of a $23 million investment deal from Shanghai Oriental Pearl (Group) Co., Ltd., Firefall has entered into the last stage of beta testing. We are planning a large-scale commercial launch of Firefall in 2014."

Discussion of The9's Unaudited Third and Fourth Quarter 2013 Results

Net Revenues

Our net revenues in the third quarter of 2013 amounted to RMB33.9 million (US$5.6 million), representing a 29.5% increase from RMB26.2 million (US$4.3 million) in the second quarter of 2013 and a 4.5% increase from RMB32.4 million (US$5.4 million) in the third quarter of 2012. The increase from the previous quarter was primarily due to an increase in net revenues from Planetside 2 and Firefall, which is in limited beta testing.  

Our net revenues in the fourth quarter of 2013 amounted to RMB24.8 million (US$4.1 million), representing an 26.8% decrease from RMB33.9 million (US$5.6 million) in the third quarter of 2013 and a 33.5% increase from RMB18.6 million (US$3.1 million) in the fourth quarter of 2012.  The decrease from the previous quarter was primarily due to a decrease in net revenues from several web games. The increase from the fourth quarter of 2012 was primarily due to an increase in net revenues from Planetside 2 and Firefall, which is in limited beta testing.

Gross Profit (Loss)

Our gross loss in the third quarter of 2013 amounted to RMB8.2 million (US$1.4 million), compared with a RMB3.0 million (US$0.5 million) gross profit in the second quarter of 2013 and a gross profit of RMB14.8 million (US$2.4 million) in the third quarter of 2012. The gross loss in the third quarter of 2013 was primarily due to the impairment of prepaid royalties and deferred cost of Planetside 2 as lower-than-expected revenues were generated.

Our gross profit in the fourth quarter of 2013 amounted to RMB3.0 million (US$0.5 million), compared to gross loss of RMB8.2 million (US$1.4 million) in the third quarter of 2013, and a gross loss of RMB1.3 million (US$0.2 million) in the fourth quarter of 2012. The gross profit in the fourth quarter of 2013 was primarily due to an increase in net revenues from Planetside 2 and Firefall which were sufficient to cover the cost of services.

Operating Expenses

In the third quarter of 2013, our operating expenses were RMB126.1 million (US$20.8 million), representing a 15.6% decrease from RMB149.4 million (US$24.7 million) in the second quarter of 2013 and a 38.5% decrease from RMB205.0 million (US$33.9 million) in the third quarter of 2012. The decrease from the second quarter of 2013 was primarily due to a decrease in general and administrative expense as a result of the decrease in share-based compensation. The decrease from the third quarter of 2012 was primarily due to a decrease in product development expenses as a result of our restructuring of investments in and termination of certain contractual arrangements with certain game development variable interest entities in the third quarter of 2012, a decrease in marketing expenses related to Firefall, as well as a decrease in general and administrative expense as a result of our cost cutting efforts. In the third quarter of 2013, our share-based compensation was RMB4.6 million (US$0.8 million), compared to RMB11.8 million (US$2.0 million) in the second quarter of 2013 and RMB11.4 million (US$1.9 million) in the third quarter of 2012.

In the fourth quarter of 2013, our operating expenses were RMB126.5 million (US$20.9 million), representing a 0.3% increase from RMB126.1 million (US$20.8 million) in the third quarter of 2013 and a 15.0% decrease from RMB148.9 million (US$24.6 million) in the fourth quarter of 2012. The increase from the third quarter of 2013 was primarily due to the increase in impairment loss on certain equipment, intangible assets and other long-lived assets and the increase in general and administration expenses, offset by the decrease in marketing expenses and product development expenses. The decrease from the fourth quarter of 2012 was primarily due to decrease in marketing expenses, product development expenses and general and administrative expenses, offset by the increase in impairment loss on certain equipment, intangible assets and other long-lived assets. In the fourth quarter of 2013, our share-based compensation was RMB4.9 million (US$0.8 million), compared to RMB4.6 million (US$0.8 million) in the third quarter of 2013 and RMB8.2 million (US$1.3 million) in the fourth quarter of 2012.

Impairment Loss on Investments

In the fourth quarter of 2013, we recognized an impairment loss of RMB15.2 million (US$2.5 million) in relation to our investment in an app development company based in Beijing.

Net Loss Attributable to Holders of Ordinary Shares

As a result of the foregoing, in the third quarter of 2013, our net loss attributable to holders of ordinary shares was RMB121.5 million (US$20.1 million), representing a 27.6% decrease from RMB167.8 million (US$27.7 million) in the second quarter of 2013 and a 28.0% decrease from RMB168.7 million (US$27.9 million) in the third quarter of 2012. Our fully diluted loss per share and per ADS in the third quarter of 2013 was RMB5.31 (US$0.88), compared to RMB7.34 (US$1.21) in the second quarter of 2013 and RMB6.88 (US$1.14) in the third quarter of 2012.

In the fourth quarter of 2013, our net loss attributable to holders of ordinary shares was RMB122.9 million (US$20.3 million), representing a 1.1% increase from RMB121.5 million (US$20.1 million) in the third quarter of 2013 and a 6.0% increase from RMB115.9 million (US$19.1 million) in the fourth quarter of 2012. Our fully diluted loss per share and per ADS in the fourth quarter of 2013 was RMB5.33 (US$0.88), compared to RMB5.31 (US$0.88) in the third quarter of 2013 and RMB4.73 (US$0.78) in the fourth 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 December 31, 2013, which was RMB 6.0537 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 Tuesday, March 25, 2014 at 9:00 PM, U.S. Eastern Time, corresponding to Wednesday, March 26, 2014 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: 11482832

A digital recording of the conference will be available for replay from 12:00am ET on March 26, 2014 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: 11482832

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 3Q & 4Q 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, web and mobile games including Firefall, QijiGuiLai, ReXue NBA and TianTianWenXiYou. In 2010, The9 established its Wireless Business Unit to focus on mobile internet business including mobile advertising platform Juzi and mobile reading platform KingReader. In 2013, The9 formed a joint venture with Shanghai ZTE to develop and operate home entertainment set top box 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 INCOME STATEMENTS INFORMATION











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



























 Quarter ended 



September 30, 2012


December 31,  2012


June 30,
2013


September 30, 2013


December 31,
2013


September 30, 2013


December 31,
2013



RMB


RMB


RMB


RMB


RMB


US$


US$
















 Revenues: 















   Online game services 


32,895,665


15,480,802


23,862,119


30,889,002


21,526,964


5,102,500


3,556,001

   Other revenues 


1,132,709


3,813,959


2,895,626


3,472,485


3,596,691


573,614


594,131



34,028,374


19,294,761


26,757,745


34,361,487


25,123,655


5,676,114


4,150,132
















 Sales Taxes 


(1,586,589)


(706,456)


(583,489)


(463,164)


(311,552)


(76,509)


(51,465)
















 Net Revenues 


32,441,785


18,588,305


26,174,256


33,898,323


24,812,103


5,599,605


4,098,667
















 Cost of Services 


(17,631,179)


(19,921,262)


(23,169,282)


(42,098,229)


(21,815,416)


(6,954,132)


(3,603,650)
















 Gross Profit (loss) 


14,810,606


(1,332,957)


3,004,974


(8,199,906)


2,996,687


(1,354,527)


495,017
















 Operating Expenses: 















   Product development 


(85,253,568)


(68,702,039)


(59,174,437)


(58,405,705)


(42,152,619)


(9,647,935)


(6,963,117)

   Sales and marketing 


(52,428,230)


(41,084,956)


(37,689,001)


(33,076,093)


(16,587,324)


(5,463,781)


(2,740,031)

   General and administrative 


(49,204,837)


(39,068,639)


(52,504,655)


(32,737,711)


(34,185,598)


(5,407,885)


(5,647,058)

   Impairment of equipment, intangible assets and
    other long-lived assets  


-


-


-


(1,899,803)


(33,566,319)


(313,825)


(5,544,761)

   Loss on temination of R&D VIE arrangements 


(18,093,999)


-




-


-


-


-
















 Total operating expenses 


(204,980,634)


(148,855,634)


(149,368,093)


(126,119,312)


(126,491,860)


(20,833,426)


(20,894,967)

 Other operating Income 


30,000


30,000


34,628


25,372


30,000


4,191


4,956

 Loss from operations 


(190,140,028)


(150,158,591)


(146,328,491)


(134,293,846)


(123,465,173)


(22,183,762)


(20,394,994)

 Impairment on available-for-sale investment 


-


-


(6,268,900)


-


-


-


-

 Interest income, net 


4,948,853


3,548,297


2,209,606


1,417,694


1,187,698


234,186


196,194

 Other (expenses) income , net 


(112,671)


2,258,930


2,171,902


2,882,008


4,103,088


476,074


677,782
















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


(185,303,846)


(144,351,364)


(148,215,883)


(129,994,144)


(118,174,387)


(21,473,502)


(19,521,018)

 Gain on investment disposal 


-


15,725,792


-


-


-


-


-

 Impairment loss on investments 


(3,243,744)


-


(26,520,419)


-


(15,181,566)


-


(2,507,816)

 Share of (loss) gain in equity investments 


(1,938,020)


(31,544)


(1,043,738)


(738,523)


326,976


(121,995)


54,012
















 Net loss 


(190,485,610)


(128,657,116)


(175,780,040)


(130,732,667)


(133,028,977)


(21,595,497)


(21,974,822)

 Less:Net loss attributable to noncontrolling
   interest 


(21,746,468)


(12,766,951)


(7,973,642)


(9,227,196)


(10,173,850)


(1,524,224)


(1,680,600)
















 Net loss attributable to
   holders of ordinary shares 


(168,739,142)


(115,890,165)


(167,806,398)


(121,505,471)


(122,855,127)


(20,071,273)


(20,294,222)
















 Net loss 


(190,485,610)


(128,657,116)


(175,780,040)


(130,732,667)


(133,028,977)


(21,595,497)


(21,974,822)

 Other Comprehensive loss: 















   Unrealized loss on available-for-sale investments 


-


(56,600)


-


-


-


-


-

   Currency translation adjustments 


1,003,992


(1,830,684)


(1,727,211)


(1,066,811)


1,984,049


(176,225)


327,742

 Comprehensive loss 


(189,481,618)


(130,544,400)


(177,507,251)


(131,799,478)


(131,044,928)


(21,771,722)


(21,647,080)

 Less: Comprehensive loss attributable to
   noncontrolling interest 


(22,168,887)


(12,621,017)


(7,356,438)


(8,915,850)


(9,616,090)


(1,472,793)


(1,588,465)

 Comprehensive loss attributable to holders of
   ordinary shares 


(167,312,731)


(117,923,383)


(170,150,813)


(122,883,628)


(121,428,838)


(20,298,929)


(20,058,615)
















 Net loss attributable to holders of ordinary
  shares per share 















   - Basic and diluted 


(6.88)


(4.73)


(7.34)


(5.31)


(5.33)


(0.88)


(0.88)
















 Weighted average number of shares outstanding 















   - Basic and diluted 


24,525,126


24,518,298


22,850,083


22,868,108


23,070,802


22,868,108


23,070,802
















THE9 LIMITED











UNAUDITED CONSOLIDATED BALANCE SHEETS INFORMATION











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













 As at 



December 31, 2012


September 30, 2013


December 31, 2013


September 30, 2013


December 31, 2013



RMB


RMB


RMB


US$


US$












Assets











Current Assets











  Cash and cash equivalents


554,278,809


232,559,793


156,987,201


38,416,141


25,932,438

  Short term investment


877,350


-


-


-


-

  Accounts receivable


15,621,678


21,047,544


19,138,096


3,476,807


3,161,388

  Due from related parties


-


1,295,652


-


214,026


-

  Advances to suppliers


2,094,525


3,141,358


4,525,549


518,915


747,567

  Prepayments and other current assets


76,022,204


47,701,618


32,464,598


7,879,746


5,362,770

  Prepaid royalties


14,820,331


-


4,878,579


-


805,884

  Deferred costs


900,961


82,910


68,217


13,696


11,269

Total current assets


664,615,858


305,828,875


218,062,240


50,519,331


36,021,316

Restricted cash


737,959


700,000


700,000


115,632


115,632

Investments in equity investees


76,017,792


51,936,241


50,848,141


8,579,256


8,399,515

Available-for-sale investments


6,285,500


-


-


-


-

Property, equipment and software


64,575,315


55,129,955


50,439,400


9,106,820


8,331,995

Goodwill


10,011,247


9,792,243


9,710,854


1,617,563


1,604,119

Intangible assets


155,049,811


137,514,269


128,643,824


22,715,739


21,250,446

Land use right


74,115,115


72,674,433


72,194,206


12,004,961


11,925,633

Other long-term assets


60,936,775


49,281,561


16,080,483


8,140,734


2,656,307

Total Assets


1,112,345,372


682,857,577


546,679,148


112,800,036


90,304,963












Liabilities and Shareholders' Equity











Current Liabilities











  Accounts payable


54,947,197


57,380,947


69,376,348


9,478,657


11,460,156

  Other taxes payable


4,148,647


4,411,293


1,238,852


728,694


204,644

  Advances from customers


17,878,053


17,903,380


18,896,049


2,957,428


3,121,405

  Amounts due to related parties                 


-


-


4,799,753


-


792,863

  Deferred revenue


20,255,327


29,656,153


20,113,256


4,898,847


3,322,473

  Refund of game points


169,998,682


169,998,682


169,998,682


28,081,782


28,081,782

  Other payables and accruals


50,484,656


46,950,013


45,669,488


7,755,590


7,544,062

Total current liabilities


317,712,562


326,300,468


330,092,428


53,900,998


54,527,385

Long-term accounts payable


39,912,925


39,039,800


21,110,517


6,448,916


3,487,209

Deferred tax liabilities, non-current


5,508,341


5,387,842


5,343,060


890,008


882,611

Total Liabilities


363,133,828


370,728,110


356,546,005


61,239,922


58,897,205












Equity











  Common shares (US$0.01 par value; 24,484,634
    shares issued and outstanding as of December 31, 2012,
    22,868,945 shares issued and outstanding as of
    September 30, 2013, 23,146,859 shares issued and
    outstanding as of December 31, 2013)


1,997,390


1,864,713


1,881,784


308,029


310,849

  Additional paid-in capital


2,148,416,134


2,144,997,970


2,152,320,786


354,328,422


355,538,065

  Statutory reserves


28,071,982


28,071,982


28,071,982


4,637,161


4,637,161

  Accumulated other comprehensive loss


(6,710,971)


(10,413,330)


(8,987,041)


(1,720,160)


(1,484,553)

  Accumulated deficit


(1,386,308,302)


(1,789,714,747)


(1,912,569,874)


(295,639,815)


(315,934,036)

The9 Limited shareholders' equity


785,466,233


374,806,588


260,717,637


61,913,637


43,067,486

Noncontrolling interests


(36,254,689)


(62,677,121)


(70,584,494)


(10,353,523)


(11,659,728)

Total equity


749,211,544


312,129,467


190,133,143


51,560,114


31,407,758

Total liabilities and equity


1,112,345,372


682,857,577


546,679,148


112,800,036


90,304,963












SOURCE The9 Limited



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