Chinese mobile value-added service company KongZhong (KONG) has announced its unaudited second quarter 2007 financial results.

Total revenues were US$16.96 million and net income totaled US$0.04 million in the second quarter of 2007, a decrease of 98% sequentially. Diluted US GAAP earnings per ADS were US$0.00 for the second quarter.

Yunfan Zhou, chairman and CEO 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."

Total WVAS revenues for the second quarter decreased 16% sequentially to US$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%.

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%.

The WVAS cost of revenues in the second quarter of 2007 totaled US$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 mobile advertising revenues, which were mainly generated from KongZhong's wireless Internet portal, increased 92% sequentially to US$223,000 in the second quarter of 2007.

Operating expenses related to the company's wireless Internet sites were US$2.37 million, which included US$1.53 million in marketing and advertising expenses.

Non-GAAP income in the second quarter of 2007 was US$0.94 million, a 56% decrease sequentially. Diluted Non-GAAP earnings per ADS were US$0.03.

At the end of the quarter, the company had US$118.75 million in cash and cash equivalents. Cash flow from operating activities totaled US$2.40 million in the second quarter of 2007.

The company expects total revenues for the third quarter of 2007 to be between US$16.5 million and US$17.5 million.


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