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HandHeld Entertainment Sees Cash Flow Positive Results in 2007, Makes First Acquisition

Posted on: Wednesday, 15 November 2006, 15:00 CST

Executives of HandHeld Entertainment™ (NASDAQ: ZVUE, ZVUEW) yesterday disclosed that the company expects to achieve cash flow positive results in 2007 based upon recent steps taken by the pioneer of the portable video player (PVP) industry.

The disclosures were made during HandHeld Entertainment's first ever investor conference call, held yesterday afternoon, which is available for telephonic replay or viewing via the Internet -- details are below.

The key points made by HandHeld Entertainment executives during yesterday's call include the following:

1) Accelerate Content Growth:

The $1.5 million acquisition of Dorks.com (a free user-generated video download Web site attracting upward of one million unique visitors per month);

The expectations that HandHeld Entertainment will be able to drive Dorks.com traffic to three million to five million unique visitors per month in 2007 and generate advertising revenue from Dorks.com (something not previously attempted by Dorks.com management);

The forthcoming launch of FREE Stuff! on ZVUE.com™ offering the first user-generated content on ZVUE.com;

The support of Windows Mobile Video 5.0, enabling millions of smartphone and PDA users to download videos from ZVUE.com for playback on their devices;

The continued efforts by HandHeld Entertainment to license and acquire compelling portable video content and build one of the largest online libraries of downloadable videos, including yesterday's announcement of its agreement with Comedy Time Network, which will provide hundreds of hours of comedy stand-up routines and sketches designed specifically for portable devices, such as portable video players and smartphones; and

2) Focus the Hardware Business on Near-term Profitability:

The fact that HandHeld Entertainment's new value-priced $99 ZVUE™ 250 PVP begins shipping next week into approximately 2,000 Wal-Mart stores nationwide, replacing the ZVUE 200;

The launch of the $69 ZVUE ZP3™ MP3 player pre-loaded with 30 of the top songs of 2006 and with a firm initial order for 36,000 units being delivered into retail stores this November;

The expectation that heightened PVP marketing efforts this Holiday Season by Microsoft and Apple will allow HandHeld Entertainment to achieve sales uplift as customers compare the ZVUE value/price proposition in stores;

The canceling of HandHeld Entertainment's efforts to complete the launches of the ZVUE 400 and 500 PVPs citing the need to avoid competing head-to-head with players priced at $249 and above, such as Apple Computer's iPod and Microsoft's Zune; and

3) Implement an Operating Plan that is 12 Months to Cash Flow Positive:

The dramatic reduction of HandHeld Entertainment's personnel ranks to match company objectives to achieve cash flow positive status in 2007;

The announcement of HandHeld Entertainment's settlement of a trademark infringement lawsuit with Microsoft, which resulted in a net cash settlement of $1.4 million to HandHeld Entertainment;

Plans to outsource future PVP development efforts to leading original equipment manufacturers worldwide (OEMs), cutting time-to-market to four-to-five months versus 12 to 18 months, something HandHeld Entertainment did with its recently announced ZVUE ZP3 MP3 player; and

Eliminating HandHeld Entertainment's radio and print advertising programs and replacing them with "retail detail" efforts to ensure the proper placement of ZVUE players on store shelves, the most important factor identified by surveys in driving retail sales success for consumer electronics devices.

"With the steps we have taken and that we outlined yesterday afternoon, we plan to achieve cash flow positive results in 2007 without raising additional capital," said Jeff Oscodar, president and chief executive officer of HandHeld Entertainment. "We are already cash-flowing our player business and our ZVUE business. We will soon begin cash-flowing our free video businesses with Dorks.com and FREE Stuff!. Wal-Mart will soon have the ZVUE 250 and ZVUE ZP3 players on its shelves. The ZVUE 250 will also be on retail shelves, including Wal-Mart, shortly. We will outsource all future PVP development efforts to leading OEMs worldwide, and we have right-sized and reallocated our personnel ranks to help us responsibly meet our objectives of increased market penetration and breakeven results in 2007."

For further highlights of yesterday's conference call held by HandHeld Entertainment, interested individuals are invited to listen to a replay by calling 877-660-6853 (in the United States) or 201-612-7415 (for international callers). The following pass codes (both of which are required for playback) are as follows: account #: 286 and conference ID #: 215796.

The conference call and attendant slide presentation can also be viewed online by visiting www.hheld.com/ir.

About the ZVUE

Available today in more than 1,800 Wal-Mart stores throughout the United States, as well as online at such locations as Amazon.com, the $99 (US) ZVUE plays videos and MP3 files available from the ZVUE.com download store and also allows users to view digital pictures from a digital camera or home video from a camcorder. The ZVUE offers full-color video and clear audio sound that gives users a robust, on-the-go digital experience when coupled with downloadable content from the ZVUE Web site.

About HandHeld Entertainment, Inc.

With shares and units of its common stock available for purchase on the NASDAQ Capital Market (ZVUE, ZVUEW) and Boston Stock Market (HDE, HDEW), HandHeld Entertainment is a digital-media-to-go company with a family of mass-market portable media players priced at mass-market prices as well as its own online video content store. Its ZVUE portable media players are available for purchase online and in retail locations across the U.S., while portable video lovers can visit HandHeld Entertainment's video content store at www.zvue.com to buy pay-per-download videos. Customers can also download free user-generated video selections from Dorks.com, a HandHeld Entertainment company. For more information, visit www.hheld.com or call 415-495-6470.

HandHeld Entertainment, ZVUE and ZVUE.com are trademarks of HandHeld Entertainment. All other trademarks are property of their respective owners.

"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995

This release contains forward-looking statements. To the extent that any statements made in this release contain information that is not historical, these statements are forward-looking. These statements are subject to risks and uncertainties that cannot be predicted or quantified and, consequently, actual results may differ materially from those expressed or implied by these forward-looking statements. These risks and uncertainties include, without limitation: HandHeld Entertainment's dependence on contract manufacturing of its products; its reliance on a single major mass-market retailer; its ability to develop and market successfully and in a timely manner new products and services; its ability to predict market demand for, and gain market acceptance of, its products and services; the impact of competitive products and services and of alternative technological advances; its ability to raise additional capital to finance its activities; its limited and unprofitable operating history; its ability to operate as a public company; its ability to reduce product return rates; the affect of inventory and price protections required by major retailers; the availability and affordability of digital media content; its ability to protect its proprietary information and to avoid infringement of others' proprietary rights; its ability to attract and retain qualified senior management and research and development personnel; the reliability and security of its information systems and networks; and other factors described in HandHeld Entertainment's filings with the Securities and Exchange Commission, including Annual Reports on Form 10-KSB, Quarterly Reports on Form 10-QSB and Current Reports on Form 8-K. These forward-looking statements are made as of the date hereof. HandHeld Entertainment does not undertake any obligation to publicly update any forward-looking statements. As a result, investors should not place undue reliance on these forward-looking statements.

Source: Business Wire

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