Sohu.com (SOHU)

Cost of Non-advertising Revenues

Cost of non-advertising revenues was $11.6 million and $7.5 million for the three months ended March 31, 2009 and 2008, respectively.

Online game. Cost of online game revenues primarily consists of personnel costs relating to the operation of the games, PRC business tax and VAT that AmazGame pays on the revenues that it derives from its contractual arrangements with Gamease, bandwidth leasing costs, depreciation of servers and computer equipment and revenue-based royalty payments to game developers of licensed games. Cost of online game revenues was $3.4 million for the three months ended March 31, 2009 as compared to $3.2 million for the three months ended March 31, 2008. Our online game gross margin for the three months ended March 31, 2009 and 2008 was 94% and 92%, respectively.

Wireless. Cost of wireless revenues mainly consists of collection and wireless transmission charges paid to mobile network operators, expenses related to complaints based on allegations of breaches of certain provisions of our agreements with mobile network operators, fees or royalties paid to third party providers for promotion services and content associated with our wireless services, payments to third party wireless service alliances, relevant depreciation of servers and computer equipment and bandwidth leasing costs. Cost of wireless revenues increased by $3.7 million to $7.6 million for the three months ended March 31, 2009 as compared to $3.9 million for the three months ended March 31, 2008. The increase in cost of wireless revenues resulted from an increase of $2.9 million related to payments to third party wireless service alliances and content providers, and an increase of $0.8 million in collection charges and transmission charges paid to mobile network operators. The collection and transmission charges vary among mobile network operators and include a gateway fee of $0.003 to $0.029 per message, depending on the volume of the monthly total wireless messages, and a collection fee of 15% to 70% of total fees collected by mobile network operators from mobile phone users (with the residual paid to us) in the first quarter of 2009. Our wireless gross margins were 43% and 54% for the three months ended March 31, 2009 and 2008, respectively. The decline in gross margin was primarily due to increased costs related to revenue sharing arrangements.

Others. Cost of revenues for other services was $486,000 and $381,000 for the three months ended March 31, 2009 and 2008, respectively. Cost of revenues for other services mainly consists of personnel and other expenses in connection with sales of software, provision of ASP services and construction of websites.

Cost of Non-advertising Revenues

Cost of non-advertising revenues was $41.1 million and $20.4 million for the years ended December 31, 2008 and 2007, respectively.

-50-

Table of Contents

Online game. Cost of online game revenues primarily consists of personnel cost relating to the operation of the games, PRC business tax and VAT that AmazGame pays on the revenues that it derives from its contractual arrangements with Gamease, bandwidth leasing costs, depreciation of servers and computer equipment and revenue-based royalty payments to game developers of licensed games. Cost of online game revenues was $14.6 million for the year ended December 31, 2008 as compared to $7.1 million for the year ended December 31, 2007. The increase of $7.5 million consisted of a $2.8 million increase in personnel expense, a $2.2 million increase in PRC business tax and VAT that AmazGame paid on the revenues that it derived from its contractual arrangements with Gamease, a $2.1 million increase in bandwidth leasing and communication costs and depreciation of servers and computer equipment, and $0.4 million increase in other costs. All of the changes were primarily due to the growth of TLBB and its operation for the full year ended December 31, 2008.

Wireless. Cost of wireless revenues mainly consists of collection and wireless transmission charges paid to mobile network operators, expenses related to complaints based on allegations of breaches of certain provisions of our agreements with mobile network operators, fees or royalties paid to third party providers for promotion services and content associated with our wireless services, payments to third party wireless service alliances, relevant depreciation of servers and computer equipment and bandwidth leasing costs. Cost of wireless revenues increased by $12.2 million to $24.5 million for the year ended December 31, 2008, as compared to $12.3 million for the year ended December 31, 2007. The increase in cost of wireless revenues resulted from an increase of $8.0 million in relation to payments to third party wireless service alliances and content providers and an increase of $4.2 million in collection charges and transmission charges paid to mobile network operators. The collection and transmission charges vary between mobile network operators and include a gateway fee of $0.003 to $0.029 per message, depending on the volume of the monthly total wireless messages, and a collection fee of 10% to 70% of total fees collected by mobile network operators from mobile phone users (with the residual paid to us) in the year of 2008. Our wireless gross margins were 48% and 53% for the years ended December 31, 2008 and 2007, respectively.

Others. Cost of revenues for other services, was $2.0 million and $939,000 for the years ended December 31, 2008 and 2007, respectively. Cost of revenues for other services mainly consists of personnel and other expenses in connection with sales of software, provision of ASP services and construction of websites. The $1.1 million increase was mainly due to a $0.5 million increase in software purchase, a $0.4 million increase in server depreciation and bandwidth leasing costs, and a $0.2 million increase in other costs.

Cost of Non-advertising Revenues

Cost of Non-advertising Revenues

Cost of non-advertising revenues was $20.4 million and $19.9 million for the years ended December 31, 2007 and 2006, respectively.

Online game. Cost of online game revenues primarily consists of personnel costs relating to the operation of the games, bandwidth leasing costs, revenue sharing with the game developers of BO and Knight Online (or KO) and depreciation of servers and computer equipment. Cost of online game revenues was $7.1 million for the year ended December 31, 2007 as compared to $3.9 million for the year ended December 31, 2006. The increase in cost of online game revenues was mainly due to increased server depreciation and bandwidth leasing costs due to the launch of TLBB, and increase of personnel costs relating to operation of TLBB. Our online game gross margins were 83% for the year ended December 31, 2007 as compared to 54% for the year ended December 31, 2006. The increase primarily represents contribution from TLBB.

Wireless. Cost of wireless revenues mainly consists of collection and wireless transmission charges paid to mobile network operators, expenses related to complaints based on allegations of breaches of certain provisions of our agreements with mobile network operators, fees or royalties paid to third party providers for promotion services and content associated with our wireless services, payments to third party wireless service alliances, relevant depreciation of servers and computer equipment and bandwidth leasing costs. Cost of wireless revenues decreased by $3.1 million to $12.3 million for the year ended December 31, 2007, as compared to $15.4 million for the year ended December 31, 2006. The decrease in cost of wireless revenues resulted from a decrease of $5.2 million in collection charges, transmission charges and expenses related to penalties paid to mobile network operators; the decrease was partially offset by an increase of $2.1 million paid to third party wireless service alliances and content or service providers. The collection and transmission charges vary between mobile network operators and include a gateway fee of $0.003 to $0.027 per message, depending on the volume of the monthly total wireless messages, and a collection fee of 15% to 60% of total fees collected by mobile network operators from mobile phone users (with the residual paid to us) in the year of 2007. Our wireless gross margins were both 53% for the years ended December 31, 2007 and 2006.

Others. Cost of revenues for other services, was $939,000 and $570,000 for the years ended December 31, 2007 and 2006, respectively. Cost of revenues for other services mainly consists of personnel and other expenses in connection with sales of software, provision of ASP services and construction of websites.

Cost of Non-advertising Revenues

Cost of non-advertising revenues was $11.1 million and $28.0 million for the three and nine months ended September 30, 2008, respectively, as compared with $5.6 million and $13.8 million for the corresponding three and nine month periods in 2007.

Online game. Cost of online game revenues consists primarily of personnel cost relating to the operation of the games, revenue-based royalty fee to the game developers of BO, bandwidth leasing costs, depreciation of servers and computer equipment, business tax and value-added tax (or VAT) related to intra-group transactions. Cost of online game revenues was $3.5 million and $10.2 million for the three and nine months ended September 30, 2008 as compared with $2.1 million and $4.3 million for the three and nine months ended September 30, 2007. The increase of $1.4 million in the three months ended September 30, 2008 as compared with the corresponding period of 2007 was mainly due to a $0.8 million increase in personnel cost, a $0.5 million increase in business tax and VAT, a $0.4 million increase in depreciation of servers and computer equipment and bandwidth leasing costs, a $0.1 million increase in other costs, offset by a $0.4 million decrease in revenue-based royalty fee as we ceased to make such payment to the developer of BO since July 1, 2008. The increase of $5.9 million in the nine months ended September 30, 2008 as compared with the corresponding period of 2007 was mainly due to a $2.5 million increase in personnel cost, a $1.6 million increase in business tax and VAT, a $1.5 million increase in depreciation of servers and computer equipment and bandwidth leasing costs, a $0.3 million increase in facilities cost, and a $0.4 million increase in other costs, offset by a $0.4 million decrease in revenue-based royalty fee as we ceased to make such payment to the developer of BO since July 1, 2008. Our online game gross margin was 94% and 93% for the three and nine months ended September 30, 2008, as compared with 84% and 76% for the three and nine months ended September 30, 2007. The increase primarily represents contribution from TLBB.

Wireless. Cost of wireless revenues mainly consists of collection and wireless transmission charges paid to mobile network operators, costs related to complaints based on allegations of breaches of certain provisions of our agreements with mobile network operators, fees or royalties paid to third party content providers for promotion services and content associated with our wireless services, payments to third party wireless service alliances, relevant depreciation of servers and computer equipment and bandwidth leasing costs. Cost of wireless revenues increased by $3.8 million to $7.1 million for the three months ended September 30, 2008, and increased by $7.4 million to $16.5 million for the nine months ended September 30, 2008, as compared with the corresponding three and nine month periods in 2007. The increase in cost of wireless revenues for three months ended in September 30, 2008 as compared with the corresponding period in 2007 resulted from an increase of $2.4 million in relation to payments to third party wireless service alliances and content providers and an increase of $1.4 million in collection charges and transmission charges paid to mobile network operators. The increase in cost of wireless revenues for nine months ended in September 30, 2008 as compared with the corresponding period in 2007 resulted from an increase of $4.8 million in relation to payments to third party wireless service alliances and content providers, and an increase of $2.6 million in collection charges and transmission charges paid to mobile network operators. The collection and transmission charges vary between mobile network operators and include a gateway fee of $0.003 to $0.029 per message, depending on the volume of the monthly total wireless messages, and a collection fee of 10% to 70% of total fees collected by mobile network operators from mobile phone users (with the residual paid to us) in the third quarter of 2008. Our wireless gross margin was 51% and 49% for the three and nine months ended September 30, 2008, as compared with 52% for both the corresponding periods in 2007. The decrease in gross margin for the nine months ended September 30, 2008 was mainly due to certain business tax provision of $2.1 million made in the three months ended June 30, 2008.

Others. Cost of revenues for other services was $577,000 and $1,336,000 for the three and nine months ended September 30, 2008, respectively, as compared with $178,000 and $409,000 for the corresponding three and nine month periods in 2007. Cost of revenues for other services consists mainly of personnel and other costs in connection with sales of software business and provision of ASP services. The increase in three months ended September 30, 2008 as compared with the corresponding period of 2007 was mainly due

-27-

Table of Contents

to a $0.3 million increase in cost of purchased software and a $0.1 million increase in other costs. The increase in nine months ended September 30, 2008 as compared with the corresponding period of 2007 was mainly due to a $0.5 million increase in cost of purchased software, a $0.3 million increase in server depreciation and bandwidth leasing costs, and a $0.1 million increase in other costs.

Cost of Non-advertising Revenues

Cost of non-advertising revenues was $9.4 million and $16.9 million for the three and six months ended June 30, 2008, respectively, as compared to $4.7 million and $8.3 million for the corresponding three and six month periods in 2007.

Online game. Cost of online game revenues consists primarily of personnel costs relating to the operation of the games, revenue sharing with the game developers of BO, bandwidth leasing costs, depreciation of servers and computer equipment, business tax and value-added tax (or VAT) related to intra-group transactions. Cost of online game revenues was $3.5 million and $6.7 million for the three and six months ended June 30, 2008 as compared to $1.4 million and $2.3 million for the three and six months ended June 30, 2007. The increase of $2.1 million in the three months ended June 30, 2008 as compared with corresponding period of 2007 was mainly due to a $0.8 million increase in personnel costs, a $0.5 million increase in business tax and VAT, a $0.4 million increase in server depreciation and bandwidth leasing costs, and a $0.4 million increase in other costs. The increase of $4.4 million in the six months ended June 30, 2008 as compared with corresponding period of 2007 was mainly due to a $1.7 million increase in personnel costs, a $1.2 million increase in server depreciation and bandwidth leasing costs, a $1.1 million increase in business tax and VAT, and a $0.4 million increase in other costs. Our online game gross margin was 93% and 92% for the three and six months ended June 30, 2008, as compared to 63% and 58% for the three and six months ended June 30, 2007. The increase primarily represents contribution from TLBB.

Wireless. Cost of wireless revenues mainly consists of collection and wireless transmission charges paid to mobile network operators, expenses related to complaints based on allegations of breaches of certain provisions of our agreements with mobile network operators, fees or royalties paid to third party content providers for promotion services and content associated with our wireless services, payments to third party wireless service alliances, relevant depreciation of servers and computer equipment and bandwidth leasing costs. Cost of wireless revenues increased by $2.3 million to $5.5 million for the three months ended June 30, 2008, and increased by $3.6 million to $9.4 million for the six months ended June 30, 2008, as compared to the corresponding three and six month periods in 2007. The increase in cost of wireless revenues for three months ended in June 30, 2008 as compared to corresponding period in 2007 resulted from an increase of $1.6 million in related to payments to third party wireless service alliances and content providers and an increase of $0.7 million in collection charges and transmission charges paid to mobile network operators. The increase in cost of wireless revenues for six months ended in June 30, 2008 as compared to corresponding period in 2007 resulted from an increase of $2.4 million in related to payments to third party wireless service alliances and content providers, and an increase of $1.2 million in collection charges and transmission charges paid to mobile network operators. The collection and transmission charges vary between mobile network operators and include a gateway fee of $0.003 to $0.029 per message, depending on the volume of the monthly total wireless messages, and a collection fee of 10% to 70% of total fees collected by mobile network operators from mobile phone users (with the residual paid to us) in the second quarter of 2008. Our wireless gross margins were 40% and 47% for the three and six months ended June 30, 2008, as compared to both 52% for the corresponding periods in 2007. The decrease in gross margin was mainly due to certain business tax provision of $2.1 million in the three months ended June 30, 2008.

Others. Cost of revenues for other services was $378,000 and $759,000 for the three and six months ended June 30, 2008, respectively, as compared to $132,000 and $231,000 for the corresponding three and six month periods in 2007. Cost of revenues for other services consists mainly of personnel and other expenses in connection with sale of software business and provision of ASP services.

Cost of Non-advertising Revenues

Cost of non-advertising revenues was $7.5 million and $3.6 million for the three months ended March 31, 2008 and 2007, respectively.

Online game. Cost of online game revenues primarily consists of personnel costs relating to the operation of the games, bandwidth leasing costs, revenue sharing with the game developer of BO and depreciation of servers and computer equipment. Cost of online game revenues was $3.2 million for the three months ended March 31, 2008 as compared to $0.9 million for the three months ended March 31, 2007. The increase in cost of online game revenues was mainly due to increased server depreciation and bandwidth leasing costs due to the launch of TLBB, and increase in personnel costs relating to operation of TLBB. Our online game gross margin was 92% for the three months ended March 31, 2008 as compared to 46% for the three months ended March 31, 2007. The increase primarily represents contribution from TLBB.

Wireless. Cost of wireless revenues mainly consists of collection and wireless transmission charges paid to mobile network operators, expenses related to complaints based on allegations of breaches of certain provisions of our agreements with mobile network operators, fees or royalties paid to third party content providers for promotion services and content associated with our wireless services, payments to third party wireless service alliances, relevant depreciation of servers and computer equipment and bandwidth leasing costs. Cost of wireless revenues increased by $1.3 million to $3.9 million for the three months ended March 31, 2008 as compared to $2.6 million for the three months ended March 31, 2007. The increase in cost of wireless revenues resulted from an increase of $0.7 million related to payments to third party wireless service alliances and content providers, and an increase of $0.6 million in collection charges and transmission charges paid to mobile network operators. The collection and transmission charges vary between mobile network operators and include a gateway fee of $0.003 to $0.028 per message, depending on the volume of the monthly total wireless messages, and a collection fee of 15% to 60% of total fees collected by mobile network operators from mobile phone users (with the residual paid to us) in the first quarter of 2008. Our wireless gross margins were 54% and 53% for the three months ended March 31, 2008 and 2007, respectively.

Others. Cost of revenues for other services, was $381,000 and $99,000 for the three months ended March 31, 2008 and 2007, respectively. Cost of revenues for other services mainly consists of personnel and other expenses in connection with sales of software, provision of ASP services and construction of websites.

Cost of Non-advertising Revenues

Cost of non-advertising revenues was $19.9 million and $15.6 million for the years ended December 31, 2006 and 2005, respectively.

Online game. Cost of online game revenues primarily consists of personnel costs relating to the operation of the games, bandwidth leasing costs, revenue sharing with the game developers of KO and BO and depreciation of servers and computer equipment. Cost of online game revenues was $3.9 million for the year ended December 31, 2006 as compared to $2.7 million for the year ended December 31, 2005. Our online game gross margins were 54% and 53% for the years ended December 31, 2006 and 2005, respectively.

Wireless. Cost of wireless revenues mainly consists of collection and wireless transmission charges paid to mobile network operators, expenses related to complaints based on allegations of breaches of certain provisions of our agreements with mobile network operators, fees or royalties paid to third party content providers for services and content associated with our wireless services, payments to third party wireless service alliances, relevant depreciation of servers and computer equipment and bandwidth leasing costs. Cost of wireless revenues increased by $3.4 million to $15.4 million for the year ended December 31, 2006, as compared to $12.0 million for the year ended December 31, 2005. The increase in cost of wireless revenues resulted from an increase of $2.3 million in collection charges, transmission charges and expenses related to penalties paid to mobile network operators and an increase of $1.1 million paid to third party wireless service alliances and content providers. The collection and transmission charges vary between mobile network operators and include a gateway fee of $0.002 to $0.031 per message, depending on the volume of the monthly total wireless messages, and a collection fee of 15% to 55% of total fees collected by mobile network operators from mobile phone users (with the residual paid to us) in 2006. Our wireless gross margins were 53% and 54% for the years ended December 31, 2006 and 2005, respectively.

Others. Cost of revenues for other services was $570,000 and $914,000 for the years ended December 31, 2006 and 2005, respectively. Following the acquisition of Go2Map, cost of other revenues mainly of personnel and other expenses in connection with sale of software and provision of ASP services. For the year ended December 31, 2006, the cost of sales of software and provision of ASP services was $500,000, as compared to $300,000 for the period from May 31, 2005, the acquisition date of Go2Map, to December 31, 2005.

Cost of Non-advertising Revenues

Cost of non-advertising revenues were $5.6 million and $13.9 million for the three and nine months ended September 30, 2007, respectively, as compared to $5.3 million and $15.8 million for the corresponding three and nine month periods in 2006.

Online game. Cost of online game revenues primarily consists of personnel costs relating to the operation of the games, bandwidth leasing costs, revenue sharing with the game developer of BO and depreciation of servers and computer equipment. Cost of online game revenues was $2.1 million and $4.3 million for the three and nine months ended September 30, 2007, respectively, as compared to $1.0 million and $3.0 million for the corresponding periods in 2006. The increase in cost of online game revenues was mainly due to increased server depreciation and bandwidth leasing costs as we added more servers to meet the demand of our increased players in connection with the launch of TLBB, and increase of personnel costs relating to the operation of the games. Our online game gross margins were 84% and 76% for the three and nine months ended September 30, 2007, as compared to 55% and 53% for the corresponding periods in 2006. The increases primarily represent contribution from TLBB.

Wireless. Cost of wireless revenues mainly consists of collection and wireless transmission charges paid to mobile network operators, expenses related to complaints based on allegations of breaches of certain provisions of our agreements with mobile network operators, fees or royalties paid to third party content providers for services and content associated with our wireless services, payments to third party wireless service alliances, relevant depreciation of servers and computer equipment and bandwidth leasing costs. Cost of wireless revenues decreased by $0.8 million to $3.3 million for the three months ended September 30, 2007, and decreased by $3.3 million to $9.1 million for the nine months ended September 30, 2007, as compared to the corresponding three and nine month periods in 2006. The decrease in cost of wireless revenues for the three months ended September 30, 2007 as compared to the corresponding period in 2006 resulted from a decrease of $1.5 million in collection charges and transmission charges paid to mobile network operators, which was offset by a $0.7 million increase in amounts paid to third party wireless service alliances and content providers. The decrease in cost of wireless revenues for the nine months ended September 30, 2007 as compared to the corresponding period in 2006 resulted from a decrease of $4.7 million in collection charges and transmission charges paid to mobile network operators, which was offset by a $1.4 million increase in amounts paid to third party wireless service alliances and content providers. Our wireless gross margins were both 52% for the three and nine months ended September 30, 2007, as compared to 54% and 52% for the corresponding periods in 2006.

Others. Cost of revenues for other services was $178,000 and $409,000 for the three and nine months ended September 30, 2007, respectively, as compared to $200,000 and $425,000 for the corresponding three and nine month periods in 2006. Cost of revenues for other services consists mainly of personnel and other expenses in connection with sale of software business and provision of ASP services.

Cost of Non-advertising Revenues

Cost of non-advertising revenues was $4.7 million and $8.3 million for the three and six months ended June 30, 2007, respectively, as compared to $5.6 million and $10.5 million for the corresponding three and six month periods in 2006.

Wireless. Cost of wireless revenues mainly consists of collection and wireless transmission charges paid to mobile network operators, expenses related to complaints based on allegations of breaches of certain provisions of our agreements with mobile network operators, fees or royalties paid to third party content providers for services and content associated with our wireless services, payments to third party wireless service alliances, relevant depreciation of servers and computer equipment and bandwidth leasing costs. Cost of wireless revenues decreased by $1.3 million to $3.2 million for the three months ended June 30, 2007, and decreased by $2.5 million to $5.8 million for the six months ended June 30, 2007, as compared to the corresponding three and six month periods in 2006. The decrease in cost of wireless revenues for the three months ended June 30, 2007 as compared to the corresponding period in 2006 resulted from a decrease of $1.6 million in collection charges, transmission charges and expenses related to penalties paid to mobile network operators, which was offset by a $0.3 million increase in amounts paid to third party wireless service alliances and content providers. The decrease in cost of wireless revenues for the six months ended June 30, 2007 as compared to the corresponding period in 2006 resulted from a decrease of $3.3 million in collection charges, transmission charges and expenses related to penalties paid to mobile network operators, which was offset by a $0.8 million increase in amounts paid to third party wireless service alliances and content providers. Our wireless gross margins were both 52% for the three and six months ended June 30, 2007, as compared to 50% and 51% for the corresponding periods in 2006.

Online game. Cost of online game revenues primarily consists of revenue sharing with game developers, bandwidth leasing costs, personnel cost relating to the operation of the games and depreciation of servers and computer equipment. Cost of online game revenues was $1.4 million and $2.3 million for the three and six months ended June 30, 2007, respectively, as compared to $1.0 million and $2.0 million for the corresponding periods in 2006. The increase in cost of online game revenues was mainly due to increased server depreciation and bandwidth leasing costs as we added more servers to meet the demand of our increased players in connection with the launch of TLBB. Our online game gross margins were 63% and 58% for the three and six months ended June 30, 2007, as compared to both 52% for the corresponding periods in 2006. The increases primarily represent contribution from TLBB.

Others. Cost of revenues for other services was $132,000 and $231,000 for the three and six months ended June 30, 2007, respectively, as compared to $131,000 and $225,000 for the corresponding three and six month periods in 2006. Cost of revenues for other services consists mainly of personnel and other expenses in connection with sale of software business and provision of ASP services.

Cost of Non-advertising Revenues

Cost of non-advertising revenues decreased by $1.3 million to $3.3 million for the three months ended March 31, 2007 as compared to $4.6 million for the three months ended March 31, 2006.

Wireless. Cost of wireless revenues mainly consists of collection and wireless transmission charges paid to mobile network operators, expenses related to complaints based on allegations of breaches of certain provisions of our agreements with mobile network operators, fees or royalties paid to third party content providers for services and content associated with our wireless services, payments to third party wireless service alliances, relevant depreciation of servers and computer equipment and bandwidth leasing costs. Cost of wireless revenues decreased by $1.2 million to $2.6 million for the three months ended March 31, 2007 as compared to $3.8 million for the three months ended March 31, 2006. The decrease in cost of wireless revenues resulted from a decrease of $1.6 million in collection charges, transmission charges and expenses related to penalties paid to mobile network operators, which were offset by a $0.4 million increase in amounts paid to third party wireless service alliances and content providers. The collection and transmission charges vary between mobile network operators and include a gateway fee of $0.003 to $0.026 per message, depending on the volume of the monthly total wireless messages, and a collection fee of 15% to 55% of total fees collected by mobile network operators from mobile phone users and paid to us in the first quarter of 2007. Our wireless gross margins were 53% and 52% for the three months ended March 31, 2007 and 2006, respectively.

Others. Cost of revenues for other services, was $693,000 and $792,000 for the three months ended March 31, 2007 and 2006, respectively, consisting mainly of payments to game developers, personnel and other expenses in connection with sale of software business and provision of ASP services.

Cost of Non-advertising Revenues

Cost of non-advertising revenues decreased by $1.1 million to $14.7 million for the year ended December 31, 2005 as compared to $15.8 million for the year ended December 31, 2004.

Wireless. Cost of wireless revenues consists mainly of collection and wireless transmission charges paid to mobile network operators, expenses related to notices of penalties and complaints based on allegations of the breach of certain provisions of agreements with mobile network operations, fees or royalties paid to third party content providers for services and content associated with our wireless services, relevant depreciation of servers and computer equipment and bandwidth leasing costs. Cost of wireless revenues decreased by $1.8 million to $12.0 million for the year ended December 31, 2005, as compared to $13.8 million for the year ended December 31, 2004. The decrease in cost of wireless revenues was resulted from a decrease of $1.5 million in collection charges, transmission charges and expenses related to penalties paid to mobile network operators and a decrease of $300,000 paid to third

47

Table of Contents

party content providers. The collection and transmission charges vary between mobile network operators and include a gateway fee of $0.0024 to $0.03 per message, depending on the volume of the monthly total wireless messages, and a collection fee of 10% to 60% of total fees collected by mobile network operators from mobile phone users and paid to us in the year of 2005. Content costs are immaterial as compared to collection and transmission charges. Our wireless gross margins were 54% and 62% for the years ended December 31, 2005 and 2004, respectively. Wireless gross margin decreased primarily due to the increased collection and transmission fees charged by mobile network operators.

Others. Cost of revenues for other services, was $2.7 million and $2.1 million for the years ended December 31, 2005 and 2004, respectively, consisting mainly of payments to game developers. Following the acquisition of Go2Map, cost of other revenues also includes personnel and other expenses in connection with sale of software business and provision of ASP services. For the year ended December 31, 2005, the cost of sales of software and provision of ASP services was $0.3 million.

Cost of Non-advertising Revenues

Cost of non-advertising revenues were $5.0 million and $14.9 million for the three and nine months ended September 30, 2006, respectively, as compared to $4.0 million and $10.5 million for the corresponding three and nine month periods in 2005.

Wireless. Cost of wireless revenues increased by $0.7 million to $4.1 million for the three months ended September 30, 2006, and increased by $3.9 million to $12.4 million for the nine months ended September 30, 2006, as compared to the corresponding three and nine month periods in 2005. Cost of wireless revenues mainly consists of collection and wireless transmission charges paid to mobile network operators, expenses related to complaints based on allegations for the breach of certain provisions of agreements with mobile network operations, fees or royalties paid to third party content providers for

-26-

Table of Contents

services and content associated with our wireless services, relevant depreciation of servers and computer equipment and bandwidth leasing costs. Our wireless gross margins were 54% and 52% for the three and nine months ended September 30, 2006, respectively, as compared to 50% and 55% for the corresponding periods in 2005. Wireless gross margin for the three months ended September 30, 2006 increased, compared to the corresponding period in 2005, primarily due to the increase of mix of higher margin revenues and an increase in gross margin of certain SMS products. Wireless gross margin for the nine months ended September 30, 2006 decreased, compared to the corresponding period in 2005, primarily because of the reduced price ceiling set by a mobile network operator on SMS fees and increased wireless content expenses.

Others. Cost of revenues for other services, was $910,000 and $2.5 million for the three and nine months ended September 30, 2006, respectively, as compared to $626,000 and $2.0 million for the corresponding three and nine month periods in 2005. Cost of revenues for other services mainly consists of payments to game developers. Following the acquisition of Go2Map, cost of other revenues also includes personnel and other expenses in connection with sale of software business and provision of ASP services. For the three and nine months ended September 30, 2006, the cost of sales of software and provision of ASP services was $172,000 and $348,000, respectively, as compared to $109,000 for the three months ended September 30, 2005 and $152,000 for the period from May 31, 2005, the acquisition date of Go2Map, to September 30, 2005.