SearchMedia Reports Unaudited Financial Results for the First Six Months of 2012

Source:  SearchMedia Holdings Limited

SearchMedia Holdings Limited (“SearchMedia”) (NYSE MKT:IDI),(NYSE MKT:IDI.WS), one of China's leading nationwide multi-platform media companies, today reported unaudited financial results for the six months ended June 30, 2012

Financial Highlights for the Six Months ended June 30, 2012

• Revenue decreased 43% year-on-year from $28.3 million to $16.1 million.
• Operating profit increased from $1.8 million to $10.8 million year-on-year.
• Net profit increased from $0.7 million to $9.8 million year-on-year mainly attributable to one time gain on disposal of subsidiaries and gain from extinguishment of acquisition consideration.
• Acquisition consideration payable reduced from $23.2 million at year end 2011 to $10.1 million at June 30, 2012.
• Upon closing of the $6.1 million equity investment and conversion of the $3.1 million convertible notes including accrued interest announced separately today, shareholders’ equity will increase to $7.2 million.

Unaudited Financial Results for the Six Months ended June 30, 2012
Revenue decreased 43% to $16.1 million in the first six months of 2012 from $28.3 million for the same period last year primarily due to the divestiture of Zhejiang Continental and Shenyang Jingli, the streamlining of Ad-Icon Shanghai’s non-profitable elevator business and the termination of our VIE structure.

Gross profit decreased year-on-year from $8.1 million in the same period last year to $2.6 million as a result of a decrease in revenue during the period, divestiture of Shenyang Jingli, Zhejiang Continental, and streamlining of the Ad Icon Shanghai elevator business while still incurring contracted advertising space lease costs. Gross margin decreased to 16% from 29% in the same period last year due to higher concession costs, higher network expansion cost, higher percentage of agency business in advertising revenue, and recent subsidiaries separation and elevator business streamlining.

Total operating expenses for the first six months of 2012 were $4.8 million compared to $6.4 million for the prior year period as a result of business streamlining and management's continued efforts to control costs. Sales and marketing expenses decreased 49% to $1.3 million from $2.5 million in the prior year period, primarily reflecting a proportional decrease in sales commissions as a result of lower revenue. General and administrative expenses decreased 8% to $3.5 million from $3.9 million in the prior year period, reflecting a decrease in salary expense driven by business streamlining and management’s efforts in controlling costs.

Operating profit was $10.8 million compared to $1.8 million due to the $13.0 million gain on disposal of subsidiaries and extinguishment of certain acquisition consideration payable. Net profit for the first half of 2012 was $9.8 million compared to $0.7 million in the prior year period due to a gain on the disposal of subsidiaries and the extinguishment of certain acquisition consideration payable.

Adjusted net loss for the first half of 2012 was $2.0 million compared with net profit of $0.7 million after excluding non-cash items such as gain from the extinguishment of acquisition consideration payable of $3 million, gain on disposal of subsidiaries of $10 million, loss on abandonment of lease of $0.5 million, loss on disposal of fixed assets of $0.4 million, and share based compensation of $0.3 million. Please refer to the non-GAAP reconciliation table provided at the end of the release for a period-over-period comparison of non-cash adjustments.

Upon closing of the $6.1 million equity investment announced separately today, cash will increase to $9.3 million. Earnout liabilities as of June 30, 2012 totaled $10.1 million down from $23.2 million at December 31, 2011. Additional reduction of the earnout liability is expected in third quarter of 2012. For the six months ended June 30, 2012, the Company had a weighted average number of basic and diluted shares outstanding of 18.2 million shares.

Peter W.H. Tan, Chief Executive Officer of SearchMedia remarked, “The first six months of 2012 are an important transition period for the Company. We have strategically streamlined our business by closing unprofitable offices and divesting certain subsidiaries and eliminating the underlying earnout liability in order to pursue more accretive concession opportunities. These actions resulted in reduced performance in the first half of 2012. However, as shown by the recent announcement of our nationwide concession with Home Inns & Hotel Management, Inc.(“Home Inns”), and our new Luxury Mall LCD Advertising Joint Venture we believe that we will create significant shareholder value through strategic, long term proprietary concessions with prominent partners. We have additional concessions in our pipeline and we expect additional announcements during the balance of 2012. We expect these concessions will result in SearchMedia becoming a much larger and more profitable company and we will start to see the impact in the second half of 2012 as a result of the improved cash flow and cost savings. We estimate revenue per location of approximately $200,000 for the Luxury Mall LCD Joint Venture with a net margin of 40% and over $120,000 in revenue per location for the Home Inns concession with net margin of 30%. The Company also eliminated its VIE structure in December 2011 in order that our shareholders have a direct interest in all of the operations and subsidiaries, in addition to improving transparency.