EX-99.1 2 v202532_ex99-1.htm Unassociated Document

Exhibit 99.1

SGOCO GROUP, LTD. ANNOUNCES
RECORD REVENUE AND NET INCOME FOR 2010 THIRD QUARTER

Jinjiang City, China – November 17, 2010 – SGOCO Group, Ltd. (OTCBB: 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 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 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.
 
 
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 SGOCOTechnology, 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     $ -