BEIJING, Aug. 20 /Xinhua-PRNewswire/ -- KongZhong Corporation
(NASDAQ: KONG), one of China's leading providers of wireless
value-added services and a wireless media company providing news,
contents, community and mobile advertising services through its
wireless Internet sites, today announced its unaudited second
quarter 2007 financial results. Second Quarter 2007 Financial
Highlights: -- Total revenues were $16.96 million, in line with the
Company's second quarter revenue guidance of $16 million to $18
million. -- Total mobile advertising revenues increased 92%
sequentially to $223,000. -- US GAAP net income was $0.04 million.
Diluted earnings per ADS were $0.00. -- Non-GAAP net income was
$0.94 million. Non-GAAP diluted earnings per ADS were $0.03.
Non-GAAP Financial Measures are described and reconciled to the
corresponding GAAP measures in the section titled "Non-GAAP
Financial Measures". Commenting on the results, Yunfan Zhou,
Chairman and Chief Executive Officer said, "The first half year of
2007 was challenging for us given the tough operating environment
for wireless value-added services, and we expect that the tough
operating environment is likely to continue for some time. We are
happy that we have achieved double-digit quarter-over-quarter
growth in mobile advertising revenue for the fourth consecutive
quarter. We believe we are making good progress in our wireless
Internet business." Business Highlights: -- On June 29, 2007, the
Company announced its cooperation with MSN China, a Microsoft joint
venture in China, to be the sole content provider in China for the
news and information channel and mobile games channel of Mobile
Messenger 3.0. -- On July 19, 2007, the Company announced its
cooperation with Opera Software ASA to develop a "KongZhong Opera"
browser solution for Chinese mobile phone users with Kong.net as
the default home page. The "KongZhong Opera" browser is expected to
be offered for downloading at no charge and can enable mobile phone
users to browse both traditional Internet sites and WAP sites
through their mobile phones. Financial Results: (Note: Unless
otherwise stated, all financial statement amounts used in this
press release are based on US GAAP and denominated in US dollars.)
WVAS segment For the Three For the Three Months Ended Months Ended
Mar. 31, 2007 Jun. 30, 2007 (US$ thousands) (US$ thousands) WVAS
Revenues 2.5G: WAP $4,399 $2,062 MMS 4,130 3,582 JAVA(TM) 694 631
2G: SMS 8,563 7,216 IVR 1,017 2,158 CRBT 1,196 1,074 Total WVAS
revenues 19,999 16,723 WVAS Cost of revenues 9,204 8,552 WVAS Gross
profit 10,795 8,171 WVAS Operating expenses Product development
2,275 2,221 Sales & marketing 2,937 2,324 General &
administrative 2,167 1,956 Subtotal 7,379 6,501 WVAS Operating
income $3,416 $1,670 WVAS Gross margin 54 % 49 % WVAS Operating
margin 17 % 10 % Total WVAS revenues for the second quarter
decreased 16% sequentially to $16.72 million. Revenues from 2.5G
services accounted for approximately 38% of total WVAS revenues and
revenues from 2G services represented the remaining 62%. Revenues
from 2.5G services, which include services delivered using wireless
application protocol (WAP), multimedia messaging service (MMS), and
JAVA(TM) technologies, decreased 32% sequentially to $6.28 million.
WAP revenues in the second quarter of 2007 were $2.06 million, a
decrease of 53% sequentially, mainly due to a series of China
Mobile actions starting from May 2007. These included displaying a
GPRS service fee reminder to mobile phone users each time they
download a WAP product, and excluding KongZhong and other
third-party WAP service providers from the embedded menus of mobile
handsets that are customized for China Mobile. MMS revenues in the
second quarter of 2007 were $3.58 million, a decrease of 13%
sequentially. JAVA(TM) revenues in the second quarter were $0.63
million, a decrease of 9% sequentially. Revenues from 2G services,
including short messaging service (SMS), interactive voice response
(IVR), and color ring back tone (CRBT), decreased 3% sequentially
to $10.45 million in the second quarter of 2007. SMS revenues in
the second quarter of 2007 were $7.22 million, a decrease of 16%
sequentially, mainly due to the continuing effect of the policy
change introduced by China Unicom, China Telecom and China Netcom
starting from the fourth quarter of 2006 requiring users to confirm
new SMS subscriptions twice. IVR revenues in the second quarter of
2007 were $2.16 million, a 112% increase sequentially, as we
enhanced our marketing efforts in this area. CRBT decreased 10%
sequentially to $1.07 million in the second quarter of 2007. The
aggregate revenues from China Unicom, China Telecom and China
Netcom accounted for approximately 23% of the total second quarter
WVAS revenues, while revenues from China Mobile accounted for the
remaining 77%. This was consistent with the relative market
positions of the four major telecommunications operators in the PRC
mobile industry. WVAS Expenses The WVAS cost of revenues in the
second quarter of 2007 totaled $8.55 million, a decrease of 7%
sequentially, largely as a result of the decreased revenues. WVAS
gross margin in the second quarter of 2007 decreased to 49%
compared to 54% in the first quarter of 2007. Total WVAS operating
expenses in the second quarter of 2007 were $6.50 million, a
decrease of 12% sequentially. Product development expenses
decreased by 2% sequentially and represented 13% of revenues. Sales
and marketing expenses decreased by 21% sequentially and
represented 14% of revenues. General and administrative expenses
decreased by 10% sequentially and represented 12% of revenues. The
decrease in WVAS operating expenses was mainly due to the Company's
cost-controlling efforts. Wireless Internet segment For the Three
For the Three Months Ended Months Ended Mar. 31, 2007 Jun. 30, 2007
(US$ thousands) (US$ thousands) Mobile advertising revenues $116
$223 Other revenues 12 13 Total Revenues 128 236 Cost of revenues
182 158 Gross (loss) profit (54) 78 Operating expenses 2,447 2,372
Operating loss $(2,501) $(2,294) Total mobile advertising revenues,
which were mainly generated from KongZhong's wireless Internet
portal Kong.net, increased 92% sequentially to $223,000 in the
second quarter of 2007. Operating expenses related to the Company's
wireless Internet sites were $2.37 million, which included $1.53
million in marketing and advertising expenses. The Company's total
headcount increased from 777 as of March 31, 2007 to 790 as of June
30, 2007 Earnings US GAAP net income totaled $0.04 million in the
second quarter of 2007, a decrease of 98% sequentially. Diluted US
GAAP earnings per ADS were $0.00 for the second quarter. Non-GAAP
income in the second quarter of 2007 was $0.94 million, a 56%
decrease sequentially. Diluted Non-GAAP earnings per ADS were
$0.03. Balance Sheet and Cash Flow At the end of the quarter, the
Company had $118.75 million in cash and cash equivalents. Cash flow
from operating activities totaled $2.40 million in the second
quarter of 2007. Taxation On March 16, 2007, the National People's
Congress approved the Enterprise Income Tax Law ("new EIT Law")
that will be effective from January 1, 2008. The new EIT Law
establishes a new unified EIT rate of 25% for all enterprises. As
at the date of these unaudited condensed consolidated financial
statements are approved, detailed measures of the new EIT Law have
yet to be issued, specific provisions concerning the applicable
income tax rates, computation of taxable income, as well as
specific preferential tax treatments and their related transitional
provisions for the periods from 2008 and onwards have not been
clarified. The Company will evaluate the impact to its operating
results and financial positions of future periods as more detailed
implementation measures and other related regulations are
announced. Business Outlook: Based on information available on
August 20, 2007, the Company expects total revenues for the third
quarter of 2007 to be between $16.5 million and $17.5 million.
Conference Call: The Company's management team will conduct a
conference call at 8:30 am Beijing time on August 21, (8:30 pm
Eastern time and 5:30 pm Pacific time on August 20, 2007). A
webcast of this conference call will be accessible on the Company's
web site at http://ir.kongzhong.com/ . KongZhong Corporation
Condensed Consolidated Statements of Income (US$ thousands, except
percentages, per share data, and share count) (Unaudited) For the
Three For the Three For the Three Months Ended Months Ended Months
Ended Jun. 30, 2006 Mar. 31, 2007 Jun. 30, 2007 (Note 1) (Note 2)
(Note 3) Revenues $30,068 $20,127 $16,959 Cost of revenues 12,943
9,386 8,710 Gross profit 17,125 10,741 8,249 Operating expense
Product development 2,970 3,204 3,068 Sales & marketing 4,712
4,401 3,849 General & administrative 2,417 2,221 1,956 Subtotal
10,099 9,826 8,873 Operating income (expenses) 7,026 915 (624)
Non-operating income (expenses) Interest income 915 1,024 952
Investment income -- 208 -- Other expense (87) -- -- Subtotal 828
1,232 952 Income before tax expense 7,854 2,147 328 Income tax
expense 255 585 289 Net income $7,599 $1,562 $39 Basic earnings per
ADS $0.22 $0.04 $0.00 Diluted earnings per ADS $0.21 $0.04 $0.00
ADS outstanding (million) 34.89 35.58 35.58 ADS used in diluted EPS
calculation (million) 35.67 35.77 35.77 Note 1: The conversion of
Renminbi (RMB) into US dollar (USD) for the second quarter of 2006
is based on the weighted average rate of USD 1.00=RMB 8.0130 (The
exchange rate quoted by the People's Bank of China). Note 2: The
conversion of Renminbi (RMB) into US dollar (USD) for the first
quarter of 2007 is based on the weighted average rate of USD
1.00=RMB 7.7620 (The exchange rate quoted by the People's Bank of
China). Note 3: The conversion of Renminbi (RMB) into US dollar
(USD) for the second quarter of 2007 is based on the weighted
average rate of USD 1.00=RMB 7.6804 (The exchange rate quoted by
the People's Bank of China). KongZhong Corporation Condensed
Consolidated Statements of Cash Flows (US$ thousands) (Unaudited)
For the 6 Months For the 6 Months Ended Ended Jun. 30, 2006 Jun.
30, 2007 (Note 1) (Note 2) Cash Flows From Operating Activities Net
Income $16,208 $1,601 Adjustments Amortization of deferred stock
compensation 817 1,259 Depreciation and amortization 1,542 1,354
Disposal of property and equipment -- 8 Gain on sales of investment
(1,241) (208) Changes in operating assets and liabilities (8,517)
(1,464) Net Cash Provided by Operating Activities 8,809 2,550 Cash
Flows From Investing Activities Proceeds from sales of investment
1,741 208 Purchase of property and equipment (1,262) (908)
Acquisition of subsidiaries (6,139) (17,000) Net Cash Used in
Investing Activities (5,660) (17,700) Cash Flows From Financing
Activities Exercised employee share options 1,519 134 Net Cash
Provided by Financing Activities 1,519 134 Foreign Currency
Translation Adjustments 475 2,363 Net increase (decrease) in Cash
and Cash Equivalents $5,143 $(12,653) Cash and Cash Equivalents,
Beginning of Period $117,142 $131,402 Cash and Cash Equivalents,
End of Period $122,285 $118,749 Note 1: The conversion of Renminbi
(RMB) into US dollar (USD) for the first six months of 2006 is
based on the weighted average rate of USD 1.00=RMB 8.0321 (The
exchange rate quoted by the People's Bank of China). Note 2: The
conversion of Renminbi (RMB) into US dollar (USD) for the first six
months of 2007 is based on the weighted average rate of USD
1.00=RMB 7.7212 (The exchange rate quoted by the People's Bank of
China). KongZhong Corporation Condensed Consolidated Balance Sheets
(US$ thousands) (Unaudited) Jun. 30, 2006 Mar. 31, 2007 Jun. 30,
2007 (Note 1) (Note 2) (Note 3) Cash and cash equivalents $122,285
$115,362 $118,749 Accounts receivable (net) 18,900 14,234 12,454
Other current assets 2,424 2,567 2,813 Total current assets 143,609
132,163 134,016 Rental deposits 556 449 399 Intangible assets 2,226
1,809 1,628 Property and equipment (net) 3,080 3,128 3,223
Long-term investment -- -- -- Goodwill 4,434 32,987 33,499 Total
assets $153,905 $170,536 $172,765 Accounts payable $5,009 $6,428
$5,582 Other current liabilities 5,849 4,774 4,929 Total current
liabilities 10,858 11,202 10,511 Non-current deferred tax liability
-- 129 116 Minority interest 24 -- -- Total liabilities $10,882
$11,331 $10,627 Shareholders' equity 143,023 159,205 162,138 Total
liabilities & shareholders' equity $153,905 $170,536 $172,765
Note 1: The conversion of Renminbi (RMB) into US dollar (USD) is
based on the exchange rate of June 30, 2006 USD1.00=RMB 7.9956.
(The exchange rate quoted by the People's Bank of China). Note 2:
The conversion of Renminbi (RMB) into US dollar (USD) is based on
the exchange rate of March 31, 2007 USD1.00=RMB 7.7342 . (The
exchange rate quoted by the People's Bank of China). Note 3: The
conversion of Renminbi (RMB) into US dollar (USD) is based on the
exchange rate of June 30, 2007 USD1.00=RMB 7.6155 . (The exchange
rate quoted by the People's Bank of China). Non-GAAP Financial
Measures To supplement the unaudited condensed statements of income
presented in accordance with United States Generally Accepted
Accounting Principles ("GAAP"), the Company uses non-GAAP financial
measures ("Non-GAAP Financial Measures") of net income and net
income per diluted ADS, which are adjusted from results based on
GAAP to exclude certain infrequent or unusual or non- cash based
expenses, gains and losses. The Non-GAAP Financial Measures are
provided as additional information to help both management and
investors compare business trends among different reporting periods
on a consistent and more meaningful basis and enhance investors'
overall understanding of the Company's current financial
performance and prospects for the future. The Non-GAAP Financial
Measures should be considered in addition to results prepared in
accordance with GAAP, but should not be considered a substitute for
or superior to GAAP results. In addition, our calculation of the
Non-GAAP Financial Measures may be different from the calculation
used by other companies, and therefore comparability may be
limited. For the periods presented, the Company's non-GAAP net
income and non-GAAP net income per diluted ADS exclude, as
applicable, the amortization or write- off of intangibles, gain and
loss on investment, and non-cash stock-based compensation expense.
Reconciliation of the Company's Non-GAAP Financial Measures to the
GAAP financial measures is set forth below. For the Three For the
Three For the Three Months Ended Months Ended Months Ended Jun. 30,
2006 Mar. 31, 2007 Jun. 30, 2007 GAAP Net Income $7,599 $1,562 $39
Gain on sale of investment -- (208) -- Non-cash share-based
compensation 469 569 691 Amortization or write-off of intangibles
167 206 207 Non-GAAP Net Income $8,235 $2,129 $937 Non-GAAP diluted
net income per ADS $0.23 $0.06 $0.03 About KongZhong KongZhong
Corporation is one of China's leading providers of wireless
value-added services and a wireless media company providing news,
contents, community and mobile advertising services through its
wireless Internet sites. The Company delivers wireless value-added
services to consumers in China through multiple technology
platforms including wireless application protocol (WAP), multimedia
messaging service (MMS), JAVA(TM), short messaging service (SMS),
interactive voice response (IVR), and color ring-back tone (CRBT).
The Company also operates two wireless Internet sites, Kong.net and
Ko.cn, which enable users to access media, entertainment and
community content directly from their mobile phones. Safe Harbor
Statement This press release contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Such
forward-looking statements include, without limitation, statements
regarding trends in the wireless value-added services, wireless
Internet and mobile advertising industries and our future results
of operations, financial condition and business prospects. Although
such statements are based on our own information and information
from other sources we believe to be reliable, you should not place
undue reliance on them. These statements involve risks and
uncertainties, and actual market trends and our results may differ
materially from those expressed or implied in these forward looking
statements for a variety of reasons. Potential risks and
uncertainties include, but are not limited to, continued
competitive pressure in China's wireless value-added services,
wireless Internet and mobile advertising industries and the effect
of such pressure on prices; unpredictable changes in technology,
consumer demand and usage preferences in this market; the state of
and any change in our relationship with China's telecommunications
operators; our dependence on the billing systems of
telecommunications operators for our performance; changes in the
regulations or policies of the Ministry of Information Industry and
other relevant government authorities; and changes in political,
economic, legal and social conditions in China, including the
Chinese government's policies with respect to economic growth,
foreign exchange, foreign investment and entry by foreign companies
into China's telecommunications market. For additional discussion
of these risks and uncertainties and other factors, please see the
documents we file from time to time with the Securities and
Exchange Commission. We assume no obligation to update any
forward-looking statements, which apply only as of the date of this
press release. DATASOURCE: KongZhong Corporation CONTACT: Investor
Contact - Sam Sun, Chief Financial Officer, +86-10-8857-6000, or
fax, +86-10-8857-5891, or ; or Media Contact - Xiaohu Wang,
Manager, +86-10-8857-6000, or fax, +86-10-8857-5900, or , both of
KongZhong Corporation Web site: http://www.kongzhong.com/
http://ir.kongzhong.com/
Copyright