XSEL Xinhua Sports & Entertainment Limited ADS, Each Representing Two Class A Common Shares (MM)

BEIJING, Dec. 6, 2010 /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 first half year ended June 30, 2010.

First Half Year 2010 Highlights

• Net revenue was $27.1 million (excluding discontinued operations)
• Adjusted EBITDA was $0.9 million
• Net loss attributable to XSEL was $0.3 million

First Half Year 2010 Financial Results

Net Revenue

Net revenue for the first half year of 2010 was $27.1 million, down period-on-period from $27.2 million in the first half year of 2009.

Net Revenue by business group

Gross Profit

Gross profit for the first half year of 2010 was $3.9 million, down 44% period-on-period from $6.9 million in the first half year of 2009. The period-on-period decrease was mainly due to a decline in net revenue from Advertising Group driven by the Company's repositioning in sports and entertainment.

Due to the sale of XinCheng, EWEO, JCBN China and Profitown in 2010, the closure of EconWorld, Century Media, Upper Step and Perspective in 2010 as well as the termination of advertising agency agreement with SXTV in 2010, the historical operating results were reported as "discontinued operations" for all periods presented.

Operating Expenses

Operating expenses were composed of selling and distribution expenses, general and administrative expenses, impairment loss on goodwill and loss on disposal of Convey. Excluding impairment loss on goodwill of $3.4 million and loss on disposal of Convey of $28.5 million, operating expenses for the first half year of 2010 were $13.5 million, compared to $13.5 million in the first half year of 2009.

Selling and distribution expenses for the first half year of 2010 were $3.2 million, up 10% period-on-period from $2.9 million in the first half year of 2009. The period-on-period decrease is mainly due to a decrease in amortization of intangible assets driven by the substantial impairment made in the second half year of 2009.

General and administrative expenses for the first half year of 2010 were $10.3 million, down 3% period-on-period from $10.6 million in the first half year of 2009. General and administration expenses for the first half year of 2009 and 2010 included $1.5 million and $2.3 million, respectively, of share-based compensation expenses.

Adjusted EBITDA

Adjusted EBITDA for the first half year of 2010 was $0.9 million, down 87% period-on-period from $7.0 million in the first half year of 2009. The period-on-period decrease was primarily due to the divestment of non-core businesses.

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 impairment and write off charges, and certain non-cash items that we believe are not indicative of future performance. See Chart 4 for the reconciliation of adjusted EBITDA.

Net Loss attributable to XSEL

Net loss attributable to XSEL for the first half year of 2010 including exceptional items was $0.3 million. Excluding the exceptional items of $(9.0) million, net loss was $9.3 million.

Other Corporate Developments

On July 12, 2010, the Company entered into an agreement (the "Amendment") with Patriarch Partners LLC ("Patriarch"), a global investment firm based in New York and currently one of our major shareholders, to restructure the terms of the secured convertible loan facility (the "convertible loan"). Under the terms of the Amendment, the Company repaid $16,343,960, and Patriarch agreed to lend the Company an additional $7.6 million non-convertible term loan, bringing the aggregate amount outstanding under the Patriarch facility to $49,056,040, and to waive all existing defaults and revise the terms of the financial covenants. As a part of the transaction, in consideration for the waiver and extension of additional loans in the Amendment, Patriarch has been granted additional security in the Company's assets as collateral for the loans and the Company issued to affiliates of Patriarch Series C Preferred Shares convertible into 25% of the fully diluted common equity of the Company and paid certain fees and expenses.

The Company might not have enough cash to repay all currently outstanding obligations in the next 12 months. However, the management of the Company is taking a number of actions to address this situation in order to restore the Company to a sound financial position with an appropriate business strategy. These actions include:

• The Company is adopting various cost-saving strategies.
• The Company continues its repositioning of its business to sports and entertainment, and is moving ahead with its sports media strategy.

The condensed consolidated financial information has been prepared assuming the Company will continue as a going concern.

On August 16, 2010, the Company entered into an agreement with Pariya Holdings Limited ("Pariya") and agreed 1) all outstanding earnout obligations from XSEL to Pariya and payment obligations from Pariya to XSEL will be offset upon the fulfillment of certain conditions; 2) maintain XSEL's shareholding in Xinhua Finance Media (Convey) Limited at a minimum of 19.9%.

Contact

Mr. Graham Earnshaw, XSEL, +86 10 8567 6061, graham.earnshaw@xsel.com

About XSEL

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 and mobile phones in China.

Headquartered in Beijing, the Company has offices and affiliates in major cities throughout China including 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.

Adjusted EBITDA Reconciliation

XSEL considers adjusted EBITDA to represent net income (loss) attributable to XSEL before exceptional 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. XSEL believes that adjusted EBITDA provide investors with another method for assessing XSEL's underlying operational and financial performance. Our presentation of adjusted EBITDA is not intended to be considered in isolation or as a substitute for the financial results under U.S. GAAP. For more information on adjusted EBITDA, please refer to Chart 4 of this release.

XSEL believes that adjusted EBITDA is 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 adjusted EBITDA 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 reconciliation of adjusted EBITDA. You should compensate for these limitations by relying principally on our U.S. GAAP results and using our adjusted EBITDA measurement as supplementary information.

The following table presents, for each of the periods indicated, our adjusted EBITDA reconciled to net loss attributable to XSEL:

Net income (loss) per ADS is shown in Chart 6:

Notes to Financial Information

1) 2009 condensed consolidated balance sheet

Information was extracted from the audited financial statements included in Form 20-F of the Company filed with the Securities and Exchange Commission on July 15, 2010.

2) Restricted cash

Restricted cash was mainly 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 first half year of 2009 and 2010 were 116 days and 68 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.

4) Consideration receivable from disposal of subsidiaries

On June 30, 2010, the Company had a current consideration receivable from disposal of subsidiaries of $20.0 million. This represented the consideration receivable for the disposal of our 85% shareholding of Convey in December 2008, net of $25.6 million and $28.5 million write-off charges recorded in the second half year of 2009 and first half year of 2010 respectively.

5) Deposits for investments

The Company has paid a deposit of $11.1 million and an advance of $6.4 million to provide services to cable channels in the PRC. These amounts are refundable unless certain closing conditions are met.

6) Convertible loan

The Company entered into a secured convertible loan facility for up to $80.0 million from Patriarch. As of June 30, 2010, the outstanding principal amount of the convertible loan was $53.8 million. In 2009, the Company was required to adopt an authoritative guidance 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. The authoritative guidance 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 the authoritative guidance, 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 the convertible loan of $52.2 million on June 30, 2010 and a non-cash fair value gain on the convertible loan of $3.8 million for the first half year of 2010.

7) Other income (expense)

Other income (expense) includes net interest income (expense) and net other income (expense). The Company recorded a non-cash fair value gain on convertible loan and warrant of $3.8 million and $1.0 million, respectively, in other income for the first half year of 2010.

8) Discontinued operations

Due to the sale of XinCheng, EWEO, JCBN China and Profitown in 2010, the closure of EconWorld, Century Media, Upper Step and Perspective in 2010 as well as the termination of advertising agency agreement with SXTV in 2010, the historical operating results were reported as "discontinued operations" for all periods presented in the accompanying condensed consolidated statement of operations.

SOURCE Xinhua Sports & Entertainment Limited