HRAY Hurray! Holding CO., Ltd. (MM)

BEIJING, Aug. 12 /PRNewswire-Asia/ -- 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 second quarter ended June 30, 2009. (Logo: http://www.newscom.com/cgi-bin/prnh/20050314/CNM005LOGO ) Financial Highlights Highlights for the Second Quarter of 2009: -- Total revenues: $9.8 million, representing a decrease of 16.3% quarter-over-quarter and a decrease of 22.9% year-over-year. -- Wireless value-added services ("WVAS") revenues: $5.5 million, representing a decrease of 29.1% quarter-over-quarter and a decrease of 39.3% year-over-year. -- Recorded music revenues, which are from our record label businesses: $4.3 million, representing an increase of 9.4% quarter-over-quarter and an increase of 19.5% year-over-year. -- Net loss attributable to Hurray! Holding: $10.9 million -- Adjusted EBITDA(1): a net loss of $5.7 million -- Diluted loss per ADS: $0.50 (1) A non-GAAP measure, which is defined as net income attributable to Hurray! Holding company except for income from discontinued operations before interest, tax, depreciation, amortization, impairment for goodwill and earnings from investment in music equity affiliate, write-down of intangible assets, stock-based compensation, gains on reduction of acquisition payable and foreign exchange loss. Commenting on the second quarter results, Dr. Xiang, CEO of Hurray! stated: "The past quarter was a challenging and significant one for Hurray! as we effectively completed the scheduled realignment of resources amongst business lines, which help to enhance our operating efficiency and reinforced momentum for future growth. We believe we will be able to significantly narrow down our loss in the following quarter with the continuous rise in operating efficiency and better integration of channel and contents as the result of the aforementioned realignment. We also expect to have a chance of achieving an operation break-even in the foreseeable future. Hurray! is optimistic about the future cooperation with Shanda in light of the complementary content, distribution platforms and large user base which may present both companies with opportunities to achieve synergies going forward." Business Results Total revenues for the second quarter ended June 30, 2009 were $9.8 million, representing a decrease of 16.3% from $11.8 million for the preceding quarter, and a decline of 22.9% from $12.8 million for the same quarter last year. During the second quarter of 2009, the Company took action to reduce its marketing efforts through various channels which had failed to generate the expected profitability, resulting in reduced revenues. Total wireless value-added services revenues were $5.5 million for the second quarter of 2009, representing a decrease of 29.1% from $7.9 million in the previous quarter and a decrease of 39.3% from $9.2 million in the same quarter of 2008. 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 $4.3 million, representing an increase of 9.4% as compared to $3.9 million in the previous quarter and an increase of 19.5% as compared to $3.6 million in the same period of 2008. The increase arose from the contribution of Seed Music, consolidated from January 1, 2009, which contributed revenues of $1.6 million in the second quarter and $3.8 million year to date. Total gross margin was 21.3% for the second quarter of 2009 as compared to 16.4% for the previous quarter and 36.4% for the same period of 2008. Gross margin for wireless value-added services was 26.7% for the second quarter of 2009, as compared to 17.5% in the previous quarter, and 29.8% for the same period of 2008. Recorded music gross margin was 14.4% for the second quarter of 2009 as compared to 14.0% in the previous quarter and 53.4% for the same period of 2008. Total gross profit was $2.1 million for the second quarter of 2009, representing an increase of 9.2% compared to $1.9 million for the previous quarter, and a decline of 54.8% as compared to $4.6 million for the same period of 2008. Total operating expenses were $15.5 million for the second quarter of 2009, which included provisions for account receivable and other current assets of $3.3 million as a result of further detailed assessment for these account balances based on the information became available to us recently, professional service fees relating to the Shanda tender offer of $1.3 million, 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. This represents an increase of 208.9% as compared to the total operating expenses of $5.0 million for the previous quarter and an increase of 375.0% as compared to the total operating expenses of $3.3 million for the same period of 2008, net of the reversal of Unicom liability amounting to $1.6 million. The income tax benefit for the second quarter of 2009 was $435,581 resulting mainly from the reversal of deferred tax liabilities related to the intangible assets impairment as compared to $22,965 in the previous quarter and an income tax expense of $282,250 in the same period of 2008. We also performed impairment test for our investments in music equity affiliate due to its negative operating cash flow and $0.21 million was recorded as impairment charges in the second quarter. Net loss attributable to Hurray! Holding was $10.9 million for the second quarter of 2009. Adjusted EBITDA was negative $5.7 million for the quarter ended June 30, 2009, as compared with an adjusted EBITDA of negative $1.7 million in the previous quarter. A reconciliation of the (loss) income from continuing operations under U.S. generally accepted accounting principles (GAAP) and adjusted EBITDA is included at the end of this release. Adjusted EBITDA excluding additional provisions for trade receivables, expenses related to the tender-offer deal and severance costs, was negative $1.3 million, which demonstrates a slight improvement compared to the previous quarter. Fully diluted loss per ADS was $0.50 based on a weighted average of 22.0 million diluted ADSs for the second quarter of 2009, as compared to the diluted loss per ADSs of $0.09 based on a weighted average of 22.0 million diluted ADSs for the previous quarter, and a fully diluted earnings per ADS of $0.07 based on a weighted average of 21.9 million diluted ADSs for the second quarter of 2008. As of June 30, 2009, the Company had $59.1 million in cash and cash equivalents. Business Highlights Hurray! continued executing its strategy of developing proprietary content and diversifying distribution channels, with the following highlights: -- Hurray! launched 15 new mobile games and mobile themes on China Mobile's portal in the second quarter of 2009, including "Tri-Eye Boy 2: The Revenge", and "BOBO - Perfect Match". In the third quarter of 2009, we are launching another 9 new mobile games and mobile themes. -- In June, "Sacred Seal - The Legend of Magic Sword", and "Metal Tank - Deadly Armor" two of our mobile game, was voted "Star-Rated Mobile Games" at a mobile game user recommendation contest organized by China Mobile. "Sacred Seal - The Legend of Magic Sword" was selected as one of the high-rated mobile games in China Mobile's G-plus game package. -- 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 8 albums, 6 Compilations, 2 EPs and 2 singles, and launched successful marketing programs to promote the new releases simultaneously over Internet and wireless platforms. Subsequently, "Power of Love" ("Ai Shi Li Liang") by Kenji Wu, "The Other Half"("Ling Yi Ban") by Xu Ruyun, became popular hits in the second quarter. -- Hurray! artists, including Kenji Wu, Guang Liang, Wen Lan and others received awards for their outstanding performances at various prestigious music award ceremonies in Asia, including "Annual Golden Song" for Guang Liang, "Best New Single" for Kenji Wu, and etc. -- Seed Music signed up 2 new artists, Zhou Hui and Guo Shuyao. Shanda Interactive Entertainment Limited Announced Final Results and Completion of the Tender Offer for Hurray! Holding Co., Ltd. On July 22, 2009, Shanda Interactive Entertainment Limited ("Shanda") (NASDAQ:SNDA), a leading interactive entertainment media company in China, and Shanda Music Group Limited ("Shanda Music"), a wholly owned subsidiary of Shanda, announced the final results and completion of the tender offer for 1,155,045,300 ordinary shares, par value $0.00005 per ordinary share ("Shares"), of the Company, including Shares represented by American Depositary Shares ("ADSs," each representing 100 Shares) at a purchase price of $0.04 per Share (equivalent to $4.00 per ADS) in cash, without interest and subject to any applicable withholding taxes. The tender offer expired at 12:01 a.m., New York City time, on July 15, 2009. Citibank, N.A., the ADS tender agent, has advised Shanda that based on its final tabulation, 11,568,039 ADSs (representing 1,156,803,900 Shares) were validly tendered and not withdrawn. Conyers Dill & Pearman, the Share tender agent, has advised Shanda that based on its final tabulation, 266,232,760 Shares were validly tendered and not withdrawn. Based on these final results, the aggregate number of Shares (including Shares represented by ADSs) validly tendered and not withdrawn was 1,423,036,660 Shares (including Shares represented by ADSs). Shanda Music has accepted for payment 1,155,045,300 Shares (including Shares represented by ADSs) that were validly tendered and not withdrawn. Because 1,423,036,660 Shares (including Shares represented by ADSs) were validly tendered and not withdrawn, the resulting proration factor is approximately 81.2% of the number of Shares (including Shares represented by ADSs) validly tendered and not withdrawn. Accordingly, Shanda Music purchased from each tendering shareholder approximately 81.2% of the Shares (including Shares represented by ADSs) that were validly tendered and not withdrawn, subject to adjustments to avoid purchases of fractional Shares or fractional ADSs. Citibank, N.A., the ADS tender agent, has promptly issue checks as payment for the ADSs accepted for payment based on this proration factor and adjustments to avoid purchases of fractional ADSs. Shanda has promptly wire the payments for the Shares accepted for payment based on this proration factor and adjustments to avoid purchase of fractional Shares. All ADSs and Shares tendered but not accepted for payment in the tender offer are returned to the tendering shareholders. After giving effect to the acquisition of Shares (including Shares represented by ADSs) in the tender offer, Shanda currently hold, through Shanda Music, approximately 51% of the Company's total outstanding Shares calculated on a fully-diluted basis. The Company has recorded expenses relating to the above amounting to $1.3 million in the second quarter. Under the terms of our agreement with the Company's financial advisors, a further payment of $ 1.23 million is payable in the third quarter and will be a recorded as an expense in that quarter. Conference Call The Company will host a conference call to discuss the second quarter 2009 results at Time: 9:00 pm Eastern Daylight Time on August 12, 2009 or 9:00 am Beijing/Hong Kong Time on August 13, 2009 The dial-in number: +1-866-700-7101 (US) +1-617-213-8837 (International) Password: 71933531 A replay of the call will be available from August 13, 2009 until August 20, 2009 as follows: +1-888-286-8010 (US) +1-617-801-6888 (International) PIN number: 85483627 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=2355303 . 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. 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 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 As of June 30, December 31, 2009(1) 2008 (As Adjusted)(1) (in thousands of U.S. dollars) Assets Current assets: Cash and cash equivalents $59,113 $59,473 Accounts receivable, net 8,763 12,658 Prepaid expenses and other current assets 2,517 4,170 Amount due from related parties 203 745 Current deferred tax assets 498 363 Inventories, net 137 255 Receivable on disposal of subsidiary -- 47 Total current assets 71,231 77,711 Deposits and other non-current assets 1,728 720 Prepaid acquisition cost -- 2,507 Property and equipment, net 748 980 Acquired intangible assets, net 1,145 1,945 Investment in equity affiliate 404 825 Goodwill 1,858 3,157 Non-current deferred tax assets 275 479 Total assets $77,389 $88,324 Liabilities and shareholders' equity Current liabilities: Accounts payable $3,660 $2,454 Accrued expenses and other current liabilities 4,540 3,033 Amount due to related parties 458 208 Income tax payable 276 124 Current deferred tax liabilities 479 497 Total current liabilities 9,413 6,316 Long term payable 20 24 Non-current deferred tax liabilities 339 292 Total liabilities 9,772 6,632 Redeemable non-controlling interest 801 -- Shareholders' equity: Ordinary shares 110 110 Additional paid-in capital 75,139 75,013 Accumulated deficit (21,198) (8,201) Accumulated other comprehensive income 10,038 9,987 Total Hurray! Holding shareholders' equity 64,089 76,909 Non-controlling interest(2) 2,727 4,783 Total shareholders' equity 66,816 81,692 Total liabilities and shareholders' equity $77,389 $88,324 Hurray! Holding Co., Ltd. Unaudited Condensed Consolidated Statements of Operations For the three months ended For the six months ended June 30, June 30, June 30, June 30, 2009 2008 2009 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 5,571 9,185 13,427 20,185 Recorded music 4,272 3,576 8,177 5,821 Total revenues 9,843 12,761 21,604 26,006 Cost of revenues: Wireless value-added services 4,086 6,451 10,564 13,599 Recorded music 3,656 1,666 7,016 2,927 Total cost of revenues 7,742 8,117 17,580 16,526 Gross profit 2,101 4,644 4,024 9,480 Operating expenses: Product development 133 206 228 596 Selling and marketing 2,041 2,232 3,915 4,633 General and administrative 10,885 2,386 13,941 4,273 Impairment of goodwill 3,009 -- 3,009 -- Gain on reduction of Unicom liability -- (1,557) -- (1,557) Change in fair value of contingent consideration of Seed Music (550) -- (550) -- Total operating expenses 15,518 3,267 20,543 7,945 (Loss) income from operations (13,417) 1,377 (16,519) 1,535 Interest income 135 465 275 819 Other income 118 62 262 135 Interest expense (3) -- (6) -- Gain on reduction of acquisition payable -- -- -- 5,000 (Loss) income before provision for income taxes, equity in earnings (loss) of affiliate (13,167) 1,904 (15,988) 7,489 Income tax (benefit) expense (436) 282 (459) 991 Net (loss) income before equity in earnings (loss) of affiliate (12,731) 1,622 (15,529) 6,498 Equity in (loss) earnings of affiliate, net of tax (208) 8 (299) 34 Impairment of the investment in music equity affiliate (210) -- (210) -- (Loss) income from continuing operations (13,149) 1,630 (16,038) 6,532 Discontinued operations: Gain on sale of subsidiary, net of tax -- 129 222 129 Net (loss) income (13,149) 1,759 (15,816) 6,661 Less: Net income (loss) attributable to the non- controlling interest(2) 2,231 (192) 2,819 (192) Net (loss) income attributable to Hurray! Holding Company (10,918) 1,567 (12,997) 6,469 Net (loss) income per share-basic (Loss) income 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) income ($0.00) $0.00 ($0.01) $0.00 Net (loss) income per ADS - basic (Loss) income from continuing operations ($0.50) $0.07 ($0.60) $0.29 Gain from discontinued operations $0.00 $0.00 $0.01 $0.01 Net (loss) income ($0.50) $0.07 ($0.59) $0.30 Net (loss) income per share-diluted (Loss) income 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) income ($0.00) $0.00 ($0.01) $0.00 Net (loss) income per ADS - diluted (Loss) income from continuing operations ($0.50) $0.07 ($0.60) $0.29 Gain from discontinued $0.00 $0.00 $0.01 $0.01 operations Net (loss) income ($0.50) $0.07 ($0.59) $0.30 Weighted average shares used in calculating basic Earnings (loss) per share 2,196,177,940 2,184,751,686 2,195,598,573 2,181,449,475 Weighted average ADSs used in calculating basic Earnings (loss) per ADS 21,961,779 21,847,517 21,955,986 21,814,495 Weighted average shares used in calculating diluted Earnings (loss) per share 2,196,177,940 2,186,254,898 2,195,598,573 2,187,269,646 Weighted average ADSs used in calculating diluted Earnings (loss) per ADS 21,961,779 21,862,549 21,955,986 21,872,696 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 adjusted EBITDA, which is adjusted from results based on GAAP to exclude certain expenses and non- recurring events. 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 adjusted EBITDA. Reconciliation of Net (loss) income attributable to Hurray! Holding Company under GAAP to adjusted EBITDA for the following periods: For the three For the six months ended months ended June 30, June 30, June 30, June 30, 2009 2008 2009 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) income attributable to Hurray! Holding Company ($10,918) $1,567 ($12,997) $6,469 Add (deduct): (Income) from discontinued operations -- (129) (222) (129) Interest expense 3 -- 6 -- Income tax expense (benefit) (436) 282 (459) 991 Depreciation and amortization 739 934 1,534 1,741 Non-cash stock compensation expense 24 191 126 382 Intangible assets write-down 3,543 -- 3,543 -- Impairment of goodwill 3,009 -- 3,009 -- Impairment for Investment in music equity affiliates 210 -- 210 -- Gain on reduction of Magma purchase liability -- -- -- (5,000) Gain on reduction of Unicom liability -- (1,557) -- (1,557) Change in fair value of contingent consideration of Seed Music (550) -- (550) -- Interest income (135) (465) (275) (819) Impact of adjusting items on Non-controlling interest (1,236) (129) (1,418) (358) Adjusted EBITDA ($5,747) $694 ($7,493) $1,720 (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: +86-10-8455-5566 x5532 Email: http://www.newscom.com/cgi-bin/prnh/20050314/CNM005LOGODATASOURCE: Hurray! Holding Co., Ltd. CONTACT: Christina Low, Investor Relations Officer, +86-10-8455-5566 x5532, Web site: http://phx.corporate-ir.net/ http://www.hurray.com/ http://phx.corporate-ir.net/playerlink.zhtml?c=187793&s=wm&e=2355303

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