Hotgate Technology Inc Reports First Half FY2011 Financial Results

Revenue Up 35% to $2.6 Million

NEW YORK, Jan. 17, 2011 /PRNewswire-Asia/ -- Hotgate Technology, Inc. (OTC Bulletin Board: HTGT), one of the leading providers of consumer discounted call services in Shanghai, announced its first half financial results for the period ended November 30, 2010 on Jan 13, 2011.

Financial Highlights for the First Half FY2011:

• Revenue increased 35% year over year to $2.6 million

• Gross profit decreased 20% year over year to $1.4 million

• Net income decreased 41% year over year to $0.5 million

"The Second Quarter (September – November 2010) has been a traditionally lower sales period for the consumer voice segment due to hot summers in China, but we managed to increase our sales level with an aggressive marketing campaign to attract new users for our consumer voice segment. Our registered subscribers' base has increased to 2.4million users from 1.8million, an increase of 33% from the same period last year.

Revenue for the first six months was $2.6 million, an increase of 35% compared to $1.9 million in the same period in FY2010.

Gross profit decreased 20% to $1.4 million in the first six months of FY2011 compared to $1.8 million in the first half of FY2010. Gross margin dropped as a result of pricing adjustment, which is part of our marketing campaign to attract new users.  

General and administrative expense increased to $0.31 million from $0.26 million compared to the first half of FY2010, an increase of 20% in tandem with the increase in revenue. Likewise, personnel cost also increased by 21% as a result of headcount increase.

Net income for first half of 2011 decreased 41% to $0.46 million compared to $0.78 million, in the same period last year.

Balance Sheet

As of November 30, 2010, the Company had $5.1 million cash and cash equivalents on hand compared to $4.3 million as of May 31, 2010 (audited report).

Financial Year 2011 Update

The Company has launched paperless mobile prepaid air-time reload service in Shanghai for all 3 major telecommunications companies in China namely China Mobile, China Unicom and China Telecom in early second quarter of FY2011. This complementary service will service to enlarge Hotgate Technology's service spectrum to become a comprehensive value-added telecommunication service provider.

In the meantime, Hotgate Technology is also striving to explore more investment opportunities in various segments such as Prepaid Value Card business which is of strategic relevance to core competence of Hotgate Technology.

About Hotgate Technology Inc.

Hotgate Technology Inc, via its subsidiaries in China has offered discounted call services to the People's Republic of China ("PRC") since January 2006. Growth in discounted call services in PRC was encouraging as discounted call solutions provide a cheaper mode of voice services for individual users and corporate clients for making nationwide and international calls.

This consumer call services is in collaboration with China TieTong Telecommunications (Shanghai Branch Company) ("China TieTong") who has established a high-speed backbone optical transmission network of 52,000 kilometres over the years, covering most of the cities in PRC.

Under the business collaboration, China TieTong will provide network access for REDtone China while REDtone China will provide the necessary support for sales and marketing, customer care, technical system and other related matters for China TieTong's consumer and corporate voice services in Shanghai. In addition, REDtone China is the sole distributor for China TieTong consumer and corporate voice services in Shanghai.

REDtone China has grown rapidly in the last 5 years since commencing operations, under which REDtone China's infrastructure network capacity has grown to approximately 437E1, whereby each E1 allows average transmissions of 100,000,000 minutes per month. REDtone China is primarily offering its discounted call services to the consumer market. The discounted call for consumer market, which is offered as a prepaid telecommunication service, generates average cash of approximately RMB9 million per month with the current average gross revenue per month standing at about RMB8 million per month. REDtone China has approximately 2.4 million registered customers in the discounted call for consumer market segment. As for the postpaid telecommunication services for the corporate market, it is generating a modest net revenue of approximately RMB0.2million per month.

REDtone China has also ventured into paperless mobile reload businesses which will ride on its existing technology, operating platform, marketing channels and customer base. REDtone China is seeking service expansion into prepaid value reload for 2G and 3G mobile users in Shanghai and other potential cities in PRC.  

This new service will offer fast and convenient "paperless" reload facilities to all reload agencies in Shanghai. In addition, the reload services are easier to manage and convenient compared to traditional paper-based value-card printing, distribution and control.

Products and Services

REDtone China offer the following services to customers:

1. Discounted call services for consumers ("EMS")
2. Discounted call services for corporate customers
3. Reload services for prepaid mobile air-time