Hurray! Reports Third Quarter 2008 Unaudited Financial Results

Hurray! Reports Third Quarter 2008 Unaudited Financial Results

BEIJING, Nov. 20 /PRNewswire/ -- Hurray! Holding Co., Ltd. (NASDAQ:HRAY) , a leader in artist development, music production and wireless music distribution and other wireless value-added services in China, today announced its unaudited financial results for the third quarter ended September 30, 2008.

   (Logo:  http://www.newscom.com/cgi-bin/prnh/20050314/CNM005LOGO )    Financial Highlights    Highlights for the Third Quarter of 2008:   -- Total revenues: $13.5 million, representing an increase of 6.0%      quarter-over-quarter and a decrease of 0.7% year-over-year; higher      than our previous guidance of $12-13 million.   -- Wireless value-added services ("WVAS") revenues: $11.0 million,      representing an increase of 20.1% quarter-over-quarter and a      decrease of 3.0% year-over-year.   -- Recorded music revenues, which are from our record label businesses:      $2.5 million, representing a decline of 30.2% quarter-over-quarter      and an increase of 11.0% year-over-year.   -- Net loss: $9.2 million   -- Net loss included impairment charges totaling $6.1 million in      respect of our music business representing a goodwill impairment      charge of $1.7 million, an impairment loss for the investment in      music equity affiliate of $1.9 million for our recorded music      business as well as a write-down of $2.5 million on other acquired      intangible assets from this business and a foreign exchange loss of      $4.5 million on currency holdings.   -- Adjusted EBITDA*: $1.2 million   -- Diluted loss per ADS: $0.42       * A non-GAAP measure, which is defined as income from continuing        operations before interest, tax, depreciation, amortization,        impairment for goodwill and investment in music equity affiliate,        write- down of intangible assets, stock-based compensation, gains on        reduction of acquisition payable, reversal of Unicom liability and        foreign exchange loss.    

Commenting on the third quarter results, QD Wang, Chairman and CEO of Hurray! stated: "After excluding the impact of impairment charges and foreign exchange losses, we achieved positive EBITDA in Q3. This was primarily due to the growth of our WVAS business which suffered in the previous quarter from the impact of the Sichuan earthquake and also benefited from the seasonal impact of summer holidays. Our music business also continued to be impacted by the national focus on the successful Beijing Olympics but since the beginning of the fourth quarter, we are gradually seeing a return of music promotions and events. We continue to focus on our new media strategies as we develop into a leading entertainment content production and distribution house in China."

Business Results

Total revenues for the third quarter ended September 30, 2008 were $13.5 million, representing growth of 6.0% from $12.8 million for the preceding quarter, and a decline of 0.7% from $13.6 million for the same quarter last year.

Total wireless value-added services revenues were $11.0 million for the third quarter of 2008, representing growth of 20.1% from $9.2 million in the previous quarter and a decline of 3.0% as compared to $11.4 million in the same quarter of 2007.

Recorded music revenues, which represent revenues of our controlled music companies Freeland Music, Huayi Brothers Music and Hurray! Secular Bird, were $2.5 million, representing a decline of 30.2% as compared to $3.6 million in the previous quarter and an increase of 11.0% as compared to $2.2 million in the same period of 2007.

Total gross margin was 30.9% for the third quarter of 2008 as compared to 36.4% for the previous quarter and 23.5% for the same period of 2007.

Gross margin for wireless value-added services was 26.4% for the third quarter of 2008, as compared to 29.8% in the previous quarter and 19.6% for the same period of 2007.

Recorded music gross margin was 51.2% for the third quarter of 2008 as compared to 53.4% in the previous quarter and 43.1% for the same period of 2007.

Total gross profit was $4.2 million for the third quarter of 2008, representing a decline of 9.9% compared to $4.6 million for the previous quarter, and growth of 30.9% as compared to $3.2 million for the same period of 2007.

We recorded a foreign exchange loss of $4.5 million, arising from the drop in the value of the Euro against the United States Dollar in the quarter. Earlier in the year we converted a substantial part of our dollar cash balances into Euro term deposits to improve yield as well as to protect against further dollar weakening. The recent highly volatile markets have seen the dollar strengthen as investors and financial institutions de-leveraged and we recorded a further exchange loss in the fourth quarter of $4.5 million. Currently we hold all non-Renminbi cash in United States dollars.

Total operating expenses, which included impairment charges of $ 4.2 million in respect of our music business were $8.7 million for the third quarter of 2008, representing an increase of 166.8% as compared to the total operating expenses of $3.3 million for the previous quarter, which benefited from the reversal of a liability to China Unicom of $1.56 million, and a decline of 43.0% as compared to the total operating expenses of $15.3 million for the same period of 2007, which included impairment charges of $9.6 million for our wireless business.

During the third quarter of fiscal year 2008, we performed impairment testing for the music business due to the continued challenging business conditions and reduction in number of concerts and other music events because of the focus on the Olympic Games in Beijing, coupled with the decline in the market price of the Company's common stock. This resulted in a $2.5 million write-down of the intangible assets, which is included in the "General and administrative" line item and a $1.7 million impairment of goodwill in the Unaudited Condensed Consolidated Statements of Operations. The Company used the income approach and market approach to determine the fair value. We also tested our investments in music equity affiliate for impairment and recorded a write-down of $1.9 million in the third quarter of fiscal year 2008.

The income tax benefit for the third quarter of 2008 was $0.4 million, as compared to an income tax expense of $0.3 million in the previous quarter and an income tax benefit of $0.1 million in the same period of 2007.

An additional gain of $0.2 million on sale of our systems integration business was recognized in the third quarter of 2008 due to additional cash received on the collection of the accounts receivable at the disposal date.

Net loss was $9.2 million for the third quarter of 2008.

Adjusted EBITDA was $1.2 million for the quarter ended September 30, 2008, as compared with an adjusted income of $0.8 million in the previous quarter and an adjusted loss of $1.3 million in the third quarter of 2007. Reconciliations of net income 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 $0.42 based on a weighted average of 21.9 million diluted ADSs for the third quarter of 2008, as compared to the diluted earnings per ADSs of $0.07 based on a weighted average of 21.9 million diluted ADSs for the previous quarter, and a fully diluted loss per ADS of $0.53 based on a weighted average of 21.7 million diluted ADSs for the third quarter of 2007.

As of September 30, 2008, the Company had $65.9 million in cash and cash equivalents.

Business Highlights

Despite the previously mentioned impacts on our music business throughout Q3, we have consistently focused on developing our existing and new artists, as well as expanding our marketing and promotion channels. As part of our strategy to improve our music business through strategic initiatives and promotional activities, our affiliated music companies, Huayi Brothers Music, Freeland Music, New Run, and Secular Bird had the following successes in the third quarter:

   -- Huayi Brothers Music and Secular Bird released a series of new      songs, including 2 compilations and 5 singles, and launched      successful marketing programs to promote the new releases      simultaneously over Internet and wireless platforms. Subsequently,      "You Are My Hero" by Yu Quan and "Listen To Me" by the      compilation theme songs from the popular reality-competition show      "Sprite My Show 2008" became popular hits in the third quarter.    -- Freeland Music signed up Jang Nara, a famous Korean artist, who had      her breakout role as a leading actress in both Chinese and Korean      popular television series Successful Story of a Bright Girl and      Bratty Princess. The company also released an EP, titled 'Most be      Loved' ("Zui Xiang Xi") by Zhao Ke in the third quarter.      Freeland's affiliate, Fly Songs, is expected to organize various      live performances for popular Hong Kong artists in the next quarter,      including Eason Chan's live performance in Tianjin City, Dave Wang      Chieh and Deric Wen Zhaolun's 'Hong Kong Classic Performance' in      Zhejiang province, and etc.   

We also launched 10 new titles on China Mobile's game portal, including "Crazy Bricks", "Extreme Snowboarding", and "The Adventure of Mayadi". In Q4, we plan to launch 15 new titles.

Business Outlook

For the fourth quarter of 2008, Hurray! expects its total consolidated revenues to be between $14 and $15 million.

Hurray! To Make Strategic Investment in Taiwan's Seed Music Group Limited

On September 24, 2008, the Company announced the signing of definitive agreements to make a strategic investment in Taiwan's Seed Music Group Limited ("Seed Music"). Seed Music is a very well-known music production company which focuses on artist development, music production and offline distribution of music in the Asia Pacific, especially in China, Taiwan and Hong Kong. Its portfolio of artists includes some of the most popular singers in the Asia Pacific, such as Kenji Wu Ke Qun, and Guang Liang. Kenji Wu was nominated twice for the best Chinese male singer in Taiwan respectively at the 2006 and 2007 Golden Melody Awards.

Conference Call

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

   Time:    9:00 pm Eastern Standard Time on November 20, 2008, or            10:00 am Beijing/Hong Kong Time on November 21, 2008    The dial-in number:   +1-866-270-6057 (US)                         +1-617-213-8891 (International)   Password: 38718458   

A replay of the call will be available from November 21, 2008 until November 28, 2008 as follows:

   +1-888-286-8010 (US)   +1-617-801-6888 (International)   PIN number: 32782876   

Additionally, a live and archived web cast of this call will be available at: http://phx.corporate-ir.net/playerlink.zhtml?c=187793&s=wm&e=1995198 or http://www.hurray.com.cn/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, Secular Bird, and Seed Music Group. The Company, through Fly Songs, also organizes concerts and other music events in China.

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 forward-looking information, except as required under applicable law.

                         Hurray! Holding Co., Ltd.              Unaudited Condensed Consolidated Balance Sheets                                                   As of Sept.      As of Dec.                                                   30, 2008        31, 2007(1)                                              (in thousands of U.S. dollars)   Assets   Current assets:   Cash and cash equivalents                        $65,867         $65,979   Accounts receivable                               16,426          14,691   Prepaid expenses and other current    assets                                            4,966           3,120   Amount due from related parties                      252             464   Current deferred tax assets                          364             748   Inventories                                          275             293   Receivable on disposal of subsidiary                 237           4,151   Total current assets                              88,387          89,446    Deposits and other non-current assets                777             849   Property and equipment, net                        1,209           1,636   Acquired intangible assets, net                    2,353           4,971   Investment in equity affiliate                       798           2,421   Goodwill                                           4,097           5,621   Non-current deferred tax assets                      847             650   Total assets                                     $98,468        $105,594    Liabilities and shareholders' equity   Current liabilities:   Accounts payable                                  $2,808          $3,575   Acquisitions payable                                  28           7,102   Accrued expenses and other current    liabilities                                       2,946           2,906   Amount due to related parties                        210             256   Income tax payable                                   359             211   Current deferred tax liabilities                     657             417   Total current liabilities                          7,008          14,467    Long term payable                                     26              32   Non-current deferred tax liabilities                 335             845   Total liabilities                                  7,369          15,344    Minority interests                                 5,059           4,667    Shareholders' equity:   Ordinary shares                                      109             109   Additional paid-in capital                        74,769          74,067   Statutory reserve                                  6,503           6,503   Accumulated deficit                               (5,523)         (2,751)   Accumulated other comprehensive income            10,182           7,655   Total shareholders' equity                        86,040          85,583   Total liabilities and shareholders'    equity                                          $98,468        $105,594     (1) December 31, 2007 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                         Sept. 30,     Sept. 30,     Sept. 30,     Sept. 30,                           2008          2007          2008          2007                        (in thousands of U.S.       (in thousands of U.S.                      dollars, except share and   dollars, except share and                           per share data)             per share data)   Revenues:   Wireless value-    added services         11,032        11,368        31,217        39,040   Recorded music           2,494         2,247         8,315         5,595   Total revenues          13,526        13,615        39,532        44,635    Cost of revenues:   Wireless value-    added services          8,124         9,140        21,723        28,351   Recorded music           1,217         1,279         4,143         2,907   Total cost of    revenues                9,341        10,419        25,866        31,258    Gross profit             4,185         3,196        13,666        13,377    Operating expenses:   Product    development               242           506           838         1,570   Selling and    marketing               2,129         3,182         6,762         8,103   General and    administrative          4,635         1,989         8,908         5,064   Reversal of Unicom    liability                 --             --        (1,557)           --   Impairment of    goodwill                1,710         9,614         1,710         9,614   Total operating    expenses                8,716        15,291        16,661        24,351    Loss from    operations             (4,531)      (12,095)       (2,995)      (10,974)    Other income               107           214           242           176   Foreign exchange    loss                   (4,472)           --        (4,472)           --   Interest expense            --           (45)           --          (134)   Interest income            579           585         1,398         1,769   Gain on reduction    of acquisition    payable                    --            --         5,000            --   Loss before    provision for    income taxes,    equity in earnings    (losses) of    affiliate and    minority interests     (8,317)      (11,341)         (827)       (9,163)    Income tax expense    (benefit)                (412)         (103)          579           196   Net loss before    equity in earnings    (losses) of    affiliate and    minority interests     (7,905)      (11,238)       (1,406)       (9,359)    Equity in earnings    (losses) of    affiliate, net of    tax                         1           (51)           34           (49)    Impairment of the    investment in    music equity    affiliate              (1,871)           --        (1,871)           --   Minority    interests, net of    tax                       294          (165)          102          (398)   Loss from    continuing    operations             (9,481)      (11,454)       (3,141)       (9,806)   Discontinued    operations:   Loss from    discontinued    operations, net of    tax                        --          (114)           --          (613)   Gain on sale of    subsidiary, net of    tax                       237            33           366            33   Income (loss) from    discontinued    operations                237           (81)          366          (580)   Net Loss               ($9,244)     ($11,535)      ($2,775)     ($10,386)    Net loss per    share-basic   Loss from    continuing    operations             ($0.00)       ($0.01)       ($0.00)       ($0.00)   Gain (loss) from    discontinued    operations              $0.00        ($0.00)        $0.00        ($0.00)   Net Loss                ($0.00)       ($0.01)       ($0.00)       ($0.00)    Net loss per ADS-    basic   Loss from    continuing    operations             ($0.43)       ($0.53)       ($0.15)       ($0.45)   Gain (loss) from    discontinued    operations              $0.01        ($0.00)        $0.02        ($0.03)   Net Loss                ($0.42)       ($0.53)       ($0.13)       ($0.48)    Net loss per    share-diluted   Loss from    continuing    operations             ($0.00)       ($0.01)       ($0.00)       ($0.00)   Gain (loss) from    discontinued    operations              $0.00        ($0.00)        $0.00        ($0.00)   Net Loss                ($0.00)       ($0.01)       ($0.00)       ($0.00)    Net loss per ADS-    diluted   Loss from    continuing    operations             ($0.43)       ($0.53)       ($0.15)       ($0.45)   Gain (loss) from    discontinued    operations              $0.01        ($0.00)        $0.02        ($0.03)   Net Loss                ($0.42)       ($0.53)       ($0.13)       ($0.48)    Weighted average   shares used in   calculating   basic   loss per share   2,187,509,840 2,173,757,575 2,184,148,576 2,171,677,000   Weighted average    ADSs used in    calculating basic    loss per ADS       21,875,098    21,737,576    21,841,486    21,716,770   Weighted average    shares used in    calculating    diluted loss per    share           2,187,509,840 2,173,757,575 2,184,148,576 2,171,677,000   Weighted average    ADSs used in    calculating    diluted loss per    ADS                21,875,098    21,737,576    21,841,486    21,716,770     

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 adjusted EBITDA, which are adjusted from results based on GAAP to exclude certain expenses and non-recurring events. 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 loss from continuing operations under GAAP to adjusted EBITDA for the following periods:

                                        For the three    For the nine months                                        months ended            ended                                       Sept. 30, Sept. 30, Sept. 30, Sept. 30,                                         2008      2007     2008      2007                                      (in thousands of    (in thousands of                                        U.S. dollars)       U.S. dollars)   Loss from continuing operations     $(9,481) $(11,454) $(3,141)  $(9,806)   Add (deduct):   Interest expense                         --        45       --       134   Income tax expense (benefit)           (412)     (103)     579       196   Depreciation and amortization           887     1,000    2,628     2,798   Non-cash stock compensation    expense                                320       213      702       592   Foreign exchange loss                 4,472        --    4,472        --   Intangible assets write- down         2,455        --    2,455        --   Impairment of goodwill                1,710     9,614    1,710     9,614   Impairment of the investment in    music equity affiliate               1,871        --    1,871        --   Gain on reduction of acquisition    payable                                 --        --   (5,000)       --   Reversal of Unicom liability             --        --   (1,557)       --   Interest income                        (579)     (585)  (1,398)   (1,769)   Adjusted EBITDA                      $1,243   $(1,270)  $3,321    $1,759     For more information, please contact:     Christina Low F.S.    Investor Relations Officer    Tel:  +86-10-8455-5566 x5532    Email: IR@hurray.com.cn  

Photo: http://www.newscom.com/cgi-bin/prnh/20050314/CNM005LOGO

Source: Hurray! Holding Co., Ltd.

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

Web site: http://www.hurray.com.cn/english/home.htm
http://phx.corporate-ir.net/playerlink.zhtml?c=187793&s=wm&e=1995198

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Profile: International Entertainment