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SOKO Fitness Announces Fourth Quarter and Fiscal Year End 2010 Financial Results

Tuesday, August 31, 2010 Corporate News J E 4
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HARBIN, China, Aug. 30 SOKO Fitness & SpaGroup, Inc. (OTC Bulletin Board: SOKF) ("SOKO"), an operator of fitnesscenters and beauty salons and spas in Northeast China as well as suburbanBeijing, today announced financial results for the fourth quarter and fiscalyear ended May 31, 2010.

"During fiscal 2010, we achieved solid top and bottom line growth, highmargins and strong operating cash flow. This performance speaks to thesignificant demand that exists for our premium fitness and aesthetic servicesin the markets in which we operate, as well as the ongoing success of ourgrowth strategy," said Tong Liu, Chief Executive Officer of SOKO. "Fiscal 2010was notable for several important milestones, including our entry into theBeijing market, where we currently operate two fitness centers and one spa. Weexpect that our fourth Beijing facility, Yoga Wave Beijing, will open inSeptember in Westin's Chaoyang hotel, marking our second facility located in aluxury hotel. We believe a tremendous opportunity exists for SOKO spas,fitness centers and yoga studios in the luxury hotel market, and expect thatthis facility could lead to further cooperation with hotel chains throughoutChina.

"In addition to our expansion into new markets, we took steps to furtherestablish SOKO's leadership position in our core second tier city markets ofHarbin and Shenyang. During fiscal 2010, we opened 4 new facilities in thesecities, which we believe will allow us to better address the significant,untapped growth potential that exists among northeastern China's emergingupper and middle-classes. Early sales activity at these facilities has beenstrong, and we believe that they can make a meaningful contribution to ourbusiness as they mature," Mr. Liu added.

SOKO currently operates 20 facilities in Northeastern China and Beijing,including 11 beauty salons and spas, one non-surgical medical beauty center,seven fitness centers and yoga studios, including two fitness centers insuburban Beijing, and one beauty school. As of May 31, 2010, SOKO hadapproximately 18,000 fitness club members, and approximately 21,000 beautysalon and spa clients. SOKO currently has 4 facilities under construction orengaged in pre-opening activities.

Full Year Financial Summary

Total revenue for the fiscal year ended May 31, 2010 was $29.9 million, anincrease of 53%, compared with revenue of $19.6 million for fiscal 2009. Theincrease in revenue was attributed to an increase in the number ofSOKO-operated facilities and increased per-customer spending.

Among SOKO's three business segments, spa and beauty services and productsaccounted for 77.3% of revenue, fitness centers accounted for 18.2% of revenueand the beauty school accounted for 4.5% of revenue for the fiscal year endedMay 31, 2010.

Gross profit for the twelve months ended May 31, 2010 was $20.4 million,or 68% of revenue, compared with $13.0 million, or 66% of revenue for fiscal2009.

Selling, general and administrative expenses for fiscal 2010 were $10.3million, compared with $5.9 million for the fiscal year end 2009. Theincrease in SG&A expense was related to an increase in one-time expensesrelated to the Beijing fitness center acquisition and other activities relatedto both new and existing facilities, as well as increased costs directlyrelated to the growth in revenue.

Net income for fiscal 2010 increased 55% year-over-year to $10.4 million,or $0.56 per diluted share, based on 18.6 million weighted average dilutedshares outstanding, compared with $7.0 million, or $0.41 per diluted share,based on 17.3 million weighted diluted average shares outstanding, for thesame period a year ago.

As of May 31, 2010, SOKO had cash and cash equivalents of $18.1 millioncompared with $1.9 million on May 31, 2009. The increase in cash and cashequivalents is attributable to SOKO's non-brokered private placement completedApril 21, 2010, as well as continued positive cash flow from operations.

Company and Market Outlook

Commenting on SOKO's plans for the upcoming year, Mr. Liu stated, "Ourgrowth plans for fiscal 2011 remain aggressive. We believe that the cash wegenerate from operations, coupled with the proceeds from our April financing,will give SOKO the resources to maintain our robust expansion plans to opennew facilities and acquire centers that we believe complement our existingportfolio. We achieved a great deal in fiscal 2010 and believe that the stageis set for continued advancement in fiscal 2011. With an established,well-respected brand in the beauty and fitness markets, a growing base ofpotential customers driven by increasing affluence in China, and a strongfinancial position that will enable us to achieve our growth objectives, weare excited about what the future holds for SOKO."

Conference Call

SOKO will host a conference call for interested investors and analysts todiscuss its financial results for the period on Monday, August 30, 2010, at8:00 a.m. Eastern time. To participate in the conference call, please dial1-877-941-2321 from the U.S. and Canada, or 1-480-629-9714 for internationalcallers.

An audio replay will also be available approximately one hour after theconclusion of the call and will be made available through September 13, 2010.The audio replay can be accessed by dialing 1-800-406-7325 from the U.S orCanada, or 1-303-590-3030 internationally, and entering access ID Number4352938.

About SOKO Fitness & Spa Group, Inc.

SOKO Fitness & Spa Group, Inc., an OTCBB listed company (SOKF), is anoperator of fitness centers and beauty salons and spas in key cities inNortheastern China as well as in suburban Beijing. SOKO provides programs,services, and products combined with exercise, education and nutrition to helptheir members lead a healthy life and achieve their fitness goals. For furtherinformation, please go to http://www.sokofitness.com .

To be added to SOKO's email distribution for future news releases, pleasesend your request tosoko@tpg-ir.com.

Cautionary Note Regarding Forward Looking Statements

This press release and the statements of representatives of SOKO Fitness &Spa Group, Inc. (the "Company") related thereto contain, or may contain,statements that are not historical facts and are therefore "forward-lookingstatements" within the meaning of the Private Securities Litigation Reform Actof 1995. Such forward-looking statements involve significant risks anduncertainties. Such statements may include, without limitation, statementswith respect to the Company's plans, objectives, projections, beliefs,expectations and intentions and other statements identified by words such as"projects," "may," "could," "would," "should," "believe," "expect,""anticipate," "estimate," "intend," "plan," or similar expressions. Thesestatements are based upon the current beliefs and expectations of theCompany's management and are subject to significant risks and uncertainties,including those detailed in the Company's filings with the Securities andExchange Commission. Actual results, including, without limitation, resultsregarding the Company's expansion strategies, service offerings, client,membership and customer figures, proposed new center openings and prospectsand strategies for growth, may differ significantly from those set forth inthe forward-looking statements. These forward-looking statements involvecertain risks and uncertainties that are subject to change based on variousfactors (many of which are beyond the Company's control). The Company does notundertake any obligation to update any forward- looking statement, except asrequired under applicable law.Full Year Financial Highlights -- Full-year revenue totaled $29.9 million, an increase of 53% over $19.6 million in fiscal 2009. -- Gross profit improved to $20.4 million, or 68% of revenue, compared with $13 million, or 66% of revenue for fiscal year end 2009. -- Operating income improved by 44% year-over-year to $10.2 million, compared with operating income of $7.1 million in fiscal 2009. -- Net income improved by 55% year-over-year to $10.4 million, or $0.56 per diluted share, compared with $7.0 million, or $0.41 per diluted share for fiscal 2009. Fourth Quarter Financial Highlights -- Fourth quarter 2010 revenue totaled $8.0 million, an increase of 40% over $5.6 million in the fourth quarter of 2009. -- Gross profit increased to $5.2 million, or 65% of revenue for the quarter, compared with $3.8 million, or 68% of revenue in the fourth quarter of 2009. -- Operating income was $2.0 million, a 5% increase over $1.9 million in the fourth quarter of 2009. -- Net income was $2.0 million, or $0.10 per diluted share, compared with $2.0 million, or $0.12 per diluted share in the same period a year ago. Fourth Quarter and Full Year Business Highlights -- Completed non-brokered private placement for gross proceeds of $10 million. -- Opened 7 new facilities in fiscal 2010. -- Entered Beijing market through December 2009 acquisition of majority interest in 2 suburban Beijing fitness centers. -- Opened Lea Spa Xishan Club, SOKO's first spa facility in Beijing. -- Signed lease agreement with Westin Chaoyang Hotel in Beijing to open SOKO's fourth yoga facility. -- Opened Daoli Fitness, Legend Spa Central Club, and Yoga Wave Harbin, collectively occupying 63,000 square feet in the Long Dian Building in centrally located downtown Harbin.

SOURCE SOKO Fitness & Spa Group, Inc.
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