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Hurray! Reports Third Quarter 2005 Financial Results

Hurray! Holding Co., Ltd. (Nasdaq: HRAY), a leading provider of advanced wireless value-added services and mobile telecommunication network software in the People's Republic of China, today announced its financial results for the third quarter ended September 30, 2005. (Logo: http://www.newscom.com/cgi-bin/prnh/20050314/CNM005LOGO ) FINANCIAL HIGHLIGHTS: -- Total revenues: $16.5 million, growth of 9.9% quarter-over-quarter and30.8% year-over-year -- 2.5G services revenues: $9.2 million, growth of 4.7% quarter-over-quarter and growth of 14.6% year-over-year -- 2G services revenues: $6.0 million, growth of 29.8% quarter-over-quarter and 76.4% year-over-year -- Software and system integration services revenues: $1.3 million,decline of 18.7% quarter-over-quarter but growth of 11.6% year-over-year -- Net income: $5.0 million, unchanged quarter-over-quarter but growth of6.2% year-over-year -- Diluted earnings per ADS: $0.22 "We are pleased with our operating results during the third quarter of 2005 despite continued short-term weakness in the 2.5G market due to slow CDMA user growth experienced by China Unicom," said QD Wang, Chairman and Chief Executive Officer of Hurray! "We are particularly pleased with the progress in expanding our customer reach, wireless value-added service platforms, and marketing and distribution channels. It is great to see that Hurray! is growing again." BUSINESS RESULTS Total revenues for the third quarter ended September 30, 2005 were $16.5 million, representing a 9.9% increase over $15.0 million for the preceding quarter, and a 30.8% increase from $12.6 million for the third quarter in 2004. 2.5G services revenues were $9.2 million for the third quarter of 2005, representing an increase of 4.7% as compared to $8.8 million for the previous quarter and an increase of 14.6% as compared to $8.1 million for the third quarter of 2004. 2.5G services comprise of Wireless Application Protocol ("WAP") services, Multimedia Messaging Services ("MMS"), and Java(TM) services. WAP revenues were $8.8 million, growth of 1.5% from the previous quarter and growth of 9.4% as compared to third quarter 2004. MMS, which was fully commercially launched in the second quarter of 2005, recorded revenues of $0.4 million for the third quarter 2005. Revenues from the company's Java(TM) services were insignificant. 2G services revenues were $6.0 million for the third quarter of 2005, representing an increase of 29.8% as compared to $4.6 million for the previous quarter and an increase of 76.4% as compared to $3.4 million for the third quarter of 2004. 2G services comprise of Short Messaging Services ("SMS"), Interactive Voice Response services ("IVR"), and Color Ring Back Tones ("CRBT"). SMS revenues were $3.3 million for the third quarter of 2005, representing an increase of 56.2% as compared to $2.1 million in the previous quarter and an increase of 14.5% as compared to $2.9 million in the third quarter of 2004. Growth of SMS revenues was mainly attributable to our increased effort in alternative marketing and promotion through handset partnerships, Internet marketing alliances and direct advertising. IVR revenues declined 3.5% to $2.3 million for the third quarter of 2005, as compared to $2.4 million for the previous quarter due to tighter operators' management of promotional activities by service providers, but a significant increase as compared to $0.4 million for the third quarter of 2004. CRBT, which was launched at the end of first quarter 2005, recorded revenues of $0.3 million for the third quarter 2005. Software and system integration services revenues were $1.3 million for the third quarter of 2005, representing a decrease of 18.7% as compared with $1.6 million for the previous quarter but an increase of 11.6% as compared with $1.2 million for the third quarter of 2004. The quarterly decline of software revenue is a result of mobile operators delaying expanding or building out 2.5G and 3G data infrastructure into 2006 pending receiving 3G licenses. Software and system integration services revenues include revenue from third-party hardware sold on a no-margin, pass-through basis. Total gross margin was 51.1% for the third quarter of 2005 as compared to 59.7% for the previous quarter and 61.1% for the third quarter of 2004. Gross margin for 2.5G services was 61.9% for the third quarter of 2005, as compared to 59.5% for the previous quarter and 62.0% for the third quarter of 2004. The improvement in gross margin for 2.5G services was primarily attributable to the increased contribution of WAP services offered through China Mobile's network which generally has a higher gross margin, partially offset by the increased cost associated with the full commercial launch of MMS services in the third quarter of 2005. Gross margin for 2G services was 27.0% for the third quarter of 2005, as compared to 53.7% for the previous quarter and 50.6% for the third quarter of 2004. The decrease in gross margin for 2G services was mostly attributable to the upfront cost associated with increased alternative marketing effort for SMS and IVR services and the launch of CRBT services. Gross margins for these services are expected to improve over time as revenues scale. Software and system integration services gross margin was 84.5% for the third quarter of 2005, as compared to 77.9% for the previous quarter and 84.9% for the third quarter of 2004. The increase in software and system integration gross margin between the second and third quarters of 2005 resulted from the company's continued efforts to focus on providing its own software and services and minimizing third-party hardware pass-through sales. Total gross profit was $8.4 million for the third quarter of 2005, representing a decline of 5.9% as compared with $8.9 million for the previous quarter and an increase of 9.5% as compared with $7.7 million for the third quarter of 2004. Total operating expenses were $4.1 million for the third quarter of 2005, representing a decline of 8.5% as compared to $4.4 million for the previous quarter and an increase of 40.3% as compared to $2.9 million for the third quarter of 2004. The decline in operating expenses was mainly due to the decrease in consulting fees, which included $0.5 million in legal expenses associated with an aborted transaction in the second quarter of 2005. Interest income for the third quarter of 2005 was $0.5 million. Other income for the third quarter included foreign currency exchange gain as a result of the Chinese government's decision in July 2005 to peg the exchange rate of Chinese Renminbi against a basket of currencies, rather than just the US dollar, which resulted in a slight appreciation in the value of the Renminbi against the US dollar. Net income was $5.0 million for the third quarter of 2005, unchanged from $5.0 million for the previous quarter, and an increase of 6.2% as compared to $4.7 million for the third quarter of 2004. Net margin was 30.5% for the third quarter of 2005 as compared to 33.4% for the previous quarter and 37.6% for the third quarter of 2004. Fully diluted earnings per ADS were $0.22 based on a weighted average of 22.5 million diluted ADSs for the third quarter of 2005. This figure compares to $0.22 based on a weighted average of 22.3 million diluted ADSs for the previous quarter and $0.29 based on a weighted average of 16.5 million diluted ADSs for the third quarter of 2004. As of September 30, 2005, the company had outstanding 22.0 million basic ADSs and 22.5 million fully diluted ADSs, excluding share options granted above the average market value of Hurray! stock for the quarter as their effects would have been anti-dilutive. As of September 30, 2005, the company had $78.0 million in cash and cash equivalents. BUSINESS HIGHLIGHTS To reduce business concentration and better weather regulatory volatility in the wireless value-added sector going forward starting from 2005, the company has been focusing on the following initiatives: -- Strengthening existing mobile operator marketing and distributio hannels; -- Establishing alternative marketing, promotion and distribution channels; -- Increasing service platforms and customer reach; and -- Accelerating new product rollout through in-house development an artnerships. Commenting on these initiatives, Mr. Wang stated, "These are important initiatives for us to build a solid and sustainable foundation for our business going forward. We will continue to invest in these areas and are committed to carrying them through.'' The following is a highlight of Hurray!'s progress to date in these areas: -- Total wireless value-added services revenues generated from Chin obile, China Telecom and China Netcom markets grew 21.4% quarter-over-quarter and 113.2% year-over-year to $5.2 million. As a percentage o otal wireless value-added services revenues, it increased to 34.2% i he third quarter of 2005 from 31.9% in the previous quarter and 21.3%in the third quarter of 2004. -- In particular, WAP revenues from services offered through Chin obile's WAP portals increased 32.1% quarter-over-quarter and 78.3%year-over-year to $2.9 million. We believe that we have attained the#3 position on China Mobile's WAP portals in terms of WAP revenues fo he month ended September 30, 2005. -- The company's SMS business resumed growth while newly established CRB nd MMS services started contributing to our total revenue growth. I ddition, we have initiated services in China Telecom and China Netco arkets and recorded $0.2 million revenues in the quarter. -- Alternative marketing, promotion and distribution such as handse artnerships, Internet marketing alliances and direct media advertisin ave become more effective and generated 24.0% or $3.6 million of tota ireless value added services revenues for the quarter, as compared to6.6% in the previous quarter and 0% in the third quarter of 2004. -- Music related revenues from ringtone, ringbacktone, and trueton ownload or playback embedded in our WAP, MMS, IVR and CRBT service ave grown to represent approximately 35.0% or $5.3 million of tota ireless value added services revenues for the quarter. In addition, Hurray! has taken significant steps since the second quarter in acquiring and building digital music production and distribution capabilities in-house and through partnerships. Specifically, -- In the second quarter, Hurray! launched a mobile music album befor cheduled CD release. -- Hurray! recently released a music single simultaneously over mobile an nternet platforms, jointly with leading Chinese language Interne earch company Baidu, skipping CD release altogether. -- Also, Hurray! signed up a finalist of "Super Girl", a pop idol T ompetition in China, to produce her first and future albums, togethe ith well-known Chinese movie and music production company, Huay rothers. -- Further, Hurray! separately announced today that it has agreed t cquire a majority interest in the music business of Freeland group, ioneer and leader in Internet music production and distribution whic roduced famous pop stars such as Xiangxiang, Yang Chengang, and Yan i and recent top hits such as ''Mice Love Rice,'' ''Song of Pigs,'' and''Return, My Love.'' "Hurray! has a vision to become a leading digital music production and distribution house in China. We are the first mover in all above strategic initiatives in China. It demonstrates not only our commitment to building the Hurray! brand name and capabilities for digital music content production and distribution, but also our drive to differentiate ourselves by offering mobile users in China what they truly want and are willing to pay for," concluded Mr. Wang. Note to the Financial Information The financial information in this press release has been extracted from unaudited financial statements prepared in accordance with accounting principles generally accepted in the United States of America. 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 14, 2005 or 10:00 am Beijing/Hong Kong Time on November 15, 2005 The dial-in number: 800-265-0241 (US) 617-847-8704 (international) Password: 25034244 A replay of the call will be available from November 14, 2005 until November 21, 2005 as follows: 888-286-8010 (US) 617-801-6888 (international) PIN number: 22720894 Additionally, a live and archived web cast of this call will be available at: http://www.videonewswire.com/event.asp?id=30996 or http://www.hurray.com/english/home.htm . About Hurray! Holding Co., Ltd. Hurray! provides wireless value-added services such as ringtone and picture downloads, community and entertainment services to mobile users in China. The company is one of the market leaders in providing these services using wireless application protocol, commonly referred to as WAP, in China. WAP services are offered through the advanced 2.5G mobile networks, the most advanced broadly available mobile networks deployed in China. Hurray! also offers these services through 2G mobile networks. In addition, Hurray! designs, develops, sells and supports a service provisioning and management software that is used by China Unicom, one of the two principal mobile operators in China, to support its 2.5G services platform. 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; changes in the policies of the mobile operators in China or the laws governing wireless value-added services; the state of Hurray!' relationships with China's mobile operators; and other risks outlined in Hurray!' 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 December As of September 31, 2004(1) 30, 2005 (Unaudited) (in thousands of U.S. dollars) Assets Current assets: Cash and cash equivalents$8,714 $77,964 Accounts receivable 11,88315,806 Prepaid expenses and other current assets2,133 1,934 Total current assets22,73095,704 Deposits266 318 Property and equipment, net 2,617 2,500 Acquired intangible assets, net 439 528 Goodwill 20,41221,366 Total assets $46,464 $120,416 Liabilities and shareholders' equity Current liabilities: Short-term borrowings $2,658 $-- Accounts payable3,335 2,432 Accrued expenses and other current liabilities 2,750 3,345 Income tax payable -- 124 Deferred tax liability -- 53 Total current liabilities 8,743 5,954 Shareholders' equity: Series A convertible preference shares 17 -- Ordinary shares 59 84 Subscription receivable(51) (21) Additional paid-in capital 16,41676,404 Retained earnings 21,28036,901 Accumulated other comprehensive income -- 1,094 Total shareholders' equity 37,721 114,462 Total liabilities and shareholders' equity $46,464 $120,416 (1) December 31, 2004 balances were extracted from audited financial statements. Hurray! Holding Co., Ltd. Unaudited Condensed Consolidated Statements of Operations For the three months ended September June 30, September 30, 30, 2004 20052005 (in thousands of U.S. dollars, except share and per share data) Revenues: 2G services $3,360 $4,567 $5,928 2.5G services 8,062 8,821 9,239 Software and system integration services 1,169 1,606 1,305 Total revenues12,591 14,994 16,472 Cost of revenues: 2G services 1,661 2,116 4,325 2.5G services 3,064 3,576 3,522 Software and system integration services 176355 203 Total cost of revenues 4,901 6,047 8,050 Gross profit 7,690 8,947 8,422 Operating expenses: Product development 597638 693 Selling and marketing 1,906 2,597 2,500 General and administrative 391 1,180 866 Stock-based compensation -- 21 -- Total operating expenses 2,894 4,436 4,059 Income from operations 4,796 4,511 4,363 Other income --337 14 Interest income (expense) (60) 320 505 Income tax benefit (expense)-- (155)147 Net income $4,736 $5,013 $5,029 Earnings per share, basic $0.0039 $0.0023 $0.0023 Earnings per ADS, basic $0.39 $0.23 $0.23 Earnings per share, diluted $0.0029 $0.0022 $0.0022 Earnings per ADS, diluted$0.29 $0.22 $0.22 Shares used in calculating basic earnings per share 1,229,360,780 2,190,275,204 2,198,890,426 ADSs used in calculating basic earnings per ADS 12,293,608 21,902,752 21,988,904 Shares used in calculating Diluted earnings per share 1,653,361,356 2,229,032,723 2,245,871,775 ADSs used in calculating diluted earnings per ADS 16,533,614 22,290,327 22,458,718 For more information, please contact: Phoebe Meng Investor Relations Manager Tel: +86-10-6518-8989 x6806 Email: yfmeng@hurray.com.cn

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