UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2006

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to

Commission File Number 000-30698

SINA CORPORATION

Cayman Islands		52-2236363
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer þ                     Accelerated filer o                     Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o or No þ

The number of the registrant’s ordinary shares outstanding as of November 3, 2006 was 53,925,270.

 

 

SINA CORPORATION

INDEX

		Page no.
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at September 30, 2006 and December 31, 2005			3
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2006 and 2005			4
Condensed Consolidated Statements of Shareholders’ Equity and Comprehensive Income for the nine months ended September 30, 2006 and 2005			5
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2006 and 2005			6
Notes to Condensed Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
Item 3. Quantitative and Qualitative Disclosures About Market Risk			26
Item 4. Controls and Procedures			27
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			27
Item 1A. Risk Factors			27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			44
Item 3. Defaults Upon Senior Securities			44
Item 4. Submission of Matters to a Vote of Security Holders			44
Item 5. Other Information			44
Item 6. Exhibits			44
Signature			46
EXHIBIT 10.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

PART I. FINANCIAL INFORMATION

SINA CORPORATION

		September 30,				December 31,
		2006				2005
ASSETS
Current assets:
Cash and cash equivalents		$	168,852			$	88,410
Short-term investments			176,491				212,279
Accounts receivable, net of allowances for doubtful accounts of $4,188 and $2,443, respectively			42,064				33,940
Short-term deferred tax assets			875				857
Prepaid expenses and other current assets			8,601				11,523
Total current assets			396,883				347,009
Investment in Tidetime Sun			446				716
Property and equipment, net			23,230				22,207
Equity investments			1,170				3,261
Intangible assets, net			8,286				9,691
Goodwill			82,663				82,663
Other assets			2,339				3,174
Total assets		$	515,017			$	468,721
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	1,018			$	1,582
Accrued liabilities			42,641				43,235
Income taxes payable			5,757				4,282
Total current liabilities			49,416				49,099
Convertible debt			100,000				100,000
Total liabilities			149,416				149,099
Commitments and contingencies (Note 13)
Shareholders’ equity:
Ordinary shares: $0.133 par value; 150,000 shares authorized; 53,922 and 53,265 shares issued and outstanding			7,172				7,084
Additional paid-in capital			297,155				284,559
Retained earnings			54,251				26,057
Accumulated other comprehensive income (loss):
Unrealized loss on investments in marketable securities			(2,684	)			(2,903	)
Cumulative translation adjustments			9,707				4,825
Total shareholders’ equity			365,601				319,622
Total liabilities and shareholders’ equity		$	515,017			$	468,721

The accompanying notes are an integral part of these condensed consolidated financial statements.

SINA CORPORATION

		Three months ended								Nine months ended
		September 30,								September 30,
		2006				2005				2006				2005
Net revenues:
Advertising		$	32,697			$	22,968			$	84,332			$	59,989
Non-advertising			23,362				26,656				72,117				81,613
			56,059				49,624				156,449				141,602
Cost of revenues:
Advertising (*)			11,333				7,410				29,948				19,845
Non-advertising			8,715				8,670				27,805				25,504
			20,048				16,080				57,753				45,349
Gross profit			36,011				33,544				98,696				96,253
Operating expenses:
Sales and marketing (*)			12,210				15,735				37,512				37,937
Product development (*)			5,082				3,816				14,685				11,038
General and administrative (*)			7,832				4,210				20,416				13,985
Amortization of intangible assets			468				602				1,405				2,684
			25,592				24,363				74,018				65,644
Income from operations			10,419				9,181				24,678				30,609
Interest and other income			2,156				1,698				6,108				4,794
Amortization of convertible debt issuance cost			(172	)			(172	)			(514	)			(514	)
Gain (loss) on sales of business and investments, net			(134	)			1,487				1,660				1,487
Loss on investment in Tidetime Sun			(270	)			(1,458	)			(270	)			(2,740	)
Loss on equity investments			(185	)			(996	)			(690	)			(2,420	)
Income before income taxes			11,814				9,740				30,972				31,216
Provision for income taxes			(1,095	)			(647	)			(2,778	)			(1,860	)
Net income		$	10,719			$	9,093			$	28,194			$	29,356
Basic net income per share		$	0.20			$	0.17			$	0.53			$	0.56
Shares used in computing basic income per share			53,690				53,099				53,561				52,214
Diluted net income per share		$	0.19			$	0.16			$	0.49			$	0.51
Shares used in computing diluted income per share			58,419				58,774				58,484				58,680

The accompanying notes are an integral part of these condensed consolidated financial statements.

SINA CORPORATION

														Ordinary								Accumulated
										Additional				Shares Subject								Other				Total
		Ordinary Shares								Paid-in				to Subsequent				Retained				Comprehensive				Shareholders’
		Shares				Amount				Capital				Issuance				Earnings				Income				Equity
Balances at December 31, 2005			53,265			$	7,084			$	284,559			$	—			$	26,057			$	1,922			$	319,622
Comprehensive income:
Net income			—				—				—				—				28,194				—				28,194
Unrealized gain on marketable securities			—				—				—				—				—				219				219
Currency translation adjustments			—				—				—				—				—				4,882				4,882
Total comprehensive income:																											33,295
Stock-based compensation			—				—				7,245				—				—				—				7,245
Issuance of ordinary shares pursuant to stock plans			473				63				5,376				—				—				—				5,439
Business acquisition			184				25				(25	)			—				—				—				—
Balances at September 30, 2006			53,922			$	7,172			$	297,155			$	—			$	54,251			$	7,023			$	365,601

														Ordinary				Retained				Accumulated
										Additional				Shares Subject				Earnings				Other				Total
		Ordinary Shares								Paid-in				to Subsequent				(Accumulated				Comprehensive				Shareholders’
		Shares				Amount				Capital				Issuance				Deficit)				Income(Loss)				Equity
Balances at December 31, 2004			51,359			$	6,834			$	263,912			$	—			$	(17,058	)		$	(343	)		$	253,345
Comprehensive income:
Net income			—				—				—				—				29,356				—				29,356
Unrealized loss on marketable securities			—				—				—				—				—				(1,412	)			(1,412	)
Currency translation adjustments			—				—				—				—				—				4,193				4,193
Total comprehensive income:																											32,137
Issuance of ordinary shares pursuant to stock plans			1,497				196				5,702				—				—				—				5,898
Business acquisition			275				37				11,198				1,098				—				—				12,333
Balances at September 30, 2005			53,131			$	7,067			$	280,812			$	1,098			$	12,298			$	2,438			$	303,713

The accompanying notes are an integral part of these condensed consolidated financial statements.

SINA CORPORATION

		Nine months ended
		September 30,
		2006				2005
Cash flows from operating activities:
Net income		$	28,194			$	29,356
Adjustments to reconcile net income to net cash provided by operating activities:
Changes in allowance for doubtful accounts			3,980				441
(Gain) loss on sales of business and investments, net			(1,660	)			(1,487	)
Loss on investment in Tidetime Sun			270				2,740
Loss on equity investments			690				2,420
Depreciation			7,221				6,917
Stock-based compensation			7,245				—
Amortization of convertible debt issuance cost			514				514
Amortization of intangible assets			1,405				2,684
Changes in assets and liabilities (net of effect of acquisition):
Accounts receivable			(11,304	)			7,096
Prepaid expenses and other current assets			681				1,823
Accounts payable			(584	)			(144	)
Accrued liabilities			9,869				(6,148	)
Income taxes payable			1,374				(1,088	)
Other assets			341				(1,222	)
Net cash provided by operating activities			48,236				43,902
Cash flows from investing activities:
Proceeds from sale of (purchase of) short-term investments			38,912				(52,674	)
Cash paid for business acquisition			(11,266	)			(26,141	)
Purchases of property and equipment			(7,809	)			(12,593	)
Cash paid for equity investments			—				(3,024	)
Proceeds from sale of business and investments			5,578				2,073
Deposit for equity investment			—				(800	)
Net cash provided by (used in) investing activities			25,415				(93,159	)
Cash flows from financing activities:
Proceeds from issuance of ordinary shares			5,439				5,898
Net cash provided by financing activities			5,439				5,898
Effect of exchange rate change on cash and cash equivalents			1,352				2,896
Net increase (decrease) in cash and cash equivalents			80,442				(40,463	)
Cash and cash equivalents at the beginning of the period			88,410				153,768
Cash and cash equivalents at the end of the period		$	168,852			$	113,305
Supplemental disclosure of significant noncash activities:
Ordinary shares issued for business acquisition		$	4,145			$	11,235
Ordinary shares subject to subsequent issuance for business acquisition		$	—			$	1,098

The accompanying notes are an integral part of these condensed consolidated financial statements.

SINA CORPORATION

1. Business

     SINA Corporation (“SINA” or the “Company”), a Cayman Islands corporation, is a leading online media company and value-added information service provider in the People’s Republic of China (the “PRC” or “China”) and the global Chinese communities. With a branded network of localized websites targeting Greater China and overseas Chinese, the Company provides services through five major business lines including SINA.com (online news and content), SINA Mobile (mobile value-added services or “MVAS”), SINA Online (community-based services and games), SINA.net (search and enterprise services) and SINA E-Commerce (online shopping). Together these business lines provide an array of services including region-focused online portals, MVAS, search and directory, interest-based and community-building channels, free and premium email, blog services, audio and video streaming, online games, virtual ISP, classified listings, fee-based services, e-commerce and enterprise e-solutions.

2. Summary of Significant Accounting Policies

     Principles of consolidation and basis of presentation

     The accompanying interim condensed consolidated financial statements have been prepared in conformity with the generally accepted accounting principles in the United States of America (“GAAP”), consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005. The interim financial information is unaudited but reflects all adjustments which are, in the opinion of management, necessary to provide fair condensed consolidated balance sheets, condensed consolidated statements of operations, condensed consolidated statements of shareholders’ equity and comprehensive income and condensed consolidated statements of cash flows for the interim periods presented. Such adjustments are normal and recurring except as otherwise noted. The Condensed Consolidated Balance Sheets as of December 31, 2005 are derived from the December 31, 2005 audited financial statements, but do not include all disclosures required by accounting principles generally accepted in the United States of America. You should read these interim condensed consolidated financial statements in conjunction with the audited financial statements, including the notes thereto, and the other information set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.

     The condensed consolidated financial statements include the accounts of the Company, its subsidiaries and variable interest entities (“VIEs”) for which the Company is the primary beneficiary. All significant intercompany accounts and transactions have been eliminated. Investments in entities in which the Company can exercise significant influence, but which are less than majority owned and not otherwise controlled by the Company, are accounted for under the equity method. The Company has adopted Financial Accounting Standards Board (“FASB”) Interpretation No. (“FIN”) 46R “Consolidation of Variable Interest Entities” (“FIN 46R”), an Interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements.” FIN 46R requires a VIE to be consolidated by a company if that company is subject to a majority of the risk of loss for the VIEs or is entitled to receive a majority of the VIE’s residual returns. To comply with PRC laws and regulations, the Company provides substantially all its Internet content provision, MVAS and advertising services in China via its VIEs. These VIEs are wholly or partially owned by certain employees of the Company. The capital for the VIEs is funded by the Company and recorded as interest-free loans to these PRC employees. These loans were eliminated with the capital of the VIEs during consolidation. As of September 30, 2006, the total amount of interest-free loans to these PRC employees was $9.7 million. The aggregate accumulated losses of all VIEs as of September 30, 2006 were approximately $3.0 million and have been included in the condensed consolidated financial statements.

     The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and such differences may be material to the financial statements. Certain prior year amounts have been reclassified to conform to the current year presentation.

     Stock-based compensation

     Effective January 1, 2006, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), which revises SFAS No. 123, “Accounting-Based Compensation” (“SFAS 123”) and supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). Under the fair value recognition provisions of SFAS 123R, the Company is required to measure the cost of employee services received in exchange for stock-based compensation measured at the grant date fair value of the award.

The Company recognizes the compensation costs, net of a forfeiture rate, on a straight-line basis over the requisite service period of the award, which is generally the option vesting term of four years. In March 2005, the Securities & Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 107 (“SAB 107”) relating to SFAS 123R. The Company has applied the provisions of SAB 107 in its adoption of SFAS 123R.

     The Company elected the modified prospective method and therefore has not restated results for prior periods. The valuation provisions of SFAS 123R apply to new grants and unvested grants that were outstanding as of the effective date. Estimated compensation for unvested grants that were outstanding as of the effective date are recognized over the remaining service period using the compensation cost estimated for the SFAS 123 pro forma disclosures.

     In conjunction with the adoption of SFAS 123R, the Company changed its method of attributing the value of stock compensation expense from accelerated basis to straight-line basis. Compensation expense for share-based payment awards granted prior to fiscal 2006 will continue to be recognized using the accelerated basis while compensation expense for awards granted after the effective date are recognized using the straight-line basis.

     SFAS 123R requires forfeitures to be estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from those estimates. Compensation cost estimated for the SFAS 123 pro forma disclosures accounted for forfeitures as they occur. See Note 10 for further discussion on stock-based compensation.

     Goodwill

     The Company adopted SFAS No. 142, “Goodwill and Intangible Assets” (“SFAS 142”) on January 1, 2002. Under SFAS 142, goodwill is no longer amortized, but tested for impairment annually, or more frequently, if facts and circumstances warrant a review. The provisions of SFAS 142 require that a two-step test be performed to assess goodwill for impairment. First, the fair value of each reporting unit is compared to its carrying value. If the fair value exceeds the carrying value, goodwill is not impaired and no further testing is performed. The second step is performed if the carrying value exceeds the fair value. The implied fair value of the reporting unit’s goodwill must be determined and compared to the carrying value of the goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, an impairment loss equal to the difference will be recorded. The Company completed an impairment test on its goodwill related to its mobile business in the third quarter of 2006 as a result of policy changes by its major mobile operators and determined that the carrying amount was not impaired.

     Recent accounting pronouncements

     In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that the Company recognize in its financial statements the impact of a tax position if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective for the Company on January 1, 2007, with the cumulative effect of the change in accounting principle, if any, recorded as an adjustment to opening retained earnings. The Company is currently evaluating the impact of adopting FIN 48 on its consolidated financial position, cash flows and results of operations.

     In September 2006, the FASB issued Statement of Financial Accounting Standards No.157, “Fair Value Measurements” (“SFAS157”), which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS 157 will be effective for the Company for the fiscal year ended December 31, 2007. Earlier adoption is permitted, provided the company has not yet issued financial statements, including for interim periods, for that fiscal year. The Company is currently evaluating the impact of adopting SFAS 157 on its consolidated financial position, cash flows and results of operations.

     In September 2006, the SEC released SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 provides interpretive guidance on the SEC’s views on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The provisions of SAB 108 will be effective for the Company for the fiscal year ended December 31, 2006. The Company is currently evaluating the impact of applying SAB 108 but does not believe that the application of SAB 108 will have a material effect on its financial position, cash flows, and results of operations.

3. Short-Term Investments

     The investments in marketable debt securities are classified as available-for-sale securities. The Company invests in these securities with the intent to make such funds readily available for operating or acquisition purposes and, accordingly, classifies them as short-term investments. The following table summarizes the contractual maturities of available-for-sale debt securities:

		September 30,				December 31,
		2006				2005
		(in thousands)
Short-term investments:
Due within one year		$	149,862			$	173,657
Due one to five years			12,751				24,688
Due after five years			13,878				13,934
		$	176,491			$	212,279

     During the three and nine months ended September 30, 2006, the Company recorded unrealized gain of $1.6 million and $0.2 million, respectively, and recorded an unrealized loss of $0.03 million and an unrealized gain of $0.1 million, in the same periods of 2005, respectively, on its marketable debt securities as a component of comprehensive income. The Company considered the declines in value as not other-than-temporary, because the declines in market value were attributable to changes in interest rates, not credit quality, and because the Company has the ability and intent to hold these investments until a recovery of fair value, which may be maturity.

4. Investment in Tidetime Sun

     Investment in Tidetime Sun is accounted for as an investment in marketable equity securities under the provisions of SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and is classified as available for sale. The fair value of this investment as of September 30, 2006 was $0.4 million, compared to a cost basis of $0.7 million as of December 31, 2005. The Company considered the decline in the fair value of this investment to be other-than-temporary and recorded an impairment loss of approximately $0.3 million during the three months ended September 30, 2006. If there is further decline in fair value that is deemed to be other-than-temporary, the Company may have to recognize impairment charges in future periods.

5. Equity Investments

     Equity investments are comprised of investments in privately held companies and are accounted for using the equity method of accounting. The following sets forth the changes in the Company’s equity investments:

		Shanghai NC-SINA				COAL				Others				Total
		(in thousands)
Balances at December 31, 2005		$	1,417			$	—			$	1,844			$	3,261
Additional investment			—				—				800				800
Share of loss on equity investments			(108	)			—				(582	)			(690	)
Sale of investments			(1,309	)			—				(892	)			(2,201	)
Balances at September 30, 2006		$	—			$	—			$	1,170			$	1,170

		Shanghai NC-SINA				COAL				Others				Total
		(in thousands)
Balances at December 31, 2004		$	1,384			$	1,932			$	1,225			$	4,541
Additional investments			—				1,749				1,275				3,024
Share of gain (loss) on equity investments			146				(2,187	)			(379	)			(2,420	)
Balances at September 30, 2005		$	1,530			$	1,494			$	2,121			$	5,145

     In December 2005, the Company sold its equity investment in China Online Auction Limited (“COAL,” a.k.a. 1Pai.com), a joint venture with Yahoo! Inc., to Alibaba.com. In May 2006, the Company sold its interest in Shanghai-NC SINA, a joint venture with NC Soft, a Korean online game company, to NC Soft. The Company recorded a gain of $2.0 million from this transaction in the three months ended June 30, 2006.

6. Goodwill and Intangible Assets

     The following table summarizes goodwill from the Company’s acquisitions:

		September 30,				December 31,
		2006				2005
		(In thousands)
Crillion and Memestar		$	68,891			$	68,891
Davidhill			13,772				13,772
Total		$	82,663			$	82,663

     The following table summarizes intangible assets, net:

		September 30, 2006												December 31, 2005
						Accumulated												Accumulated
		Cost				amortization				Net				Cost				amortization				Net
		(in thousands)
Crillion and Memestar
Non-compete agreements		$	3,147			$	(2,844	)		$	303			$	3,147			$	(2,371	)		$	776
Davidhill
Non-compete agreements			480				(480	)			—				480				(320	)			160
Technology			10,300				(2,317	)			7,983				10,300				(1,545	)			8,755
Subtotal			10,780				(2,797	)			7,983				10,780				(1,865	)			8,915
Total		$	13,927			$	(5,641	)		$	8,286			$	13,927			$	(4,236	)		$	9,691

     The intangible assets are all amortizable. Non-compete agreements have original estimated useful lives of eighteen to thirty-six months. Technology has original estimated useful life of ten years.

     Amortization expense related to intangible assets were $0.5 million and $1.4 million for the three and nine months ended September 30, 2006, respectively, and $0.6 million and $2.7 million for the three and nine months ended September 30, 2005, respectively. As of September 30, 2006, estimated amortization expenses in future periods are expected to be as follows:

		Amortization
Fiscal year		expenses
		(in thousands)
Remainder of 2006		$	415
2007			1,176
2008			1,030
2009			1,030
2010			1,030
Thereafter			3,605
Total expected amortization expense		$	8,286

7. Accrued Liabilities

     During the three months ended March 31, 2006, the Company paid $11.3 million in cash to the prior shareholders of Crillion Corporation for the achievement of the 2005 performance target which was accrued as of December 31, 2005.

8. Income Taxes

     The Company is registered in the Cayman Islands and has operations in four tax jurisdictions, including China, the United States, Hong Kong and Taiwan. The operations in Taiwan represent a branch office of the subsidiary in the United States. For operations in the United States, Hong Kong and Taiwan, the Company has incurred net accumulated operating losses for income tax purposes. The Company believes that it is more likely than not that these net accumulated operating losses will not be utilized in the future. Therefore, the Company has provided full valuation allowance for the deferred tax assets arising from the losses at these locations as of September 30, 2006. The Company generated substantially all of its net income from its China operations for the three and nine months ended September 30, 2006 and 2005, and the Company has recorded income tax provisions for the periods as follows:

		Three months ended								Nine months ended
		September 30,								September 30,
		2006				2005				2006				2005
		(in thousands, except								(in thousands, except
		percentages)								percentages)
Loss subject to non China operation		$	(3,781	)		$	(1,217	)		$	(8,640	)		$	(7,318	)
Income subject to China operation			15,595				10,957				39,612				38,534
Income before taxes		$	11,814			$	9,740			$	30,972			$	31,216
Income tax expenses subject to China operation		$	1,095			$	647			$	2,778			$	1,860
Effective tax rate for China operation			7	%			6	%			7	%			5	%

     Pursuant to PRC Income Tax Laws, the Company’s subsidiaries and VIEs are generally subject to Enterprise Income Taxes (“EIT”) at a statutory rate of 33%, which comprises 30% national income tax and 3% local income tax. Some of these subsidiaries and VIEs are qualified new technology enterprises and under PRC Income Tax Laws, they are subject to the preferential tax rate of 15%. In addition, some of the Company’s subsidiaries are Foreign Investment Enterprise and under PRC Income Tax Laws, they are entitled to either a three-year tax exemption followed by three years with a 50% reduction in the tax rate, commencing the first operating year, or a two-year tax exemption followed by three years with a 50% reduction in the tax rate, commencing the first profitable year. The VIEs are wholly owned by the Company’s employees and controlled by the Company through various contractual agreements. To the extent that the VIEs have undistributed after-tax net income, the Company would have to pay a dividend tax of 20% on behalf of its employees when dividends are distributed from these local entities in the future.

     The provisions for income taxes for the three and nine months ended September 30, 2006 and 2005 differ from the amounts computed by applying the EIT primarily due to the tax holidays and the preferential tax rate enjoyed by certain of the Company’s entities in the PRC. The effective tax rates for the PRC operations for the three and nine months ended September 30, 2006 were higher than the same periods of the prior year primarily due to the expiration of tax holidays of certain entities in 2006.

9. Net Income Per Share

     Basic net income per share is computed using the weighted average number of the ordinary shares outstanding during the period. Diluted net income per share is computed using the weighted average number of ordinary shares and ordinary share equivalents outstanding during the period. Options to purchase ordinary shares that were anti-dilutive and were excluded from the calculation of diluted net income per share were approximately 3.4 million and 2.3 million, respectively, for the three and nine months ended September 30, 2006 and were 0.2 million for both the three and nine months ended September 30, 2005.

     The following table sets forth the computation of basic and diluted net income per share for the periods indicated:

		Three months ended September 30,								Nine months ended September 30,
		2006				2005				2006				2005
		(in thousands, except per share amounts)
Basic net income per share calculation:
Numerator:
Net income used in computing basic net income per share		$	10,719			$	9,093			$	28,194			$	29,356
Denominator:
Weighted average ordinary shares outstanding			53,690				53,099				53,561				52,214
Basic net income per share		$	0.20			$	0.17			$	0.53			$	0.56
Diluted net income per share calculation:
Numerator:
Net income		$	10,719			$	9,093			$	28,194			$	29,356
Amortization of convertible debt issuance cost			172				172				514				514
Net income used in computing diluted net income per share		$	10,891			$	9,265			$	28,708			$	29,870
Denominator:
Weighted average ordinary shares outstanding			53,690				53,099				53,561				52,214
Weighted average ordinary shares equivalents:
Stock options			852				1,798				1,034				2,589
Convertible debt			3,877				3,877				3,877				3,877
Others			—				—				12				—
Shares used in computing diluted net income per share			58,419				58,774				58,484				58,680
Diluted net income per share		$	0.19			$	0.16			$	0.49			$	0.51

10. Stock-Based Compensation

     The Company’s stock option program is a long-term retention program that is intended to attract, retain and incentivize talented employees, officers and directors, and to align stockholder and employee interests. The Company currently grants options pursuant to the 1) 1999 Stock Plan, 2) 1999 Executive Stock Option Plan and 3) 1999 Directors’ Stock Option Plan. Prior to August 1, 2005, the Company also offered stock options to its eligible employees pursuant to the 1999 Employee Stock Purchase Plan.

     Stock Compensation

     Effective January 1, 2006, the Company adopted SFAS 123R. See Note 2 for a description of the Company’s adoption of SFAS 123R. The fair value of stock-based compensation awards is determined using the Black-Scholes option pricing model, which is consistent with the valuation techniques previously utilized for options in footnote disclosures required under SFAS 123, as amended by FASB Statement No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.” The determination of the fair value of stock-based compensation awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables, including the expected volatility of the Company’s stock price over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate and expected dividends.

     No stock awards were granted during the three months ended September 30, 2006. Only director shares were granted during the three months ended September 30, 2005. The assumptions used to value stock-based compensation awards for the three and nine months ended September 30, 2006 and 2005 are as follows:

		Three months ended September 30,								Nine months ended September 30,
		2006				2005				2006				2005
Expected term (in years)			N/A				2.0				3.8-5.0				1.0-4.0
Expected volatility			N/A				61	%			68%-71	%			61%-87	%
Risk-free interest rate			N/A				4.09	%			5.0%-5.2	%			2.93%-4.09	%
Expected dividend yield			N/A				0				0				0

     Expected term represents the weighted average period of time that stock-based awards granted are expected to be outstanding giving consideration to historical exercise patterns. Expected volatilities are based on historical volatilities of the Company’s ordinary shares. Risk-free rate is based on US Treasury zero-coupon issues with remaining terms similar to the expected term on the stock-based awards. The Company does not anticipate paying any cash dividends in the foreseeable future. Forfeitures are estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest.

     Total stock-based compensation recognized on the Company’s Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2006 is as follows:

		Three months ended				Nine months ended
		September 30, 2006				September 30, 2006
		(in thousands)
Cost of revenues		$	568			$	1,268
Sales and marketing			531				1,145
Product development			606				1,317
General and administrative			1,001				3,515
Total		$	2,706			$	7,245

     The following table sets forth the pro forma amounts of net income and net income per share for the three and nine months ended September 30, 2005 that would have resulted if the Company had accounted for stock-based awards under the fair value recognition provisions of SFAS 123:

		Three months ended				Nine months ended
		September 30, 2005				September 30, 2005
		(in thousands)
Net income:
As reported		$	9,093			$	29,356
Deduct: Employee stock purchase plan related compensation expenses determined under fair value based method			—				(73	)
Deduct: Stock-based employee compensation expenses determined under fair value based method			(2,938	)			(7,969	)
Pro forma		$	6,155			$	21,314
Basic net income per share:
As reported		$	0.17			$	0.56
Pro forma		$	0.12			$	0.41
Diluted net income per share:
As reported		$	0.16			$	0.51
Pro forma		$	0.11			$	0.37

     As of September 30, 2006, there was $25.7 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock-based awards granted to the Company’s employees. This cost is expected to be recognized over a weighted-average period of 2.0 years. Total unrecognized compensation cost may be adjusted for future changes in estimated forfeitures.

     General Stock Option Information

     The following table sets forth the summary of option activity under the Company’ stock option program for the nine months ended September 30, 2006:

													Weighted Average
		Options Available							Weighted Average				Remaining				Aggregate
		for Grant			Options Outstanding				Exercise Price				Contractual Life				Intrinsic Value
		(in thousands)			(in thousands)								(in years)				(in thousands)
December 31, 2005		2,681				3,610			$	14.97
Granted		(2,100	)			2,100			$	23.90
Exercised		N/A				(474	)		$	11.48
Cancelled/expired/forfeited		609				(609	)		$	9.90
September 30, 2006		1,190				4,627			$	20.05				6.40			$	25,317
Vested and expected to vest as of September 30, 2006						4,384			$	19.86				6.42			$	24,887
Exercisable as of September 30, 2006						1,909			$	16.18				6.68			$	18,826

     The total intrinsic value of options exercised for the three and nine months ended September 30, 2006 were $4.6 million and $6.5 million, respectively. The intrinsic value is calculated as the difference between the market value as of September 30, 2006 and the exercise price of the shares. The weighted average estimated fair value of options granted during the nine months ended September 30, 2006 was $13.57. The weighted average estimated fair value of options granted during three and nine months ended September 30, 2005 was $9.56 and $10.25, respectively.

     Information regarding the stock options outstanding at September 30, 2006 is summarized below:

						Weighted Average				Weighted								Weighted
		Options				Remaining				Average				Options				Average
Range of Exercise prices		Outstanding				Contractual Life				Exercise Price				Exercisable				Exercise Price
		(in thousands)				(in years)								(in thousands)
$0.16 – $1.88			375				5.34			$	1.67				375			$	1.67
$1.89 – $12.98			635				6.02			$	11.24				485			$	10.75
$12.99 – $20.86			910				7.35			$	19.84				486			$	19.36
$20.87 – $36.40			2,707				6.31			$	24.73				563			$	27.78
			4,627				6.40			$	20.05				1,909			$	16.18

11. Segment Information

     Based on the criteria established by SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” the Company currently operates in three principal business segments globally. The Company does not allocate any operating costs or

assets to its advertising, MVAS and other segments as management does not use this information to measure the performance of these operating segments. Management does not believe that allocating these expenses or assets is necessary in evaluating these segments’ performance.

     The following is a summary of revenues, cost of revenues and gross profit margins:

		Three months ended								Nine months ended
		September 30,								September 30,
		2006				2005				2006				2005
						(in thousands, except percentages)
Revenues:
Advertising		$	32,697			$	22,968			$	84,332			$	59,989
MVAS			21,811				24,134				66,953				73,267
Other			1,551				2,522				5,164				8,346
		$	56,059			$	49,624			$	156,449			$	141,602
Cost of revenues:
Advertising		$	11,333			$	7,410			$	29,948			$	19,845
MVAS			8,313				8,279				26,638				24,323
Other			402				391				1,167				1,181
		$	20,048			$	16,080			$	57,753			$	45,349
Gross profit margins:
Advertising			65	%			68	%			64	%			67	%
MVAS			62	%			66	%			60	%			67	%
Other			74	%			84	%			77	%			86	%
Overall			64	%			68	%			63	%			68	%

     The following is a summary of the Company’s geographic operations:

		China				U.S.				Hong Kong				Taiwan				Total
		(in thousands)
Three months ended and as of September 30, 2006:
Revenue		$	55,149			$	467			$	390			$	53			$	56,059
Long-lived assets			21,851				154				1,142				83				23,230
Three months ended and as of September 30, 2005:
Revenues		$	48,445			$	508			$	546			$	125			$	49,624
Long-lived assets			21,756				121				179				146				22,202
Nine months ended and as of September 30, 2006:
Revenue		$	153,700			$	1,469			$	1,037			$	243			$	156,449
Long-lived assets			21,851				154				1,142				83				23,230
Nine months ended and as of September 30, 2005:
Revenues		$	138,290			$	1,556			$	1,353			$	403			$	141,602
Long-lived assets			21,756				121				179				146				22,202

12. Certain risks and concentrations

     Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, marketable debt securities and accounts receivable. The Company limits its exposure to credit loss by depositing its cash and cash equivalents with financial institutions in the U.S., the PRC, Hong Kong and Taiwan that management believes are of high credit quality. The Company usually invests in marketable debt securities with A ratings or above.

     Accounts receivable consist primarily of advertising agencies, direct advertising customers and third-party mobile operators. As of September 30, 2006 and December 31, 2005, approximately 98% and 97%, respectively, of the net accounts receivable were derived from the Company’s operations in the PRC. With regard to the advertising operations, no individual advertising customer accounted for more than 10% of total net revenues for the three and nine months ended September 30, 2006 and 2005. Also, no individual advertising customer accounted for more than 10% of accounts receivables as of September 30, 2006 and December 31, 2005.

     With regard to the MVAS operations, the Company mainly contracts with China Mobile Communication Corporation (“China Mobile”) and China Unicom Co. Ltd. (“China Unicom”) and their subsidiaries for utilizing their transmission gateways for message delivery and billing systems to collect subscription or usage fees from its subscribers. MVAS fees charged to users via these operators accounted for 39% and 43% of the Company’s net revenues for the three and nine months ended September 30, 2006, respectively,

and 48% and 51% of the Company’s net revenues for the three and nine months ended September 30, 2005, respectively. Below is a summary of mobile operator and product line revenues as a percentage of total net revenues and accounts receivable from mobile operator as a percentage of total receivables:

		Three months ended								Nine months ended
		September 30,								September 30,
		2006				2005				2006				2005
Revenues from mobile operators as a percentage of total net revenues:
China Mobile and its subsidiaries			24	%			46	%			33	%			46	%
China Unicom and its subsidiaries			13	%			< 10	%			9	%			< 10	%
Revenues from MVAS as a percentage of total net revenues:
Short Messaging Service			22	%			35	%			29	%			38	%
Interactive Voice Response			10	%			< 10	%			< 10	%			< 10	%

		September 30, 2006				December 31, 2005
Receivables from operators as a percentage of total accounts receivable:
China Mobile and its subsidiaries			25	%			26	%
China Unicom and its subsidiaries			< 10	%			< 10	%

     Accounts receivable from the mobile operators represent MVAS fees collected on behalf of the Company after deducting their billing services and transmission charges. The Company maintains allowances for potential credit losses. Historically, the Company has not had any significant direct write-off of bad debts.

     The Company operates in business segments which are characterized by rapid technological advances, changes in customer requirements and evolving regulatory requirements and industry standards. Any failure by the Company to anticipate or to respond adequately to technological changes in its industry segments, changes in customer requirements or changes in regulatory requirements or industry standards, could have a material adverse effect on the Company’s business and operating results. The Company relies on a number of third-party suppliers for various other services, including web server hosting, banner advertising delivery software, Internet traffic measurement software and transmission and billing of MVAS. Any failure of these suppliers to provide services to the Company or any termination of these services with the Company could have a material adverse effect on the Company’s business and operating results.

     The majority of the Company’s net income was derived in China. The operations in China are carried out by the Company’s subsidiaries and VIEs. The Company depends on dividend payments from its subsidiaries in China for its revenues after these subsidiaries receive payments from VIEs in China under various services and other arrangements. In addition, under Chinese law, its subsidiaries are only allowed to pay dividends to the Company out of their distributable earnings, if any, as determined in accordance with Chinese accounting standards and regulations. Moreover, these Chinese subsidiaries are required to set aside at least 10% of their respective after-tax profit, if any, and up to 50% of their registered capital to fund certain mandated reserve funds that are not payable or distributable as cash dividends. The appropriation to mandated reserve funds are assessed annually. As of December 31, 2005, the Company is subject to a maximum appropriation of $11.1 million to these non-distributable reserve funds. The Company’s subsidiaries and VIEs in China are subject to different tax rates. See Note 8 — Income Taxes.

     The majority of the Company’s revenues derived and expenses incurred were in Chinese renminbi. As of September 30, 2006, the Company’s cash, cash equivalents and short-term investments balance denominated in Chinese renminbi was approximately $231.2 million, which accounted for approximately 67% of its total cash, cash equivalents and short-term investment balance; accounts receivable denominated in Chinese renminbi was approximately $45.2 million, which accounted for approximately 98% of its total accounts receivable balance; and liabilities balance denominated in Chinese renminbi was approximately $46.4 million, which accounted for approximately 31% of its total liabilities balance. Accordingly, the Company may experience economic losses and negative impacts on earnings and equity as a result of exchange rate fluctuations in renminbi. Moreover, the Chinese government imposes controls on the convertibility of renminbi into foreign currencies and, in certain cases, the remittance of currency out of the PRC. The Company may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency.

13. Commitments and Contingencies

     Operating lease commitments include the commitments under the lease agreements for the Company’s office premises. The Company leases office facilities under non-cancelable operating leases with various expiration dates beginning 2005 through 2007. Rental expenses for the three and nine months ended September 30, 2006 were $0.9 million and $2.5 million, respectively, and for the three and nine months ended September 30, 2005 were $0.9 million and $2.9 million, respectively. Based on the current rental lease agreements, future minimum rental payments required as of September 30, 2006 were as follows:

						Less than one				One to				Three to				More than
		Total				year				three years				five years				five years
										( in thousands)
Operating lease commitments		$	2,293			$	2,293			$	—			$	—			$	—

     Purchase commitments mainly include minimum commitments for Internet connection fees associated with web sites production, content fees associated with web sites production and MVAS, advertising serving services and marketing activities. Purchase commitments as of September 30, 2006 were as follows:

						Less than one				One to				Three to				More than
		Total				year				three years				five years				five years
										( in thousands)
Purchase commitments		$	13,527			$	10,122			$	3,295			$	42			$	68

     There are uncertainties regarding the legal basis of our ability to operate an Internet business and value-added telecommunication services in China. Although China has implemented a wide range of market-oriented economic reforms, the telecommunication, information and media industries remain highly regulated. Not only are such restrictions currently in place, but in addition regulations are unclear as to in which specific segments of these industries companies with foreign investors, including us, may operate and the manner of any such operations. Therefore, we might be required to limit the scope of our operations in China or alter the manner in which we operate, or both and any such operational changes could have a material adverse effect on our financial position, results of operations and cash flows.

     For a discussion of current lawsuits, please refer to Part II, Item 1. Legal Proceedings.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act, including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words “expect”, “anticipate”, “intend”, “believe”, the negative of such terms or other comparable terminology. All forward-looking statements included in this document are based on information available to us on the date hereof, and we undertake no obligation to update any such forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. In evaluating our business, you should carefully consider the information set forth in the section titled “Risk Factors” in Part II, Item 1A. We caution you that our businesses and financial performance are subject to substantial risks and uncertainties, including the factors identified in “Risk Factors,” that could cause actual results to differ materially from those in the forward-looking statements.

Overview

     We are a leading online media company and value-added information services provider in the People’s Republic of China (the “PRC” or “China”) and the global Chinese communities. With a branded network of localized web sites targeting Greater China and overseas Chinese, we provide services through five major business lines including SINA.com (online news and content), SINA Mobile (MVAS), SINA Online (community-based services, games and instant messaging), SINA.net (search and enterprise solutions) and SINA E-Commerce (online shopping). Together these provide an array of services including region-focused online portals, MVAS, search and directory, interest-based and community-building channels, free and premium email, blog services audio and video streaming, online games, virtual ISP, classified listings, fee-based services, e-commerce and enterprise e-solutions. In turn, we generate revenues through advertising, MVAS, fee-based services, e-commerce and enterprise services. Advertising and MVAS are currently the major sources of our revenues and we expect this trend to continue in the near future.

Critical Accounting Policies and Estimates

     Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to customer programs and incentives, bad debts, investments, intangible assets, income taxes, financing operations, restructuring, employee benefits, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. For further information on our critical accounting policies, see the discussion in the section titled “Recent Accounting Pronouncements” below and Note 2 to the Condensed Consolidated Financial Statements.

     Other than noted below, there have been no significant changes during the first nine months of 2006 to the items disclosed as our critical accounting policies and estimates in the Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2005.

     Stock-based compensation

     We adopted the provisions of, and account for stock-based compensation in accordance with, SFAS 123R since January 1, 2006. We elected the modified-prospective method, under which prior periods are not revised for comparative purposes. Under the fair value recognition provisions of SFAS 123R, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis, net of estimated forfeitures, over the requisite service period, which is generally the vesting period. We currently use the Black-Scholes option pricing model to determine the fair value of stock options and ESPP shares. The determination of the fair value of stock-based compensation awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables, including our expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate and expected dividends. Furthermore, we are required to estimate forfeitures at the time of grant and record stock-based compensation expense only for those awards that are expected to vest. If actual forfeitures differ from those estimates, we may need to revise those estimates in subsequent periods.

     If factors change and we employ different assumptions for estimating stock-based compensation expense in future periods or if we decide to use a different valuation model, the future periods may differ significantly from what we have recorded in the current period and could materially affect our operating income, net income and net income per share.

     The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable, characteristics not present in our option grants and ESPP shares. Existing valuation models, including the Black-Scholes and lattice binomial models, may not provide reliable measures of the fair values of our stock-based compensation. Consequently, there is a risk that our estimates of the fair values of our stock-based compensation awards on the grant dates may bear little resemblance to the actual values realized upon the exercise, expiration, early termination or forfeiture of those stock-based payments in the future. Certain stock-based compensation awards, such as employee stock options, may expire worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our financial statements. Alternatively, value may be realized from these instruments that are significantly higher than the fair values originally estimated on the grant date and reported in our financial statements. There currently is no market-based mechanism or other practical application to verify the reliability and accuracy of the estimates stemming from these valuation models, nor is there a means to compare and adjust the estimates to actual values.

     The guidance provided in SFAS 123R and SAB 107 is relatively new. The application of these principles may be subject to further interpretation and refinement over time. There are significant differences among valuation models, and there is a possibility that we will adopt different valuation models in the future. This may result in a lack of consistency in future periods and materially affect the fair value estimates of stock-based compensation awards. It may also result in a lack of comparability with other companies that use different models, methods and assumptions.

     See Note 10 for further information regarding stock-based compensation under SFAS 123R.

     Property and equipment

     Property and equipment are stated at historical cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally from three to five years. Judgment is required to determine the estimated useful lives of assets, especially for computer equipment, including determining how long existing equipment can function and when new technologies will be introduced at cost-effective price points to replace existing equipment. Changes in these estimates and assumptions could materially impact our financial position and results of operations.

     During a recent fixed-assets inventory count, we noted that a significant portion of certain fully depreciated computer equipment was still in use. We changed the estimated useful lives of these computer equipment (e.g., servers and filers), from three years to four years. This change in accounting estimate resulted in a reduction in depreciation expenses of $0.6 million in the first quarter of 2006, of which $0.2 million were in the cost of advertising revenues and $0.4 million were in operating expenses. Depreciation expenses were approximately $2.5 million and $7.2 million for the three and nine months ended September 30, 2006, respectively, and $2.7 million and $6.9 million for the three and nine months ended September 30, 2005, respectively.

     Goodwill

     We test goodwill for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis, or more frequently, if facts and circumstances warrant a review. We make judgments about goodwill whenever events or changes in circumstances indicate that an impairment in the value of goodwill recorded on our balance sheet may exist. The timing of an impairment test may result in charges to our statements of operations in our current reporting period that could not have been reasonably foreseen in prior periods. Application of goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to the reporting units, assigning goodwill to reporting units and estimating the fair value of each reporting unit. Changes in these estimates and assumptions could materially affect the determination of fair value of each reporting unit which could trigger impairment. More conservative assumptions of the anticipated future benefits from these reporting units could result in impairment charges, which would decrease net income and result in lower asset values on our balance sheet. Conversely, less conservative assumptions could result in smaller or no impairment charges, higher net income and higher asset values. See Note 6 “Goodwill and Intangible Assets” in the condensed consolidated financial statements for additional information on goodwill.

     Recent Accounting Pronouncements

     In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that the Company recognize in its financial statements the impact of a tax position if that position is more likely than not of being sustained on audit, based on the technical merits of the position. FIN 48 will be effective for us starting January 1, 2007, with the cumulative effect of the change in accounting principle, if any, recorded as an adjustment to opening retained earnings. We are currently evaluating the impact of adopting FIN 48 on our consolidated financial position, cash flows and results of operations.

     In September 2006, the FASB issued Statement of Financial Accounting Standards No.157, “Fair Value Measurements” (“SFAS157”), which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS 157 will be effective for us for the fiscal year ended December 31, 2007. We are currently evaluating the impact of adopting SFAS 157 on our consolidated financial position, cash flows and results of operations.

     In September 2006, the SEC released SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 provides interpretive guidance on the SEC’s views on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The provisions of SAB 108 will be effective for us for the fiscal year ended December 31, 2006. We are currently evaluating the impact of applying SAB 108 but do not believe that the application of SAB 108 will have a material effect on our financial position, cash flows, and results of operations.

Results of Operations

Net revenues

		Three months ended September 30,
		2006								2005
		(in thousands, except percentages)
						% of net								% of net				% of
						revenues								revenues				change
Net Revenues:
Advertising		$	32,697				58	%		$	22,968				46	%			42	%
Non-advertising:
MVAS			21,811				39	%			24,134				49	%			-10	%
Other			1,551				3	%			2,522				5	%			-39	%
Subtotal			23,362				42	%			26,656				54	%			-12	%
Total net revenues		$	56,059				100	%		$	49,624				100	%			13	%