VLOV, Inc. Reports Second Quarter 2010 Financial Results
-- Q2 2010 Net Sales Reach $17.9 Million
-- Q2 2010 Operating Margin 17.8%
-- Q2 2010 Adjusted Net Income $2.3 Million; Adjusted Earnings Per Share $0.13
XIAMEN, China, Aug. 19 /PRNewswire-Asia-FirstCall/ -- VLOV, Inc. (OTC Bulletin Board: VLOV) ("VLOV" or the "Company"), China-based designer of VLOV brand men's apparel, today announced financial results for the second quarter ended June 30, 2010.
Summary Financials
Second Quarter Results (Unaudited):
Q2 2010 Q2 2009 Change
Sales $17.9 million $14.1 million +27%
Gross Profit $6.8 million $5.1 million +35%
Income from Operations $3.2 million $3.3 million -3%
GAAP Net Income $4.4 million $2.3 million +93%
Adjusted Net Income * $2.3 million $2.3 million 0%
GAAP EPS (Diluted) $0.26 $0.14 +86%
Adjusted EPS (Diluted) * $0.13 $0.14 -8%
Weighted Average Diluted
Shares 17,384,002 16,000,000 +9%
* Excluding $2.2 million of non-cash gain related to the fair value of the
Company's warrants. For more information about the non-GAAP financial
measures contained in this press release, please see "About Non-GAAP
Financial Measures" below.
First Six Months of 2010 Results (Unaudited):
2010 2009 Change
Sales $36.0 million $31.9 million +13%
Gross Profit $13.8 million $11.5 million +20%
Income from Operations $7.8 million $8.4 million -7%
GAAP Net Income $5.5 million $6.1 million -9%
Adjusted Net Income ** $5.7 million $6.1 million -6%
GAAP EPS (Diluted) $0.32 $0.39 -15%
Adjusted EPS (Diluted) ** $0.33 $0.39 -14%
Weighted Average Diluted
Shares 17,197,674 15,657,901 +10%
**Excluding $0.2 million of non-cash loss related to the fair value of
the Company's warrants. For more information about the non-GAAP
financial measures contained in this press release, please see "About
Non-GAAP Financial Measures" below.
"We are pleased with the business trends and financial results during the quarter," stated Mr. Qingqing Wu, Chairman and CEO of VLOV. Mr. Wu continued, "We are executing on our strategy to upscale our brand image amongst our target demographic by working with our distributors to move towards operating stand alone stores and store-in-stores and away from counters and concessions which lessen the value of our brand. Our distributors are presently operating 519 points of sale and plan to open between 30 and 40 high-end stand alone store locations by the end of 2010." Mr. Wu concluded, "Even with our distributors closing over 200 counters and concessions this year, we were able to achieve top line revenue growth during the quarter of 27%. We are reconfirming our July 2010 guidance of $71 to $75 million top line revenue and adjusted net income of between $13.2 and $14.2 million."
Sales -- Net sales in the second quarter of 2010 were $17.9 million compared to $14.1 million in the second quarter of 2009, a 27% increase. Net sales for the six months ended June 30, 2010 were $36.0 million, an increase of 12.8% from $31.9 million for the same period of 2009. The increase in our sales for the three months ended June 30, 2010 was primarily attributable to increased marketing efforts in the provinces of Liaoning and Shandong provinces and sales in Sichuan, a province our distributors did not operate POS during 2009.
Cost of Sales -- Cost of sales in the second quarter of 2010 was $11.1 million, an increase of 23% from $9.0 million for the same three-month period in 2009. Cost of sales for the first six months of 2010 was $22.3 million, an increase of 9% from $20.5 million for the same six-month period in 2009. The increase was primarily due to the increase in net sales during the three months ended June 30, 2010. As a percentage of net sales, our cost of sales was 62% and 62% for the three months and six months ended June 30, 2010 respectively, down slightly from 64% and 64% for the same three-month and six- month periods in 2009, respectively. Consequently, gross margin as a percentage of net sales increased to 38% and 38% for the three months and six months ended June 30, 2010, respectively, from 36% and 36% in the same periods in 2009, respectively.
Gross Profit -- Second quarter 2010 gross profit increased 35% to $6.8 million versus $5.1 million for the second quarter of 2009. The increase in gross margin is primarily attributable to a 5% increase in the Company's average selling price to its distributors.
Selling Expenses -- Second quarter 2010 selling and advertising expense totaled $2.6 million, or 14% of sales. This compares to $1.3 million, or 9% of sales in the second quarter of 2009. Selling expenses for the first six months of 2010 totaled $4.0 million, or 11% of sales compared to $2.1 million or 6% of sales in the period of 2009. These increases were mainly due to expenses associated with the Company's Fall 2010 preview held in May 2010 as well as increased advertising costs to increase brand awareness.
General and Administrative Expenses -- Second quarter 2010 general and administrative expense totaled $1.0 million, or 6% of sales. This compares to $0.4 million, or 3% of sales in the second quarter of 2009. General and administrative expense for the first six months of 2010 totaled $1.9 million, or 5% of sales, compared to $1.1 million, or 3% of sales in the period of 2009. These increases in general administrative expenses are due to increased costs from operating as a US publicly traded company.
Net Income -- Net income attributable to common stockholders in the second quarter of 2010 was $4.5 million, or $0.26 per diluted share, versus $2.3 million, or $0.14 per diluted share, in the comparable period of 2009. Net income for the six months ended June 30, 2010 was $5.5 million, or $0.32 per diluted share, versus $6.1 million, or $0.39 per diluted share for the same six-month period in 2009.
Adjusted Net Income -- Second quarter 2010 adjusted net income (non-GAAP) was $2.3 million, which excludes a non-cash gain of $2.2 million related to the fair value of the Company's warrants. Adjusted diluted earnings per share (non-GAAP) for the three months ended June 30, 2010 was $0.13 versus $0.14 during the second quarter of 2009. Adjusted net income for the six months ended June 30, 2010 was $5.7 million, which excludes a non-cash loss of $0.2 million related to the fair value of the Company's warrants. Adjusted earnings per share (non-GAAP) for the six months ended June 30, 2010 was $0.33 per fully diluted share, versus $6.1 million or $0.39 per fully diluted share during the six months ended June 30, 2009. For more information about the non-GAAP financial measures contained in this press release, please see "About Non-GAAP Financial Measures" below.
Balance Sheet
As of June 30, 2010, VLOV had current assets of $31.9 million and current liabilities of $5.5 million, which is net of the $3.8 million derivative liability related to the Company's warrants. The $3.8 million derivative liability will be allocated to equity if the warrants are exercised and eliminated if the warrants expire. The $3.8 million derivative liability does not require a cash settlement. Our cash balance as of August 13, 2010 was $9.5 million.
About Non-GAAP Financial Measures
This press release contains non-GAAP financial measures for the change in the fair value of the Company's warrants under ASC 815-40-15. The Company believes that these non-GAAP financial measures are useful to investors because they exclude non-cash charges that our management excludes when it internally evaluates the performance of the Company's business and makes operating decisions, including internal budgeting, and performance measurement as these measures provide a consistent method of comparison to historical periods. Moreover, management believes these non-GAAP measures reflect the essential operating activities of VLOV. Accordingly, management excludes the change in the fair value of the Company's warrants under ASC 815-40-15 when making operational decisions. The Company believes that providing the non-GAAP measures that management uses to its investors is useful to investors for a number of reasons. The non-GAAP measures provide a consistent basis for investors to understand the Company's financial performance in comparison to historical periods. In addition, it allows investors to evaluate the Company's performance using the same methodology and information as that used by our management. 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 of which charges are excluded from the non-GAAP financial measure. However, our management compensates for these limitations by providing the relevant disclosure of the items excluded.
The following table provides the non-GAAP financial measure and the related GAAP measure and provides a reconciliation of the non-GAAP measure to the equivalent GAAP measure.
Adjusted Net Income
(amounts in thousands, except for share and per share amounts)
Three months Six Months
Ended Ended
June 30, 2010 June 30, 2010
GAAP Net Income $4,467 $5,544
GAAP Fully Diluted Earnings Per Share $0.26 $0.32
Addition (deduction):
Change in fair value of warrants ($2,166) $175
Non GAAP Net Income $2,301 $5,719
Non GAAP Fully Diluted Earnings Per
Share $0.13 $0.33
Shares used in computing net income
per fully diluted share 17,384,002 17,197,674
About VLOV, Inc.
VLOV, Inc., a leading lifestyle apparel designer based in China, designs, sources and markets VLOV brand fashion-forward apparel for middle-class Chinese men. VLOV products are sold through 519 points of sale across northern, central and southern China.
Safe Harbor Statement
This press release contains certain statements that may include "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are often identified by the use of forward-looking terminology such as "believes, expects, anticipate, optimistic, intend, will" or similar expressions. The Company's actual results could differ materially from those anticipated in these forward- looking statements as a result of a variety of factors, including those discussed in VLOV's periodic reports that are filed with the Securities and Exchange Commission and available on its website at http://www.sec.gov. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements.
For more information, please contact:
Bennet Tchaikovsky
Chief Financial Officer
VLOV, Inc.
Tel: +1-310-622-4515
Email: [email protected]
Howard Gostfrand
American Capital Ventures, Inc.
Tel: +1-305-918-7000
Email: [email protected]
Financial Tables Follows
VLOV, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands - except for share and per share data)
June 30, December 31,
2010 2009
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $13,437 $11,036
Time deposits 3,020 --
Accounts and other receivables 13,323 9,191
Amount due from a director -- 2,428
Trade deposits 601 2,309
Inventories 958 285
Prepaid expenses 534 763
Total current assets 31,873 26,012
Property, plant and equipment, net 983 966
Land use rights 224 263
TOTAL ASSETS $33,080 $27,241
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $2,899 $2,565
Accrued expenses and other payables 872 583
Amount due to a director 66 30
Derivative liability 3,840 3,684
Short-term bank loans 589 734
Income taxes payable 1,082 1,601
Total current liabilities 9,348 9,197
Non-current Liabilities:
Other payable 76 75
Total liabilities 9,424 9,272
Commitments -- --
Stockholders' Equity:
Common stock, $0.00001 par value,
100,000,000 shares authorized,
17,565,617 and 16,667,957 shares
respectively issued and outstanding 1 1
Preferred stock, $0.00001 par value,
100,000,000 shares authorized,
1,905,561 and 2,796,721 shares
issued and outstanding respectively,
(liquidation preference $5,449,904
and $7,998,622, respectively) 2,727 4,003
Additional paid-in capital 7,636 6,319
Statutory reserve 913 913
Retained earnings 11,717 6,173
Accumulated other comprehensive income 662 560
Total stockholders' equity 23,656 17,969
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $33,080 $27,241
VLOV, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited; amounts in thousands - except for share and per share data)
Three Months Ended June 30, Six Months Ended June 30,
2010 2009 2010 2009
Net sales $17,946 $14,073 $36,013 $31,939
Cost of sales 11,109 8,997 22,254 20,464
Gross profit 6,837 5,076 13,759 11,475
Operating expenses:
Selling expenses 2,556 1,314 4,039 2,059
General and
administrative
expenses 1,071 438 1,901 1,052
3,627 1,752 5,940 3,111
Income from
operations 3,210 3,324 7,819 8,364
Other income
(expenses):
Change in fair
value of
derivative
liability 2,166 -- (175) --
Interest income 18 3 44 10
Interest expense (16) (14) (37) (28)
2,168 (11) (168) (18)
Income before
provision for
income taxes 5,378 3,313 7,651 8,346
Provision for
income taxes 911 1,003 2,107 2,260
Net income 4,467 2,310 5,544 6,086
Other comprehensive
income:
Foreign currency
translation
adjustment 101 (21) 102 (14)
Comprehensive
income $4,568 $2,289 $5,646 $6,072
Basic earnings
per share $0.26 $0.14 $0.33 $0.39
Diluted earnings
per share $0.26 $0.14 $0.32 $0.39
Weighted average
number of common
shares and
participating
preferred
shares
outstanding:
Basic 17,042,685 16,000,000 16,856,357 15,657,901
Diluted 17,384,002 16,000,000 17,197,674 15,657,901
SOURCE VLOV, Inc.
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