KongZhong (KONG) has signed a definitive agreement to acquire 100% of Sharp Edge Group, a Beijing-based wireless value-added company (WVAS).

A cash consideration of US$7 million is expected to be paid within the next fifteen working days, and the closing is expected to take place by the end of February.

Additional consideration of up to US$28 million may be paid on an "earn-out" basis in the next 15 months.

Sharp Edge is a second-generation (2G) WVAS provider and serves mainly the customers of China Telecom, China Netcom, and China Unicom.

Sharp Edge primarily provides services on the short messaging service (SMS), interactive voice response (IVR), and color ring-back tone (CRBT) technology platforms.

For the 2005 calendar year, Sharp Edge reported net income of approximately $1.95 million (unaudited). Approximately 51% of its 2005 revenue was from the customers of China Telecom, 26% was from the customers of China Netcom, and 14% was from the customers of China Unicom. Customers of China Mobile contributed the remaining 9% of its 2005 revenue.

The total acquisition price is capped at $35 million and is based on 5 times of Sharp Edge's net profit during the period from October 1, 2005 to September 30, 2006.


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