BEIJING, Nov. 11 /PRNewswire-Asia-FirstCall/ -- Xinhua Sports &
Entertainment Limited (the "Company" or "XSEL") (NASDAQ: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) +1 866 711 8198 or +1 617 597
5327 (UK) +44 207 365 8426 (Mainland China) + 86 10 800 130 0399
(Hong Kong) +852 3002 1672 Passcode: 95247814 A telephone replay
will be available two hours after the call for one week at: (US
Toll Free) +1 888 286 8010 (International) +1 617 801 6888
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: +86-10-8567-6050,
+86-136-2179-1577 Email: IR Contact Mr. Edward Liu XSEL Tel:
+86-10-8567-6061 Email: Mr. Howard Gostfrand American Capital
Ventures Tel: +1-305-918-7000, toll free +1-877-918-0774 Email:
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
(NASDAQ:XSEL). 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. DATASOURCE: Xinhua Sports &
Entertainment Limited CONTACT: Media Contact: Joy Tsang, XSEL,
+86-10-8567-6050, or +86-136-2179-1577 (mobile), ; IR Contact:
Edward Liu, XSEL, +86-10-8567-6061, , or Howard Gostfrand American
Capital Ventures, +1-305-918-7000, or toll free +1-877-918-0774,
Web site: http://www.xsel.com/en/investor-relations/webcast
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