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Linktone Reports Unaudited Second Quarter 2010 Financial Results
Sep 07, 2010 (06:09 PM EDT)


BEIJING, Sept. 7 /PRNewswire-Asia-FirstCall/ -- Linktone Ltd. (Nasdaq: LTON), one of the leading providers of wireless interactive entertainment services to consumers in China, today announced its unaudited financial results for the second quarter ended June 30, 2010.

    UNAUDITED RESULTS FOR THE SECOND QUARTER
    -- Gross revenues of $16.9 million, compared with $19.0 million in the
       first quarter of 2010 and $18.3 million in the second quarter of 2009.
    -- GAAP net income of $0.1 million, flat compared with the first quarter
       of 2010 and down from $0.9 million in the second quarter of 2009.
    -- GAAP net income from continuing operations of $0.1 million, flat
       compared with the first quarter of 2010 and down from $0.7 million in
       the second quarter of 2009.
    -- GAAP net income per fully diluted American Depositary Share ("ADS") of
       $0.00 or break-even, flat compared with the first quarter of 2010 and
       down from GAAP net income of $0.02 per fully diluted ADS in the second
       quarter of 2009.
    -- Non-GAAP net income* of $0.03 million, compared with non-GAAP net
       income of $0.2 million in the first quarter of 2010 and $0.9 million in
       the second quarter of 2009.
    -- Non-GAAP net income per fully diluted ADS of $0.00, flat compared with
       the first quarter of 2010 and down from $0.02 in the second quarter of
       2009.

*Non-GAAP measures exclude share-based compensation expense and impairment charges. Please refer to the table at the end of this release titled "Non-GAAP Reconciliation" which provides a reconciliation between GAAP and non-GAAP financial measures.

    RECENT BUSINESS DEVELOPMENTS
    -- Linktone increased its equity interest in InnoForm Group to 75% through
       the subscription of new shares in June 2010. InnoForm Group is a
       Singapore-based company with regional offices in Malaysia, Taiwan and
       Hong Kong, specializing in the development, distribution and licensing
       of edutainment and entertainment products. Linktone's majority
       shareholder, PT Media Nusantara Citra, owns a 12.5% equity interest in
       InnoForm Group, with the remaining 12.5% interest in InnoForm Group
       owned by an individual, the original shareholder of InnoForm Group. At
       the same time, InnoForm acquired a majority interest in GLD Investment
       Pte Ltd ("GLD") for a total consideration of Singapore Dollars ("SGD")
       13.0 million. GLD's principal asset is a commercial building in
       Singapore. Following this acquisition, InnoForm has used this building
       as its principal offices. GLD also settled the loan due to Linktone of
       SGD 11.5 million in full.

    -- Linktone purchased a mandatory convertible bond ("MCB") which is
       convertible into 51% of the outstanding share capital of PT Inti Idaman
       Nusantara, or IDN, for a total consideration of $13.2 million. IDN, an
       Indonesian company, specializes in providing telecom value added
       services in Indonesia, and the acquisition is in line with the
       Company's expansion strategy in the region. The bonds are interest free
       and will be converted into shares of IDN upon IDN's completion of its
       status into a foreign capital invested company as required by the
       relevant Indonesian laws and regulations. Linktone paid 65% of the
       total consideration in cash upon the closing of the transaction in June
       2010 and will pay the remaining 27.5% of the total consideration six
       months after the closing date and 7.5% of the total consideration 12
       months after the closing date.

Chief Executive Officer, Hary Tanoesoedibjo, stated, "Gross revenues for our telecom value added and other services for the second quarter were in line with our previous guidance. While we remain cautious on the timing of an improved regulatory landscape in China, we achieved modest profitability again during the second quarter, and maintained our strong cash position that enables us to execute from a position of strength in forming strategic partnerships and evaluating expansion opportunities abroad. Both of our recent acquisitions, Letang Game and InnoForm Group, reflect Linktone's efforts to identify opportunities that enhance our product offerings and expand our footprint in both China and Southeast Asian markets. Our management efforts remain focused on reinforcing Linktone's competitive standing and delivering sustainable profitability for 2010."

SECOND QUARTER REVENUE MIX

Linktone's second quarter revenue mix includes telecom value added services ("VAS") data-related services (SMS, MMS, WAP, and Java), VAS audio-related services (IVR and CRBT), sales of licensed edutainment and entertainment products, and others (casual game and enterprise services).

Data-related services revenue was $9.7 million, representing 58% of gross revenues, compared with $7.8 million or 42% of gross revenues for the first quarter of 2010. The sequential increase was primarily due to our short messaging services, which experienced an increase in sales primarily due to additional marketing and promotional initiatives during the second quarter.

    Data-related services breakdowns are as follows:
    -- Short Messaging Services ("SMS") revenue represented 51% of gross
       revenues, compared with 38% for the first quarter of 2010. SMS revenue
       was $8.6 million for the second quarter of 2010, compared with $7.2
       million for the first quarter of 2010.
    -- Multimedia Messaging Services ("MMS") revenue represented 2% of gross
       revenues, compared with 1% for the first quarter of 2010. MMS revenue
       was $0.3 million for the second quarter of 2010, compared with $0.1
       million for the first quarter of 2010.
    -- Java Gaming ("Java") revenue represented 5% of gross revenues compared
       with 3% for the first quarter of 2010. Java revenue was $0.8 million
       for the second quarter of 2010, compared with $0.5 million for the
       first quarter of 2010.

Audio-related services accounted for 18% of gross revenues, or $3.0 million, compared with 56% of gross revenues, or $10.8 million, for the first quarter of 2010. The sequential decrease was primarily due to lower sales of interactive voice response services resulting from tighter operating policies over interactive programs implemented by the telecommunication network operators in China starting in March 2010.

    Audio-related service breakdowns are as follows:
    -- Interactive Voice Response services (IVR) revenue decreased to 11% of
       gross revenues, compared with 49% for the first quarter of 2010. IVR
       revenue was $1.8 million for the second quarter of 2010, compared with
       $9.4 million for the first quarter of 2010.
    -- Color Ring-Back Tones ("CRBT") revenue was 7% of gross revenues,
       comparable with the first quarter of 2010. CRBT revenue was $1.2
       million for the second quarter of 2010, compared with $1.4 million for
       the first quarter of 2010.

Sales of licensed edutainment and entertainment products in several Southeast Asian countries by our newly acquired subsidiary, InnoForm Group, accounted for 23% of gross revenues, or $3.9 million for the second quarter of 2010.

MARGINS, EXPENSES AND BALANCE SHEET

Linktone's key operating benchmarks and balance sheet items for the second quarter of 2010 include the following:

    -- Gross profit margin increased to 36% of net revenues, or gross revenues
       minus business tax, compared with 27% for the first quarter of 2010 and
       34% for the second quarter of 2009. The sequential increase was
       primarily due to a lower proportion of gross revenue generated by IVR
       sales which are often offered pursuant to cooperative content
       agreements that require relatively high revenue share payments to
       business partners.
    -- Operating loss was 4.7% of net revenues, compared with operating income
       of 0.02% of net revenues for the first quarter of 2010 and 1.3% for the
       second quarter of 2009. The sequential loss was attributable to our
       telecom value added services and distribution of licensed edutainment
       and entertainment products by InnoForm, which both experienced lower
       sales volume.
    -- Operating expenses were $6.6 million, compared with $4.9 million for
       the first quarter of 2010 and $5.7 million for the second quarter of
       2009.  The increase was due to an increase in selling and marketing
       expenses in our VAS unit, and additional general and administrative
       expenses incurred in connection with InnoForm Group.
    -- Selling and marketing expenses were $2.7 million, compared with $2.1
       million for the first quarter of 2010 and $2.3 million for the second
       quarter of 2009.  The increase was primarily due to an increase in
       promotional and marketing initiatives for SMS services.
    -- Product development expenses were $0.7 million, compared with $0.8
       million for the first quarter of 2010 and $1.0 million for the second
       quarter of 2009.
    -- Other general and administrative expenses were $3.2 million, compared
       with $2.0 million for the first quarter of 2010 and $2.4 million for
       the second quarter of 2009.  The increase was due to a $1.1 million
       expense incurred in connection with InnoForm Group.
    -- Cash and cash equivalents as well as short-term investments available
       for sale, totaled $88.1 million as of June 30, 2010, compared with
       $89.6 million as of March 31, 2010. The slight decrease in cash was
       due to a partial payment for the purchase of the MCB in IDN, offset in
       part by positive cash flows primarily from operations, repayment of a
       related party loan to Linktone, the drawdown of a bank loan by InnoForm
       Group and the extension of a new loan from a related party to InnoForm
       Group.
    -- Balance sheet assets and liabilities increased by $29.3 million and
       $23.2 million compared with last year end, respectively. These
       increases were due to the Letang and InnoForm Group acquisitions and
       have been recorded based on management estimates of fair value. The
       Company expects the valuations to be finalized in late 2010.

THIRD QUARTER 2010 OUTLOOK

For the third quarter ending September 30, 2010, Linktone anticipates gross revenues to be in the range of $18.0 million to $19.0 million including revenue from our VAS services, distribution of licensed products and other services.

USE OF NON-GAAP FINANCIAL MEASURES

The reconciliation of GAAP measures with non-GAAP measures for net income or loss and net income or loss per fully diluted ADS included in this press release is set forth after the attached financial statements. Linktone believes that the supplemental presentation of adjusted net income or loss and net income or loss per fully diluted ADS, excluding the effect of share-based compensation expense and provisions for impairment and their reversals, provides meaningful non-GAAP financial measures to help investors understand and compare business trends among different reporting periods on a consistent basis, independently of share-based compensation and items not indicative of Linktone's future ongoing operating results. Thus, the non-GAAP financial measures provide investors with another method for assessing Linktone's operating results in a manner that is focused on the performance of its ongoing operations. Linktone management also uses non-GAAP financial measures to plan and forecast results for future periods. Readers are cautioned not to view non-GAAP results on a stand-alone basis or as a substitute for results under GAAP, or as being comparable to results reported or forecasted by other companies, and should refer to the reconciliation of GAAP results with non-GAAP results located after the financial statements.

DISCONTINUED OPERATIONS

As previously reported, Linktone terminated its partnership agreement with the Chinese Youth League Internet, Film and Television Centre with regard to Qinghai Satellite Television and its partnership agreement with Tianjin Satellite Television in 2008. In the attached financial statements, the results of these advertising arrangements are reported separately as discontinued operations for both current and prior periods for the purpose of focusing on continuing operations and providing a consistent basis for comparing financial performance over time.

TODAY'S CONFERENCE CALL

As previously mentioned, Linktone will host a conference call to discuss its second quarter 2010 results at 8:00 p.m. Eastern Time on September 7, 2010 (5:00 p.m. Pacific Time on September 7, 2010 and 8:00 a.m. Beijing/Hong Kong Time on September 8, 2010). The dial-in number for the call is 877-941-2069 for U.S. callers and 480-629-9713 for international callers. Company management will be on the call to discuss the quarterly results and highlights and to answer questions from participants. A replay of the call will be available through September 21, 2010. To access the replay, U.S. callers should dial 800-406-7325 and enter passcode 4359521#; international callers should dial 303-590-3030 and enter the same passcode.

Additionally, a live webcast of this call will be available on the Linktone web site at http://english.linktone.com/aboutus/index.html . An archived replay of the call will be available for 90 days.

ABOUT LINKTONE LTD.

Linktone Ltd. is one of the leading providers of wireless interactive entertainment services to consumers in China. Linktone provides a diverse portfolio of services to wireless consumers and corporate customers, with a particular focus on media, entertainment and communications. These services are promoted through the Company's strong distribution network, integrated service platform and multiple marketing sales channels, as well as through the networks of the mobile operators in China. Through in-house development and alliances with international and local branded content partners, the Company develops, aggregates, and distributes innovative and engaging products to maximize the breadth, quality and diversity of its offerings.

FORWARD-LOOKING STATEMENTS

This press release contains statements of a forward-looking nature. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," and similar statements. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including risks related to: Linktone's ability to expand into Asian markets outside of China; changes in the policies of the People's Republic of China ("PRC") Ministry of Industry and Information and/or the telecom operators in China or in the manner in which the operators interpret and enforce such policies, including policies which reduce the prices the Company or Letang may charge customers; the risk that other changes in Chinese laws and regulations, including without limitation tax and media-related laws or laws relating to the usage of telecom value-added services, or in application thereof by relevant PRC governmental authorities, could adversely affect Linktone's financial condition and results of operations; the risk that Linktone will not be able to compete effectively in the telecom value-added services market in China or any new markets it enters such as the VAS market in Southeast Asia and the market for edutainment and entertainment products, for whatever reason, including competition or changes in the regulatory environment; the risk that Linktone will not be able to realize meaningful returns from its acquisitions or strategic partnerships or may be required to record additional provisions for impairments in the value of the Company's investments in such acquisitions or partnerships; the risk that Linktone will not be able to effectively manage entities that it acquires or effectively utilize their resources; the risk that content partners will continue to demand high revenue sharing percentages for popular contents which could adversely affect Linktone's margins; the risk that Linktone's acquisitions could divert management's attention from Linktone's existing operations, which could adversely affect its results of operations; and the risks outlined in Linktone's filings with the Securities and Exchange Commission, including its registration statement on Form F-1 and annual report on Form 20-F. Linktone does not undertake any obligation to update this forward-looking information, except as required under applicable law.

    For more information, please contact:

    Investor Relations
     The Piacente Group, Inc.
     Kristen McNally
     Phone: +1-212-481-2050
     Email: kristen@thepiacentegroup.com



                                  LINKTONE LTD.
                           CONSOLIDATED BALANCE SHEETS
                      (In U.S. dollars, except share data)

                                                  December 31,     June 30,
                                                      2009           2010
                                                   (audited)      (unaudited)
    Assets
    Current assets:
      Cash and cash equivalents                    79,477,153     72,174,722
      Restricted cash                                      --        559,572
      Short-term investments                       19,702,747     15,968,861
      Accounts receivable, net                     12,538,597     17,665,911
      Tax refund receivable                         1,953,740      1,720,821
      Loans receivable from related parties        10,087,400        791,700
      Inventory                                                    2,662,309
      Deposits and other current assets             2,382,402      2,305,226
      Deferred tax assets                           1,176,933        785,197
    Total current assets                          127,318,972    114,634,319

    Long-term investment                                   --      8,559,540
    Property and equipment, net                       530,769     10,751,584
    Intangible assets, net                            106,039      5,708,856
    Goodwill                                       12,084,212     20,729,407
    Non-current assets held for sale                       --      2,412,090
    Deferred tax assets                                23,264        103,638
    Other long-term assets                            364,276      6,858,604

    Total assets                                  140,427,532    169,758,038

    Liabilities and shareholders' equity
    Current liabilities:
      Taxes payable                                 3,013,374      3,997,254
      Accounts payable, accrued liabilities
       and other payables                           7,915,352     15,670,168
      Short-term bank loan                                 --      1,818,990
      Loan payable to a related party                      --      3,664,755
      Deferred revenue                                351,049      2,782,753
      Deferred tax liabilities                        256,736        866,158
    Total current liabilities                      11,536,511     28,800,078

    Long-term liabilities
      Other long term liabilities                          --      5,890,235

    Total liabilities                              11,536,511     34,690,313

    Shareholders' equity
    Linktone Ltd. shareholders' equity:
      Ordinary shares ($0.0001 par value;
       500,000,000 shares authorized,
       420,756,430 shares and 421,130,130
       shares issued and outstanding as of
       December 31, 2009 and June 30, 2010,
       respectively)                                   42,075         42,113
      Additional paid-in capital                  137,838,890    137,480,911
      Statutory reserves                            2,466,165      2,466,165
      Accumulated other comprehensive
       income:
        Unrealized gain on investment in
         marketable securities                        437,250        452,120
        Cumulative translation adjustments          7,217,287      7,382,314
      Accumulated losses                          (19,110,646)   (18,942,493)
    Non-controlling interest                               --      6,186,595
    Total shareholders' equity                    128,891,021    135,067,725

    Total liabilities and shareholders' equity    140,427,532    169,758,038



                                  LINKTONE LTD.
         CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
                      (In U.S. dollars, except share data)

                          Three months ended             Six months ended
                     June 30,   March 31,   June 30,   June 30,     June 30,
                      2009        2010        2010       2009         2010
                   (unaudited)(unaudited) (unaudited) (unaudited) (unaudited)
    Gross revenues 18,254,195  18,957,884  16,871,810  33,029,885  35,829,694
    Sales tax        (688,923)   (596,715)   (484,488) (1,188,204) (1,081,203)
    Net revenues   17,565,272  18,361,169  16,387,322  31,841,681  34,748,491
    Cost of
     services     (11,613,627)(13,430,402)(10,558,399)(20,913,334)(23,988,801)
    Gross profit    5,951,645   4,930,767   5,828,923  10,928,347  10,759,690
    Operating
     expenses:
      Product
       development   (989,118)   (821,127)   (717,857) (1,951,462) (1,538,984)
      Selling and
       marketing   (2,286,112) (2,097,175) (2,705,862) (4,220,214) (4,803,037)
      Other general
       and admini-
       strative    (2,440,520) (2,022,695) (3,227,486) (4,463,442) (5,250,181)
    Reversal for
     impairment            --      14,648      58,628          --      73,276
    Total operating
     expenses      (5,715,750) (4,926,349) (6,592,577)(10,635,118)(11,518,926)
    Income/(Loss)
     from operations  235,895       4,418    (763,654)    293,229    (759,236)
    Interest income
     (including
     interest
     income of
     $128,971 and
     $49,266 from
     related party
     loans for the
     three months
     ended March
     31, 2010 and
     June 30, 2010
     respectively)    645,635     543,247     758,767     477,124   1,302,014
    Other income /
     (loss)           156,104      (2,496)     88,376     333,685      85,880
    Income before
     tax            1,037,634     545,169      83,489   1,104,038     628,658
    Income tax
     expense         (315,319)   (409,172)     14,636    (302,217)   (394,536)
    Less: Net income
     attributable
     to non-
     controlling
     interest              --     (34,986)    (30,983)         --     (65,969)
    Net income from
     continuing
     operations       722,315     101,011      67,142     801,821     168,153
    Net income from
     discontinued
     operations       186,412          --          --     452,525          --
    Net income        908,727     101,011      67,142   1,254,346     168,153
    Other compre-
     hensive
     income/(loss):    20,926      20,804     159,093     (71,351)    179,897
    Comprehensive
     income           929,653     121,815     226,235   1,182,995     348,050

    Basic income per
     ordinary share:
      Continuing
       operations        0.00        0.00        0.00        0.00        0.00
      Discontinued
       operations        0.00        0.00        0.00        0.01        0.00
      Total net
       income            0.00        0.00        0.00        0.00        0.00
    Diluted income
     per ordinary
     share:
      Continuing
       operations        0.00        0.00        0.00        0.00        0.00
      Discontinued
       operations        0.00        0.00        0.00        0.01        0.00
      Total net
       income            0.00        0.00        0.00        0.00        0.00

    Basic income
     per ADS:
      Continuing
       operations        0.02        0.00        0.00        0.02        0.00
      Discontinued
       operations        0.00        0.00        0.00        0.01        0.00
      Total net
       income            0.02        0.00        0.00        0.03        0.00
    Diluted income
     per ADS:
      Continuing
       operations        0.02        0.00        0.00        0.03        0.00
      Discontinued
        operations       0.00        0.00        0.00        0.01        0.00
      Total net
       income            0.02        0.00        0.00        0.03        0.00

    Weighted average
     ordinary shares:

       Basic      420,636,230 420,756,430 421,130,130 420,636,230 421,058,885

       Diluted    421,179,097 421,168,821 421,420,025 421,056,088 421,410,028

    Weighted
     average ADSs:
       Basic       42,063,623  42,075,643  42,113,013  42,063,623  42,105,888
       Diluted     42,117,910  42,116,882  42,142,003  42,105,609  42,141,003



                                  LINKTONE LTD.
                             NON-GAAP RECONCILIATION
                      (In U.S. dollars, except share data)

                          Three months ended             Six months ended
                     June 30,   March 31,   June 30,    June 30,    June 30,
                       2009       2010         2010       2009        2010
                   (unaudited)(unaudited) (unaudited) (unaudited) (unaudited)

    Net income        908,727     101,011      67,142   1,254,346     168,153
    Stock based
     compensation
     expense          (18,657)     76,915      23,054     152,914      99,969
    Reversal for
     impairment            --     (14,648)    (58,628)         --     (73,276)
    Non-GAAP net
     income           890,070     163,278      31,568   1,407,260     194,846

    Non-GAAP diluted
     income per
     share               0.00        0.00        0.00        0.00        0.00
    Non-GAAP diluted
     income per ADS      0.02        0.00        0.00        0.03        0.00
    Number of shares
     used in diluted
     per-share
     calculation  421,179,097 421,168,821 421,420,025 421,056,088 421,410,028
    Number of ADSs
     used in
     diluted
     per-share
     calculation   42,117,910  42,116,882  42,142,003  42,105,609  42,141,003

SOURCE Linktone Ltd.