China Internet Cafe Holdings Group Announces Second Quarter 2012 Financial Results

SHENZHEN, China, Aug. 14, 2012 /PRNewswire-Asia-FirstCall/ -- China Internet Cafe Holdings Group, Inc. ("CICC" or the "Company") (OTCQB: CICC), one of the largest owners and chain operators of internet cafes in China, today announced its financial results for its second quarter of 2012.

Second Quarter of 2012 Financial Results

For the quarter ended June 30, 2012, revenue decreased approximately $1.75 million or 20% to approximately $6.88 million, as compared to approximately $8.63 million for the quarter ended June 30, 2011. The decrease in revenue was mainly attributable to decrease in time usage of the Company's computers in the internet cafes as a result of the relocation of 13 internet cafes in the quarter ended June 30, 2012. Starting from 2012, the Shenzhen local government has ordered certain factories to be relocated to new districts. To maintain current customer base of company's cafes, which is primarily consisting of factory workers, the Company relocated 13 internet cafes to the districts where the factories are moved. Currently the Company is in the process of relocating another 10 internet cafes and expects that its revenue will recover after the completion of relocation in the third quarter of 2012.

At June 30, 2012, the Company issued over 2.65 million membership cards, a 6% increase from 2.50 million at the end of the first quarter of 2012. Approximately 50% of all registered users were active in the past year and all of them have used their IC card at least once in the past year.

"Customers continue to visit our cafes because of our convenient locations, high speed connectivity and new computers which offer a wide variety of games and movies, creating an excellent experience" said Mr. Dishan Guo, Chief Executive Officer of the Company. "We will continue to balance our growth between existing cafes, new café openings, and acquisitions. With approximately $22.3 million of cash and strong cash flows, we are evaluating several attractive options to deploy our capital organically and through acquisitions."

Gross profit for the quarter ended June 30, 2012 decreased by approximately $1.62 million, to approximately $1.94 million, down 45% from approximately $3.55 million for the quarter ended June 30, 2011. Gross profit margin was 28% for the quarter ended June 30, 2012, as compared to 41% for the same period in 2011. The decrease in gross profit was mainly attributable to the increase in salary and benefits, rent, utilities, depreciation, and other costs, as well as the decrease in revenue resulting from the relocation of 13 internet cafes. The increase in salary and benefits, rent, depreciation, and other costs was mainly in connection with the opening of one new internet cafe in the quarter ended June 30, 2012 and the operation of eight internet cafes opened in late 2011.

Operating expenses are composed of general and administrative expenses and loss on disposal of fixed assets. General and administrative expenses mainly consist of overheads of our headquarters in Shenzhen and fees paid to legal counsel, auditor, and consultants. Our general and administrative expenses decreased by approximately $0.31 million, or 56% to approximately $0.24 million as compared to approximately $0.55 million for the quarter ended June 30, 2011. In the quarter ended June 30, 2011, we paid stock based compensation to our consultants in consideration of their services in connection with our private placement transaction in 2011 while in the quarter ended June 30, 2012, we did not incur such expenses. However, in the quarter ended June 30, 2012, we incurred loss of approximately $0.53 million resulting from disposal of lease hold improvement due to the relocation of 13 internet cafes as compared $0 loss for the same period in 2011.The decrease in general and administrative expenses was offset by the loss on disposal of leasehold improvement and led to an increase of our operating expenses  of approximately $0.23 million, or 41%, to approximately $0.77 million for the quarter ended June 30, 2012 from approximately $0.55 million for the same period in 2011. We expect that our operating expenses will continue to increase in the third quarter due to our relocation of another ten internet cafes and will decrease after the completion of relocation of our internet cafes.

Net income decreased by approximately $4.20 million, or 77%, to approximately $1.23 million during the three months ended June 30, 2012 from approximately $5.43 million during the same period in 2011 as a result of the factors described previously. The company expects to generate higher net profit after the completion of the internet cafes' relocation by the end of the third quarter of 2012.

Financial Condition

As of June 20, 2012, the Company had $22.32 million in cash and cash equivalents, as compared to approximately $22.00 million at March 31, 2012 due to growth in cash flows from operations. CICC operates a cash business, with revenue from IC cards credited in its bank account approximately 15 days after a credit is purchased. The Company does not run accounts receivable balances.

Deferred revenue represents unused balances of the prepaid amounts from the IC cards. The outstanding customer balances were $1,921,114 and $2,057,586 as of June 30, 2012 and March 31, 2012, respectively, and were included in deferred revenue on the balance sheets. Management has evaluated the deferred revenue balance and has determined any potential revenue from the unused balance to be immaterial at the quarter ended June 30, 2012.

As of June 30, 2012, shareholders' equity was approximately $25.5 million as compared to approximately $24.3 million at March 31, 2012. Net cash provided by operating activities was approximately $3.84 million for the six months ended June 30, 2012.

Business Updates

The Company opened three new internet cafes in June and July 2012, bringing the total number of operating locations to 62 from 59 in Shenzhen.

The three new locations were opened throughout Shenzhen for a total capital investment of approximately $1.58 million with a combined capacity of over 755 computers.  Locations for the new cafes were identified by the Company's dedicated team which sources prime locations within walking distance to factories, and within highly populated and dense geographies such as universities, industrial zones and business centers. Management expects to initially have approximately 9,750 registered users across the new locations in the first month of operation, with average revenue per computer of $0.45/hour. After the first month, the Company estimates the total client base for the three new cafes will grow to reach approximately 2.67 million users.

The Company plans to drive same store sales by offering new loyalty programs such as online gaming competitions, while increasing the availability of high quality, value-added content such as movies, TV shows and video games. In 2012, a credit rewards program will allow loyal customers to earn extra gaming time and encourage credit consumption. For example, customers recharging 100 RMB into the IC card will receive a 20% credit back the following month. New cafes will be outfitted with private rooms that are equipped with surround sound and movie screening areas. It will also include team gaming and tournament play areas with LCD screens for spectator viewing to drive incremental player utilization and the average revenue per user.

Management is actively evaluating potential acquisitions outside Shenzhen in order to expand its geographic footprint and to eventually secure a national internet café license. The Company will follow a strict set of criteria for all acquisition candidates in order to maximize returns to shareholders. The Company believes it will consummate a transaction by the winter of 2012.

About China Internet Cafe Holdings Group, Inc.

Since opening its first internet cafe in 2006 under the name Shenzhen Junlong Culture Communication CO. Ltd., China Internet Cafe Holdings Group, Inc. has expanded quickly to 62 cafes in Shenzhen, Guangdong province, China. The Company provides high quality, affordable internet services to consumers who purchase reloadable cards. Customers can access a range of online services, including email, web surfing, watching movies, online gaming, voice over IP, and social media in a comfortable, friendly and safe environment. CICC offers a variety of internet connectivity stations with varying speeds, monitor sizes and seating arrangements.

Safe Harbor Statements

This press release may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and 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 involve inherent risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including risks outlined in the Company's public filings with the Securities and Exchange Commission, including the Company's registration statement on Form F-1, as amended. All information provided in this press release is as of the date hereof. Except as required by law, the Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.

Contact Information:

China Internet Cafe Holdings Group, Inc.
Mr. Dishan Guo
Chief Executive Officer
Phone: +86-755-8989-1398
Email: [email protected]

-- FINANCIAL TABLES –

The accompanying notes are an integral part of the condensed consolidated financial statements

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

SOURCE China Internet Cafe Holdings Group, Inc.