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"We continue to grow our top and bottom line, improve our margins andincrease our operating cash flow," said Tong Liu, Chief Executive Officer ofSOKO. "We are focused on an aggressive growth strategy to build or acquire newfacilities, and we are seeing the results in our revenue and profit growth. Aswe pursue this strategy, we expect our SG&A and other costs to increase as weramp up new facilities. In particular, during the quarter we incurred variousone-time expenses related to our Beijing fitness center acquisition, as wellas other existing and new facilities. With our newly opened Harbin Yoga Wavefacility, we are already attracting significant business and expect thiscenter to make a meaningful contribution to our revenue growth in futureperiods to offset our investment in the facility.
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"Of our three segments, our beauty and spa services continue to be theleader, accounting for 75% of our revenue in the third quarter. Ournon-surgical medical beauty spa, which we opened in September 2009, is alreadygenerating revenue. We believe that this relatively high-margin business addsto our already robust beauty and spa offering, further diversifies ourservices and provides us with a promising market advantage, as we believe weare among the few providers of these procedures in the areas in which weoperate. As such, we see significant opportunity to continue to grow thebeauty and spa portion of our business as we continue to build the company andour brand. We also expect to see healthy growth from our fitness centerbusiness as those facilities move toward maturity, and expect that thissegment will complement our spa and salon operations, which we believe willremain central to our growth for the foreseeable future," Mr. Liu concluded.
SOKO currently operates 17 facilities in key cities in Northeastern Chinaand suburban Beijing including nine beauty salons and spas, one non-surgicalmedical beauty center, six fitness centers and yoga studios, including twofitness centers in suburban Beijing, and one beauty school. At the end of thethird quarter ended February 28, 2010, SOKO had 16,158 fitness club members,and 20,536 beauty salon and spa clients. In addition, SOKO has completedconstruction and is engaging in pre-opening activities for the Daoli Fitnessand Legend Spa Central Club, both of which are located in the Long DianBuilding in Harbin, as well as the Lea Spa Xishan Club in Beijing.
Third Quarter Financial Summary
Total revenue for the third quarter of fiscal 2010 ended February 28, 2010was $8.1 million, an increase of 58%, compared with revenue of $5.1 million inthe third quarter of fiscal 2009. The increase in revenue was attributed to anincrease in the number of SOKO-operated facilities from 11 in the thirdquarter 2009 period to 17 in the third quarter 2010 period, expanded serviceofferings with the addition of SOKO's first medical beauty salon in September2009, increased sales from existing members and clients, the addition of newclients, sales of add-on services to members and clients, and continuedefforts to cross sell and add new members and clients to new and existingfacilities.
Among the company's three business segments, spa and beauty services andproducts accounted for 75% of revenue, fitness centers accounted for 21% ofrevenue and the beauty school accounted for 4% of revenue.
Gross profit for the third quarter of fiscal 2010 was $5.8 million, or 72%of revenue, compared with $3.3 million, or 65% of revenue for the comparablequarter in fiscal 2009, and compared with $5.2 million, or 69% of revenue inthe second quarter of fiscal 2010. The increase in margins for the period wasprimarily the result of the addition of SOKO's non-surgical medical beautyservice offering, which carries relatively high margins.
Selling, general and administrative expenses were $3.0 million, comparedwith $1.4 million in the third quarter of fiscal 2009 and $2.0 million in thesecond quarter of fiscal 2010. The increase in SG&A expense was related to anincrease in one-time expenses related to the Beijing fitness centeracquisition and other activities related to both new and existing facilities,as well as increased costs directly related to the growth in revenue.
Net Income increased 49% to $2.8 million, or $0.15 per diluted share,based on 18.2 million weighted average shares outstanding, compared with $1.9million, or $0.11 per share, based on 17.0 million weighted average sharesoutstanding, for the year-ago period. The increase in net income was primarilyrelated to the increase in revenue. This also compares with a net income of$3.2 million, or $0.17 per diluted share based on 18.2 million weightedaverage shares outstanding in the second quarter of fiscal 2010.
As of February 28, 2010, SOKO had cash and cash equivalents of $4.8million, a 33% increase compared with $3.6 million in the prior quarter, and a153% increase over $1.9 million as of May 31, 2009.
Company and Market Outlook
"We are still in our initial stages of growth," said Mr. Liu. "Currentlyonly nine of our 16 facilities have been operated under the SOKO brand formore than two years. With four new facilities already open during calendar2010, and three facilities engaged in pre-opening activities, we are well onour way to meet our previously announced expansion goals of opening seven tonine new facilities this calendar year, all of which we believe can be fundedby current operating cash flow and cash flow from organic growth.
"We will continue to seek new opportunities to construct or acquirefacilities in areas where we can implement our business strategy ofpenetrating underserved markets to quickly capture market share and achieve apositive returns on our investment as we continue to build our brand and ourbusiness," Mr. Liu concluded.
Conference Call
SOKO will host a conference call for interested investors and analysts todiscuss its financial results for the period on Tuesday, April 20, 2010, at8:30 a.m. Eastern time. To participate in the conference call, please dial1-888-549-7704 from the U.S. and Canada, or 1-480-629-9857 for internationalcallers.
An audio replay will also be available approximately one hour after theconclusion of the call and will be made available through Tuesday, May 4, 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 Number4283144.
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 to [email protected].
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.Third Quarter Financial Highlights -- Revenue increased 58% year-over-year to $8.1 million, and improved 9% on a sequential quarter basis. -- Gross profit improved to $5.8 million, or 72% of revenue, compared with $3.3 million, or 65% of revenue in the third quarter of fiscal 2009, and $5.2 million, or 69% of revenue in the second quarter of fiscal 2010. -- Operating income improved by 49% year-over-year to $2.8 million, and compares with operating income of $3.1 million in the second quarter of fiscal 2010. -- Net income improved by 49% year-over-year to $2.8 million, or $0.15 per diluted share, compared with $1.9 million, or $0.11 per diluted share in the third quarter of fiscal 2009, and compares with $3.2 million, or $0.17 per diluted share in the second quarter of fiscal 2010; and, -- As of February 28, 2010, cash and cash equivalents were $4.8 million, an increase of 153% over $1.9 million as of May 31, 2009. Third Quarter Business Highlights -- Secured 51% interest in two fitness centers in suburban Beijing, marking the company's entry into the Beijing market; and, -- Completed construction on and opened first yoga center in Harbin.
SOURCE SOKO Fitness & Spa Group, Inc.
