SGOCO Technology, Ltd. Announces Second Quarter 2010 Financial Results
JINJIANG CITY, China, Aug. 16 /PRNewswire-Asia-FirstCall/ -- SGOCO Technology, Ltd., formerly known as Hambrecht Asia Acquisition Corp. (the "Company" or "SGOCO") (OTC Bulletin Board: SGTLF), a distributor, designer and manufacturer of liquid crystal display ("LCD") solutions in China, today announced its unaudited operating results for the three months ended June 30, 2010 (the "second quarter").
Highlights
-- Total revenue for the second quarter increased by 234.6% to $42.9
million from $12.8 million compared to the same period of the prior
fiscal year.
-- Gross margin for the second quarter of 2010 was 15.0%, compared to -
0.3% in the second quarter of 2009.
-- Operating income for the second quarter of 2010 was $5.3 million as
compared to an operating loss of $0.2 million for the second quarter of
2009.
-- Net income for the second quarter of 2010 was $3.8 million as compared
to a net loss $0.4 million for the second quarter of 2009.
-- Fully diluted EPS for the second quarter was $0.40, as compared to
$(0.05) for the same period of the prior fiscal year. Non-GAAP diluted
EPS, which excludes charges related to warrant derivative liability,
was $0.46 in the second quarter, up from $(0.05) in the second quarter
of 2009(1).
-- The total number of retailers within the "SGOCO Club" network increased
to 364 as of June 30, 2010, as compared to 206 as of March 31, 2010 and
70 as of December 31, 2009. The "SGOCO Club" network is a vertically
integrated Direct Store Delivery (DSD) model initiated by the Company
from the last quarter of 2009.
-- "We achieved strong growth in the second quarter thanks to accelerating
sales growth and effective cost management both in operations and in
business expansion," said Mr. Or, President and CEO of SGOCO Technology,
Ltd. "Sales through traditional channels and through the SGOCO Club
model are both growing, effectively driving our expansion into China's
emerging retail market. Looking ahead, we will continue to diversify
our product portfolio, expand our distribution network and enhance the
effectiveness of the operation so we can capitalize on the growth
opportunities during the third and fourth quarter, which historically
have represented the highest period of demand for consumer electronics
and PCs in the Chinese market."
(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 June 30, 2010
The following analysis compares the results of operations for the second quarter of 2010 with the results of operations for the second quarter of 2009.
Revenue
Revenue for the second quarter ended June 30, 2010 was $42.9 million, an increase of 234.6% from $12.8 million in the second quarter of 2009. The Company relocated its manufacturing facility in mid-2009 which increased the Company's production capacity thereby enabling the Company to sell more units. The Company saw strong sales growth through both traditional channels and the rapidly expanding "SGOCO Club" retail network.
Gross Margin
The gross margin as a percent of sales was 15.0% for the three months ended June 30, 2010, compared to -0.3% for the three months ended June 30, 2009. The negative gross margin in the second quarter 2009 was primarily attributed to reduced selling prices as the Company sought to clear excess inventories.
Operating Expenses
Selling, general and administrative expenses amounted to approximately $1.1 million for the three months ended June 30, 2010, an increase of approximately $0.9 million, or 555.3% compared to $0.2 million for the three months ended June 30, 2009. $0.5 million of the increase was due to costs related to professional fees including audit and legal fees associated with being a public company as the Company completed the reverse merger in March 2010.
Provision for Income Taxes
Income tax was $0.66 million for the three months ended June 30, 2010 compared with $0.02 million in income tax benefits during the three months ended June 30, 2009.
Net Income and EPS
Net income for the second quarter of 2010 was $3.8 million, compared to a net loss of $0.4 million recorded for the same period last year. Non-GAAP net income which excludes charges related to warrant derivative liability was $4.4 million, compared to a net loss of $0.4 million a year ago. Diluted EPS was $0.40 in the second quarter of 2010, compared to $(0.05) in the second quarter of 2009. Non-GAAP diluted EPS, which excludes changes in fair value of warrant derivative liability, was $0.46 in the second quarter of 2010, compared to $(0.05) in the second quarter of 2009.
Cash, Restricted Cash and Working Capital
As of June 30, 2010, the Company had cash and restricted cash of $9.8 million and working capital of $17.3 million, compared to $11.4 million and $7.8 million as of December 31, 2009. The Current Ratio was 1.3 as of June 30, 2010 compared to 1.2 as of December 31, 2009.
Our principal source of liquidity has been cash flow generated from operations and borrowing from short-term bank loans. Net cash flow from operating activities for the first half of 2010 was negative $6.7 million. The negative cash flow from operations resulted from the $12.9 million increase in accounts receivable that followed the large sales increase in the second quarter of 2010.
The short-term bank loans represent amounts due to various banks. These borrowings are normally due within one year and typically renewed. Since inception, the Company has faced no difficulties rolling over these loans with lenders. These types of financing arrangements are common practice in China and similar to revolving lines of credit in the United States.
About SGOCO Technology, Ltd.
SGOCO Technology, Ltd. is a distributor, designer and manufacturer of branded LCD PC monitors, LCD TVs and application-specific display products in China. SGOCO is dedicated to providing high quality, branded LCD products at affordable prices for Chinese consumers and emerging markets worldwide.
For more information about SGOCO, please visit http://www.sgoco.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 TECHNOLOGY, LTD.
Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Measures
(US dollars in thousands, except per share data and percentages)
Three Months Ended Three Months Ended
June 30, 2010 June 30, 2009
GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP
Net income $3,829 $546(a) $4,375 $(436) -(c) $(436)
Net margin 8.9% 1.3%(a) 10.2% -3.4% -(c) -3.4%
Diluted EPS $0.4 $0.06(d) $0.46 $(0.05) -(c) $(0.05)
Six Months Ended Six Months Ended
June 30, 2010 June 30, 2009
GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP
Net income $4,384 $1,025(b) $5,409 $(155) -(c) $(155)
Net margin 7.0% 1.6%(b) 8.6% -1.0% -(c) -1.0%
Diluted EPS $0.48 $0.11(d) $0.59 $(0.02) -(c) $(0.02)
(a) Adjustment to exclude charges related to warrant derivative
liability of $546 from other expense, which was reported in the
unaudited consolidated statements of income and other
comprehensive income.
(b) Adjustment to exclude charges related to warrant derivative
liability of $1,025 from other expense, which was reported in the
unaudited consolidated statements of income and other
comprehensive income.
(c) Charges related to warrant derivative liability only incurred
from the first quarter of 2010. No such expense 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:
Ms. Peggy Yuan
Investor Relations
SGOCO Technology, Ltd.
Tel: +86-10-5879-7435
Email: [email protected]
SGOCO TECHNOLOGY, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2010 2009
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $1,980,571 $5,808,013
Restricted cash 7,822,862 5,596,699
Accounts receivables, trade 30,565,601 18,641,548
Accounts receivables -
related parties 1,367,915 224,407
Other receivables 239,791 121,226
Other receivables - related parties 2,152,434 --
Inventories 11,392,204 4,011,505
Advances to suppliers 18,419,386 11,950,074
Advances to suppliers -
related parties 412,917 8,954,051
Other current assets 129,755 20,746
Total current assets 74,483,436 55,328,269
PLANT AND EQUIPMENT, NET 16,777,533 15,729,350
OTHER ASSETS
Intangible assets, net 8,422,327 8,412,366
Other non-current assets -- 2,693
Total other assets 8,422,327 8,415,059
Total assets $99,683,296 $79,472,678
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payables, trade $10,917,894 $3,490,937
Accrued liabilities 252,249 74,147
Bank overdraft 1,469,598 717,562
Notes payables 19,586,484 18,709,038
Short term loan 19,936,908 19,230,756
Other payables 475,733 382,978
Other payables - related parties -- 198,875
Customer deposits 1,680,046 457,761
Customer deposits - related parties -- 335,056
Taxes payable 2,815,296 3,872,916
Unsecured promissory
note due to shareholder 100,000 --
Total current liabilities 57,234,208 47,470,026
OTHER LIABILITIES
Warrant derivative liability 2,119,778 --
Put option derivative liability 2,000,000 --
Total other liabilities 4,119,778 --
Total liabilities 61,353,986 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 June
30, 2010 and December 31, 2009 -- --
Common stock, $0.001 par value;
50,000,000 shares authorized,
16,094,756 and 14,300,000 issued
and outstanding at June 30, 2010
and December 31, 2009 16,095 14,300
Paid-in capital 19,037,683 17,263,916
Statutory reserves 1,972,639 1,286,942
Retained earnings 15,092,609 11,394,086
Accumulated other
comprehensive income 2,210,284 2,043,408
Total shareholders' equity 38,329,310 32,002,652
Total liabilities and
shareholders' equity $99,683,296 $79,472,678
SGOCO TECHNOLOGY, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
(UNAUDITED)
Three months ended Six months ended
June 30, June 30,
2010 2009 2010 2009
REVENUES:
Revenues 28,082,405 12,149,753 $41,166,152 13,052,419
Revenues -
related parties 9,813,817 316,628 12,514,816 1,539,926
Other operating
income 4,968,796 343,136 8,659,658 372,363
TOTAL REVENUES 42,865,018 12,809,517 62,340,626 14,964,708
COST OF GOODS SOLD:
Cost of goods
sold 24,038,131 12,310,752 34,674,228 13,057,362
Cost of goods
sold - related
parties 8,063,550 246,887 10,201,637 942,039
Other operating
expenses 4,354,169 284,103 7,921,743 322,431
TOTAL COST OF
GOODS SOLD 36,455,850 12,841,742 52,797,608 14,321,832
GROSS PROFIT 6,409,168 (32,225) 9,543,018 642,876
OPERATING EXPENSES:
Selling expenses 104,210 58,282 183,425 89,056
General and
administrative
expenses 1,035,719 115,685 2,354,856 268,310
Total operating
expenses 1,139,929 173,967 2,538,281 357,366
INCOME(LOSS) FROM
OPERATIONS 5,269,239 (206,192) 7,004,737 285,510
OTHER INCOME
(EXPENSES):
Interest income 19,917 902 42,762 1,596
Interest expense (127,872) (205,330) (392,520) (357,888)
Other income
(expenses) (122,662) (47,828) (289,088) (103,548)
Change in fair
value of warrant
derivative liability (546,288) -- (1,024,828) --
Total other income
(expenses), net (776,905) (252,256) (1,663,674) (459,840)
INCOME (LOSS)
BEFORE PROVISION FOR
INCOME TAXES 4,492,334 (458,448) 5,341,063 (174,330)
PROVISION (BENEFIT)
FOR INCOME TAXES 662,909 (22,809) 956,843 (19,331)
NET INCOME (LOSS) 3,829,425 (435,639) 4,384,220 (154,999)
OTHER COMPREHENSIVE
INCOME
Foreign currency
translation adjustment 169,379 (91,807) 166,876 (271,541)
COMPREHENSIVE
INCOME (LOSS) 3,998,804 (527,446) 4,551,096 (426,540)
EARNING PER SHARE
Basic $0.04 (0.05) $0.48 (0.02)
Diluted $0.04 (0.05) $0.48 (0.02)
WEIGHTED AVERAGE
NUMBER OF
COMMON SHARES
Basic 9,527,932 8,500,000 9,124,710 8,500,000
Diluted 9,566,229 8,500,000 9,151,044 8,500,000
SGOCO TECHNOLOGY, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months ended
June 30,
2010 2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $4,384,220 $(154,999)
Adjustments to reconcile net income
to cash used in operating activities:
Depreciation and amortization 444,832 266,357
Change in fair value of warrant derivative
liability 1,024,828 --
Change in fair value of put option -- --
Change in operating assets and liabilities
Accounts receivables, trade (11,811,110) (4,452,283)
Accounts receivables - related parties (1,137,858) (327,391)
Other receivables (188,950) (1,135)
Inventories (7,333,795) (8,335,557)
Advances to suppliers (6,393,848) (4,876,702)
Advances to suppliers - related parties 8,542,234 32,019
Other current assets (24,145) (13,900)
Change in operating liabilities
Accounts payables, trade 7,381,981 1,472,638
Accrued liabilities 43,271 (231)
Notes payables 797,609 1,705,939
Other payables 90,812 33,931
Other payables - related parties (2,342,382) 7,747,948
Customer deposits 1,215,360 150,339
Customer deposits - related parties (335,034) 1,427,445
Taxes payable (1,069,014) (1,416,473)
Net cash used in operating activities (6,710,989) (6,742,055)
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments on equipments
and construction-in-progress (2,133,720) (2,779,341)
Purchase of intangible assets -- (4,896,875)
Cash received from legal acquirer 5,913 --
Net cash used in investing activities (2,127,807) (7,676,216)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in restricted cash (2,194,147) (757,168)
Bank overdraft 745,998 --
Proceeds from government 733,450 1,905,410
Proceeds from short-term loan 16,299,657 12,311,880
Repayments on short-term loan (15,674,758) --
Shareholder contribution 366,780 2,090,000
Proceeds from recapitalization 5,388,083 --
Payments of financing costs (666,468) --
Net cash provided by financing activities 4,998,595 15,550,122
EFFECT OF EXCHANGE RATE ON CASH 12,759 (238,250)
(DECREASE) /INCREASE IN CASH (3,827,442) 893,601
CASH, beginning of period 5,808,013 352,568
CASH, end of period $1,980,571 $1,246,169
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Interest expenses paid(net of
amount capitalized) $392,520 $357,888
Income taxes paid $331,700 $--
Non-cash investing activities
Construction-in-progress transferred
to property plant and equipment $2,380,237 $--
SOURCE SGOCO Technology, Ltd.
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