HITW Hi-Tech Wealth Reports Third Quarter 2007 Financial Results

Hi-Tech Wealth Reports Third Quarter 2007 Financial ResultsPR Newswire "US Press Releases "
BEIJING, Nov. 15 /PRNewswire-FirstCall/ -- Hi-Tech Wealth Inc. (OTC Bulletin Board: HITW), a Chinese consumer sales and marketing company engaged in the development and distribution of digital devices, today announced financial results for the three and nine month periods ending September 30, 2007. In addition, the Company also commented on its key business initiatives going forward. Key Business Initiatives:
* Launch of Solar Mobile Phones On Track: The Company expects to launch
the S2000 and S2000+ versions of the Solar Mobile Phone in the fourth
quarter of 2007 and the S4500 and Apollo in the first half of 2008.
* Shipment of Delayed S116 Solar Mobile Phones: After testing and
confirming the manufacturing quality of the delayed S116, the Company
has begun reshipping the model.
* Solar Mobile Phone Marketing Campaign: Hi-Tech Wealth is reinforcing
its Solar Mobile Phone marketing campaign with new television
commercials currently airing in China.
* Information Security Phone Launch: In 2008, the Company plans to
launch a new version of the Information Security Phone, called the
Privacy Security Mobile. This new product includes a GPS feature which
allows users instant access to global positioning technology, as well
as a separate GPS module to track the location of an item of the user's
choice, such as an automobile.
Dr. ZhengYu Zhang, Chief Executive Officer and Chairman of Hi-Tech Wealth stated, "Our third quarter results were negatively impacted by the delay in shipments of the Solar Mobile Phone combined with the decreased gross margins caused by the end of the product lifecycle for the Information Security Phone. We have worked diligently over the past several months with our key suppliers to improve the production and quality control processes in order to ensure smooth production of next generation smart phones. Today we articulated our key business initiatives and we continue to believe that 2008 will be a transformational year for us."
Jacques Ma, Chief Financial Officer, stated, "In the first nine months of 2007 we sold over 206,000 mobile phones. While we are disappointed that the delay in shipping the S116 impacted our third quarter results, we remain optimistic about 2008. We move into 2008 dedicated to building an innovative and diversified portfolio of electronic products that appeal to niche consumer markets."
Three Month Results for the Third Quarter Ended September 30, 2007.
Revenue for the third quarter of 2007 was $11.6 million as compared to $30.3 million for the three months ended September 30, 2006. In the third quarter of 2007 revenues decreased approximately 62% as compared to the third quarter of 2006. The decrease in revenue was the result of a decline in unit sales of existing models which approached the end of their anticipated life cycles, as well as a delay in launching the solar powered mobile phone, which was intended to offset the anticipated decline in existing unit sales. Total unit sales declined from 110,618 units in the second quarter of 2007 to 44,664 units in the third quarter of 2007.
Gross profit was $3.1 million in the third quarter of 2007 as compared to $11.9 million in the third quarter of 2006 as a result of lower unit sales and per unit price declines associated with product cycle end stages. The gross profit margin decreased to 28% in the third quarter of 2007 from 39% in the comparable quarter of 2006. The gross profit margin was 28% in the third quarter of 2007 compared to 29% in the second quarter of 2007.
Loss from operations was $4.1 million in the third quarter of 2007 and operating expenses increased to $6.6 million from $5.6 million in the comparable period of 2006. Operating expenses include over $2.0 million of costs related directly to recent fundraising efforts, recent public company status and/or costs incurred by a software company that was not yet acquired in the third quarter of last year. More specifically, this includes $1.1 million of professional, legal and staffing expenses associated with being a public company, as well as $933,000 of software development costs incurred by a software company acquired at the end of 2006. Selling and distribution costs of $1.6 million primarily reflect increased staff expenses related to a larger sales and marketing team.
These increased costs were offset by a decline in advertising expense of $3.4 million for the three months ended September 30, 2007 as compared to the same period of 2006 due to a decrease in advertising fees and compensation paid to distributors.
Interest expense was $478,000 for the third quarter of 2007 representing an increase of $283,000 from the comparable period of 2006. The Company benefited from grants and tax refunds of approximately $295,000 during the three months ended September 30, 2007.
The Company also recognized $687,000 of non-cash interest expense from amortization of the discount on convertible notes.
Net loss from Continuing Operations was $2.9 million for third quarter of 2007.
Nine Month Financial Results for the Period Ended September 30, 2007
For the first nine months of 2007, the Company reported revenues of $49.9 million on the sale of approximately 206,479 mobile phone units. Gross profit was $13.9 million, a gross margin of 31%. Total operating expenses for the first nine months of 2007 were $15.9 million, an increase of 118% as compared to $7.3 million for the same period last year. The increase in operating costs reflects the Company's efforts to expand its product line, marketing efforts and assumed public company costs, which it previously did not incur.