HIT Technologies Inc.
TSX VENTURE : HIT

HIT Technologies Inc.

May 30, 2016 18:17 ET

HIT Technologies Reports Third Quarter Fiscal 2016 Results

Sales Grow 109% Driven by a 427% Increase in HITCASE Sales, and Reduced Operating Expenses

VANCOUVER, BRITISH COLUMBIA--(Marketwired - May 30, 2016) - HIT Technologies Inc. (TSX VENTURE:HIT) ("HIT" or the "Company"), which designs, develops, manufactures and distributes the world's most advanced adventure products for iPhone, today reported its third quarter (Q3 F2016) and year-to-date (YTD F2016) fiscal 2016 financial and operating results for the periods ended March 31, 2016, prepared in accordance with International Financial Reporting Standards (IFRS). All results are reported in Canadian dollars unless otherwise stated.

Selected Quarter and Nine-Month Information

Q3- Fiscal Q3-Fiscal YTD-Fiscal YTD-Fiscal
2016 2015 2016 2015
Revenue 365,749 174,607 1,457,231 890,841
% Increase over Prior Year 109 % 64 %
Gross Margin 37 % 34 % 31 % 22 %
Gross Margin %
Operating Expenses (excluding non-cash and cost of sales) 716,731 1,041,450 2,803,600 2,082,828
Adjusted EBITDA (Loss) (580,431 ) (981,813 ) (2,350,587 ) (1,883,893 )
Net (Loss)
Per share, Basic (0.02 ) (0.04 ) (0.06 ) (0.08 )
Cash and Cash Equivalents 115,186 3,496,977
Inventory 584,361 192,671
Net Working Capital/(Deficiency) (127,266 ) 3,424,210
Total Assets 1,683,629 4,233,804
Liabilities 1,321,040 396,108

"We are pleased with our Q3 and year-to-date sales momentum and progress against our strategic plan," said Brooks Bergreen, CEO of HIT Technologies. "Our HITCASE sales were up 427%, offsetting declining legacy sales for an overall 109% increase in sales, and gross margins remained strong. In addition, the momentum in our business and foundation we have developed over the past year has enabled us to significantly reduce operating costs. The majority of our sales were driven by our online marketing activities and fan base conversion with our HITCASE products providing 89% of revenues, and were complemented by repeat business from our boutique retailers."

Bergreen continued: "We remain confident in the mass appeal of our HITCASE product suite and the continued sales growth it will translate into. We continue to have positive feedback on our products which underscore the competitive advantages of our offering. Q3 and Q4 include the softer retail season, and we also expect Q4 sales to be dampened by inventory constraints during the quarter. Even so, I believe that we have established great momentum for HITCASE, and we are focused on translating this into shareholder value. To address our current cash position, subsequent to quarter end, we completed a non-brokered private placement raising gross proceeds of $1,180,000. In addition, we scaled back the workforce during the quarter, reduced salaries across the Company and haves significantly lowered overall cash operating expenses. For the third fiscal quarter, operating expenses declined by 32% compared to Q2 F2016. The Company expects to realize a further 30-40% reduction in operating expenses in Q4 F2016 compared to Q3 F2016. Demand for our offerings remains strong and we are now well positioned to build inventory for our seasonally strong September and December quarters."

Third Quarter Fiscal 2016 Financial and Operational Highlights

  • Hitcase product sales, excluding legacy products, increased 427% compared to the corresponding quarter last year and increased 175% for the nine-month period;
  • Generated sales of $365,749 in Q3 F2016, up 109% from $174,607 in Q3 Fiscal 2015, reflecting HITCASE PRO-6, SNAP and accessories sales, products that were not available in Q3 2015. Sales were down from Q2 F2016 as is typical with seasonality in retail sales;
  • Gross margin percent for the quarter was 37% compared to 34% in the corresponding quarter of the prior year and 31% for the nine-month period compared to 22% for the corresponding period last year;
  • During the quarter the Company scaled back its work force and reduced operating expenditures (excluding non-cash items and cost of sales) by 32% compared to Q2-F2016 levels. The Company expects to realize further reductions of 30-40% in Q4 F 2016 compared to Q3 F2016;
  • Reported an Adjusted EBITDA loss of $580,431 for Q3 F2016, compared with $981,813 for Q3 F2015 and $806,920 in Q2 F2016;
  • Closed the quarter with a working capital deficiency of $127,266 including cash and cash equivalents of $115,186 and inventory of $ 584,361 at March 31, 2016;
  • Grew social media Fan-Base to 477,000 followers, up 95% from 245,000 at the end of June 2015. The Company maintained its Fan-Base despite significantly reducing its marketing and content expenses;
  • Deferred revenue at the end of Q3 F 2016 was $93,566. Approximately $46,000 of the deferred revenue balance was recognized in revenue in Q4 after the product was shipped to the customer; and
  • Subsequent to March 31, 2016, the Company completed a private placement raising gross proceeds of $1,180,000.

Non-IFRS Measures

Adjusted EBITDA is a non-IFRS measure and management defines this metric as the loss and comprehensive loss under IFRS, adjusted by adding back interest, taxes, amortization, and other non-cash expenses. Please review the reconciliation of Adjusted EBITDA to net income (loss) in the Company's MD&A for the corresponding period.

This press release should be read in conjunction with our Consolidated Financial Statements for the three and nine months ended March 31, 2016 and the accompanying Management Discussion and Analysis, which can be found on SEDAR at www.sedar.com and on the Company's website http://www.hitcase.com/invest.

Forward Looking Statements

This news release contains certain "forward-looking information" within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about the Company's anticipated use of available funds, and the future plans and objectives of the Company are forward-looking information.

Any statements that involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as "expects", or "does not expect", "is expected", "anticipates" or "does not anticipate", "plans", "budget", "scheduled", "forecasts", "estimates", "believes" or "intends" or variations of such words and phrases or stating that certain actions, events or results "may" or "could", "would", "might" or "will" be taken to occur or be achieved) are not statements of historical fact and may be forward-looking information and are intended to identify forward-looking information.

This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, and involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such factors include, among others, global economic climate; dilution; the Company's limited operating history; future capital needs and uncertainty of additional financing; the competitive nature of the industry; currency exchange risks; the need for the Company to manage its planned growth and expansion; the effects of product development and need for continued technology change; protection of proprietary rights; the effect of government regulation and compliance on the Company and the industry; network security risks; the ability of the Company to maintain properly working systems; theft and risk of physical harm to personnel; reliance on key personnel; global economic and financial market deterioration impeding access to capital or increasing the cost of capital; and volatile securities markets impacting security pricing unrelated to operating performance. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to revise or update any forward-looking information other than as required by law.

About HIT Technologies Inc.

HIT Technologies, Inc. (TSX VENTURE:HIT) develops and markets a portfolio of products that transform Apple iPhones into high-performing, weather- and shock-resistant video cameras. Both its, flagship product, HITCASE PRO and its newer SNAP allows users to easily capture action photo and video content hands-free, using a variety of HIT Technologies' patented Railslide™ mounts that attach to virtually any surface. Swappable lenses and accessories provide a variety of perspectives otherwise unattainable while participating in adventure sports. HIT Technologies is headquartered in Vancouver, British Columbia, Canada and trades on the TSX Venture Exchange. For more information about HITCASE, visit www.HITCASE.com. Search #hitcase on Instagram to see some of the amazing images created by HITCASE customers.

Cautionary Statement

No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the TSX-V nor its Regulation Services Provider (as that term is defined in the policies of the TSX-V) accepts responsibility for the adequacy of this release.

Hit Technologies Inc. (Formerly Friday Capital Inc.)

Statements of Financial Position

(Unaudited)

(Expressed in Canadian dollars)

As at As at
March 31, June 30,
2016 2015
Assets
Current assets
Cash 102,733 2,789,135
Restricted cash 12,453 130,646
Accounts receivable 180,861 32,320
Government assistance and other receivables 262,313 188,269
Inventory 584,361 314,854
Prepaid expenses and deposits 18,813 55,351
1,161,533 3,510,575
Property and equipment 324,843 396,598
Intangible assets 197,253 131,504
1,683,629 4,038,677
Liabilities
Current liabilities
Accounts payable and accrued liabilities 1,188,070 1,013,284
Deferred revenue 93,556 115,344
Current portion of lease liability 7,173 7,015
1,288,799 1,135,643
Lease liability 32,241 37,642
Shareholders' Equity
Share capital 9,158,838 9,158,838
Contributed surplus 571,921 349,918
Deficit (9,368,170) (6,643,364)
362,589 2,865,392
1,683,629 4,038,677

Hit Technologies Inc. (Formerly Friday Capital Inc.)

Statements of Operations and Comprehensive Loss

For the quarter and nine months ended March 31, 2016 & 2015

(Unaudited)

(Expressed in Canadian dollars)

Quarter ended March 31 Nine months ended March 31
2016 2015 2016 2015
Revenue 365,749 174,607 1,457,231 890,841
Cost of sales 229,450 114,970 1,004,218 691,907
136,299 59,637 453,013 198,934
Expenses
Depreciation 49,347 13,643 158,394 38,929
Share based compensation 49,804 88,508 222,003 240,410
General and administrative 414,852 546,051 1,396,854 1,034,201
Research and development 56,580 95,813 224,629 201,536
Selling and marketing 245,299 399,586 1,182,117 847,091
815,882 1,143,601 3,183,997 2,362,167
Loss before other income (expenses) (679,582 ) (1,083,964 ) (2,730,984 ) (2,163,232 )
Other income (expenses)
Finance costs (2,819 ) (739 ) (4,375 ) (8,088 )
Foreign exchange loss 20,504 2,269 10,553 (8,652 )
17,685 1,530 6,178 (16,740 )
Loss and comprehensive loss for the period (661,898 ) (1,082,434 ) (2,724,806 ) (2,179,972 )
Basic and diluted loss per share (0.02 ) (0.04 ) (0.06 ) (0.08 )
Weighted average shares outstanding 42,769,584 29,797,214 42,769,584 26,911,903

Hit Technologies Inc. (Formerly Friday Capital Inc.)

Statements of Changes in Shareholders' Equity/(Deficiency)

(Unaudited)

(Expressed in Canadian dollars)

Share capital
Total
Subscription Contributed Shareholders'
Number Amount receipts Surplus Deficit equity/(deficit)
of shares $ $ $ $ $
Balance - June 30, 2014 24,000,000 528,507 (1,143,857 ) (615,350 )
Loss for the period (2,179,972 ) (2,179,972 )
Shares issued for cash 200,000 50,000 50,000
Shares issued pursuant to offset agreement 2,000,000 500,000 500,000
Conversion of convertible notes (net of expenses) 4,374,990 1,370,001 1,370,001
Issuance of Subscription receipts (net) 4,472,607 4,472,607
Share based compensation expense 240,410 240,410
Balance - March 31, 2015 30,574,990 2,448,508 240,410 (3,323,829 ) 3,837,696
Balance - June 30, 2015 42,769,584 9,158,838 349,918 (6,643,364 ) 2,865,392
Loss for the period (2,724,806 ) (2,724,806 )
Share based compensation expense 222,003 222,003
Balance - March 31, 2016 42,769,584 9,158,838 571,921 (9,368,170 ) 362,589

Hit Technologies Inc. (Formerly Friday Capital Inc.)

Statements of Cashflow

Quarters and nine months ended March 31, 2016 & 2015

(Unaudited)

(Expressed in Canadian dollars)

Quarter ended March 31 Nine months ended March 31
2016 2015 2016 2015
Cash flows from/(used in) operating activities
Loss for the period (661,898 ) (1,082,434 ) (2,724,806 ) (2,179,972 )
Item not involving cash - depreciation 49,347 13,643 158,394 38,929
Share based compensation 49,804 88,508 222,003 240,410
Changes in non-cash working capital items
Accounts receivable 3,218 46,966 (148,541 ) 17,285
Other reveivable (28,493 ) (28,494 )
Government assistance and other receivable 66,011 65,844 (74,044 ) 66,022
Inventory 115,478 (22,317 ) (269,507 ) (100,790 )
Accounts payable and accrued liabilities 160,552 (85,906 ) 174,944 (142,878 )
Deferred revenue 47,863 3,549 (21,788 ) 5,791
Prepaid expenses and deposits 19,309 (78,323 ) 36,539 (70,171 )
(150,315 ) (1,078,962 ) (2,646,806 ) (2,153,867 )
Cash flows from/(used in) investing activities
Restricted cash 156,843 118,193
Acquisition of property and equipment (9,319 ) (107,255 ) (82,123 ) (132,353 )
Acquisition of intangible assets (20,712 ) (26,206 ) (70,265 ) (43,312 )
126,812 (133,462 ) (34,194 ) (175,666 )
Cash flows from/(used in) financing activities
Advances (to)/from related parties (103,666 ) (7,647 )
Lease liability (1,814 ) (5,401 )
Share capital issuance 50,000
Net proceeds from convertible notes 1,370,001
Net proceeds from subscription receipts 4,472,607 4,472,607
Increase (decrease) in bank and other indebtedness (99,893 )
(1,814 ) 4,368,941 (5,401 ) 5,785,069
Increase in cash (25,318 ) 3,156,517 (2,686,402 ) 3,455,536
Cash - Beginning of period 128,051 340,460 2,789,135 41,442
Cash - End of period 102,733 3,496,977 102,733 3,496,978

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