Hurray! Reports Third Quarter 2009 Unaudited Financial Results

Hurray! Reports Third Quarter 2009 Unaudited Financial Results

BEIJING, Dec. 15 /PRNewswire-Asia/ -- Hurray! Holding Co., Ltd. (NASDAQ:HRAY) , a leading company 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, 2009.

   (Logo: http://www.newscom.com/cgi-bin/prnh/20050314/CNM005LOGO )    Financial Highlights    Highlights for the Third Quarter of 2009:   -- Total revenues: $6.9 million, representing a decrease of 2.9 million      quarter-over-quarter and a decrease of 6.6 million year-over-year.   -- Wireless value-added services ("WVAS") revenues: $4.5 million,      representing a decrease of 1.0 million quarter-over-quarter and a      decrease of 6.5 million year-over-year.   -- Recorded music revenues, which are from our record label businesses:      $2.4 million, representing a decrease of 1.9 million      quarter-over-quarter and a decrease of 0.1 million year-over-year.   -- Net loss attributable to Hurray! Holding: $5.1 million   -- EBITDA(1): a net loss of $4.0 million   -- Diluted loss per ADS: $0.23   

Commenting on the third quarter results, Mr. Haibin Qu, Acting CEO of Hurray! stated: "This quarter was challenging for Hurray!. However, we view this quarter as a turning point for a new Hurray! and going forward, we will remain focused on developing ways to better enrich our contents and enhance our distribution channels, as well as to integrate these business initiatives with our existing business lines. We believe these efforts are essential for the restoration of our growth and to further development of Hurray! into an integrated digital media distribution platform."

   (1) A non-GAAP measure, which is defined as net loss attributable to       Hurray! Holding company except for income (loss) before interest,       income tax, depreciation and amortization.    Business Results  

Total revenues for the third quarter ended September 30, 2009 were $6.9 million, decreased from $9.8 million for the preceding quarter and $13.5 million for the same quarter last year.

Total wireless value-added services revenues were $4.5 million for the third quarter of 2009, decreased from $5.5 million in the previous quarter and $11.0 million in the same quarter of 2008 as a result of business restructuring in Q2 and early Q3 that focused on trimming off non-profitable WVAS business lines and resources realignment amongst WVAS business and music content business.

Recorded music revenues, which represent revenues of our controlled music companies Freeland Music, Huayi Brothers Music, Hurray! Secular Bird and Seed Music, which was acquired on January 1, 2009, were $2.4 million, decreased from $4.3 million in the previous quarter and $2.5 million in the same period of 2008, mainly reflects a seasonal fluctuation of the music market.

Total gross margin was 20.7% for the third quarter of 2009 as compared to 21.3% for the previous quarter and 30.9% for the same period of 2008.

Gross margin for wireless value-added services was 27.3% for the third quarter of 2009, as compared to 26.7% in the previous quarter, and 26.4% for the same period of 2008.

Recorded music gross margin was 8.6% for the third quarter of 2009 as compared to 14.4% in the previous quarter and 51.2% for the same period of 2008. The decrease in margin was mainly due to increment of marketing programs to promote new artist releases by Hurray! affiliated music companies, Seed Music, which may benefit and strengthen the market presence in music content industry.

Total gross profit was $1.4 million for the third quarter of 2009, as compared to $2.1 million for the previous quarter, and $4.2 million for the same period of 2008.

Total operating expenses were $6.5 million for the third quarter of 2009. This represents a decrease of 57.9% as compared to the total operating expenses of $15.5 million for the previous quarter, which included provisions for accounts receivable and other current assets of $3.3 million, transaction expenses of $1.3 million in connection with the equity tender offer by Shanda, an impairment for goodwill of $3.0 million and a write-down for intangible assets of $3.5 million for music business, and severance costs of $0.4 million in previous quarter, and a decrease of 25.0% as compared to the total operating expenses of $8.7 million for the same period of 2008, which included impairment charges of $4.2 million in respect of our music business.

The income tax expense for the third quarter of 2009 was $0.7 million, as compared to an income tax benefit of $0.4 million in the previous quarter and the same period of 2008.

Net loss attributable to Hurray! Holding was $5.1 million for the third quarter of 2009.

EBITDA was negative $4.0 million for the quarter ended September 30, 2009, as compared with an EBITDA of negative $10.7 million in the previous quarter. A reconciliation of net loss attributable to Hurray! Holding Company under U.S. generally accepted accounting principles (GAAP) and adjusted EBITDA is included at the end of this release.

Fully diluted loss per ADS was $0.23 based on a weighted average of 22.0 million diluted ADSs for the third quarter of 2009, as compared to the diluted loss per ADSs of $0.50 based on a weighted average of 22.0 million diluted ADSs for the previous quarter, and a fully diluted loss per ADS of $0.42 based on a weighted average of 21.9 million diluted ADSs for the third quarter of 2008.

As of September 30, 2009, the Company had $47.9 million in cash and cash equivalents, and short term time deposit of $10.0 million.

Business Highlights

Hurray! continued executing its strategy of developing proprietary content and diversifying distribution channels, with the following highlights:

   -- In August, Hurray! officially became China Unicom's GJAVA partners, one      of the first batch in mainland China since the service was introduced      by China Unicom. In addition, Hurray! was also chosen to be one of the      first batch of developers to work with China Mobile's Mobile Market. In      the fourth quarter of 2009, we are launching another 2 new mobile games.    -- Hurray! affiliated music companies, including Huayi Brothers Music,      Freeland Music, New Run Entertainment, Secular Bird and Seed Music,      released a series of new songs, including 6 albums and 1 EP, and      launched successful marketing programs to promote the new releases      simultaneously over Internet and wireless platforms. Subsequently,      "Very Yu Quan" ("Hen Yu Quan") by Yu Quan, "Love Embrace" ("Ai De Bao      Bao") by Shuyao Kuo and the self-titled album "Zhou Hui") released by      Zhou Hui, became popular hits in the third quarter.    -- Hurray! artists, including Kenji Wu, Shuyao Kuo, Wen Lan and others,      have signed up various commercial endorsement deals, including Mengniu      ice cream, online game "Metal Knight Zero", Orangina soft drink, etc.,      in mainland China and in Taiwan, respectively.     Business Outlook    Release of New Chinese Telecommunication Operators' Measures  

As of November 30, 2009, the three principal telecom operators in China, including China Mobile Communications Corporation, or China Mobile, China United Telecommunications Corporation, or China Unicom, and China Telecommunications Corporation, or China Telecom has announced that it suspended all of its WAP service partners' ability to charge for services. This applies to all of its WAP wireless value-added service partners in China, regardless of a partner's propensity to disseminate pornography. The telecom operators will now implement an overall examination, with the aim of eradicating pornographic websites from its network. Prior to this announcement, China's Ministry of Industry and Information Technology has launched five measures to fight pornographic content on the mobile Internet.

At the moment, all three telecom operators have suspended charges from all service and content providers that signed WAP service fee collection agreements with the operators and the operators will immediately implement an overall examination in various areas, including service names, service contents, and promotion channels. It will prevent errant WVAS providers from conducting service promotions through third parties and will require them to make an information security responsibility commitment and promise there are no possible profit relations with pornographic websites. We believe that services offered by the Company do not contain any content targeted by these measures and we believe these measures would benefit the WVAS industry in the long run. However, the tentative suspension by the major telecom operators of billing content suppliers for all WAP services includes those services that do not contain offensive or unauthorized content, on behalf of third party service providers of services.

Currently, the three principal telecommunication operators have not yet indicated how long its new measures would last or whether it will expand its current measures. This may bring pressures on the WVAS market in China and add to uncertainty of Hurray!'s WVAS operation in the following quarters.

Announcement of merger with Ku6

On November 27, 2009, the Company and the shareholders of Ku6 Holding Limited ("Ku6"), a leading online video portal in China agreed to the sale of Ku6 to Hurray!, in an all stock transaction under which all of the outstanding capital shares of Ku6 will be sold to Hurray!, and all of the outstanding employee stock options of Ku6 will be cancelled, in exchange for an aggregate of 723,684,204 Hurray! ordinary shares, of which 44,438,100 will be represented by American Depositary Shares of Hurray!, each representing 100 ordinary shares of Hurray!. Completion of the share purchase will be subject to the condition that the shareholders of Hurray! approve the issuance of ordinary shares of Hurray! to the shareholders and option holders of Ku6 at a special shareholders meeting to be convened in the near future. The Board of Directors of Hurray! has unanimously recommended this transaction. The transaction is expected to close in the first quarter of 2010.

Note to the Financial Information

The unaudited financial information disclosed above is preliminary. The results for the nine months ended September 30, 2009 are not necessarily indicative of the results expected for the full fiscal year or for any future period. Adjustments to the financial statements may be identified when audit work is completed, which could result in significant differences from the audited financial statements to this preliminary unaudited financial information.

Conference Call

The Company will host a conference call to discuss the third quarter 2009 results at

   Time:               9: 00 pm Eastern Time on December 15, 2009                    or 10:00 am Beijing/Hong Kong Time on December 16, 2009    The dial-in number: +1-800-901-5213 (US)                       +1-617-786-2962 (International)                       Password: 49890189   

A replay of the call will be available from December 16, 2009 until December 23, 2009 as follows:

                       +1-888-286-8010  (US)                       +1-617-801-6888  (International)                       Password: 11825002   

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=2561576 or http://www.hurray.com.cn/english/home.htm .

About Hurray! Holding Co., Ltd.

Hurray! is a leading company 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. The Company's latest acquisition, Seed Music, expands the Company's music services into Taiwan as well growing our business in China. 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 the Company's annual report on Form 20-F. 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            As of                                               September 30,     December 31,                                                   2009(1)          2008                                                              (As Adjusted)(1)                                                (in thousands of U.S. dollars)   Assets   Current assets:   Cash and cash equivalents                       $47,949          $59,473   Short-term investment                            10,000               --   Accounts receivable, net                          5,219           12,658   Prepaid expenses and other current assets         2,446            4,170   Amount due from related parties                     190              745   Current deferred tax assets                          --              363   Inventories, net                                    184              255   Receivable on disposal of subsidiary                 --               47   Total current assets                             65,988           77,711    Deposits and other non-current assets             1,306              720   Prepaid acquisition cost                             --            2,507   Property and equipment, net                         718              980   Acquired intangible assets, net                   1,113            1,945   Investment in equity affiliate                      377              825   Goodwill                                          1,858            3,157   Non-current deferred tax assets                      --              479   Total assets                                    $71,360          $88,324    Liabilities and shareholders' equity   Current liabilities:   Accounts payable                                 $3,664           $2,454   Accrued expenses and other current    liabilities                                      4,362            3,033   Amount due to related parties                       485              208   Income tax payable                                  681              124   Current deferred tax liabilities                     12              497   Total current liabilities                         9,204            6,316    Long term payable                                    19               24   Non-current deferred tax liabilities                276              292   Total liabilities                                 9,499            6,632     Redeemable non-controlling interest                 620               --    Shareholders' equity:   Ordinary shares                                     110              110   Additional paid-in capital                       75,155           75,013   Accumulated deficit                             (26,273)          (8,201)   Accumulated other comprehensive income            9,959            9,987   Total Hurray! Holding shareholders' equity       58,951           76,909   Non-controlling interest(2)                       2,290            4,783   Total shareholders' equity                       61,241           81,692   Total liabilities and shareholders' equity      $71,360          $88,324                                 Hurray! Holding Co., Ltd.            Unaudited Condensed Consolidated Statements of Operations                                  For the three              For the nine                                 months ended               months ended                             September   September      September   September                              30, 2009    30, 2008      30, 2009    30, 2008                             (in thousands of U.S.     (in thousands of U.S.                              dollars, except share     dollars, except share                              and per share data)        and per share data)   Revenues:   Wireless value-added    services                  4,442        11,032        17,869        31,217   Recorded music             2,426         2,494        10,603         8,315   Total revenues             6,868        13,526        28,472        39,532    Cost of revenues:   Wireless value-added    services                  3,231         8,124        13,795        21,723   Recorded music             2,216         1,217         9,232         4,143   Total cost of    revenues                  5,447         9,341        23,027        25,866    Gross profit               1,421         4,185         5,445        13,666    Operating expenses:   Product development          151           242           379           838   Selling and marketing      1,298         2,129         5,213         6,762   General and    administrative            5,085         4,635        18,476         8,908   Impairment of    goodwill                     --         1,710         3,009         1,710   Gain on reduction    of Unicom    liability                    --            --            --        (1,557)   Total operating    expenses                  6,534         8,716        27,077        16,661    (Loss) income from    operations               (5,113)       (4,531)      (21,632)       (2,995)    Interest income               97           579           372         1,398   Other income                  42           107           304           242   Interest expense              (3)           --            (9)           --   Foreign exchange loss         --        (4,472)           --        (4,472)   Gain on reduction of    acquisition payable          --            --            --         5,000   Loss before provision    for income taxes,    equity in    earnings (loss)    of affiliate             (4,977)       (8,317)      (20,965)         (827)    Income tax (benefit)    expense                     686          (412)          227           579   Loss before equity    in earnings (loss)    of affiliate             (5,663)       (7,905)      (21,192)       (1,406)    Equity in (loss)    earnings of    affiliate, net of tax       (28)            1          (327)           34   Impairment of the    investment in music    equity affiliate             --        (1,871)         (210)       (1,871)   Loss from continuing    operations               (5,691)       (9,775)      (21,729)       (3,243)   Discontinued    operations:   Gain on sale of    subsidiary,    net of tax                   --           237           222           366   Net loss                  (5,691)       (9,538)      (21,507)       (2,877)   Less: Net loss    attributable to the    non-controlling    interest(2)                 616           294         3,435           102   Net loss attributable    to Hurray! Holding    Company                  (5,075)       (9,244)      (18,072)       (2,775)    Net loss per share-basic   Loss from continuing    operations               ($0.00)       ($0.00)       ($0.01)       ($0.00)     Gain from      discontinued      operations              $0.00         $0.00         $0.00         $0.00     Net loss                ($0.00)       ($0.00)       ($0.01)       ($0.00)    Net loss per    ADS-basic   Loss from    continuing    operations               ($0.23)       ($0.43)       ($0.83)       ($0.15)     Gain from      discontinued      operations              $0.00         $0.01         $0.01         $0.02     Net loss                ($0.23)       ($0.42)       ($0.82)       ($0.13)    Net loss per    share-diluted   Loss from    continuing    operations               ($0.00)       ($0.00)       ($0.01)       ($0.00)     Gain from      discontinued      operations              $0.00         $0.00         $0.00         $0.00     Net loss                ($0.00)       ($0.00)       ($0.01)       ($0.00)    Net loss per    ADS-diluted   Loss from    continuing    operations               ($0.23)       ($0.43)       ($0.83)       ($0.15)     Gain from      discontinued      operations              $0.00         $0.01         $0.01         $0.02     Net loss                ($0.23)       ($0.42)       ($0.82)       ($0.13)    Weighted average    shares used in    calculating    basic loss    per share         2,196,177,940 2,187,509,840 2,195,793,818 2,184,148,576   Weighted average    ADSs used in    calculating    basic loss    per ADS              21,961,779    21,875,098    21,957,938    21,841,486   Weighted average    shares used in    calculating    diluted loss    per share         2,196,177,940 2,187,509,840 2,195,793,818 2,184,148,576   Weighted average    ADSs used in    calculating    diluted loss    per ADS              21,961,779    21,875,098    21,957,938    21,841,486    

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 a non-GAAP measure of EBITDA, which is adjusted from results based on GAAP to exclude certain expenses. Hurray!'s management believes the use of this non-GAAP financial measure provides useful information to both management and investors by excluding certain expenses that are not related to the company's operations. This non-GAAP financial measure also facilitates management's internal comparisons to Hurray!'s historical performance and our competitors' operating results. Hurray! believes this non-GAAP financial measure is 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 EBITDA.

   Reconciliation of Net loss attributable to Hurray! Holding Company under    GAAP to EBITDA for the following periods:                                      For the three        For the nine                                     months ended         months ended                                 September September   September  September                                  30, 2009  30, 2008    30, 2009   30, 2008                                    (in thousands of    (in thousands of                                      U.S. dollars,       U.S. dollars,                                    except share and    except share and                                     per share data)      per share data)   Net loss attributable to    Hurray! Holding Company        ($5,075)  ($9,244)   ($18,072)  ($2,775)   Add (deduct):   Interest expense                      3        --           9        --   Income tax expense (benefit)        686      (412)        227       579   Depreciation and amortization       526       887       2,060     2,628   Interest income                     (97)     (579)       (372)   (1,398)   EBITDA                                   ($3,957)  ($9,348)   ($16,148)    ($966)     (1) Effective January 1, 2009, the Company adopted SFAS 160. SFAS 160,       which was retrospectively applied, requires non-controlling interests       to be separately presented as a component of stockholders' equity on       the unaudited condensed consolidated financial statements.    (2) June 30, 2008 and December 31, 2008 balances were extracted from the       form 6-K for the quarters ended June 30, 2008 and December 31, 2008       respectively, as adjusted resulting from the adoption of Statement of       Financial Accounting Standards No. 160.     For more information, please contact:     Christina Low    Investor Relations Officer    Tel:   +86-10-8869-5237    Email: IR@hurray.com.cn  

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Source: Hurray! Holding Co., Ltd.

CONTACT: Christina Low, Investor Relations Officer, +86-10-8869-5237, 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=2561576

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Profile: International Entertainment