International Entertainment News: 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:

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