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SOKO Fitness Reports Second Quarter Fiscal 2010 Results

HARBIN, China, Jan. 14 /PRNewswire-Asia-FirstCall/ -- SOKO Fitness & Spa Group, Inc. (OTC Bulletin Board: SOKF) ("SOKO"), an operator of fitness centers and beauty salons and spas in China, today reported financial results for the second quarter and first six months of fiscal 2010, ended November 30, 2009.

    Second Quarter and Recent Financial and Business Highlights

    -- Revenue increased 61% to $7.4 million, compared with revenue of $4.6
       million in the second quarter of fiscal 2009.

    -- Revenue increased across each of the company's business segments, with
       spa and beauty services and products accounting for 80% of revenue,
       fitness centers accounting for 15% of revenue and the beauty school
       accounting for 5% of revenue.

       -- Total professional services were $5.3 million, up 73% year-over-
       -- Total product sales were $598,000, up 102% year-over-year;
       -- Membership fees were $1.1 million, up 19% year-over-year; and,
       -- Revenue from beauty school tuition was $392,000, compared with
          $314,000 in the second quarter of fiscal 2009.

    -- Gross profit was $5.2 million, or 70% of revenue, compared with $3.0
       million, or 65% of revenue in the second quarter of fiscal 2009.

    -- Operating income improved by 76% to $3.2 million, compared with $1.8
       million in the second quarter of fiscal 2009.

    -- Net income improved by 89% to $3.2 million, or $0.17 per share
       (diluted), compared with net income of $1.7 million, or $0.10 per share
       (diluted) in the second quarter of fiscal 2009.

    -- As of November 30, 2009, cash and cash equivalents were $3.64 million,
       an increase of 91% over $1.91 million as of May 31, 2009.

    -- Opened its first "non-surgical medical beauty spa" in Harbin, China in
       an effort to expand SOKO's range of services and capture potential new
       revenue streams.

    -- Expanded geographic reach by securing 51% interest in two fitness
       centers in suburban Beijing, marking the company's initial entry into
       the Beijing market.

"Our quarterly results reflect the strength of our cross-selling business model and continued execution of our business strategy," said Tong Liu, Chief Executive Officer of SOKO. "During the first half of fiscal 2010, we continued to expand our brand by opening new facilities, including Yoga Wave II and the Harbin Queen Medical Beauty Spa, which is our first facility licensed to perform non-surgical medical aesthetic procedures. We believe that the medical beauty segment is a potentially high-growth market where there are significant barriers to entry due to licensing requirements. As such, we believe we are well positioned to secure additional revenue from our existing customer base with these medical beauty services, as well leverage this offering to attract new customers who should be candidates for our full range of fitness, spa and beauty services. In line with our strategy, we will continue to focus on promoting our higher margin business segments such as our yoga centers and spa and beauty service offerings. Importantly, while we continue to open new centers, our operating costs remain in-line with our revenue. With a 62% increase in SG&A expenses in the second quarter, we achieved a 77% year-over-year increase in operating income.

"Following the close of the second quarter, we also acquired a majority interest position in two fitness centers in Beijing. This marks our initial entry into this important region and serves our objective of geographic expansion through strategic acquisitions. These centers are located in a suburban area of Beijing and, as such, we believe they face less competition from peers that are operated in the central Bejing area and are thus consistent with our acquisition strategy. We expect to continue to execute on our growth strategy based in opening centers in second tier cities such as Harbin where we believe we can achieve the swiftest impact. In addition, we will also strategically evaluate opportunities to open centers in or around first tier cities, such as Beijing, so long as they fit in with our core strategy of opening facilities where we believe there is low penetration from peers and we can adequately compete.

"With the expanding breadth of our service offerings and a growing client base, we believe we are well positioned to grow our business, with our existing members and clients representing the ideal target customers for the full breadth of our products and services," Mr. Liu concluded.

SOKO currently operates 15 facilities in key cities in Northeastern China including nine beauty salons and spas, five fitness centers and yoga studios and one beauty school, as well as two fitness centers in suburban Beijing. At the end of the second quarter of fiscal 2010, SOKO had 14,909 fitness club members, and 19,893 beauty salon and spa clients. In addition, SOKO has four facilities under construction: The Da Qing beauty salon and spa, one beauty salon in the Long Dian building in Harbin, as well as one fitness center and one yoga center.

Second Quarter Financial Summary:

Total Revenue for the second quarter of fiscal 2010, ended November 30, 2009, was $7.4 million, an increase of 61%, over revenue of $4.6 million in the second quarter of fiscal 2009. The increase in revenue was largely attributed expansion of our facilities and services including increased sales from existing members and clients, sales of add-on services to members and clients and continued efforts to add new members and clients in new and existing facilities.

Gross profit for the quarter was $5.2 million, or 69.5% of revenue, compared with $3.0 million, or 65.5% of revenue for the comparable quarter in fiscal 2009. The increase in margins for the period was [primarily the result of the addition of the non-medical beauty service offering].

Selling, general and administrative expenses were $2.0 million, an increase of approximately 62% over $1.2 million in the second quarter of fiscal 2009.

Net Income increased 89% to $3.2 million, or $0.17 per share, based on 18.2 million weighted average shares outstanding, compared with $1.7 million, or $0.10 per share, based on 17.0 million weighted average shares outstanding, for the year-ago period. The increase in net income was related to the increase in revenue, as well as a reduction in interest and other expenses.

As of November 30, 2009, SOKO had cash and cash equivalents of $3.6 million, an increase of 2% compared with $3.6 million in the prior quarter, and a 91% increase over $1.9 million reported on May 31, 2009.

Company and Market Outlook

"As we move into the second half of our 2010 fiscal year, we believe SOKO is positioned to continue its growth," said Mr. Liu. "Our strong member retention rate of approximately 81% remains above the industry average and provides a potential base of recurring and predictable revenue while we execute on our growth initiatives. We continue to expand our product and service offerings with an emphasis on growing our client and membership bases to drive our existing facilities into maturity, a cycle we typically achieve within two to three years following each center's opening. With new SOKO- operated facilities opened earlier this year and four new facilities currently under construction, we believe we are well on our way toward reaching our goal of adding 7-9 new centers to our portfolio in calendar 2010.

"We further believe that the number of potential customers for SOKO's fitness and aesthetic offerings are expanding as the upper and middle classes in the cities in which we operate are becoming increasingly affluent. With an established, well-respected brand and a loyal existing customer base, we are confident that we can capitalize on these favorable market trends in order to continue growing our business," Mr. Liu concluded.

Conference Call

SOKO will host a conference call for interested investors and analysts on Tuesday, January 19, 2010, at 8:30 a.m. Eastern time. To participate in the conference call, please dial 877-941-8416 toll free from the U.S, or 1-480- 629-9808 for international callers.

An audio replay will be available approximately one hour after the conclusion of the call and will be made available through Tuesday, February 2, 2010. The audio replay can be accessed by dialing 1-800-406-7325 toll free from the U.S., or 1-303-590-3030 for international callers, and entering access ID number 4201679.

About SOKO Fitness & Spa Group, Inc.

SOKO Fitness & Spa Group, Inc., an OTCBB listed company (SOKF.OB), is an operator of fitness centers and beauty salons and spas key cities in Northeastern China as well as in suburban Beijing. SOKO provides programs, services, and products combined with exercise, education, and nutrition to help their members lead a healthy life and achieve their fitness goals. For further information, please go to .

To be added to SOKO's email distribution for future news releases, please send your request to

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-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve significant risks and uncertainties. Such statements may include, without limitation, statements with 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. These statements are based upon the current beliefs and expectations of the Company's management and are subject to significant risks and uncertainties, including those detailed in the Company's filings with the Securities and Exchange Commission. Actual results, including, without limitation, results regarding the Company's service offerings, client and customer base, proposed new center openings and prospects and strategies for growth, may differ significantly from those set forth in the forward-looking statements. These forward-looking statements involve certain risks and uncertainties that are subject to change based on various factors (many of which are beyond the Company's control). The Company does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

    For more information, please contact:

    The Piacente Group, Inc.
     Investor Relations
     Brandi Floberg
     Tel:   +1-212-481-2050

    SOKO Fitness & Spa Group, Inc.
     Shawn Qu
     Tel:   +1-908-208-8681

    SOKO Fitness & Spa Group, Inc.
     Judy Jiang
     Tel:   +86-451-8770-2280

                        SOKO FITNESS & SPA GROUP, INC.
                               (IN US DOLLARS)

                                 FOR THE SIX MONTHS     FOR THE THREE MONTHS
                                        ENDED                  ENDED
                                     NOVEMBER 30,           NOVEMBER 30,
                                  2009         2008        2009       2008
                                            (RESTATED)             (RESTATED)

    Net Sales                $13,843,683    $8,885,158 $7,413,179  $4,608,291

    Cost of Sales             (4,451,744)   (3,015,436)(2,262,805) (1,590,281)

    Gross Profit               9,391,939     5,869,722  5,150,374   3,018,010

    Selling, General and
    Administrative Expenses:   3,899,759     2,576,336  2,001,385   1,234,151

    Operating Income           5,492,180     3,293,386  3,148,989   1,783,859

    Other Income and
        Interest expenses        (31,564)     (106,632)       961     (56,624)
        Other income              33,298         2,606     17,776         191
        Other expenses            (3,934)     (165,721)    (3,463)    (96,380)
    Total Other Income and
    (Expense)                     (2,200)     (269,747)    15,274    (152,813)

    Income Before Income
     Taxes                     5,489,980     3,023,639  3,164,265   1,631,046

    Provision for Income
     Taxes                        47,904        51,437     24,024      26,305

    Net Income                 5,442,076     2,972,202  3,140,240   1,604,741
     Less: net (loss)
      attributable to the
      noncontrolling interest   (162,151)     (147,544)   (36,384)    (71,664)

    Net Income Attributable
     to SOKO Fitness & Spa
     Group, Inc.              $5,604,227    $3,119,746 $3,176,623  $1,676,405

    Other Comprehensive
    Foreign currency
     adjustment                    4,695       260,748     25,977      17,788

    Comprehensive Income      $5,608,922    $3,380,494 $3,202,600  $1,694,193

    Basic and Diluted Income
     per common share
       Basic                       $0.33         $0.18      $0.19       $0.10
       Diluted                     $0.31         $0.18      $0.17       $0.10

    Weighted average common
     share outstanding
       Basic                  17,000,000    17,000,000 17,000,000  17,000,000
       Diluted                18,168,443    17,000,000 18,168,443  17,000,000

                        SOKO FITNESS & SPA GROUP, INC.
                               (IN US DOLLARS)

                                             NOVEMBER 30, 2009  MAY 31, 2009
    Current Assets:
    Cash & cash equivalents                        $3,638,308    $1,907,640
    Restricted cash                                        --         7,233
    Accounts receivable, net                          411,431       110,541
    Inventories                                     1,430,666     1,391,302
    Advances to suppliers                           2,861,514       993,084
    Employee advance                                   87,531        54,783
    Prepaid expense                                   192,019       146,959

                     Total Current Assets           8,621,469     4,611,542

    Property, plant and equipment, net of
     accumulated depreciation                      24,637,890    19,674,394

    Other Assets
    Security deposit                                  109,711        47,853
    Deferred rent                                     719,338       589,188
    Deposit to suppliers                            1,464,847     1,464,530
    Investment advance                              1,171,795       399,750
       Goodwill                                     2,793,607     2,525,778

                     Total Other Assets             6,259,298     5,027,099

                     Total Assets                  39,518,657    29,313,035


    Current Liabilities:
    Short-term loans                                3,310,322     2,196,795
    Accounts payable, accrued expenses and
     other payable                                    833,606       471,457
    Unearned revenue                                5,084,363     1,909,755
    Taxes payable                                     423,134       360,229
    Contingent liability                              200,000       200,000

                     Total Current
    Liabilities                                     9,851,425     5,138,236

    Stockholders' Equity
    Preferred Stock, $.001 par value;
     10,000,000 shares authorized;
     - 0 - shares issued and outstanding at
     November 30, 2009 and May 31,2009                     --            --
    Common stock, $0.001 Par value;
     500,000,000 shares authorized;
     17,000,000 shares issued and outstanding
     at November 30 and May 31, 2009                   17,000        17,000
    Additional paid-in-capital                      2,361,716     2,346,397
    Additional paid-in-capital - Warrants             639,253       639,253
    Accumulated other comprehensive income          1,915,447     1,910,752
    Retained earnings                              24,819,341    19,215,114

                     Total Stockholders'
    Equity                                         29,752,757    24,128,516
    Noncontrolling interest                           (85,525)       46,283

                     Total Equity                  29,667,232    24,174,799

         Total Liabilities and Stockholders'
          Equity                                  $39,518,657   $29,313,035

SOURCE SOKO Fitness & Spa Group, Inc.



SOURCE SOKO Fitness & Spa Group, Inc.
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