Acorn International Reports Second Quarter 2010 Financial Results and Resignation of a Director

Acorn International Reports Second Quarter 2010 Financial Results and Resignation of a Director

SHANGHAI, Aug. 19 /PRNewswire-Asia-FirstCall/ -- Acorn International, Inc. (NYSE:ATV) ("Acorn" or the "Company"), a leading integrated multi-platform marketing company in China engaged in developing, promoting and selling consumer products and services, today announced its unaudited financial results for the quarter ended June 30, 2010.

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Summary Results for the Second Quarter 2010:

-- Net revenues were $60.9 million, an increase of 24.4% compared to $49.0
million in the second quarter of 2009.
-- Gross profit was $26.1 million, an increase of 2.4% compared to $25.5
million in the second quarter of 2009.
-- Gross margin was 42.9%, compared to 52.1% in the same period of 2009.
-- Loss from operations was $2.6 million, compared to an operating loss of
$4.6 million in the second quarter of 2009.
-- Other income was $1.0 million, compared to $0.3 million in the second
quarter of 2009.
-- Loss from continuing operations was $1.8 million compared to a loss of
$3.1 million for the second quarter of 2009.
-- Net loss from continuing operations attributable to Acorn was $1.8
million compared to a net loss of $2.9 million in the second quarter of
2009.
-- Share-based compensation expenses were $0.03 million for the second
quarter of 2010, compared to $0.8 million for the same period last year.
-- Diluted loss per ordinary share and per American Depositary Share
("ADS") from continuing operations were $0.02 and $0.06, respectively.

"In the second quarter of 2010, a traditionally slow season for our distribution business, we grew our top line sales by 24.4% to reach $60.9 million and reduced our net loss from continuing operations from the same period one year ago. The year-on-year improvement is largely attributable to the strong performance of our TV direct sales business including the growth in our mobile handset and non-TV direct sales businesses in the second quarter 2010. The Gionee A320 model continued to lead the recovery in our handset business while non-TV direct sales represented by third party bank channel sales, outbound calls, catalog and ecommerce maintained its healthy growth momentum from the previous quarters," said Mr. James Hu, Chairman and CEO of Acorn. "However, in the past quarter, the slow down in the Electronic Learning Product market became more pronounced. As a result, we experienced unusually large decline in sales for our Ozing and Meijin product lines. And we expect sales for our Electronic Learning Product lines to remain depressed in the next few months until visible signs of improvement are seen in the market. Given the magnitude of decline in our Ozing business, we are lowering our financial guidance previously provided. At the same time, we are working diligently on product improvement and marketing realignment to better adapt to the changing market environment. Furthermore, for the remainder of 2010, we will continue to focus on growing areas, such as mobile handsets and non-TV direct sales businesses, which have shown strong initial improvement from last year."

Business Results for the Second Quarter of 2010:

-- Direct sales of mobile handsets led by Gionee's A320 model grew 122.1%
to $24.1 million in the second quarter of 2010 from $10.9 million for
the same period one year ago. The Company's mobile handset business
experienced solid return on advertising expenses and achieved growth
targets in the second quarter. The Company plans to maintain its
strategy of marketing the dual branded Gionee's A320 model for the rest
of 2010 and expects to achieve a sustainable recovery for its overall
mobile handset business.

-- Non-TV direct sales grew to approximately 46.0% of total direct sales
in the second quarter of 2010 from approximately 30.0% in the second
quarter of 2009. Revenues from third party bank channel sales, the
largest contributor to the growth of the Company's non-TV direct sales,
was approximately $11.6 million in the second quarter of 2010,
representing an increase of 127.9% from approximately $5.1 million in
the same period last year. In addition to third party bank channel
sales, non-TV direct sales include sales through outbound calls and
catalogs and e-commerce.

Financial Results for the Second Quarter of 2010:

Direct sales contributed 76.4% to total net revenues, or $46.5 million, for the second quarter 2010, an increase of 27.7% from $36.4 million for the second quarter last year, mainly due to the increase in mobile handset sales led by Gionee's A320 model.

Distribution sales net revenues increased 14.6% year-over-year to $14.4 million from $12.5 million in the second quarter 2009, primarily due to increased sales of mobile handsets, offsetting the 56.0% year-over-year decrease in sales of Ozing from a market slow down in the Electronic Learning Products line.

The table below summarizes the gross revenues from the three best selling product categories for the direct sales platform, distribution network and total direct and distribution sales, respectively:

Three Months Ended June 30, 2010
(in thousands of US dollars)
Direct sales
Mobile handsets 24,115
Cosmetics 5,981
Autocare products (Energy) 4,915

Distribution sales
Mobile handsets 8,278
Electronic learning product (Ozing) 2,870
Medical care 1,269

Total direct and distribution sales
Mobile handsets 32,394
Cosmetics 5,981
Autocare products (Energy) 5,054

Cost of sales for the second quarter of 2010 was $34.8 million, a 48.2% increase from $23.5 million for the second quarter of 2009, primarily due to higher sales of mobile handsets which generally have higher product costs in the quarter.

Gross profit for the second quarter of 2010 was $26.1 million, an increase of 2.4% compared to $25.5 million for the second quarter of 2009. Gross margin was 42.9% in the second quarter of 2010, compared to 52.1% in the same period in 2009.

Gross profit from direct sales for the second quarter 2010 increased 9.4% to $23.8 million from $21.8 million for the second quarter of 2009. Gross margin for direct sales for the second quarter of 2010 was 51.1%, compared to 59.7% in the same period last year. The decrease in gross margin was largely due to shift in product mix to include more mobile handset sales and less higher-margin cosmetic products in the second quarter 2010.

Gross profit from distribution sales for the second quarter of 2010 was $2.3 million, a decrease of 38.2% from $3.7 million for the second quarter of 2009. Gross margin for distribution sales for the second quarter of 2010 was 16.1%, down from 29.9% for the same period last year. The decrease in gross margin was mainly due to increased sales of mobile handsets in the second quarter 2010.

Advertising expenses were $13.8 million for the second quarter of 2010, compared to $14.5 million for the second quarter of 2009. Gross profit over advertising expenses, a benchmark Acorn uses to measure return on multiple sales platforms, was 1.89 in the second quarter of 2010, up from 1.76 in the second quarter of 2009.

Other selling and marketing expenses increased 20.2% to $10.1 million from $8.4 million for the second quarter of 2009, mainly due to the increased salaries and benefits and marketing expenses.

General and administrative expenses were $5.4 million for the second quarter of 2010, a 37.7% decrease from $8.6 million in the second quarter of 2009. The decrease was largely due to the decreased litigation expenses and the Company's effective cost control efforts.

Other operating income, net, was $0.6 million for the second quarter of 2010, down from $1.4 million in the second quarter of 2009. The decline was due to the decrease in government subsidy income.

As a result, operating loss for the second quarter of 2010 was $2.6 million, compared to an operating loss of $4.6 million for the same period last year.

Other income was $1.0 million, compared to $0.3 million in the second quarter of 2009. This was mainly due to an increase of $0.6 million in investment income.

Share-based compensation expenses for the second quarter of 2010 were $0.03 million, compared to $0.8 million for the second quarter of 2009.

Loss from continuing operations was $1.8 million compared to a loss of $3.1 million for the second quarter of 2009.

Net loss from continuing operations attributable to Acorn was $1.8 million for the second quarter 2010 compared to a net loss of $2.9 million in the second quarter last year.

Diluted loss per ordinary share and per ADS from continuing operations were $0.02 and $0.06, compared to diluted loss per ordinary share and per ADS from continuing operations of $0.03 and $0.10 in the same period last year.

As of June 30, 2010, Acorn's cash and cash equivalents, including restricted cash and short-term investments, totaled $115.3 million, a decrease of $4.9 million from March 31, 2010.

Subsequent Events

Effective August 18, 2010, Mr. Guoying Du has resigned from his position as Vice President and Director of the Company for personal reasons. During his tenure, Mr. Du was in charge of the Company's nationwide distribution business. Prior to his appointment as the Vice President in 2005, he was the general manager of Shanghai HJX, one of the Company's subsidiary responsible for the manufacturing and production of Ozing. After his resignation, Mr. Du will remain as an external consultant to support the continued development of the Company's Electronic Learning Product division.

Full Year 2010 Business Outlook:

"While we are pleased with the improvement of our mobile handset business and the continued growth in our non-TV direct sales in the first half of the year, we remain concerned with the deteriorating conditions of the Electronic Learning Products market and its effect on our ability to achieve a broad based turnaround for our business in the second half of 2010," said Mr. James Hu, Chairman and CEO of Acorn. "The market for electronic learning products remains complex to navigate and we are still in the process of adjusting our strategy to address changing market dynamics. Given the uncertainties and the current business outlook, we will maintain our revenue guidance but lower our net income from continuing operations guidance to breakeven from the previously provided $12 million to $14 million for fiscal year 2010."

These estimates are subject to change. Also, Acorn reminds investors that its operating results in each period are impacted significantly by the mix of products and services sold in the period and the platforms through which they are sold. Consequently, in evaluating the overall performance of Acorn's multiple sales platforms in any period, management also considers metrics such as operating margin and gross profit return on advertising expenses.

Conference Call Information

The Company will host a conference call at 8:00 a.m. ET on August 19, 2010 (8:00 p.m. Beijing Time) to review the Company's financial results and answer questions. You may access the live interactive call via:

-- +1 888 226 7625 (U.S. Toll Free)
-- +1 706 634 6316 (International)
-- Passcode: 90091728

Please dial-in approximately 10 minutes in advance to facilitate a timely start.

A replay will be available for 14 days after the call starting from 10:00 a.m. ET on August 19, 2010 and may be accessed via:

-- +1 800 642 1687 (U.S. Toll Free)
-- +1 706 645 9291 (International)
-- Passcode: 90091728

A live and archived webcast of the call will be available on the Company's website at http://www.ir-site.com/acorn/index.asp . To listen to the live webcast, please go to the Company's website at least fifteen minutes prior to the start of the call to register, download and install any necessary audio software.

About Acorn International, Inc.

Acorn is a leading integrated multi-platform marketing company in China, operating one of China's largest TV direct sales businesses in terms of revenues and TV air time and a nationwide off-TV distribution network. Acorn's TV direct sales platform consists of airtime purchased from both national and local channels. In addition to marketing and selling through its TV direct sales programs and its off-TV nationwide distribution network, Acorn also offers consumer products and services through catalogs, third party bank channels, an outbound telemarketing center and an e-commerce website. Leveraging its integrated multiple sales and marketing platforms, Acorn has built a proven track record of developing and selling proprietary-branded consumer products, as well as products and services from established third parties. For more information, please visit http://www.chinadrtv.com/ .

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This press release contains "forward-looking statements," including, among other things, Acorn's anticipated operating results for 2010; Acorn's marketing strategy for its mobile handsets and Electronic Learning Products lines, including any product improvements or market realignment strategies; and any continued or sustained improvement in Acorn's overall mobile handset business or non-TV direct sales revenues. These forward-looking statements are not historical facts but instead represent only our belief regarding future events, many of which, by their nature, are inherently uncertain and outside of our control. Our actual results and financial condition and other circumstances may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Our business may not improve in the remainder of 2010, our strategies to improve Ozing products and mobile handsets sales may not succeed and we may fail to meet our operating results expectations. In particular, our operating results for any period are impacted significantly by the mix of products and services sold by us in the period and the platforms through which they are sold, causing our operating results to fluctuate and making them difficult to predict.

Other factors that could cause forward-looking statements to differ materially from actual future events or results include risks and uncertainties related to: our ability to effectively consolidate our distribution channels, our ability to successfully improve or introduce new products and services, including to offset declines in sales of existing products and services; our ability to stay abreast of consumer market trends and maintain our reputation and consumer confidence; our ability to execute and maintain a successful market strategy, continued access to and effective usage of TV advertising time and pricing related risks; relevant government policies and regulations relating to TV media time and TV direct sales programs, including the new SARFT regulations and actions that may make TV media time unavailable to us or require we suspend or terminate a particular TV direct sales program; rising costs in key components of our products, such as flash memory, potential unauthorized use of our intellectual property; potential disruption of our manufacturing processes; increasing competition in China's consumer market; our U.S. tax status as a passive foreign investment company; and general economic and business conditions in China. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in our 2009 annual report on Form 20-F filed with Securities and Exchange Commission on May 6, 2010. For a discussion of other important factors that could adversely affect our business, financial condition, results of operations and prospects, see "Risk Factors" beginning on page 6 of our Form 20-F for the fiscal year ended December 31, 2009. Our actual results of operations for the second quarter 2010 are not necessarily indicative of our operating results for any future periods. Any projections in this release are based on limited information currently available to us, which is subject to change. Although such projections and the factors influencing them will likely change, we will not necessarily update the information. Such information speaks only as of the date of this release.

For more information, please contact:

Acorn International, Inc.
Ms. Chen Fu, IR Director
Phone: +86-21-5151-8888 x2228
Email: fuchen@chinadrtv.com
Web: http://www.chinadrtv.com/

CCG Investor Relations
Mr. Crocker Coulson, President
Phone: +1-646-213-1915 (New York)
Email: crocker.coulson@ccgir.com
Web: http://www.ccgirasia.com/

ACORN INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In US dollars, except share data)

Three Months Ended June 30, Six Months Ended June 30,
2009 2010 2009 2010
Revenues:
Direct sales,
net 36,447,152 46,543,535 75,727,233 83,089,675
Distribution
sales, net 12,546,044 14,380,953 60,314,352 48,172,065
Total revenues,
net 48,993,196 60,924,488 136,041,585 131,261,740
Cost of
revenues:
Direct sales 14,692,485 22,743,122 30,918,987 40,546,319
Distribution
sales 8,799,278 12,064,081 37,119,441 33,673,536
Total cost of
revenues 23,491,763 34,807,203 68,038,428 74,219,855
Gross profit 25,501,433 26,117,285 68,003,157 57,041,885
Operating
(expenses)
income:
Advertising
expenses (14,463,988) (13,813,013) (30,397,466) (29,105,042)
Other selling
and marketing
expenses (8,409,129) (10,108,016) (20,539,076) (20,266,143)
General and
administrative
expenses (8,597,399) (5,360,299) (17,001,668) (11,728,342)
Other
operating
income, net 1,376,221 570,886 3,486,116 939,886
Total operating
(expenses)
income (30,094,295) (28,710,442) (64,452,094) (60,159,641)
Income (Loss)
from
operations (4,592,862) (2,593,157) 3,551,063 (3,117,756)
Other income
(expenses) 307,362 980,873 1,275,702 2,731,208
Income (Loss)
before income
taxes and
discontinued
operations (4,285,500) (1,612,284) 4,826,765 (386,548)
Income tax
expenses 1,221,335 (196,480) (77,654) (599,479)
Income (Loss)
from continuing
operations (3,064,165) (1,808,764) 4,749,111 (986,027)
Income from
discontinued
operations 14,383,952 -- 15,362,689 --
Net income
(loss) 11,319,787 (1,808,764) 20,111,800 (986,027)
Net income
attributable
to non-controlling
interests 123,538 (3,618) (216,391) 42,495
Net income (loss)
attributable
to Acorn
International,
Inc. 11,443,325 (1,812,382) 19,895,409 (943,532)
Income (Loss)
per ADS
- Continuing
operations (0.10) (0.06) 0.17 (0.03)
- Discontinued
operations 0.49 -- 0.51 --
Basic 0.39 (0.06) 0.68 (0.03)
- Continuing
operations (0.10) (0.06) 0.17 (0.03)
- Discontinued
operations 0.49 -- 0.50 --
Diluted 0.39 (0.06) 0.67 (0.03)
Weighted average
number of shares
used in
calculating
income (loss)
per ADS
- Basic 87,429,056 88,856,915 87,482,327 88,856,915
- Diluted 89,147,815 88,856,915 89,621,441 88,856,915

ACORN INTERNATIONAL, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In US dollars)

December 31, 2009 June 30, 2010
Assets
Current assets:
Cash and cash equivalents 142,952,944 98,528,265
Restricted cash 2,394,213 930,817
Short-term investments 18,572,790 15,850,611
Accounts receivable, net 17,030,857 18,036,146
Notes receivable 2,242,641 1,195,205
Inventory 26,180,629 33,390,520
Prepaid advertising expenses 9,968,493 7,731,524
Other prepaid expenses and
current assets, net 7,794,537 10,992,794
Deferred tax assets, net 2,320,535 2,390,910
Total current assets 229,457,639 189,046,792
Prepaid land use rights 7,349,957 7,314,911
Property and equipment, net 14,818,404 17,114,834
Acquired intangible assets, net 3,181,596 2,945,044
Long-term investments 8,020,069 7,874,285
Investment in affiliates 8,881,830 8,919,624
Other long-term assets 1,673,755 2,867,043
Total assets 273,383,250 236,082,533

Liabilities and equity
Current liabilities:
Accounts payable 15,528,580 13,845,255
Accrued expenses and other
current liabilities 14,838,142 11,295,728
Notes payable 3,253,005 637,779
Income taxes payable 3,422,261 3,749,513
Dividend payable 29,322,782 5,782
Total current liabilities 66,364,770 29,534,057
Deferred tax liabilities 889,625 892,427
Business combination liability 1,103,015 1,103,015
Total liabilities 68,357,410 31,529,499

Equity
Acorn International Inc.
shareholders' equity:
Ordinary shares 935,447 935,447
Additional paid-in capital 178,176,225 178,305,817
Retained earnings 18,573,296 17,629,764
Accumulated other comprehensive
income 17,562,561 18,292,321
Treasury stock, at cost (11,612,546) (11,612,546)
Total Acorn International Inc.
shareholders' equity 203,634,983 203,550,803
Non-controlling interests 1,390,857 1,002,231
Total equity 205,025,840 204,553,034
Total liabilities and equity 273,383,250 236,082,533

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Source: Acorn International, Inc.

CONTACT: Ms. Chen Fu, IR Director, Acorn International, Inc. at
+86-21-5151-8888 x2228 or fuchen@chinadrtv.com ; Mr. Crocker Coulson,
President, CCG Investor Relations at +1-646-213-1915 (New York) or
crocker.coulson@ccgir.com

Web site: http://www.chinadrtv.com/
http://www.ir-site.com/acorn/index.asp

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