Hitek Global Sees Revenue Slide, Weighed by Regulatory Changes

The IT company, seeking a U.S. IPO, reported weak performance for the first half-year of 2019.

Anna Vodopyanova
    Jan 09, 2020 3:00 PM  PT
Hitek Global Sees Revenue Slide, Weighed by Regulatory Changes
author: Anna Vodopyanova   

Hitek Global Inc., seeking to list on the Nasdaq Capital Market, has filed updated financials that show a weakened performance.

The IT company, based in Xiamen, said its revenue in the six months through June 2019 declined 15% year-over-year to $3 million (unaudited, interim). Its net income in the half-year was $857,937 compared with $1.3 million in the same period of 2018, according to the filing with the U.S. Securities and Exchange Commission.

That was a reversal of the growth pattern the company saw in 2017 and 2018. Its revenue in 2018 reached $6.9 million, nearly level with 2017. Net income increased to $2.2 million from $2.1 million in 2017.

The company said it had $786,683 in cash and cash equivalents as of June 30, 2019.

Hitek is offering 1.8 million of its ordinary shares at the expected price of between $4 and $6 per share. It would raise $10.8 million in its initial public offering at the high end of the range.

Operating through a variable interest entity (VIE), Xiamen Hengda HiTek Computer Network Co. Ltd., Hitek provides outsourced IT support and maintenance services. 

"Our vision is to become a one-stop consulting destination for holistic IT and other business consulting services in China," Hitek said in the filing.

To small- and medium-sized businesses (SMEs), it also delivers Anti-Counterfeiting Tax Control System (ACTCS) services and tax devices which the companies need for value-added tax reporting mandatory in China. To large enterprises, Hitek sells software and hardware.

In the six months through June 2019, Hitek said hardware sales generated 33% of its revenue, software sales brought in 22.6%, IT services to SMEs generated 14.7% and ACTCS devices and services – 29.7%.

State authorities control the prices of tax devices and services. In addition, tax regulators launched an electronic invoicing system in 2018. Because of this change, Hitek said its client base is expected to be reduced by 5% "in the future."

Another risk noted in the prospectus is Hitek's reliance on a few large customers. In the first half of 2019, two of Hitek's clients generated approximately 20% and 10% of its revenue, the report said. The company does not have long-term contracts with its key clients, according to the filing.

With the proceeds of its IPO, Hitek seeks to boost its R&D and IT systems, recruit new staff and for general working capital, it said.

Hitek has applied to list under the symbol "HKIT."

Newbridge Securities Corp. and WestPark Capital Inc. are acting as underwriters on the deal.

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