Acorn International Reports First Quarter 2020 Financial Results

SHANGHAI, April 30, 2020 /PRNewswire/ -- Acorn International, Inc. (NYSE: ATV) ("Acorn" or the "Company"), a leading marketing and branding company in China, today announced its preliminary unaudited financial results for the quarter ended March 31, 2020.

First Quarter Estimated Results Highlights

    --  Net revenues decreased 7.2% year-over-year in Q1 2020 to US$8.0 million.
    --  Gross profit decreased 12.3% year-over-year in Q1 2020 to US$5.5
        million.
    --  Gross margin was 68.8% in Q1 2020, compared to 72.8% in Q1 2019.
    --  Loss from continuing operations was US$0.3 million in Q1 2020, compared
        to income from continuing operations of US$0.6 million in Q1 2019.
    --  Net income was US$2.7 million in Q1 2020 as compared to net income of
        US$4.8 million in Q1 2019. In Q1 2020, the Company recorded a $3.0
        million gain from the sale of shares of E-Money Holding Co., Ltd.
        ("E-Money") (formerly known as Shanghai Yimeng Software Technology Co.,
        Ltd.). The year-ago period includes a US$3.8 million gain on the sale of
        the Company's former principal office in Shanghai to a third party.

"Our results for the first quarter of 2020 reflect the impact of the COVID-19 crisis on our business. As previously disclosed, although we have seen some increased demand for certain products as more Chinese consumers are shopping from home, we have also experienced some demand reduction, supply-side disruption and delivery challenges caused by COVID-19," said Mr. Jacob A. Fisch, CEO and President of Acorn International.

Preliminary Financial Results for the First Quarter of 2020:

Total net revenues were US$8.0 million in the first quarter of 2020, down 7.2% from US$8.7 million in the first quarter of 2019, primarily due to the impact of COVID-19 as well as lower revenues of oxygen-generating products related primarily to the sale of the Company's subsidiary Zhuhai Acorn Electronic Technology Co., Ltd.

Cost of sales in the first quarter of 2020 was US$2.5 million, up 6.5% from US$2.4 million in the first quarter of 2019. The increase was primarily attributable to the inclusion of Acorn Digital Services in revenues and cost of sales in the first quarter of 2020 (in the year ago period, this business segment was included in other operating income), and a higher proportion of Acorn Fresh products, which have a slightly lower margin than Babaka branded products, in the product mix.

Gross profit in the first quarter of 2020 was US$5.5 million, down 12.3% from US$6.3 million in the first quarter of 2019. Gross margin was 68.8% in the first quarter of 2020, compared with 72.8% in the first quarter of 2019.

Total operating expenses in the first quarter of 2020 were US$5.8 million, up 0.9% from US$5.7 million in the first quarter of 2019.

Loss from continuing operations was US$0.3 million in the first quarter of 2020, as compared to income from continuing operations of US$0.6 million in the first quarter of 2019.

Other income was US$3.0 million in the first quarter of 2020, primarily due to a US$3.0 million gain from the sale of shares of E-Money. The year-ago period includes a US$3.8 million gain on the sale of the Company's former principal office in Shanghai to a third party.

Net income from continuing operations was US$2.8 million in the first quarter of 2020. This compares to net income from continuing operations of US$4.9 million in the first quarter of 2019. Net loss from discontinued operations, which reflects the sale of a majority stake in the Company's HJX electronic learning products business to a third-party investor and operator in 2017 as well as the Company's call center operations which were discontinued in the third quarter of 2019 (refer to "Discontinued Operations" discussion below), was US$28 thousand in the first quarter of 2020, compared to net loss from discontinued operations of US$0.1 million in the first quarter of 2019.

Net income attributable to Acorn was US$2.7 million in the first quarter of 2020. This compares to net income attributable to Acorn of US$4.8 million in the first quarter of 2019.

As of March 31, 2020, Acorn's estimated cash and cash equivalents, with restricted cash, totaled US$13.9 million. This compares to cash and equivalents, with restricted cash, of US$13.5 million as of December 31, 2019.

Discontinued Operations

In 2017, Acorn reached an agreement to sell a majority stake in its HJX electronic learning products business ("HJX Business") to a third-party investor and operator, allowing the Company to focus on its core business. Acorn maintains a 37.5% stake in a joint venture established with this third party. As a result of this transaction, the Company is required by applicable accounting rules to treat the historical operations of the wholly-owned HJX Business as discontinued operations and the minority stake in the HJX Business as equity in losses of affiliates in the consolidated statements of operations for all periods presented, subject to the consolidation of the HJX Business into the joint venture entity.

In the third quarter of 2019, the Company completed closing of its call center in Wuxi, China. As a result, the Company is required by applicable accounting rules to treat the historical operations of the call center as discontinued operations for all periods presented.

About Acorn International, Inc.

Acorn International is a leading marketing and branding company in China, leveraging a twenty-year direct marketing history to monetize brand IP, content creation and distribution, and product sales, through digital media in China. For more information visit www.acorninternationalgroup.com.

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

This press release contains forward-looking statements. These statements constitute "forward-looking" statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "anticipates," "believes," "estimates," "strives," "expects," "future," "going forward," "intends," "outlook," "plans," "target," "will," and similar statements. Such statements are based on management's current expectations and current market and operating conditions, and relate to events that involve known or unknown risks, uncertainties, and other factors, all of which are difficult to predict and many of which are beyond the Company's control, including the extent and duration of the COVID-19 crisis, which may cause the Company's actual results, performance, or achievements to differ materially from those in these preliminary financial results and the forward-looking statements. Further information regarding these and other risks, uncertainties, or factors is included in the Company's filings with the U.S. Securities and Exchange Commission. The Company does not undertake any obligation to update any forward-looking statement as a result of new information, future events, or otherwise, except as required by law.

Other factors that could cause forward-looking statements to differ materially from actual future events or results include risks and uncertainties related to: the Company's ability to successfully improve or introduce new products and services, including to offset declines in sales of existing products and services; the Company's ability to stay abreast of consumer market trends and maintain the Company's reputation and consumer confidence; the Company's ability to execute and maintain a successful market strategy; potential unauthorized use of the Company's intellectual property; potential disruption of the Company's manufacturing processes; increasing competition in China's consumer market; the Company's U.S. tax status as a passive foreign investment company; and general economic and business conditions in China, as well as potential friction between the U.S. and China associated with their current trade dispute and related factors, which could potentially impact Acorn. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 2018 annual report on Form 20-F filed with SEC on April 30, 2019. For a discussion of other important factors that could adversely affect the Company's business, financial condition, results of operations and prospects, see "Risk Factors" beginning on page 9 of the Company's 2018 annual report on Form 20-F filed with the SEC on April 30, 2019. The Company's actual results of operations for the first quarter of 2020 are not necessarily indicative of its operating results for any future periods. Any projections in this release are based on limited information currently available to the Company, which is subject to change. Although such projections and the factors influencing them will likely change, the Company will not necessarily update the information. Such information speaks only as of the date of this release.

Statement Regarding Unaudited Financial Information

The unaudited financial information set forth above is preliminary and subject to potential adjustments. Adjustments to the consolidated financial statements may be identified when audit work has been performed for the Company's year-end audit, which could result in significant differences from this preliminary unaudited condensed financial information.



       Contact:



       Acorn International, Inc.    
     Compass Investor Relations



       Mr. Martin Key               
     Ms. Elaine Ketchmere, CFA



       Phone +86-21-5151-8888       
     Phone: +1-310-528-3031



       Email: ir@chinadrtv.com      
     Email: Eketchmere@compass-ir.com

    ---


       
              www.chinadrtv.com 
     www.compassinvestorrelations.com

    ---

- Financial Tables Follow -


                                                                                           
       
                ACORN INTERNATIONAL, INC.


                                                                                         
     
         UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS


                                                                                             
          
                (In US dollars)




                                                                                                                                                      For the three months
                                                                                                                                                 ended





                                                                                                                                              
        
                2019/03/31   
       
          2020/03/31


                                                                                                                                                           (Unaudited)     
       
       (Unaudited)

                                                                                                                                                                                               ---


              Net revenues



                Direct sales                                                                                                                                    7,204,182               $6,894,582



                Distribution sales                                                                                                                              1,449,322                1,138,259



              
                Total net revenues                                                                                                                   8,653,504                8,032,841





              Cost of revenues



                Direct sales                                                                                                                                   -1,836,452               -2,097,431



                Distribution sales                                                                                                                               -519,897                 -411,327



              
                Total cost of revenues                                                                                                              -2,356,349               -2,508,758





              Gross profit



                Direct sales                                                                                                                                    5,367,729                4,797,151



                Distribution sales                                                                                                                                929,425                  726,932



              
                Total gross profit                                                                                                                   6,297,154                5,524,083


                                                                                                                                                                     72.8%                   68.8%



              Operating (expenses) income



                Other selling and marketing expenses                                                                                                           -3,868,281               -4,089,335



                General and administrative expenses                                                                                                            -2,452,609               -2,138,118



                Other operating income, net                                                                                                                       580,576                  434,297



                Total operating (expenses) income                                                                                                              -5,740,314               -5,793,156



              
                Income (loss) from continuing operations                                                                                               556,841                 -269,073





              Interest expense                                                                                                                                          -                 -21,378



              Interest income                                                                                                                                      82,361                   46,017



              Other income (expenses), net                                                                                                                      4,573,849                3,048,180



              
                Income (loss) from continuing operations before income taxes                                                                         5,213,051                2,803,746
    and equity in losses of affiliates





                Income tax - current                                                                                                                             -307,585                        -



                Income tax - deferred                                                                                                                                   0                  -36,812



              
                Income (loss) from continuing operations before equity in                                                                            4,905,466                2,766,934
    losses of affiliates





              Discontinued operations :



                     Income (loss) from discontinued operations                                                                                                  -110,673                  -27,887



              
                Income (loss) from discontinued operations before equity in                                                                           -110,673                  -27,887
    losses of affiliates



              Equity in losses of affiliates





              
                Net income (loss)                                                                                                                    4,794,793                2,739,047





              Net income (loss) attributable to non-controlling interests                                                                                           1,738                     -211



              
                Net income (loss) attributable to Acorn International, Inc.                                                                         $4,796,531               $2,739,258


                                   
              
           ACORN INTERNATIONAL, INC.


                                  
              
           CONSOLIDATED BALANCE SHEETS


                                        
              
           (In US dollars)




                                                              2019/12/31           2020/03/31

                                                                                          ---





           Cash and
            cash
            equivalents                                      $13,461,368           $13,825,003


           Restricted
            cash                                                  75,543                74,918


           Accounts
            receivable,
            net                                                3,611,177             4,731,741


           Inventory,
            net                                                3,042,762             2,528,777


           Other
            prepaid
            expenses
            and
            current
            assets                                             7,112,042             9,837,301


           Loan
            receivable                                         3,754,735             3,776,552


           Held-for-
            sale
            assets                                               468,191               466,431


           Assets to
            be
            abandoned                                            116,559


             Current
              assets                                          31,642,377            35,240,722




           Property
            and
            equipment,
            net                                                  559,964               544,058


           Investments
            in
            affiliates                                                 -               91,309


           Available-
            for-sale
            securities                                        25,681,848            20,705,511


           Loan to
            related
            party                                             14,804,052            14,698,550


           Right of
            use assets                                         1,785,194             1,533,427


           Deferred
            tax
            assets,
            net                                                4,997,111             4,963,568


           Other long-
            term
            assets                                               693,518               732,396


                        Total
                         assets                              $80,164,064           $78,509,540





           Accounts
            payable                                            3,172,263             2,141,762


           Dividend
            payable                                              133,405               131,206


           Accrued
            expenses
            and other
            current
            liabilities                                        6,564,390             8,773,664


           Lease
            Liability                                            881,349               858,089


           Income
            taxes
            payable                                            1,648,520             1,615,086


           Deferred
            revenue                                               68,798                42,338


           Liabilities
            to be
            abandoned                                            222,578                     -


             Current
              liabilities                                     12,691,303            13,562,145




           Lease
            Liability                                          1,032,645               814,786



          Deferred tax liability, net


                        Total
                         liabilities                          13,723,948            14,376,932





           Ordinary
            shares                                               918,844               918,844


           Additional
            paid-in
            capital                                          117,445,969           117,445,969


           Statutory
            reserve                                            8,350,141             8,350,141


           Retained
            earnings                                        (77,913,299)         (75,174,041)


             Beginning
              balance                                       (87,749,530)         (77,913,299)


             Net income
              (loss)
              attributable
              to Acorn                                         9,836,231             2,739,258


             Appropriation of statutory reserve fund


           Accumulated
            other
            comprehensive
            income                                            45,635,771            40,594,179


           Treasury
            stock, at
            cost                                            (28,320,324)         (28,320,324)


                        Total Acorn
                         International,
                         Inc.
                         shareholders'                        66,117,102            63,814,768
    equity




            Noncontrolling
            interests                                            323,014               317,841



                        Total
                         equity                               66,440,116            64,132,609



                        Total
                         liabilities
                         and equity                          $80,164,064           $78,509,540

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SOURCE Acorn International, Inc.