Subaye, Inc. Announces Second Quarter Fiscal Year 2010 Financial Results
GUANGZHOU CITY, China, May 18 /PRNewswire-Asia-FirstCall/ --
-- In May, 2010 Company announced divestiture of non-core trade services
and entertainment businesses to focus on growth of higher margin on-
line video advertising business
-- Q2 net income from continuing operations up 271.1% to $3.0 million,
with net income from continuing operations per share of $0.42
-- Six-month net income from continuing operations up 523.9% to $6.2
million, with net income from continuing operations per share of $1.02
-- Q2 gross margin of 75.6%, net margin from continuing operations of
40.1%; six-month gross margin of 77.4%, net margin from continuing
operations of 43.5%
-- $7.9 million in cash flow from continuing operations for first six
months
-- Company reaffirms previously stated guidance of $38.3 million in
revenue and net income from continuing operations of $12.5 million, or
$1.77 per common share, for fiscal year 2010
Subaye, Inc. (Nasdaq: SBAY) ("Subaye" or the "Company") announced its financial results for the second quarter of the fiscal year ending September 30, 2010. Summary financial data is provided below:
Second Quarter Six Months
Ended March 31, Ended March
2010 31, 2010
Net Income From Continuing
Operations Growth Rate 271.1% 523.9%
Gross Margin 75.6% 77.4%
Net Margin From Continuing
Operations 40.1% 43.5%
Three Months Ended March 31, 2010
Revenues
Revenues for the three months ended March 31, 2010 were $7.4 million as compared to $6.7 million for the three months ended March 31, 2009. The increase of $0.7 million, or 10.2%, was due to the increase in revenues from both the Video Showcase Product and the Cloud Computing Product. Video Showcase subscription revenues for the three months ended March 31, 2010 increased to $6.9 million, 8.7% over the same period a year ago. Cloud Computing Product revenues increased to $0.5 million for the three months ended March 31, 2010, 33.3% over the same period a year ago. The number of paying customers for the Company's Video Showcase subscription product increased 42.3% sequentially to 22,019 as of March 31, 2009 over the previous quarter. Most of the membership growth in the Company's Video Showcase segment occurred in March, 2010, with revenue recognized on a pro-rata daily basis, thus a significant portion of revenues resulting from this membership growth will not be recognized until the third quarter 2010.
"We are pleased with the performance of our core on-line video advertising business and plan to accelerate growth through both geographic expansion and continued enrichment of our existing on-line video advertising network," said Mr. Zhiguang Cai, Chief Executive Officer of Subaye, Inc. "As we announced in early May, we are exiting our trade services and entertainment businesses to focus on further development and growth of our higher margin, proprietary on-line video advertising business throughout Greater China. With annual growth of over 20% projected for the Chinese internet advertising market through 2010, fueled in part by a rapid increase in franchise and chain store enterprises, we expect our on-line business to continue to experience robust revenue growth and profitability. Increased emphasis on our Cloud Computing Product and the introduction later this year of one of the world's first on-line shopping portals utilizing 3-D imaging as the primary customer interface, will further strengthen Subaye's on-line video advertising platform, and enable further market share gains in China's rapidly growing internet advertising industry."
Cost of Sales
Cost of sales for the three months ended March 31, 2010 increased 25.5% to $1.8 million over the same period a year ago, with $0.5 million emanating from stock based compensation for the Company's new agents in certain Chinese provinces compared to none in the year ago period. Additionally, commissions to the company's sales persons increased $0.3 million during the three months ended March 31, 2010. The Company instituted a new sales commission structure as of January 1 2010. Depreciation and amortization of websites, software and hardware totaled $0.8 million and $1.4 million for the three months ended March 31, 2010 and 2009, respectively.
Gross Margin
The Company's gross margin was 75.6% and 78.6%, respectively, for the three months ended March 31, 2010 and 2009.
Operating Expenses
Operating expenses for the three months ended March 31, 2010 amounted to $2.1 million, including a $1.0 million marketing promotion, as compared to $4.5 million for the three months ended March 31, 2009. The decrease of $2.4 million or 54.1% was primarily due the absence of approximately $3.4 million for a one-time marketing promotion which took place during the quarter ended March 31, 2009. The 2010 marketing promotion took place during February and was designed to reach targeted potential customers during the Chinese New Year through web-based advertising on localized third party advertising partner sites. The Company also utilized customary promotional materials placed at targeted locations typically consisting of hotel lobbies, travel agency offices and other locations typically frequented by SMEs the Company is targeting. The Company is in the process of finalizing plans for two additional similar marketing promotions that will take place prior to its fiscal yearend. Other selling, general and administrative expenses for each period presented were comparable.
Provision for Income Taxes
Provision for income taxes was $0.6 million and $0.0 for the three months ended March 31, 2010 and 2009, respectively. The Company's continuing business operations are estimated to be subject to PRC income taxes of approximately 18.0% for the three months ended March 31, 2010. For the three months ended March 31, 2009, the Company's continuing business operations were not subject to any income taxes due to a PRC tax holiday.
Net (Loss) Income
Net (loss) income for the three months ended March 31, 2010 was $(0.4) million as compared to $2.3 million for the three months ended March 31, 2009. Net income from continuing operations for the three months ended March 31, 2010 was $3.0 million, 271.1% higher than net income from continuing operations of $0.8 million in the same period in 2009. Second quarter net margin from the Company's core on-line video advertising business increased to 40.1%, as compared to 11.9% in the same period last year. Net (loss) income from discontinued operations was $(3.3) million and $1.5 million for the three months ended March 31, 2010 and 2009, respectively.
Diluted Income per Share for Continuing Operations
The Company's diluted net income per share from continuing operations was $0.42 and $0.47 for the three months ended March 31, 2010 and 2009, based on weighted average common shares outstanding of 7.1 million and 1.7 million, respectively.
Diluted (Loss) Income per Share for Discontinued Operations
The Company's diluted net (loss) income per share from discontinued operations was $(0.47) and $0.90 for the three months ended March 31, 2010 and 2009, based on weighted average common shares outstanding of 7.0 million and 1.7 million, respectively.
Six Months Ended March 31, 2010
Revenues
Revenues for the six months ended March 31, 2010 increased to $14.3 million, 15.3% over the same period last year, and were driven by the increase of $1.9 million, or 15.3%, in revenues from both its Video Showcase Product and the Cloud Computing Product. Video Showcase subscription revenues for the six months ended March 31, 2010 increased 13.5% to $12.7 million as compared to $11.2 million for the three months ended March 31, 2009, while Cloud Computing Product revenues increased 33.3% to $1.6 million. The number of paying customers for the Company's Video Showcase subscription product increased 27.3% sequentially to 22,019 as of March 31, 2009 over the number of paying customers as of September 30, 2009.
Cost of Sales
Cost of sales for the six months ended March 31, 2010 increased 13.5% to $3.2 million over the same period a year ago. Stock based compensation included in cost of sales was $0.7 million and $0.0 for the six months ended March 31, 2010 and 2009, respectively. Depreciation and amortization of websites, software and hardware totaled $2.2 million and $2.8 million for the six months ended March 31, 2010 and 2009, respectively.
Gross Margin
The Company's gross margin was 77.4% and 77.1%, respectively, for the six months ended March 31, 2010 and 2009.
Operating Expenses
Operating expenses for the six months ended March 31, 2010 declined 60.1% to $3.4 million as compared to $8.6 million for the six months ended March 31, 2009. The decrease was primarily due to curtailment of advertising costs during the six months ended March 31, 2010, while the prior year period included approximately $6.7 million for a one-time marketing promotion. Other selling, general and administrative expenses for each period presented were comparable.
Provision for Income Taxes
Provision for income taxes was $1.5 million and $0.0 for the six months ended March 31, 2010 and 2009, respectively. The Company's continuing business operations are estimated to be subject to PRC income taxes of approximately 18.0% for the six months ended March 31, 2010. For the six months ended March 31, 2009, the Company's continuing business operations were not subject to any income taxes due to a PRC tax holiday.
Net (Loss) Income
Net income for the six months ended March 31, 2010 was $2.6 million as compared to $3.1 million for the six months ended March 31, 2009. Net income from continuing operations was $6.2 million and $1.0 million for the six months ended March 31, 2010 and 2009, respectively. Net margin from the Company's core on-line video advertising business increased to 43.5% during the first six months of fiscal year 2010, as compared to 8.0% in the same period last year. Net (loss) income from discontinued operations was $(3.6) million and $2.1 million for the six months ended March 31, 2010 and 2009, respectively.
Diluted Income per Share for Continuing Operations
The Company's diluted net income per share from continuing operations was $1.01 and $0.60 for the six months ended March 31, 2010 and 2009, based on weighted average common shares outstanding of 6.2 million and 1.7 million, respectively.
Diluted (Loss) Income per Share for Discontinued Operations
The Company's diluted net (loss) income per share from discontinued operations was $(0.59) and $1.28 for the six months ended March 31, 2010 and 2009, based on weighted average common shares outstanding of 6.2 million and 1.7 million, respectively.
Liquidity and Capital Resources
As of March 31, 2010, the Company's current assets were $49.3 million and current liabilities were $8.7 million. Cash and cash equivalents totaled $0.2 million as of March 31, 2010. The Company's shareholders' equity at March 31, 2010 was $61.7 million. The Company had cash provided by operating activities for the six months ended March 31, 2010 and 2009 of $7.9 million and $4.0 million, respectively. During the six months ended March 31, 2010, the Company incurred $6.9 million in fees paid to a contractor to begin development work on a video search software application, which will be amortized over 3 years once the software is deployed. The Company had net cash used in discontinued operations of $0.7 million and $3.9 million for the six months ended March 31, 2010 and 2009, respectively.
Relative to the previously announced sale of non-core assets, the Company has generated $7.0 million in cash proceeds to date from the sale of its trade services business and certain assets of its entertainment business. The Company plans to sell the remaining assets of the entertainment business individually by the end of this fiscal year if terms are agreed to with buyers of those assets. Cash flow from operations of the Company's core business and proceeds from the sale of non-core assets are expected to fund its organic growth objectives for the foreseeable future.
2010 and 2011 Guidance
Adjusting for the sale of its trade services and entertainment media businesses as discontinued operations effective March 16, 2010, Subaye reaffirms guidance for fiscal year 2010 of revenue of $38.3 million and net income from continuing operations of $12.5 million, or $1.77 per share, for the fiscal year ending September 30, 2010. For fiscal year 2011 the Company expects growth in revenue and net income from continuing operations of 86.3% and 133.5% over fiscal year 2010 guidance, respectively, resulting in revenue of $71.3 million and net income from continuing operations of $29.2 million, or $3.69 per share. The chart below provides key statistics for the Company's continuing operations, consisting solely of its on-line video advertising business.
Results From Continuing Operations FY2009 FY2010 FY2011
(On-line Video Advertising Business) (Actual) (Projected) (Projected)
Revenue Growth 180.3% 43.5% 86.3%
Net Income Growth 61.5% 126.1% 133.5%
Gross Margin 77.6% 82.0% 80.3%
Net Margin 32.2% 32.7% 41.0%
The preceding projections include assumptions based on the acquisition of new members in various provinces within Greater China. The projections do not include any revenues or profits potentially generated by the Company's on-line 3D shopping portal, which is scheduled to be operational on August 31, 2010.
Business Outlook
Subaye's goal for 2010 is to rapidly expand its video advertising business throughout Greater China, and recently increased the recurring revenue generated by its on-line video advertising business by over 30% through the addition of new paying members in Hunan Province, Hong Kong and Taiwan. Subaye launched its video advertising business in Guangdong Province in October 2006 with revenues generating $2.6 million in the first two months of operations. Subaye is currently engaged in a total of 6 provinces and regions in Greater China, with the goal of reaching a total of 15 provinces and regions in Greater China by the fiscal year ending September 30, 2010. The Company plans to increase its sales force in the next 12 months from approximately 300 individuals to over 1,500.
Adding to Subaye's opportunity in this segment is its recent acquisition of 6 websites from http://www.CoCloud.com.cn that provides www.subaye.com with 12,200 new members that are affiliated with the 6 largest wholesale distribution centers in Guangzhou City, China. The projected revenue contribution from the recent acquisition of 6 web-based shopping portals from http://www.CoCloud.com.cn is approximately $14.4 million in 2011. The Company also previously acquired 3 industry-specific localized websites comprised of online businesses networks. These networks are expected to grow in popularity and will eventually be used to drive traffic to www.subaye.com and provide additional value to the members of http://www.www.subaye.com , as well as potential members. Additionally, the Company's online 3D mall is on track to be operational by June 30, 2010, and commercialized by August 31, 2010.
Subaye's application for a listing on the NASDAQ Global Market was approved on March 9, 2010, and trading under the symbol "SBAY" commenced on March 16, 2010, demonstrating the strong underlying performance and progress Subaye has achieved as a Company.
About Subaye, Inc.
Subaye, Inc. is a leading outsourced marketing services provider in China engaged in on-line video advertising and cloud computing business solutions. Subaye's on-line video advertising platform provides production, upload, storage, and publishing onto video sharing websites. Subaye also offers cloud computing business solutions and is in the process of developing an on-line mall to with 3D imaging throughout the on-line customer interface. Visitors of Subaye's websites, namely, http://www.subaye.com , view video showcases of Subaye members, primarily small to mid-size enterprises ("SMEs"), and select products or services they wish to purchase. The Company previously conducted a trade services and an entertainment media business. For further information on Subaye, Inc., please visit http://www.subaye.net .
Forward-Looking Statements
Certain statements contained herein constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates and projections about Subaye, Inc.'s industry, management's beliefs and certain assumptions made by management. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Because such statements involve risks and uncertainties, the actual results and performance of the Company may differ materially from the results expressed or implied by such forward-looking statements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Subaye, Inc.'s operations are conducted in the People's Republic of China ("PRC") and, accordingly, are subject to special considerations and significant risks not typically associated with companies in North America. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company's results may be adversely affected by changes in the political and social conditions in the PRC and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation. Other potential risks and uncertainties include but are not limited to the ability to procure, properly price, retain and successfully complete projects, and changes in products and competition. Unless otherwise required by law, the Company also disclaims any obligation to update its view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made here. Readers should review carefully reports or documents the Company files periodically with the Securities and Exchange Commission.
For more information, please contact:
Company:
James Crane
Chief Financial Officer
Cell: +86-186-0125-0891 (P.R.C.)
Office: +1-617-209-4199 (U.S.)
Investor Relations:
Ted Haberfield
HC International, Inc.
Tel: +1-760-755-2716 (US)
Email: [email protected]
Web: http://www.hcinternational.net
SUBAYE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, September 30,
2010 2009
(In Thousands)
(Unaudited) (Audited)
Assets
Current Assets:
Cash $207 $2
Accounts Receivable, Net of Allowance
for Doubtful Accounts of $363 as of
March 31, 2010 and September 30,
2009, Respectively 7,898 8,266
Prepaid Expenses 2,141 370
Deposit for Purchase of Inventoriable
Assets 8,136 8,152
Assets Held for Sale 30,961 29,360
Total Current Assets 49,343 46,150
Property and Equipment, Net of
Accumulated Depreciation of $15,943
and $12,863 as of March 31, 2010 and
September 30, 2009 20,961 10,580
Total Assets $70,304 $56,730
Liabilities and Equity
Current Liabilities
Accounts Payable and Accrued Expenses $1,127 $566
Taxes Payable 1,449 --
Liabilities Held for Sale 6,078 5,275
Total Current Liabilities 8,654 5,841
Total Liabilities 8,654 5,841
Commitments and Contingencies
Shareholders' Equity
Preferred Stock, $0.001 Par Value,
50,000,000 Shares Authorized, 0
Shares Issued and Outstanding as of
March 31, 2010 and September 30, 2009 -- --
Common Stock, $0.001 Par Value;
150,000,000 Shares Authorized;
7,444,931 and 2,479,243 Shares
Issued and Outstanding as of March
31, 2010 and September 30, 2009 7 3
Additional Paid in Capital 58,949 32,452
Deferred Stock Based Compensation (10,468) (2,908)
Accumulated Other Comprehensive
Income (61) 54
Retained Earnings 13,223 11,108
Total Shareholders' Equity 61,650 40,709
Noncontrolling Interest in
Subsidiaries -- 10,180
Total Equity 61,650 50,889
Total Liabilities and Equity $70,304 $56,730
SUBAYE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS
AND OTHER COMPREHENSIVE INCOME
For the Three Months Ended For the Six Months Ended
March 31, March 31,
2010 2009 2010 2009
In Thousands, Except per Share Amounts
Net Sales $7,388 $6,707 $14,300 $12,397
Cost of Sales 1,799 1,434 3,226 2,843
Gross Profit 5,589 5,273 11,074 9,554
Operating
Expenses
Advertising 934 3,544 1,028 7,013
Other Selling,
General and
Administrative 1,118 930 2,383 1,545
Total Operating
Expenses 2,052 4,474 3,411 8,558
Income From
Continuing
Operations
Before Income
Tax Expense 3,537 799 7,663 996
Income Tax
Expense (572) -- (1,449) --
Income From
Continuing Operations 2,965 799 6,214 996
(Loss) Income From
Discontinued
Operations (3,323) 1,534 (3,627) 2,133
Net (Loss) Income (358) 2,333 2,587 3,129
Net Loss Income)
Attributable to
the Noncontrolling
Interest -- 608 (472) 137
Net (Loss)
Income Attributable
to Subaye $(358) $2,941 $2,115 $3,266
Net Income From
Continuing
Operations
Per Common Share:
Basic $0.42 $0.47 $1.02 $0.60
Diluted $0.42 0.47 $1.01 $0.60
Net (Loss)
Income From
Discontinued
Operations Per
Common Share:
Basic $(0.47) $0.90 $(0.59) $1.28
Diluted * $(0.47) $0.90 $(0.59) $1.28
Net (Loss)
Income Per
Common Share:
Basic $(0.05) $1.37 $0.42 $1.88
Diluted * $(0.05) $1.37 $0.42 $1.88
Weighted Average
Common Shares
Outstanding:
Basic 7,046,875 1,708,310 6,119,216 1,662,470
Diluted 7,119,853 1,708,310 6,161,454 1,662,470
Comprehensive (Loss)
Income:
Net (Loss) Income $(358) $2,333 $2,587 $3,129
Foreign Currency
Translation
Adjustment, Net
of Tax (34) 4 (115) 22
Comprehensive (Loss)
Income (392) 2,337 2,472 3,151
Comprehensive Loss
(Income)Attributable
to the Noncontrolling
Interest -- 607 (436) 130
Comprehensive (Loss)
Income Attributable
to Subaye $(392) $2,944 2,036 $3,281
* Diluted loss per share calculated utilizing basic weighted average
shares outstanding whenever a loss is presented per reporting period.
SUBAYE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF CASHFLOWS
For the Six Months
Ended March 31,
2010 2009
(In Thousands)
Cash Flows From Operating Activities
of Continuing Operations:
Net Income $2,587 $3,129
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating
Activities-
Depreciation and Amortization 2,194 2,831
Amortization of Stock Based Compensation 2,530 649
Bad Debt Expense -- 332
(Increase) Decrease in Assets-
Accounts Receivable 368 (3,918)
Prepaid Expenses (1,771) 360
Increase in Liabilities -
Accounts Payable and Accrued Expenses 566 27
Income Taxes Payable 1,449 --
Net Cash Provided By Operating Activities 7,923 3,410
Cash Flows From Investing Activities
of Continuing Operations:
Purchase of Property and Equipment (6,850) (5)
Net Cash Used in Investing Activities (6,850) (5)
Cash Flows From Discontinued
Operations:
Net Cash Used in Operating Activities (763) (3,171)
Net Cash Used in Discontinued
Operations (763) (3,171)
Effect of Exchange Rate Changes in
Cash (105) (18)
Increase in Cash 205 216
Cash, Beginning of Period 2 49
Cash, End of Period $207 $265
Supplemental Cash Flow Information:
Cash Paid During the Period for
Interest, Net of Amounts Capitalized $-- $--
Income Taxes $-- $--
Supplemental Schedule of Noncash
Investing and Financing Activities:
Issuance of Stock for Services,
Deferred Compensation $10,115 $1,180
Issuance of Stock for Acquisition
of Websites and Related Assets $5,760 $--
Adjustment of additional paid-in-
capital and non-controlling
interests from investment in
Subaye Inc, by non-controlling interests $10,652 $--
SOURCE Subaye, Inc.
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