Hurray! Reports Third Quarter 2007 Unaudited Financial Results

Hurray! Reports Third Quarter 2007 Unaudited Financial Results

BEIJING, Nov. 19 /Xinhua-PRNewswire/ -- Hurray! Holding Co., Ltd. (NASDAQ: HRAY) , a leader in artist development, music production and wireless music distribution and other wireless value-added service in China, today announced its unaudited financial results for the third quarter ended September 30, 2007.

   (Logo: http://www.newscom.com/cgi-bin/prnh/20050314/CNM005LOGO )    FINANCIAL HIGHLIGHTS:    Highlights for Third Quarter 2007    -- Total revenues: $13.6 million, a decline of 6.5% quarter-over-quarter       and 23.9% year-over-year, and below our previous guidance of $15.5-       16.5 million    -- Wireless value-added services revenues: $11.4 million, a decline of       10.7% quarter-over-quarter and 30.6% year-over-year    -- Recorded music revenues, which are from our record label businesses:       $2.2 million, a growth of 22.8% quarter-over-quarter and 47.8% year-       over-year    -- Software and system integration services revenues: $4,000    -- Net loss: $11.5 million    -- Net loss included a goodwill impairment charge of $9.6 million on our       wireless business and a disposal gain of $0.03 million on selling the       software and system integration services business.    -- Adjusted EBITDA (a non-GAAP measure which is defined as earnings       before interest, tax, depreciation, amortization and stock-based       compensation): $-11.0 million    -- Diluted loss per ADS: $0.53    -- Excluding the goodwill impairment charge and the disposal gain on the       sale of the software and system integration business, non-GAAP fully       diluted loss per ADS: $0.09   

Commenting on the third quarter results, QD Wang, Chairman and CEO of Hurray! stated:

"Q3 was extremely challenging for us because the operating environment continued to deteriorate and we missed our revenue guidance. China Unicom's new revenue confirmation policy had a major impact on our business with them and the recent changes in policies by regulatory authorities and operators affecting particularly wireless applications for TV programs as well as WAP portal services have further limited our ability to generate profitable WVAS business. In light of these recent changes, we took an impairment charge of $9.6 million in this quarter. However, our efforts in carrying out our content strategy made further progress as our music business produced growth of 22.8% quarter over quarter and 47.8% year over year generating revenues of $2.2 million. We are confident about the prospect of transforming Hurray! into a leading entertainment production and distribution house in China."

BUSINESS RESULTS

Total revenues for the third quarter ended September 30, 2007 were $13.6 million, representing a 6.5% decrease from $14.6 million for the preceding quarter, and a 23.9% decrease from $17.9 million for the third quarter in 2006.

Total wireless value-added services revenues were $11.4 million for the third quarter of 2007, a decline of 10.7% as compared with $12.7 million in the previous quarter and decline of 30.6% as compared with $16.4 million in the third quarter of 2006.

Recorded music revenues, which represent revenues of our controlled music companies Freeland Music, Huayi Brothers Music and Hurray! Secular Bird, were $2.2 million, a growth of 22.8% as compared with $1.8 million in the previous quarter and growth of 47.8% as compared with $1.5 million in the third quarter of 2006.

Total gross margin was 23.5% for the third quarter of 2007 as compared with 32.9% for the previous quarter and 37.5% for the third quarter of 2006.

Gross margin for wireless value-added services was 19.6% for the third quarter of 2007, as compared with 30.1% in the previous quarter and 36.9% for the third quarter of 2006.

Recorded music gross margin was 43.1% for the third quarter of 2007 as compared to 51.7% in the previous quarter and 45.1% for the third quarter of 2006.

Total gross profit was $3.2 million for the third quarter of 2007, representing a decline of 33.1% as compared with $4.8 million for the previous quarter and a decline of 52.5% as compared with $6.7 million for the third quarter of 2006.

Total operating expenses were $15.3 million for the third quarter of 2007, representing growth of 225.4% as compared to $4.7 million for the previous quarter and growth of 179.5% as compared to $5.5 million for the third quarter of 2006. Total operating expenses included $9.6 million in goodwill impairment for our wireless business.

Interest income for the third quarter of 2007 was $0.6 million, the same as the previous quarter. Income tax benefit was $0.1 million in the third quarter 2007, compared to income tax expense of $0.2 million in the third quarter of 2006, and $0.04 million in the previous quarter.

Net loss was $11.5 million for the third quarter of 2007. Net margin was a negative -(84.7)% for the third quarter of 2007 as compared to positive margins 1.3% for the previous quarter and 9.0% for the third quarter of 2006.

Adjusted loss before interest, tax, depreciation, amortization and stock- based compensation (adjusted EBITDA), was $11.0 million for the quarter. Reconciliations of net loss under U.S. generally accepted accounting principles (GAAP) and adjusted EBITDA are included at the end of this release.

Fully diluted loss per ADS was $0.53 based on a weighted average of 21.8 million diluted ADSs for the third quarter of 2007. This figure compares to earnings per ADS of $0.01 based on a weighted average of 21.8 million diluted ADSs for the previous quarter and earnings per ADS of $0.07 based on a weighted average of 21.7 million diluted ADSs for the third quarter of 2006.

Excluding the goodwill impairment charge and the disposal gain on the sale of the software and system integration business, non-GAAP fully diluted loss per ADS was $0.09 based on a weighted average of 21.8 million diluted ADSs for the third quarter of 2007.

As of September 30, 2007, the Company had outstanding 21.7 million basic ADSs and 21.8 million fully diluted ADSs, excluding share options granted above the average market value of Hurray! stock for the quarter as their effect would have been anti-dilutive.

As of September 30, 2007, the Company had $64.8 million in cash and cash equivalents.

BUSINESS HIGHLIGHTS

While seeking to maintain stability in our WVAS business, we continued to develop our music business. Some of the recent highlights are:

    -- Hurray! released a series of new songs, including 2 albums and 2       singles, and launched successful marketing programs to promote the new       releases simultaneously over Internet and wireless platforms. "I Will       Repay Love With Anything" ("Wo Yong Suo You Bao Da Ai"), was awarded       "Best Film Song" at the Hong Kong Golden Bauhinia.    -- Hurray! artists including Jane Zhang, Huizhen Li, Yu Quan, Wenjie       Shang, Zheng Huang, and others were invited to the "One-year Countdown       Celebration for Beijing Olympics", a very important event in China.       The event was held separately in Beijing and Macao. In addition, Huayi       Brothers Music popular artist, Jane Zhang, was appointed Ambassador of       UNICEF in September, after her concert was successfully held in       Beijing on July 28.    -- New Run Entertainment had significant progress in the Company's TV       programs. Entertainment programs including "Angel Superstar" ("Tian       Shi Ming Xing Hui"), "Entertainment Super Soldier" ("Zong Yi Qi Bing")       and TV Series "When Snow Falls in Love with Plum Blossom" ("Dang Xue       Hua Ai Shang Mei Hua") are among the most successful and highly TV       rated programs of the Company.    -- Hurray! signed up a number of new artists, including:       -- Boran Jing, the champion in "Go, Good Boy! 2007" and the "Most          Popular Star on the Internet"by Huayi Brothers Music.       -- Xinbo Fu by Huayi Brothers Music.       -- Jing Hu and Ke Zhao by Hurray! Freeland.    -- Hurray! launched 14 new titles on China Mobile's game portal,       including "Loafter Swordsman2", " Space Fortress", and "Country       Heroes".    Business Outlook  

For the fourth quarter 2007, Hurray! expects its total consolidated revenues to be between $13.0 and $14.0 million, reflecting the continued impact of tightened enforcement of policy and regulation changes previously announced by the Ministry of Information Industry (MII) and mobile operators.

Sale of Software and System Integration Business

On October 8, 2007, the Company announced the signing of definitive agreements to sell its software and system integration business unit, Hurray! Times Communication (Beijing) Co., Ltd. ("Hurray! Times"), for $ 4.8 million in cash to one of its primary institutional share holders, TWM Holding Co., Ltd., a wholly owned subsidiary of Taiwan Mobile which is a leading telecom service provider in Taiwan.

The total consideration is subject to adjustments based on the financial performance of Hurray! Times' business in certain periods following the closing of the acquisition. The transaction is expected to close before March 31, 2008, subject to required China regulatory approvals and other customary closing conditions.

Provision for goodwill impairment

In May 2007, China Mobile began the operational practice of displaying a service fee reminder to WAP service users when they request the download of a WAP page onto their mobile handsets and seeking their confirmation before processing the download request. In addition, China Mobile started to place links to only its own WVAS offerings on the embedded menus of mobile handsets with customized software for China Mobile users. In the past, such embedded menus on handsets featured links to all popular products on China Mobile's networks, including the products of the Group. The Company believes the above changes by China Mobile could have an adverse impact on the Company's WVAS business, in particular WAP business. As of September 2007, the market capitalization of the Company was lower than net book value and an impairment indicator was shown.

In view of the potential adverse impact of the above change and other changes mentioned earlier and the uncertainties in future operating environment, the Company tested the carrying value of goodwill for impairment as at September 30, 2007 and recorded an impairment charge of $9.6 million for the three months ended September 30, 2007 relating to the goodwill of the Company's wireless value-added service business. The valuation was arrived at after using a combination of a market value approach (with comparisons to selected publicly traded companies operating in the same industry) and an income approach (discounted cash flows). Any continued adverse changes in mobile operators' policies or in the competitive environment could lead to additional impairment charges and the Company is continually monitoring such changes to assess their impact.

Conference Call

The Company will host a conference call to discuss the third quarter results at:

   Time: 09:00 pm Eastern Standard Time on November 19, 2007         or 10:00 am Beijing/Hong Kong Time on November 20, 2007    The dial-in number: +1-800-510-9691  (US)                       +1-617-614-3453  (International)                       Password: 16418262   

A replay of the call will be available from November 19, 2007 until November 25, 2007 as follows:

    +1-888-286-8010  (US)    +1-617-801-6888  (International)    PIN number: 64655776   

Additionally, a live and archived web cast of this call will be available at: http://phx.corporate-ir.net/phoenix.zhtml?p=irol- eventDetails&c=187793&eventID=1678642 or http://www.hurray.com/english/home.htm.

About Hurray! Holding Co., Ltd.

Hurray! is a leader in artist development, music production and offline distribution in China through its record labels Huayi Brothers Music, Freeland Music, New Run Entertainment, and Secular Bird.

Hurray! is also a leading online distributor of music and music-related products such as ringtones, ringbacktones, and truetones to mobile users in China through the full range of wireless value-added services platforms over mobile networks and through the internet.

The Company also provides a wide range of other wireless value-added services to mobile users in China, including games, pictures and animation, community, and other media and entertainment services.

Forward-looking Statements

This press release contains statements of a forward-looking nature. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward- looking statements by terminology such as "will," "expects," "believes" and similar statements. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including risks related to: continued competitive pressures in China's wireless value-added services market; changes in technology and consumer demand in this market; the risk that Hurray! may not be able to control its expenses in future periods; Hurray!'s ability to succeed in the music development, production and distribution business, with which it has only limited experience; changes in the policies of the mobile operators in China or the laws governing wireless value-added services; the state of Hurray!'s relationships with China's mobile operators and the risk that Hurray! may be subject to further sanctions and penalties from them in future periods; and other risks outlined in Hurray!'s filings with the Securities and Exchange Commission, including its registration statement on Form F-1, as amended. Hurray! does not undertake any obligation to update this

                         Hurray! Holding Co., Ltd.              Unaudited Condensed Consolidated Balance Sheets                                                     As of             As of                                             September 30,      December 31,                                                     2007              2006(1)                                              (in thousands of U.S. dollars)    Assets   Current assets:   Cash and cash equivalents                      $64,834           $74,597   Accounts receivable                             11,432            13,178   Note receivable                                     --               272   Prepaid expenses and other current    assets                                          4,376             2,701   Amount due from related parties                    552               167   Current deferred tax assets                        165                82   Inventories                                        234               178   Total current assets                            81,593            91,175    Dividend receivable                              3,002                --   Receivable on disposal of subsidiary             3,992                --   Deposits and other non-current assets              719               632   Prepaid acquisition cost                         5,338                --   Property and equipment, net                      1,633             1,954   Acquired intangible assets, net                  6,746             6,023   Investment in equity affiliate                   2,434                --   Goodwill                                        33,847            39,622   Non-current deferred tax assets                    636               371   Total assets                                  $139,940          $139,777    Liabilities and shareholders' equity   Current liabilities:   Accounts payable                                $3,016            $3,681   Acquisitions payable                             7,104             5,832   Accrued expenses and other current    liabilities                                     8,185             2,613   Amount due to related parties                      257                --   Income tax payable                                 228               489   Current deferred tax liabilities                   268               132   Total current liabilities                       19,058            12,747    Non-current deferred tax liabilities             1,071               851   Total liabilities                               20,129            13,598    Minority interests                               4,257             3,359    Shareholders' equity:   Ordinary shares                                    109               108   Additional paid-in capital                      74,215            73,608   Retained earnings                               35,319            45,705   Accumulated other comprehensive    income                                          5,911             3,399   Total shareholders' equity                     115,554           122,820   Total liabilities and shareholders'    equity                                       $139,940          $139,777    (1) December 31, 2006 balances were extracted from audited financial       statements.                          Hurray! Holding Co., Ltd.         Unaudited Condensed Consolidated Statements of Operations                      For the three months ended      For the nine months ended                   September 30,  September 30,   September 30,  September 30,                       2007          2006           2007           2006                 (in thousands of U.S. dollars, (in thousands of U.S. dollars,                  except share and per share     except share and per share                  data)                          data)   Revenues:   Wireless    value-added    services            $11,368        $16,383        $39,040        $47,407   Recorded music         2,247          1,520          5,595          4,398   Software and    system    integration    services                              4             --             14             --   Total revenues        13,619         17,903         44,649         51,805    Cost of    revenues:   Wireless    value-added    services              9,140         10,336         28,351         30,381   Recorded music         1,279            834          2,907          2,354   Software and    system    integration    services                              2             --              2             --   Total cost of    revenues             10,421         11,170         31,260         32,735    Gross profit           3,198          6,733         13,389         19,070    Operating    expenses:   Product    development             506            457          1,570          1,558   Selling and    marketing             3,182          3,292          8,103          8,662   General and    Administrative        1,989          1,721          5,064          5,167   Provision for    goodwill    impairment            9,614             --          9,614             --   Total    operating    expenses             15,291          5,470         24,351         15,387    (Loss)income    from    operations          (12,093)         1,263        (10,962)         3,683    Other income             214             23            176             99   Interest    expense                 (45)            --           (134)            --   Interest    income                  585            674          1,769          1,949   (Loss)income    before    provision for    income taxes,    earnings in    equity    investments,    gain from    disposal of    subsidiary,    minority    interest and    discontinued    operations          (11,339)         1,960         (9,151)         5,731    Income tax    expense                 103           (195)          (196)          (701)   Net(loss)    income before    earnings in    equity    investments,    gain from    disposal of    subsidiary,    minority    interest and    discontinued    operations          (11,236)         1,765         (9,347)         5,030    Equity in    earnings of    affiliate               (51)            --            (49)            --   Gain from    disposal of    subsidiary               33             --             33             --   Minority    interests              (165)          (139)          (398)          (445)   (Loss)income    from    continuing    operations          (11,419)         1,626         (9,761)         4,585    Discontinued    operations:   Loss from    discontinued    operations,    net of tax             (116)           (16)          (625)          (348)   Net(loss)    income             ($11,535)        $1,610       ($10,386)        $4,237     (Loss)earnings    per share,    basic              ($0.0053)       $0.0007       ($0.0048)       $0.0019   (Loss)earnings    per ADS,    basic                ($0.53)         $0.07         ($0.48)         $0.19   (Loss)earnings    per share,    diluted            ($0.0053)       $0.0007       ($0.0048)       $0.0019   (Loss)earnings    per ADS,    diluted              ($0.53)         $0.07         ($0.48)         $0.19    Shares used in    calculating    basic    (loss)earning     s per share  2,173,757,575  2,151,930,540  2,171,677,000  2,202,374,600   ADSs used in    calculating    basic    (loss)earning     s per ADS       21,737,576     21,519,305     21,716,770     22,023,746   Shares used in    calculating    diluted    (loss)earning     s per share  2,178,461,726  2,172,347,707  2,179,481,678  2,222,587,080   ADSs used in    calculating    diluted    (loss)earning     s per ADS       21,784,617     21,723,477     21,794,817     22,225,871                                        For the three           For the nine                                     months ended            months ended                                 September  September    September  September                                  30, 2007   30, 2006     30, 2007   30, 2006   Net income per share-basic   (Loss)income from    continuing    operations                   (0.0053)     0.0007      (0.0045)    0.0021    (Loss) from discontinued     operations                  (0.0000)    (0.0000)     (0.0003)   (0.0002)    Net income                   (0.0053)     0.0007      (0.0048)   (0.0019)    Net (loss) income    per share-diluted    (Loss)Income from    continuing    operations                   (0.0053)     0.0007      (0.0045)    0.0021    (Loss) from discontinued     operations                  (0.0000)    (0.0000)     (0.0003)   (0.0002)    Net(loss) income             (0.0053)     0.0007      (0.0048)    0.0019    

Summarized operating results from the discontinued operations included in the Company's consolidated statements of operations are as follows for the three months and nine months ended September 30, 2007 and 2006.

                                    For the three            For the nine                                    months ended             months ended                              September    September    September   September                              30, 2007     30, 2006     30, 2007    30, 2006                               (in thousands of U.S. (in thousands of U.S.                               dollars, except share    dollars, except share                               and per share date)      and per share date)     Revenues                         29           88          213       1,102    Loss before     provision of     income taxes     from     discontinued     operations                    (102)         (57)        (625)       (363)    Provision for     income taxes                   (14)          41           --          15    Loss from     discontinued     operations,     net of tax                    (116)         (16)        (625)       (348)    Reduction in     net income     per share of     the Company     - basic and     diluted (ADS)                (0.01)       (0.00)       (0.03)      (0.02)     The use of non-GAAP financial measures:  

To supplement its consolidated financial statements presented in accordance with generally accepted accounting principles ("GAAP") in the United States, Hurray! uses non-GAAP measures of operating results and net income, including in this press release earnings before interest, taxes, depreciation and amortization, and before stock-based compensation expense ("adjusted EBITDA"), which are adjusted from results based on GAAP to exclude certain expenses. Hurray!'s management believes the use of these non-GAAP financial measures provides useful information to both management and investors by excluding certain expenses that are not related to the Company's operations. These non-GAAP financial measures also facilitate management's internal comparisons to Hurray!'s historical performance and our competitors' operating results. Hurray! believes these non-GAAP financial measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. The presentation of this additional financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. Please see below financial table for a reconciliation of adjusted EBITDA.

Reconciliation of net income under GAAP to adjusted EBITDA for the following periods:

                                    For the three            For the nine                                    months ended             months ended                              September    September    September   September                              30, 2007     30, 2006     30, 2007    30, 2006                              (in thousands of U.S. (in thousands of U.S.                               dollars, except share    dollars, except share                               and per share date)      and per share date)    Net income                  ($11,535)      $1,610     ($10,386)     $4,237   Add:   Interest expense                  45           --          135          --   Income tax expense              (103)         154          183         685   Depreciation and    amortization                  1,000          886        2,823       2,668   Non-cash stock    compensation expense            213          158          592         387   Less:   Interest income                  585          684        1,790       1,988   Adjusted EBITDA             ($10,965)      $2,124      ($8,443)     $5,989   Add:   Provision for    goodwill impairment           9,614           --        9,614          --   Less:   Gain from disposal    of subsidiary                    33           --           33          --   Non-GAAP fully    diluted losses              ($1,384)      $2,124       $1,138      $5,989      For more information, please contact:     Christina Low F.S.    Investor Relations Officer    Tel:   +86-10-8455-5566 x5532    Email: IR@hurray.com.cn  

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Source: Hurray! Holding Co., Ltd.

CONTACT: Christina Low F.S., Investor Relations Officer of HRAY, +86-10-
8455-5566 x5532, or IR@hurray.com.cn

Web Site: http://www.hurray.com/

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