Acorn International Reports Second Quarter 2020 Financial Results

SHANGHAI,Sept. 30,2020 -- 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 quarterended June 30,2020.

Second Quarter Estimated Results Highlights

Net revenues increased 3.6% year-over-year in Q2 2020 to US$8.7 million.

Gross profit decreased 0.8% year-over-year in Q2 2020 to US$6.0 million.

Gross margin was 69.4% in Q2 2020,compared to 72.4% in Q2 2019.

Loss from continuing operations was US$0.7 million in Q2 2020,compared to a loss from continuing operations of US$0.4 million in Q2 2019.

Net income was US$2.0 million in Q2 2020 as compared to net income of US$0.1 million in Q2 2019. In Q2 2020,the Company recorded a $2.5million gain from the sale of shares of E-Money Holding Co.,Ltd. ("E-Money") (formerly known as Shanghai Yimeng Software Technology Co.,Ltd.).

Preliminary Financial Results for the Second Quarter of 2020:

Total net revenues were US$8.7 million in the second quarter of 2020,up 3.6% from US$8.4 million in the second quarter of 2019,primarily due to the growth in sales of Acorn Fresh products and the inclusion of Acorn Digital Services in revenues (in the year ago period,this business segment was included in other operating income). These increases were partially offset by lower sales of Babaka branded products and lower revenues from oxygen-generating products related primarily to the sale of the Company's subsidiary Zhuhai Acorn Electronic Technology Co.,Ltd ("Zhuhai Acorn").

Cost of sales in the second quarter of 2020 was US$2.7 million,up 15% from US$2.3 million in the second quarter of 2019. The increase was primarily attributable to the inclusion of Acorn Digital Services in cost of sales in the second 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 second quarter of 2020 was US$6.0 million,down 0.8% from US$6.1 million in the second quarter of 2019. Gross margin was 69.4% in the second quarter of 2020,compared with 72.4% in the second quarter of 2019.

Total operating expenses in the second quarter of 2020 were US$6.8 million,up 5.3% from US$6.4 million in the second quarter of 2019. The increase was primarily due to a slight increase in media spending which was partially offset by lower general and administrative expenses.

Loss from continuing operations was US$0.7 million in the second quarter of 2020,as compared to a loss from continuing operations of US$0.4 million in the second quarter of 2019.

Other income was US$2.6 million in the second quarter of 2020,primarily due to a US$2.5million gain from the sale of shares of E-Money.

Net income from continuing operations was US$2.0 million in the second quarter of 2020. This compares to net income from continuing operations of US$0.3 million in the second 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$26 thousand in the second quarter of 2020,compared to net loss from discontinued operations of US$0.1 million in the second quarter of 2019.

Net income attributable to Acorn was US$2.0 million in the second quarter of 2020. This compares to net income attributable to Acorn of US$0.1 million in the second quarter of 2019.

Preliminary Financial Results for the First Half of 2020:

Total net revenues were US$16.7 million in the first half of 2020,down 1.9% from US$17.0 million in the first half 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 Zhuhai Acorn subsidiary.

Cost of sales in the first half of 2020 was US$5.2 million,up 10.7% from US$4.7 million in the first half of 2019. The increase was primarily attributable to the inclusion of Acorn Digital Services in cost of sales in the first half of 2020 (in the year ago period,in the product mix.

Gross profit in the first half of 2020 was US$11.5 million,down 6.6% from US$12.4 million in the first half of 2019. Gross margin was 69.1% in the first half of 2020,compared with 74.3% in the first half of 2019.

Total operating expenses in the first half of 2020 were US$12.6 million,up 3.2% from US$12.2 million in the first half of 2019. The increase was primarily due to a slight increase in media spending which was partially offset by lower general and administrative expenses.

Loss from continuing operations was US$1.0 million in the first half of 2020,as compared to income from continuing operations of US$0.2 million in the first half of 2019.

Other income was US$5.7 million in the first half of 2020,primarily due to a US$5.6million gain from the sale of shares of E-Money. Other income in the first half of 2019 was US$4.9 million,and includes aUS$3.8million gain on the sale of the Company's former principal office inShanghaito a third party.

Net income from continuing operations was US$4.8 million in the first half of 2020. This compares to net income from continuing operations of US$5.2 million in the first half of 2019. Net loss from discontinued operations,was US$54 thousand in the first half of 2020,compared to net loss from discontinued operations of US$0.2 million in the first half of 2019.

Net income attributable to Acorn was US$4.7 million in the first half of 2020. This compares to net income attributable to Acorn of US$4.9 million in the first half of 2019.

As of June 30,2020,Acorn's estimated cash and cash equivalents,with restricted cash,totaled US$19.9 million. This compares to cash and equivalents,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.

Receipt of Non-binding Proposal to Acquire the Company

OnAugust 17,the board of directors of the Company (the "Board"),received a preliminary non-binding proposal letter,datedAugust17,2020(the "Proposal"),from Mr.Robert W. Roche,Executive Chairman of the Company,to acquire all of the outstanding shares of the Company not already owned by the Buyer Vehicle (as defined below) atUS$15.22per American Depositary Share (the "ADS," each ADS representing twenty ordinary shares) orUS$0.761per ordinary share in cash,subject to certain conditions (the "Proposed Acquisition"). According to the Proposal,it is anticipated that the Buyer Vehicle or its shareholders will control approximately 75% of the outstanding shares of ordinary shares of the Company.

According tothe Proposal,Mr.Robert W. Rochewill form a transaction vehicle (the "Buyer Vehicle") for the purpose of pursuing the proposed transaction.It is currently expected that substantially all of the capital for the Proposed Acquisition would be borrowed from third parties in the form of debt funding.In that regard,the Buyer Vehicle has entered into an agreement with a third party lender pursuant to which,subject to certain terms and conditions,such lender will provide such proposed funds. The third party lender will require a timely opportunity to conduct customary legal,financial and accounting due diligence,and satisfactory completion of such due diligence is a condition to the lender providing the proposed funds.

The Special Committee of the Board has conducted several meetings to consider the Proposal. No decisions have been made with respect to the Company's response to the Proposed Acquisition,and has been engaged in discussions with representatives of the Buyer Vehicle regarding the terms of the Proposed Acquisition. There can be no assurance that any definitive offer will be made,that any agreement with respect thereto will be reached or executed,or that this or any other transaction will be approved or consummated.

About Acorn International,Inc.

Acorn International is a leading marketing and branding company inChina,leveraging a twenty-year direct marketing history to monetize brand IP,content creation and distribution,and product sales,through digital media inChina. For more information visitwww.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 whether any definitive offer will be made with respect to the Proposed Acquisition,whether any agreement with respect thereto will be reached or executed,and whether the Proposed Acquisition or any other transaction will be approved or consummated,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,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 inChina,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 2019 annual report on Form 20-F filed with SEC onJune 3,2020. 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 4 of the Company's 2019 annual report on Form 20-F filed with the SEC on June 3,2020. The Company's actual results of operations for the second quarter and first half 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.

-Financial Tables Follow -

ACORN INTERNATIONAL,INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(In US dollars)

For the three months

ended 6/30/2020

For the six months

ended 6/30/2020

2019

2020

2019

2020

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Net revenues

Direct sales

7,080,222

$ 7,400,631

$ 14,284,404

$ 14,295,213

Distribution sales

1,305,523

1,285,341

2,754,845

2,423,600

Total net revenues

8,385,745

8,685,972

17,039,249

16,718,813

Cost of revenues

Direct sales

(1,918,287)

(2,240,353)

(3,739)

(4,337,784)

Distribution sales

(396,953)

(421,231)

(916,850)

(832,558)

Total cost of revenues

(2,315,240)

(2,661,584)

(4,671,589)

(5,170,342)

Gross profit

Direct sales

5,161,935

5,160,278

10,529,665

9,957,429

Distribution sales

908,570

864,110

1,837,995

1,591,042

Total gross profit

6,070,504

6,024,388

12,367,660

11,548,471

72.4%

69.4%

74.3%

69.1%

Operating (expenses) income

Other selling and marketing expenses

(4,432,673)

(4,976,148)

(8,300,954)

(9,065,483)

General and administrative expenses

(2,456,675)

(2,236,374)

(4,917,081)

(4,374,492)

Other operating income,net

462,205

442,166

1,042,781

876,463

Total operating (expenses) income

(6,427,144)

(6,770,356)

(12,175,254)

(12,563,512)

Income (loss) from continuing

operations

(356,639)

(745,968)

192,406

(1,015,041)

Interest expense

-

21,378

-

-

Interest income

70,864

8,029

153,225

54,046

Other income (expenses),net

288,687

2,618,513

4,862,536

5,666,693

Income (loss) from continuing

operations before income taxes and

equity in losses of affiliates

2,912

1,901,952

5,208,167

4,705,698

Income tax - current

256,078

188,954

(51,507)

188,954

Income tax - deferred

-

(67,812)

-

(104,624)

Income (loss) from continuing

operations before equity in losses of

affiliates

258,990

2,023,094

5,156,660

4,790,028

Discontinued operations :

Income (loss) from discontinued operations

(127,636)

(26,383)

(230,512)

(54,270)

Income (loss) from discontinued

operations before equity in losses of

affiliates

(127,636)

(26,383)

(230,512)

(54,270)

Equity in losses of affiliates

-

-

-

-

Net income (loss)

131,354

1,996,711

4,926,148

4,735,758

Net income (loss) attributable to non-controlling

interests

(1,290)

(288)

(3,028)

(499)

Net income (loss) attributable to

Acorn International,Inc.

$132,644

$1,999

$4,929,176

$4,736,257

ACORN INTERNATIONAL,INC.

CONSOLIDATED BALANCE SHEETS

(In US dollars)

2019/12/31

2020/06/30

Cash and cash equivalents

$13,461,368

$19,803,702

Restricted cash

75,543

74,977

Accounts receivable,net

3,611,177

3,239,056

Inventory,762

2,274,861

Other prepaid expenses and current assets

7,112,042

6,956,071

Loan receivable

3,735

3,822,748

Loan to related party

14,804,052

14,809,594

Held-for-sale assets

468,191

466,520

Assets to be abandoned

116,559

-

Current assets

46,446,429

51,447,529

Property and equipment,net

559,964

594,888

Investments in affiliates

91,309

Available-for-sale securities

25,681,848

11,686,899

Right of use assets

1,785,194

1,310,135

Deferred tax assets,net

4,997,111

4,900,471

Other long-term assets

693,518

813,026

Total assets

$80,164,064

$70,844,257

Accounts payable

3,172,263

1,848,777

Dividend payable

133,405

131,206

Accrued expenses and other current liabilities

6,564,390

6,701,726

Lease Liability

881,349

833,027

Income taxes payable

1,648,520

1,482,499

Deferred revenue

68,798

16,948

Liabilities to be abandoned

222,578

-

Current liabilities

12,691,303

11,014,183

Lease Liability

1,032,645

610,926

Deferred tax liability,net

Total liabilities

13,723,948

11,625,109

Ordinary shares

918,844

918,844

Additional paid-in capital

117,445,969

117,969

Statutory reserve

8,350,141

8,141

Retained earnings

(77,913,299)

(73,177,042)

Beginning balance

(87,749,530)

(77,299)

Net income (loss) attributable to Acorn

9,836,231

4,257

Appropriation of statutory reserve fund

Accumulated other comprehensive income

45,635,771

33,769,027

Treasury stock,at cost

(28,320,324)

(28,405,594)

Total Acorn International,Inc. shareholders'

equity

66,117,102

58,345

Noncontrolling interests

323,014

317,804

Total equity

66,440,116

59,219,149

Total liabilities and equity

$80,257

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