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Sgoco Group, Ltd. Announces Record Revenue and Net Income for 2010 Third Quarter
Nov 18, 2010 (01:11 PM EST)


JINJIANG CITY, China, Nov. 18, 2010 /PRNewswire-Asia-FirstCall/ -- SGOCO Group, Ltd. (OTC Bulletin Board: SGTLF), (the "Company" or "SGOCO"), a national distributor, designer and manufacturer of flat panel displays, including liquid crystal display ("LCD") and LED PC Monitors, TVs and application-specific display solutions in China, today announced its unaudited operating results for the three and nine months ended September 30, 2010.

Third Quarter 2010 vs. Third Quarter 2009

  • Total revenue increased by 295.0% to $71.7 million, compared to $18.2 million;
  • Gross margin was 13.6%, compared to 24.4%;
  • Operating income increased by 114.5% to $8.9 million, compared to $4.2 million;
  • Net income increased by 113.2% to $7.5 million compared to $3.5 million.
  • Fully diluted EPS was $0.79, as compared to $0.42.
  • Non-GAAP(1) diluted EPS, which excludes changes in fair value related to warrant derivative liability, was $0.77 up from $0.42.

Nine Months 2010 vs. Nine Months 2009

  • Total revenue increased by 304.8% to $134.1 million, compared to $33.1 million;
  • Gross margin was 14.4%, compared to 15.2%;
  • Operating income was $15.9 million, compared to $4.4 million;
  • Net income increased by 252.7% to $11.9 million, compared to $3.4 million.
  • Fully diluted EPS was $1.28, as compared to $0.40.
  • Non-GAAP(1) diluted EPS, which excludes changes in fair value related to warrant derivative liability, was $1.37, up from $0.40.

(1) The non-GAAP measures and related reconciliations to GAAP measures are described in the accompanying sections of "About Non-GAAP Financial Measures" and "Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Measures."

Management's Discussion & Analysis of the Results of Operations for the Three Months Ended September 30, 2010

The following analysis compares the results of operations for the third quarter of 2010 with those of the third quarter of 2009.

Revenue

Revenue for the third quarter ended September 30, 2010 was $71.7 million, an increase of 295.0% from $18.2 million in the third quarter of 2009. The Company saw strong sales growth as it expanded its sales base with new customers. Additionally, the improved economic environment and strong growth in exports supported the trend.

Gross Margin

The gross margin as a percent of sales was 13.6% for the three months ended September 30, 2010, compared to 24. 4% for the three months ended September 30, 2009. The gross margin in the third quarter 2009 was exceptionally high due to a firming of average selling prices while at the same time the Company sold inventory that had been acquired at depressed prices during the financial crisis.  The costs related to SGOCO Club were $0.3 million for the three months ended September 30, 2010. We did not incur any costs during the three months ended September 30, 2009, as the SGOCO Club model was established in the fourth quarter of 2009.

Net Income and EPS

Net income for the third quarter of 2010 was $7.5 million, compared to $3.5 million recorded for the same period last year. Non-GAAP net income which excludes changes in fair value related to warrant derivative liability was $7.3 million, compared to $3.5 million a year ago. Diluted EPS was $0.79 in the third quarter of 2010, compared to $0.42 in the third quarter of 2009. Non-GAAP diluted EPS, which excludes changes in fair value of warrant derivative liability, was $0.77 in the third quarter of 2010, compared to $0.42 in the third quarter of 2009.

Operating Expenses

Selling, general and administrative expenses amounted to approximately $0.9 million for the three months ended September 30, 2010, an increase of approximately $0.6 million, or 202. 2% compared to $0.3 million for the three months ended September 30, 2009. As the Company's sales increased, selling expenses increased accordingly.  The increase in general and administrative expenses was mainly due to: (i) additional costs related to professional fees including audit and legal fees associated with being a public company as it completed its reverse merger in March 2010 and (ii) increase in headcount to meet production growth and the hiring of new officers.

Provision for Income Taxes

Income tax was $1.1 million for the three months ended September 30, 2010 compared to $0.5 million, during the three months ended September 30, 2009. The increase in income taxes resulted from the Company's greater profits.

Cash and Working Capital

As of September 30, 2010, the Company had cash and cash equivalents of $11.8 million and working capital of $24.8 million, compared to $5.8 million and $7.9 million, respectively, as of December 31, 2009. The Current Ratio was 1.29 as of September 30, 2010 compared to 1.17 as of December 31, 2009.

"2010 has been a year of transformation as SGOCO became a public company. We have taken several steps to strengthen our position and take advantage of new business opportunities in the Chinese emerging markets. We are thrilled with the performance and strength of our business. The $71.7 million in revenue for the quarter and over $7.5 million in net income, both represent all-time records for SGOCO," said Mr. Or, CEO and President of SGOCO.

"We sold more in the three months ending September 30, 2010 than we did in the entire first six months of 2010.We have increased the number of SGOCO Club partners to 403 stores as of September 30, 2010. This is a proven record of our capability to capitalize on the growth opportunities in the markets. As we remain committed to our strategy of multiple brands and multiple channels, we expect more exciting developments for the remainder of the year," added Mr. Or.

About SGOCO Group, Ltd.

SGOCO Group, Ltd. is a national distributor, designer and manufacturer of branded flat panel displays, including LCD/LED PC monitors, LCD/LED TVs and application-specific display products in China. SGOCO is dedicated to providing high quality, branded flat panel display solutions at affordable prices for Chinese consumers and emerging markets worldwide.

For more information about SGOCO, please visit http://www.sgocogroup.com.

Safe Harbor and Informational Statement

This press release contains "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical fact, including, without limitation, those with respect to the objectives, plans and strategies of the Company set forth herein and those preceded by or that include the words "believe," "expect," "anticipate," "future," "intend," "plan," "estimate" or similar expressions, are "forward-looking statements". Although the Company's management believes that such forward-looking statements are reasonable, it cannot guarantee that such expectations are, or will be, correct. These forward-looking statements involve a number of risks and uncertainties, which could cause the Company's future results to differ materially from those anticipated. The Company assumes no obligation to update any of the information contained or referenced in this press release.

About Non-GAAP Financial Measures

We use non-GAAP adjusted net earnings to measure the performance of our business internally by excluding non-cash charges related to warrants and shared-based compensation. We believe that the non-GAAP adjusted financial measure allows us to focus on managing business operating performance because the measure reflects our essential operating activities and provides a consistent method of comparison to historical periods. We believe that providing the non-GAAP measures that we use internally is useful to investors for a number of reasons. The non-GAAP measure provides a consistent basis for investors to understand our financial performance in comparison to historical periods without variation of non-recurring items and non-operating related charges. The Company believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing the Company's performance and when planning and forecasting future periods. Non-GAAP measures are subject to inherent limitations because they do not include all of the expenses included under GAAP and because they involve the exercise of judgment regarding which charges are excluded from the non-GAAP financial measure. However, we compensate for these limitations by providing the relevant disclosure of the items excluded.

The following table provides a non-GAAP financial measure and a reconciliation of that non-GAAP measure to the GAAP net income:

SGOCO GROUP, LTD.


Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Measures

(US dollars in thousands, except per share data and percentages)



Three Months Ended September 30, 2010



Three Months Ended September 30, 2009




GAAP



Adjustments



Non-GAAP



GAAP



Adjustments



Non-GAAP


Net income


$

7,531




(211)

(a)


$

7,320



$

3,533




-

(c)


$

3,533


Net margin



10.5%




(0.3)%

(a)



10.2%




19.5%




-

(c)



19.5%


Diluted EPS


$

0.79



$

(0.02)

(d)


$

0.77



$

0.42




-

(c)


$

0.42








Nine Months Ended September 30, 2010



Nine Months Ended September 30, 2009




GAAP



Adjustments



Non-GAAP



GAAP



Adjustments



Non-GAAP


Net income


$

11,915



$

814

(b)


$

12,729



$

3,378




-

(c)


$

3,378


Net margin



8.9%




0.6%

(b)



9.5%




10.2%




-

(c)



10.2%


Diluted EPS


$

1.28



$

0.09

(d)


$

1.37



$

0.40




-

(c)


$

0.40


A) Adjustment to exclude changes in fair value related to warrant derivative liability of $(211,000) from other
expense(income), which was reported in the unaudited consolidated statements of income and other
comprehensive income.


B) Adjustment to exclude changes in fair value related to warrant derivative liability of $814,000 from other
expense (income), which was reported in the unaudited consolidated statements of income and other
comprehensive income.


C) Changes in fair value related to warrant derivative liability only incurred from the first quarter of 2010. No such
expense (income) was incurred in 2009.


D) Non-GAAP diluted EPS is computed by dividing Non-GAAP net income attributable to SGOCO Technology, Ltd.
by the weighted average number of dilutive ordinary shares outstanding for the respective periods.



For investor and media inquiries, please contact:


Company Contact

Investor Relations Representative

China

United States

SGOCO Group, Ltd.

The Equity Group, Inc.

Peggy Yuan

Lena Cati

Tel: + 86-10-5879-7435 ext 808

Tel: 212 836-9611 / lcati@equityny.com

Email: peggy@sgoco.com

Linda Latman


Tel: 212 836-9609 / llatman@equityny.com




SGOCO GROUP, LTD. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS



September 30,



December 31,




2010



2009




(Unaudited)





ASSETS














CURRENT ASSETS







Cash


$

11,827,788



$

5,808,013


Restricted cash



6,325,444




5,596,699


Accounts receivable, trade



48,717,301




18,641,548


Accounts receivable - related parties



251,299




224,407


Other receivables



216,041




121,226


Other receivables - related parties



656,154




-


Inventories



25,375,216




4,011,505


Advances to suppliers



17,246,462




11,950,074


Advances to suppliers - related parties



27,315




8,954,051


Other current assets



374,080




20,746


Total current assets



111,017,100




55,328,269











PLANT AND EQUIPMENT, NET



17,228,019




15,729,350











OTHER ASSETS









Intangible assets, net



8,553,629




8,412,366


Other non-current assets



-




2,693


Total other assets



8,553,629




8,415,059











Total assets


$

136,798,748



$

79,472,678











LIABILITIES AND SHAREHOLDERS' EQUITY


















CURRENT LIABILITIES









Accounts payable, trade


$

36,074,666



$

3,490,937


Accrued liabilities



126,106




74,147


Bank overdraft



1,476,136




717,562


Notes payable



21,703,423




18,709,038


Short-term loan



22,177,905




19,230,756


Other payables



1,024,567




382,978


Other payables - related parties



-




198,875


Customer deposits



2,054,556




457,761


Customer deposits - related parties



-




335,056


Taxes payable



1,598,324




3,872,916


Total current liabilities



86,235,683




47,470,026











OTHER LIABILITIES









Warrant derivative liability



1,908,698




-


Put option derivative liability



2,000,000




-


Total other liabilities



3,908,698




-











Total liabilities



90,144,381




47,470,026











COMMITMENT AND CONTINGENCIES


















SHAREHOLDERS' EQUITY









Preferred stock, $0.001 par value, 1,000,000 shares authorized,nil issued and
outstanding as of September 30, 2010 and December 31, 2009 Ordinary shares,
$0.001 par value, 50,000,000 shares authorized, 16,094,756 and 14,300,000
issued and outstanding as of September 30, 2010 and December 31, 2009



16,095




14,300











Paid-in-capital



19,037,683




17,263,916


Statutory reserves



2,726,310




1,286,942


Retained earnings



21,870,055




11,394,086


Accumulated other comprehensive income



3,004,224




2,043,408


Total shareholders' equity



46,654,367




32,002,652











Total liabilities and shareholders' equity


$

136,798,748



$

79,472,678





SGOCO GROUP, LTD. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME

(UNAUDITED)








Three months ended September 30,


Nine months ended September 30,



2010



2009


2010



2009

REVENUES:












Revenues


$

55,901,224



$

12,922,389



$

97,032,397



$

25,974,808

Revenues - related parties



-




2,540,575




12,549,795




4,080,501

Other operating income



15,845,849




2,700,762




24,505,507




3,073,125

Total revenues



71,747,073




18,163,726




134,087,699




33,128,434

















COST OF GOODS SOLD:
















Cost of goods sold



47,671,144




9,842,811




82,316,858




22,951,362

Cost of goods sold - related parties



-




2,061,702




10,230,151




3,003,741

Other operating expenses



14,306,692




1,821,043




22,228,435




2,143,474

Total cost of goods sold



61,977,836




13,725,556




114,775,444




28,098,577

















GROSS PROFIT



9,769,237




4,438,170




19,312,255




5,029,857

















OPERATING EXPENSES:
















Selling expenses



182,922




38,810




366,347




76,677

General and administrative expenses



679,907




246,739




3,034,763




515,049

Total operating expenses



862,829




285,549




3,401,110




591,726

















INCOME FROM OPERATIONS



8,906,408




4,152,621




15,911,145




4,438,131

















OTHER INCOME (EXPENSES):
















Interest income



20,422




2,022




63,184




3,618

Interest expense



(267,799)




(218,490)




(660,319)




(576,378)

Other income (expense), net



(274,813)




109,585




(563,901)




6,037

Change in fair value of warrant derivative liability



211,080




-




(813,748)




-

Total other income (expenses), net



(311,110)




(106,883)




(1,974,784)




(566,723)

















INCOME BEFORE PROVISION FOR INCOME TAXES



8,595,298




4,045,738




13,936,361




3,871,408

















PROVISION FOR INCOME TAXES



1,064,181




512,501




2,021,024




493,170

















NET INCOME



7,531,117




3,533,237




11,915,337




3,378,238

















OTHER COMPREHENSIVE INCOME:
















Foreign currency translation adjustment



793,940




248,776




960,816




(22,765)

















COMPREHENSIVE INCOME


$

8,325,057



$

3,782,013



$

12,876,153



$

3,355,473

















EARNINGS PER SHARE:
















Basic


$

0.79



$

0.42



$

1.29



$

0.40

Diluted


$

0.79



$

0.42



$

1.28



$

0.40

















WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
















Basic



9,527,932




8,500,000




9,260,594




8,500,000

Diluted



9,527,932




8,500,000




9,278,054




8,500,000




SGOCO GROUP, LTD. AND SUBSIDIARIES


CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY







































Accumulated















Retained Earnings



Other






Ordinary Shares



Paid-in



Statutory






Comprehensive






Shares



Par Value



Capital



Reserves



Unrestricted



Income



Total

BALANCE, December 31, 2008



14,300,000



$

14,300



$

14,183,916



$

571,035



$

4,950,920



$

2,060,272



$

21,780,443





























Shareholder contribution











2,090,000
















2,090,000

Net income



















3,378,238








3,378,238

Adjustment for statutory reserve















345,219




(345,219)








-

Foreign currency translation adjustment























(22,765)




(22,765)





























BALANCE, September 30, 2009 (Unaudited)



14,300,000




14,300




16,273,916




916,254




7,983,939




2,037,507




27,225,916





























Shareholder contribution











990,000
















990,000

Net income



















3,780,835








3,780,835

Adjustment for statutory reserve















370,688




(370,688)








-

Foreign currency translation adjustment























5,901




5,901





























BALANCE, December 31, 2009



14,300,000




14,300




17,263,916




1,286,942




11,394,086




2,043,408




32,002,652





























Shares issued for recapitalization



1,027,933




1,028




4,501,937
















4,502,965

Shares placed in escrow



766,823




767




















767

Payments of financing costs



























-

Shareholder contribution











366,780
















366,780

Reclassification of warrants to derivative liabilities











(1,094,950)
















(1,094,950)

Reclassification of put options to derivative liabilities











(2,000,000)
















(2,000,000)

Net income



















11,915,337








11,915,337

Adjustment for statutory reserve















1,439,368




(1,439,368)








-

Foreign currency translation adjustment























960,816




960,816





























BALANCE, September 30, 2010 (Unaudited)



16,094,756



$

16,095



$

19,037,683



$

2,726,310



$

21,870,055



$

3,004,224



$

46,654,367




SGOCO GROUP, LTD. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



Nine months ended

September 30,




2010



2009


CASH FLOWS FROM OPERATING ACTIVITIES:







Net income


$

11,915,337



$

3,378,238


Adjustments to reconcile net income to cash provided by (used in) operating activities:









Depreciation and amortization



721,805




448,129


Change in fair value of warrant derivative liability



813,748




-


Change in fair value of put option



-




-


Change in operating assets and liabilities:









Accounts receivable, trade



(29,182,600)




(21,833,913)


Accounts receivable - related parties



(21,915)




2,145,577


Other receivables



(105,946)




(975,496)


Inventories



(20,912,054)




(1,196,871)


Advances to suppliers



(4,964,267)




(4,862,812)


Advances to suppliers - related parties



8,951,625




(39,341)


Other current assets



(262,349)




34,300











Change in operating liabilities









Accounts payable, trade



31,947,666




425,168


Accrued liabilities



(84,554)




16,343


Notes payables



2,566,425




5,124,510


Other payables



622,750




(3,596,085)


Other payables - related parties



(900,754)




10,990,431


Customer deposits



1,559,863




1,142,742


Customer deposits - related parties



(335,970)




(29,680)


Taxes payable



(2,312,911)




964,889


Net cash provided by (used in) operating activities



15,899




(7,863,871)











CASH FLOWS FROM INVESTING ACTIVITIES:









Payments on equipments and construction-in-progress



(2,577,280)




(3,032,202)


Purchase of intangible assets



(6,384)




(4,897,543)


Cash received from legal acquirer



5,913




-


Net cash used in investing activities



(2,577,751)




(7,929,745)











CASH FLOWS FROM FINANCING ACTIVITIES:









Increase in restricted cash



(603,623)




(2,270,419)


Bank overdraft



730,979




1,268,282


Proceeds from government



735,500




2,492,030


Proceeds from short-term loan



23,376,595




12,313,560


Repayments on short-term loan



(20,867,069)




-


Shareholder contribution



366,780




2,090,000


Proceeds from recapitalization



5,388,083




-


Repayments on shareholder promissory notes



(100,000)




-


Payments of financing costs



(666,468)




-


Net cash provided by financing activities



8,360,777




15,893,453











EFFECT OF EXCHANGE RATE ON CASH



220,850




(23,742)











INCREASE IN CASH



6,019,775




76,095











CASH, beginning of period



5,808,013




352,568











CASH, end of period


$

11,827,788



$

428,663











SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:









Interest expenses paid (net of amount capitalized)


$

660,319



$

576,378


Income taxes paid


$

1,183,405



$

-


Non-cash investing activities









Construction-in-progress transferred to property plant and equipment


$

2,697,347



$

-





SOURCE SGOCO Technology, Ltd.