QXM Qiao Xing Mobile Communication Co., Ltd. Ordinary Shares

BEIJING, Oct. 29 /PRNewswire-Asia-FirstCall/ -- Qiao Xing Mobile Communication Co., Ltd. (NYSE:QXM) ("QXM" or the "Company"), a domestic manufacturer of mobile handsets in China, today announced its unaudited second quarter financial results for the three months ended June 30, 2009. Second Quarter 2009 Results -- Revenues were RMB578.9 million (US$84.8 million) compared to RMB383.7 million in 2Q08. -- Handset shipments were 658,000 units compared to 566,000 units in 2Q08. -- Gross margin was 22.9% compared to 34.7% in 2Q08. -- Operating income was RMB81.3 million (US$11.9 million) compared to RMB76.1 million in 2Q08. -- Net loss attributable to holders of ordinary shares was RMB68.4 million (US$10.0 million) in 2Q09, which resulted mainly due to significant non-cash charges relating to the accounting for the convertible notes issued by the Company in May 2008. Revenues for the second quarter of 2009 were RMB578.9 million (US$84.8 million), compared with RMB383.7 million in the same period of 2008. The increase from the second quarter of 2008 was primarily due to higher unit shipments and an increase in the average selling price ("ASP") of products sold in the second quarter of 2009. Total handset shipment in the second quarter of 2009 was 658,000 units, compared with 566,000 units in the same period of 2008. The increase in handset shipments compared to the same period of last year was primarily due to the launch of new VEVA handset models and more aggressive pricing to drive sales in a deteriorated uncertain economic environment. In addition, shipment in the second quarter of 2008 was also negatively impacted by the earthquake that took place in Sichuan province in May 2008. The ASP of handset products increased to RMB872 (US$128) in the second quarter of 2009, as compared to RMB663 in the second quarter of 2008. The higher ASP compared to the same period last year was primarily due to the sale of a greater mix of the high-end VEVA series handset models. Shipment of VEVA series products accounted for 91.0% of total shipment in the second quarter of 2009, compared with 16.7% in the same period of 2008. Gross profit in the second quarter of 2009 was RMB132.6 million (US$19.4 million), compared with RMB133.0 million in the same period of 2008. Gross margin was 22.9% in the second quarter of 2009, compared with 34.7% in the same period of 2008. The year-over-year decline in gross margin resulted primarily due to more aggressive product pricing and a decline in the use of the TV infomercial arrangement under which handsets were sold to infomercial companies at a higher price, but in return, the Company bore the airtime and logistic costs. Selling and distribution ("S&D") expenses in the second quarter of 2009 were RMB31.7 million (US$4.6 million), compared with RMB33.2 million in the same period of 2008. Airtime costs incurred on TV infomercial sales were RMB23.0 million in the second quarter of 2009, compared to RMB31.6 million in the second quarter of 2008. The decrease in airtime costs was however offset by higher payroll costs and other advertising and promotion expenses. General and administrative ("G&A") expenses were RMB11.9 million (US$1.7 million), compared with RMB12.7 million in the same period of 2008. Share- based compensation expenses recognized in G&A were RMB2.8 million (US$0.4 million) in the second quarter of 2009, compared to RMB2.9 million in the second quarter of 2008. Research and development ("R&D") expenses were RMB6.5 million (US$0.9 million), compared to RMB8.0 million in the same period of 2008. The lower R&D expenses comparing with the same period of last year was primarily due to lower purchases of materials used for R&D activities. Total share-based compensation expenses, which have been allocated to S&D, G&A and R&D expenses, decreased to RMB3.3 million (US$0.5 million) in the second quarter of 2009 from RMB3.6 million in the same period of 2008. Operating income in the second quarter of 2009 was RMB81.3 million (US$11.9 million), compared to RMB76.1 million in the second quarter of 2008. Net loss attributable to holders of ordinary shares in the second quarter of 2009 was RMB68.4 million (US$10.0 million), compared to an income of RMB133.4 million in the same period of 2008. The net loss in the second quarter of 2009 resulted mainly due to the following non-cash charges that arose on the accounting for the convertible notes issued by the Company in May 2008: Three months ended June 30, March 31, June 30, 2008 2009 2009 RMB RMB RMB Non-cash interest expense (13,057) (48,980) (67,265) Non-cash gain (loss) on remeasurement of embedded derivatives 113,730 42,137 (51,635) Net non-cash gain (loss) 100,673 (6,843) (118,900) Basic and diluted loss per share were both RMB1.44 (US$0.21) in the second quarter of 2009. For the second quarter of 2008, basic income per share was RMB2.82 and diluted income per share was RMB0.82. Foreign Exchange Rate Used The United States dollar (US$) amounts disclosed in this press release are presented solely for the convenience of the reader. Translations of amounts from Renminbi (RMB) into United States dollars for the convenience of the reader were calculated at the noon buying rate of US$1.00 = RMB6.8302 on June 30, 2009 in The City of New York for the cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on June 30, 2009, or at any other certain date. The percentages stated are calculated based on RMB. About Qiao Xing Mobile Communication Co., Ltd. Qiao Xing Mobile Communication Co., Ltd. is a domestic manufacturer of mobile handsets in China. The Company manufactures and sells mobile handsets based primarily on GSM, TD-SCDMA, and WCDMA. It operates its business primarily through CEC Telecom Co., Ltd., or CECT, its 96.6%-owned subsidiary in China. In 2008, Qiao Xing Mobile introduced the VEVA series mobile phones and began to open its own retail stores to target the mid income consumers in major cities throughout China. Through its manufacturing facility in Huizhou, Guangdong Province, China, and two research and development centers in Huizhou and Beijing, the Company develops, produces and markets a wide range of mobile handsets, with increasing focus on differentiated products that generally generate higher profit margins. For more information, please visit http://www.qxmc.com/ . Safe Harbor Statement This announcement contains forward-looking statements, as defined in the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. In some cases, these forward-looking statements can be identified by words or phrases such as "aim," "anticipate," "believe," "continue," "estimate," "expect," "intend," "is /are likely to," "may," "plan," "potential," "will" or other similar expressions. Statements that are not historical facts, including statements about QXM'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. Information regarding these factors is included in our filings with the Securities and Exchange Commission. QXM does not undertake any obligation to update any forward-looking statement, except as required under applicable laws. All information provided in this press release is as of October 29, 2009, and QXM undertakes no duty to update such information, except as required under applicable laws. For further information, please contact: Lucy Wang Qiao Xing Mobile Communication Co., Ltd. Tel: +86-10-8219-3883 Email: Qiao Xing Mobile Communication Co., Ltd. and Subsidiaries Unaudited Condensed Consolidated Balance Sheets (Amounts in thousands) December 31, June 30, 2008 2009 RMB RMB Assets Cash 2,907,148 2,891,479 Restricted cash 136,299 120,967 Accounts receivable, net 462,282 567,500 Bills receivable 43,516 4,410 Inventories 183,169 168,393 Prepayments to suppliers 363,907 372,004 Prepaid expenses and other current assets 38,996 34,356 Deferred income taxes 6,994 9,336 Deferred debt issuance costs, net 34,689 19,224 Total current assets 4,177,000 4,187,669 Property, machinery and equipment, net 167,233 162,050 Land use rights 35,304 34,902 Equity investment 7,803 7,803 Goodwill 112,814 112,814 Other intangible assets, net 22,766 20,386 Total assets 4,522,920 4,525,624 Liabilities and equity Short-term borrowings 983,950 864,500 Accounts payable 52,047 93,677 Prepayments from customers 42,551 29,568 Accrued liabilities 50,014 84,059 Amounts due to related parties 11,155 17,319 Other payables and current liabilities 7,227 16,830 Income taxes payable 38,462 25,064 Embedded derivative liability 124,130 133,768 Convertible notes 206,211 306,701 Total current liabilities 1,515,747 1,571,486 Deferred income taxes 320 190 Total liabilities 1,516,067 1,571,676 Equity Shareholders' equity 2,914,788 2,858,973 Noncontrolling interests 92,065 94,975 Total equity 3,006,853 2,953,948 Total liabilities and equity 4,522,920 4,525,624 Qiao Xing Mobile Communication Co., Ltd. and Subsidiaries Unaudited Condensed Consolidated Statements of Operations (Amounts in thousands, except share and per share data) Three months ended June 30, March 31, June 30, 2008 2009 2009 RMB RMB RMB Revenues 383,689 460,756 578,884 Cost of goods sold (250,666) (378,498) (446,306) Gross profit 133,023 82,258 132,578 Selling and distribution expenses (33,153) (20,740) (31,727) General and administrative expenses (12,680) (11,988) (11,922) Research and development expenses (7,963) (6,992) (6,487) Amortization of intangible assets (3,158) (1,190) (1,190) Operating income 76,069 41,348 81,252 Interest income 6,589 4,185 2,789 Interest expense (35,635) (68,724) (82,770) Foreign exchange (loss) gain, net (2,502) 654 (172) Gain (loss) on remeasurement of embedded derivatives 113,730 42,137 (51,635) Other (loss) income, net (3,975) 136 (198) Income (loss) before income tax expense 154,276 19,736 (50,734) Income tax expense (19,005) (12,665) (15,488) Net income (loss) 135,271 7,071 (66,222) Net income attributable to noncontrolling interests (1,863) (756) (2,155) Net income(loss) attributable to holders of ordinary shares 133,408 6,315 (68,377) Income (loss) per ordinary share: Basic 2.46 0.10 (1.44) Diluted 0.82 0.10 (1.44) Weighted average number of shares outstanding: Basic 49,467,000 47,610,000 47,610,000 Diluted 54,333,000 47,610,000 47,610,000 DATASOURCE: Qiao Xing Mobile Communication Co., Ltd. CONTACT: Lucy Wang, Qiao Xing Mobile Communication Co., Ltd., +86-10-8219-3883, Web site: http://www.qxmc.com/

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