Hotgate Technology, Inc.'s Subsidiary REDtone China Venture into Prepaid Shopping Pass/ Card Business

NEW YORK, Feb. 1, 2011 /PRNewswire-Asia-FirstCall/ -- Hotgate Technology, Inc. ("Hotgate" or the "Company") (OTC Bulletin Board: HTGT) on January 18, 2011, through its wholly-subsidiary Shanghai Hongsheng Net Telecommunications Company Limited ("REDtone"), signed a Term Sheet (the "Term Sheet") with Shanghai QianYue Information Technology Co., Ltd. ("QIT") for the acquisition of the entire paid-up share capital of Shanghai QianYue Business Administration Co., Ltd. ("QBA"), amounting to approximately RMB 10 million, for a cash consideration of RMB 7.9 million. QBA is an established prepaid shopping-card issuer in Shanghai.

The predominant terms and conditions of the Term Sheet are:

1. The conditions precedent include:
   • A satisfactory due diligence investigation on QBA will be conducted by the Company, and will be completed by February 28, 2011;
   • QBA must have designated reserve locked in by the banks to meet future payment obligation of at least RMB 2 million, which must be supported by relevant proof;
   • The net book value of QBA's fixed assets (inclusive of software) must be at least RMB 1.2 million, and this must supported by relevant documents ; and
   • The sales value for the prepaid shopping cards for the financial year ended December 31, 2010, must amount to approximately RMB 90 million.
2. All of the liabilities/obligations that existed or occurred on or before the completion date belong to QIT.
3. The Term Sheet is subject to the approval of the Board of Directors of the Company.
4. Within five days after the signing of the Term Sheet, Hotgate must pay RMB 200,000 as an earnest deposit to QIT. Should the completion of the Company's due diligence uncover undisclosed financial risks/exposures that exceed RMB 200,000, or a variance of more than 20 percent of the items listed under Section (a) above, the Company has the right to terminate the Term Sheet, and the earnest deposit will be refunded to the Company within five business days. However, if the Company terminates the Term Sheet for any reason other than that which is listed above, the earnest deposit will not refundable.
5. Subject to the completion of the due diligence, but no later than March 10, 2011, the parties to the Term Sheet shall enter into and execute a Share Sales and Purchase Agreement.

Prepaid shopping cards are an increasingly common form of consumer and corporate spending behavior in People's Republic of China ("PRC") due to its vast advantages as follows:

1. A common form of staff incentives granted by employers to employees as an alternate mean of cash-alternative salary disbursement;
2. A popular means of corporate gifts and token of appreciation granted to business associates, especially during festive seasons; and
3. The consumer spending pattern is changing from cash-based transactions to cash-alternative spending behaviors

In Shanghai, the estimated annual sales of shopping cards is estimated at approximately RMB 18 billion, with a total population estimated around 27 million.

This business will bring values to the Company as follows:

• Highly scalable due to low capital expenditure requirements and it is replicable to other provinces in PRC;
• Will generate huge cash reserve due to its prepaid nature;
• Complements Hotgate's existing core business (i.e. Prepaid Services); and
• This business correlates with the E-commerce segment (online e-commerce settlement cycle) which command huge potential in PRC.

By venturing into this business, the Company will be positioned in E-Sales and distribution of prepaid business in Shanghai which includes prepaid mobile air-time and game reload, discounted call reload and prepaid shopping card.

Hotgate Technology, Inc. and subsidiaries are a group of companies engaged in providing discounted calling services and telecommunications related value added services in the People's Republic of China ("PRC"). The common stock is publicly traded under the symbol "HTGT."

Cautionary Disclaimer -- Forward-Looking Statements

This news release contains "forward-looking statements," as that term is defined in Section 27A of the United States Securities Act of 1933, as amended, and Section 21E of the United States Securities Exchange Act of 1934, as amended. Such forward-looking statements include, among others, the estimation, expectation and/or claim, as applicable. Actual results could differ from those projected in any forward-looking statements due to a variety of risks, uncertainties and other factors. These forward-looking statements are made as of the date of this news release and the Company assumes no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements. Although the Company believes that the beliefs, plans, expectations and intentions contained in this press release are reasonable, there can be no assurance those beliefs, plans, expectations, or intentions will prove to be accurate. Investors should consider all of the information set forth herein and should also refer to the risk factors disclosed in the Company's periodic reports filed from time-to-time with the Securities and Exchange Commission and available at www.sec.gov .

SOURCE Hotgate Technology, Inc.