SGOCO Group, Ltd. Announces 2011 Third Quarter Financial Results

BEIJING, Nov. 15, 2011 /PRNewswire-Asia/ -- SGOCO Group, Ltd. (NASDAQ: SGOC), (the "Company" or "SGOCO"), a company focused on building its own brands and retail distribution network in the Chinese flat panel display market, including LCD/LED monitors, TVs, and application specific products, today announced its unaudited operating results for the three month and nine month periods ended September 30, 2011.

Revenue for the third quarter of 2011 was $71.6 million, unchanged from the third quarter of 2010.  In the third quarter of 2011, sales of SGOCO's own brands represented 67.3% of total revenues, OEM represented 30.6%, and other outsourced items represented 2.1%.

As certain customers worked through excess inventory positions, sales of the Company's own brands decreased by 1.9% to $48.2 million in the third quarter of 2011 compared to the third quarter of 2010.   To increase factory utilization, the Company increased OEM sales by 7.5% to $21.9 million thereby reducing average fixed costs.

The Company had 755 SGOCO Image partners as of September 30, 2011 compared to 403 partners as of September 30, 2010.

Gross profit for the third quarter of 2011 was $7.9 million, or 11.0% of total revenue, compared to $9.8 million, or 13.6% of total revenue, for the same period of last year.  The company experienced lower margins on both its own brands and OEM products due to increased market competition. Additionally, a shift in the product mix to a higher percentage of lower margin OEM revenues negatively impacted gross margins.

Selling, general and administrative expenses for the third quarter of 2011 were $1.8 million, or 2.5% of total revenue, compared to $0.9 million, or 1.2% of total revenue, in the third quarter of 2010.  The increase was due to both increased selling expenses as well as higher professional service fees such as legal and auditing expenses.

Net income for the third quarter of 2011 was $5.2 million, a decrease of 30.5%, compared to $7.5 million recorded for the same period last year.  Diluted EPS was $0.33 in the third quarter of 2011, compared to $0.79 in the third quarter of 2010.  Diluted EPS for the third quarter of 2011 was calculated based on 16,032,343 weighted average number of ordinary shares compared to 9,527,932 weighted average number of ordinary shares for the third quarter of 2010.

As of September 30, 2011, the Company had cash and restricted cash of $32.5 million compared to $30.0 million as of December 31, 2010.  Working capital also increased to $55.5 million, compared to $38.7 million at the end of 2010.  The current ratio on September 30, 2011 was 1.34 compared to 1.44 on December 31, 2010.

Working Capital

During the first nine months of 2011, the Company saw large increases in notes payable, advances to suppliers and restricted cash.  SGOCO uses notes payable to pay bills and make advances to suppliers.  From December 31, 2010 to September 30, 2011 SGOCO increased its advances to suppliers by $93.5 million.  The increase was a response to a tightening in the panel supply market as well as an expected increase in duties on imported panels. SGOCO believed this action was necessary to meet potential peak season customer demand in the fourth quarter and during the coming Chinese New Year.  

The banks guaranteeing the notes payable require a security deposit from SGOCO of restricted cash which continues to earn interest for the Company.  From December 31, 2010 to September 30, 2011, notes payable increased by $41.6 million and restricted cash increased during the same period by $22.3 million for a net increase of $19.3 million.  The Company considers these increases to be in a reasonable range considering the current market conditions.

Warrant Repurchases

In the third quarter, SGOCO repurchased and retired a total of 100,000 of its publicly-traded warrants in a private transaction, for an aggregate purchase price of $40,000 (or $0.40 per warrant).  All of the terms of the remaining 0.6 million publicly-traded warrants remain the same.  Additionally, the Company in private transactions, repurchased and retired a total of 21,332 of the warrants issued to its underwriters in the December 2010 offering for an aggregate purchase price of $10,666 (or $0.50 per warrant).  All of the terms of the remaining 13,571 warrants issued to its underwriters in the December 2010 offering remain the same.  The Company believes that the repurchase and retirement of these warrants benefit shareholders in the long-term as it eliminates the dilution that would have occurred in the event these warrants were exercised.

Subsequent Events

Following the end of the third quarter, the Board of Directors gave the Company unanimous approval to enter into an agreement for the sale of all of the outstanding capital shares of Honesty Group Holdings Limited, which were owned by the company, to an independent third party.  Details of this transaction are disclosed in a separate release issued on November 15, 2011.

 Conference Call

SGOCO's management will host a conference call at 8:30 am ET on Wednesday, November 16th, 2011 to discuss these results as well as recent corporate developments. After opening remarks, there will be a question and answer period. Listeners may access the call by dialing 1-719-325-4766. A webcast will also be available via www.viavid.net. A replay of the call will be available through November 30th, 2011 by dialing 1-858-384-5517, access code: 5178784.

About SGOCO Group, Ltd.

SGOCO Group, Ltd. is focused on developing its own brands and distribution in the Chinese flat panel display market.  Our main products are LCD/LED monitors, TVs, and other application specific products.  Our target markets are China's Tier 3 and Tier 4 cities where we compete by providing high quality products at competitive prices.  

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". Forward-looking statements in this release include, without limitation, the effectiveness of the Company's multiple-brand, multiple channel strategy and the reasonableness of the increases in notes payable, advances to suppliers and restricted cash. 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. These forward-looking statements can change as a result of many possible events or factors not all of which are known to the Company, which may include, without limitation, requirements or changes adversely affecting the LCD and LED market in China; fluctuations in customer demand for LCD and LED products generally; our success in promoting our brand of LCD and LED products in China and elsewhere; our success in expanding our "SGOCO Image" model; our success in manufacturing and distributing products under brands licensed from others; management of rapid growth; changes in government policy including policy regarding subsidies for purchase of consumer electronic products and local production of consumer goods in China; the fluctuations in sales of LCD and LED products in China; China's overall economic conditions and local market economic conditions; our ability to expand through strategic acquisitions and establishment of new locations; changing principles of generally accepted accounting principles; compliance with government regulations; legislation or regulatory environments; geopolitical events and other events and factors described in the "Key Information – Risk Factors" section in the Company's annual report on Form 20-F filed with the U.S. Securities and Exchange Commission on April 29, 2011. The Company assumes no obligation to update any of the information contained or referenced in this press release.

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SOURCE SGOCO Technology, Ltd.