SOKO 2010 fourth quarter revenue increases to $8.0 million

SOKO Fitness & Spa Group, Inc. (OTC Bulletin Board: SOKF) ("SOKO"), an operator of fitness centers and beauty salons and spas in Northeast China as well as suburban Beijing, today announced financial results for the fourth quarter and fiscal year ended May 31, 2010.

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.

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

"In addition to our expansion into new markets, we took steps to further establish SOKO's leadership position in our core second tier city markets of Harbin and Shenyang. During fiscal 2010, we opened 4 new facilities in these cities, which we believe will allow us to better address the significant, untapped growth potential that exists among northeastern China's emerging upper and middle-classes. Early sales activity at these facilities has been strong, and we believe that they can make a meaningful contribution to our business 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 in suburban Beijing, and one beauty school. As of May 31, 2010, SOKO had approximately 18,000 fitness club members, and approximately 21,000 beauty salon and spa clients. SOKO currently has 4 facilities under construction or engaged in pre-opening activities.

Full Year Financial Summary

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

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

-- Total professional services were $19.1 million, up 69% year-over-year. The year-over-year increase was primarily related to promotional activities conducted in the second half of fiscal 2010, which drove an increase in revenue during the period. -- Total product sales were $4.1 million, up 13.9% year-over-year. -- Membership fees grew to $5.4 million, up 80% year-over-year. -- Revenue from beauty school tuition was $1.3 million, compared with $1.7 million in the same period a year ago. The decrease was due to SOKO's strategic cut back in some of its short-term administration courses and transition toward longer-term training programs to support its core beauty and spa business operations.

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 fiscal 2009.

Selling, general and administrative expenses for fiscal 2010 were $10.3 million, compared with $5.9 million for the fiscal year end 2009. The increase in SG&A expense was related to an increase in one-time expenses related to the Beijing fitness center acquisition and other activities related to both new and existing facilities, as well as increased costs directly related 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 diluted shares outstanding, compared with $7.0 million, or $0.41 per diluted share, based on 17.3 million weighted diluted average shares outstanding, for the same period a year ago.

As of May 31, 2010, SOKO had cash and cash equivalents of $18.1 million compared with $1.9 million on May 31, 2009. The increase in cash and cash equivalents is attributable to SOKO's non-brokered private placement completed April 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, "Our growth plans for fiscal 2011 remain aggressive. We believe that the cash we generate from operations, coupled with the proceeds from our April financing, will give SOKO the resources to maintain our robust expansion plans to open new facilities and acquire centers that we believe complement our existing portfolio. We achieved a great deal in fiscal 2010 and believe that the stage is set for continued advancement in fiscal 2011. With an established, well-respected brand in the beauty and fitness markets, a growing base of potential customers driven by increasing affluence in China, and a strong financial position that will enable us to achieve our growth objectives, we are excited about what the future holds for SOKO."