HONG KONG, Dec. 23, 2016 /PRNewswire/ -- SGOCO Group, Ltd.
(SGOC) ("SGOCO" or the "Company"), a company focused on product
design, distribution, and brand development in the display and
computer product market in China
as well as energy saving products and services worldwide, today
announced its unaudited operating results for the six months ended
June 30, 2016.
2016 Interim Results Overview
Interim revenues increased 828.2% to $4.7
million for the first six months of this year ("1H"), as
compared to $0.5 million for the
first six months of 2015.
Gross profit increased 687.5% to $0.2
million in the 1H 2016, from $0.02
million for the same period in 2015.
Net loss for the 1H 2016 was $2.7
million, compared to net loss of $1.3
million during the same period in 2015.
Basic and diluted loss per share was $0.42 for the 1H 2016, as compared to
$0.30 loss per share in the 1H
2015.
Revenue
Our total revenues increased 828.2% to $4.7 million, as compared with $0.5 million for the first six months of
2015.
Cost of Goods Sold
Cost of goods sold increased 835.2% to $4.5 million from $0.5
million in the 1H of 2016. The increase was in line with the
revenue growth.
Gross margin
In 1H 2016, the gross profit of the Company increased 687.5% to
$0.2 million from $0.02 million for the same period in 2015. The
overall gross margin for the 1H 2016 was 4.0%, as compared with
4.8% during the same period of 2015.
Operating loss and expenses
The Company recorded a $1.3
million operating loss in the 1H 2016, as compared to an
operating loss of $0.8 million in the
1H 2015. Operating expenses in 1H 2016 increased by 70.2% to
$1.5 million, compared to operating
expenses of $0.9 million in the first
six months of 2015. The increase of G&A expenses was mainly due
to amortization of intangible assets on the Company's newly
acquired subsidiary – Boca International Limited.
Net loss and loss per share
Net loss for the 1H 2016 was $2.7
million, compared to a net loss of $1.3 million for the same period in 2015. The net
margin experienced a loss of 57.8% in the 1H of 2016, as compared
to 259.5% during the same period of 2015. Basic and diluted loss
per share was $0.42 in the 1H of 2016
based on 6,476,467 weighted average number of common shares, as
compared to basic and diluted loss per share of $0.30 based on 4,382,965 weighted average number
of common shares for the 1H 2015.
Cash and working capital
SGOCO held $0.2 million cash and
cash equivalents as of June 30, 2016,
compared to $0.3 million as of
December 31, 2015. Working capital
increased to negative of $6.7 million
from negative of $7.9 million as of
December 31, 2015.
About SGOCO Group, Ltd.
SGOCO Group, Ltd. is focused on product design, brand
development and distribution in the Chinese display and computer
product market as well as energy saving products and services.
SGOCO sells its products and services in the Chinese market and
abroad. For more information about SGOCO, please visit our investor
relations website:
http://www.sgocogroup.com
For investor and media inquiries, please contact:
SGOCO Group, Ltd.
Tony Zhong
Vice President of Finance
Tel: +852 3610 7777
Email: ir@sgoco.com
Safe Harbor and Informational Statement
This announcement contains "forward-looking" statements within
the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These
statements are made under the "safe harbor" provisions of the U.S.
Private Securities Litigation Reform Act of 1995. All statements,
other than statements of historical fact, including, without
limitation, those with respect to the objectives, plans and
strategies of the Company set forth herein and those preceded by or
that include the words "believe," "expect," "anticipate," "future,"
"will," "intend," "plan," "estimate" or similar expressions, are
"forward-looking statements". Forward-looking statements in this
release include, without limitation, the effectiveness of the
Company's multiple-brand, multiple channel strategy and the
transitioning of its product development and sales focus and to a
"light-asset" model, Although the Company's management believes
that such forward-looking statements are reasonable, it cannot
guarantee that such expectations are, or will be, correct. These
forward looking statements involve a number of risks and
uncertainties, which could cause the Company's future results to
differ materially from those anticipated. These forward-looking
statements can change as a result of many possible events or
factors not all of which are known to the Company, which may
include, without limitation, our ability to have effective internal
control over financial reporting; our success in designing and
distributing products under brands licensed from others; management
of sales trend and client mix; possibility of securing loans and
other financing without efficient fixed assets as collaterals;
changes in government policy in China; China's overall economic conditions and local
market economic conditions; our ability to expand through strategic
acquisitions and establishment of new locations; compliance with
government regulations; legislation or regulatory environments;
geopolitical events, and other events and/or risks outlined in
SGOCO's filings with the U.S. Securities and Exchange Commission,
including its annual report on Form 20-F and other filings. All
information provided in this press release and in the attachments
is as of the date of the issuance, and SGOCO does not undertake any
obligation to update any forward-looking statement, except as
required under applicable law.
SGOCO GROUP, LTD.
AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
FOR THE SIX MONTHS
ENDED JUNE 30, 2016 AND 2015
|
(Unaudited)
|
(In thousands
of U.S. dollars except share and per share data)
|
|
|
|
|
|
2016
|
|
2015
|
REVENUES:
|
|
|
|
|
|
Revenues
|
|
4,678
|
|
|
504
|
|
|
|
|
|
|
COST OF GOODS
SOLD:
|
|
|
|
|
|
Cost of goods
sold
|
|
4,489
|
|
|
480
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
189
|
|
|
24
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
Selling
expenses
|
|
39
|
|
|
42
|
General and
administrative expenses
|
|
1,433
|
|
|
823
|
Total operating
expenses
|
|
1,472
|
|
|
865
|
|
|
|
|
|
|
LOSS FROM
OPERATIONS
|
|
(1,283)
|
|
|
(841)
|
|
|
|
|
|
|
OTHER INCOME
(EXPENSES):
|
|
|
|
|
|
Interest
income
|
|
-
|
|
|
47
|
Interest
expense
|
|
(9)
|
|
|
(4)
|
Other expense,
net
|
|
(16)
|
|
|
(86)
|
Change in fair value
of warrant derivative liability
|
|
-
|
|
|
2
|
Loss on change in
fair value of convertible notes
|
|
(1,500)
|
|
|
(426)
|
Total other income
(expenses), net
|
|
(1,525)
|
|
|
(467)
|
|
|
|
|
|
|
LOSS BEFORE PROVISION
FOR INCOME TAXES
|
|
(2,808)
|
|
|
(1,308)
|
|
|
|
|
|
|
INCOME TAX
CREDIT
|
|
105
|
|
|
-
|
|
|
|
|
|
|
NET LOSS
|
|
(2,703)
|
|
|
(1,308)
|
|
|
|
|
|
|
OTHER COMPREHENSIVE
LOSS:
|
|
|
|
|
|
Foreign currency
translation adjustment
|
|
(668)
|
|
|
(1)
|
|
|
|
|
|
|
COMPREHENSIVE
LOSS
|
|
(3,371)
|
|
|
(1,309)
|
|
|
|
|
|
|
LOSS PER
SHARE:
|
|
|
|
|
|
Basic
|
|
(0.42)
|
|
|
(0.30)
|
Diluted
|
|
(0.42)
|
|
|
(0.30)
|
|
|
|
|
|
|
WEIGHTED AVERAGE
NUMBER OF COMMON SHARES OUTSTANDING:
|
|
|
|
|
|
Basic
|
|
6,476,467
|
|
|
4,382,965
|
Diluted
|
|
6,476,467
|
|
|
4,382,965
|
|
|
|
|
|
|
The accompanying
notes are an integral part of these unaudited interim
condensed consolidated financial statements.
|
SGOCO GROUP, LTD.
AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
AS OF JUNE 30,
2016 AND DECEMBER 31, 2015
|
(Unaudited)
|
(In thousands
of U.S. dollars except share and per share data)
|
|
|
June
30,
|
|
December
31,
|
|
2016
|
|
2015
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
Cash
|
|
215
|
|
|
345
|
Accounts receivable,
trade
|
|
4,511
|
|
|
228
|
Other receivables and
prepayments
|
|
182
|
|
|
456
|
Inventories
|
|
9
|
|
|
26
|
Advances to
suppliers
|
|
39
|
|
|
126
|
Total current
assets
|
|
4,956
|
|
|
1,181
|
|
|
|
|
|
|
DEPOSITS FOR
ACQUISITION OF SUBSIDIARIES
|
|
33,327
|
|
|
85,693
|
PLANT AND
EQUIPMENT, NET
|
|
6
|
|
|
8
|
INTANGIBLE ASSETS,
NET
|
|
26,131
|
|
|
-
|
GOODWILL
|
|
36,504
|
|
|
-
|
|
|
|
|
|
|
Total
assets
|
|
100,924
|
|
|
86,882
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
Accounts payable,
trade
|
|
4,265
|
|
|
46
|
Other loan -
secured
|
|
335
|
|
|
-
|
Other payables and
accrued liabilities
|
|
663
|
|
|
169
|
Customer
deposits
|
|
199
|
|
|
421
|
Taxes
payable
|
|
6,241
|
|
|
6,241
|
Convertible
notes
|
|
-
|
|
|
2,169
|
Total current
liabilities
|
|
11,703
|
|
|
9,046
|
LONG-TERM
LIABILITIES
|
|
|
|
|
|
Non-current Deferred
tax liability
|
|
6,533
|
|
|
-
|
Total
liabilities
|
|
18,236
|
|
|
9,046
|
|
|
|
|
|
|
COMMITMENT AND
CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS'
EQUITY
|
|
|
|
|
|
Preferred stock,
$0.001 par value, 1,000,000 shares authorized,
|
|
|
|
|
|
nil issued and
outstanding as of June 30, 2016 and December 31,
2015
|
|
|
|
|
|
|
|
-
|
|
|
-
|
Common stock, $0.004
par value, 12,500,000 shares authorized,
|
|
|
|
|
|
7,167,928 and
4,471,215 issued and outstanding as of
|
|
|
|
|
|
June 30, 2016 and
December 31, 2015, respectively
|
|
29
|
|
|
18
|
Additional
paid-in-capital
|
|
34,116
|
|
|
25,904
|
Statutory
reserves
|
|
-
|
|
|
-
|
Retained
earnings
|
|
54,480
|
|
|
57,183
|
Accumulated other
comprehensive income
|
|
(5,937)
|
|
|
(5,269)
|
Total shareholders'
equity
|
|
82,688
|
|
|
77,836
|
|
|
|
|
|
|
Total liabilities
and shareholders' equity
|
|
100,924
|
|
|
86,882
|
|
|
|
|
|
|
The accompanying notes
are an integral part of these unaudited interim condensed
consolidated financial statements.
|
SGOCO GROUP, LTD.
AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
|
(In thousands
of U.S. dollars except share data)
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
Ordinary Shares
|
|
|
|
Retained Earnings
|
|
Other
|
|
|
|
|
|
|
|
Paid-in
|
|
Statutory
|
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
Par Value
|
|
Capital
|
|
Reserves
|
|
Unrestricted
|
|
Loss
|
|
Total
|
BALANCE, January 1,
2015
|
|
4,353,715
|
|
|
18
|
|
|
25,589
|
|
|
-
|
|
|
59,601
|
|
|
(11)
|
|
|
85,197
|
Shares issued for
equity compensation
plan
|
|
45,000
|
|
|
-
|
|
|
126
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
126
|
Net loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,308)
|
|
|
-
|
|
|
(1,308)
|
Foreign currency
translation
adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1)
|
|
|
(1)
|
BALANCE, June 30,
2015 (unaudited)
|
|
4,398,715
|
|
|
18
|
|
|
25,715
|
|
|
-
|
|
|
58,293
|
|
|
(12)
|
|
|
84,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, January 1,
2016
|
|
4,522,726
|
|
|
18
|
|
|
25,904
|
|
|
-
|
|
|
57,183
|
|
|
(5,269)
|
|
|
77,836
|
Shares issued for
equity compensation
plan
|
|
139,250
|
|
|
-
|
|
|
469
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
469
|
Shares issued on
conversion of
convertible
notes
|
|
1,343,425
|
|
|
6
|
|
|
3,668
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,674
|
Shares issued on
acquisition of a
subsidiary
|
|
1,162,305
|
|
|
5
|
|
|
4,075
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,080
|
Rounding difference
on reverse stock
split
|
|
222
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Net loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,703)
|
|
|
-
|
|
|
(2,703)
|
Foreign currency
translation
adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(668)
|
|
|
(668)
|
BALANCE, June 30,
2016 (unaudited)
|
|
7,167,928
|
|
|
29
|
|
|
34,116
|
|
|
-
|
|
|
54,480
|
|
|
(5,937)
|
|
|
82,688
|
|
The accompanying
notes are an integral part of these unaudited interim
condensed consolidated financial statements.
|
SGOCO GROUP, LTD.
AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
FOR THE SIX MONTHS
ENDED JUNE 30, 2016 AND 2015
|
(Unaudited)
|
(In thousands of U.S.
dollars)
|
|
|
2016
|
|
2015
|
CASH FLOWS FROM
OPERATING ACTIVITIES:
|
|
|
|
|
|
Net loss
|
|
(2,703)
|
|
|
(1,308)
|
Adjustments to
reconcile net loss to cash provided by (used in)
operating
activities:
|
|
|
|
|
|
Depreciation and
amortization
|
|
423
|
|
|
1
|
Transaction cost from
issue of convertible notes
|
|
44
|
|
|
25
|
Deferred income
taxes
|
|
(105)
|
|
|
-
|
Change in fair value
of warrant derivative liability
|
|
-
|
|
|
(2)
|
Share-based
compensation expenses
|
|
469
|
|
|
126
|
Loss on change in
fair value of convertible notes
|
|
1,500
|
|
|
426
|
Change in operating
assets
|
|
|
|
|
|
Accounts receivable,
trade
|
|
(4,352)
|
|
|
775
|
Other receivables and
prepayments
|
|
2
|
|
|
19
|
Inventories
|
|
17
|
|
|
(173)
|
Advances to
suppliers
|
|
86
|
|
|
32
|
Other current
assets
|
|
-
|
|
|
(10)
|
Change in operating
liabilities
|
|
|
|
|
|
Accounts payables,
trade
|
|
4,283
|
|
|
244
|
Other payables and
accrued liabilities
|
|
63
|
|
|
149
|
Customer
deposits
|
|
(217)
|
|
|
(113)
|
Taxes
payable
|
|
130
|
|
|
(1)
|
Net cash provided
by (used in) operating activities
|
|
(360)
|
|
|
190
|
|
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES:
|
|
|
|
|
|
Proceeds from acquisition of a
subsidiary, net of cash acquired of $1
|
|
1
|
|
|
-
|
Proceeds from disposal of subsidiaries, net of cash disposed of $25
|
|
-
|
|
|
91,241
|
Net cash provided
by investing activities
|
|
1
|
|
|
91,241
|
|
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES:
|
|
|
|
|
|
Proceeds from
shareholder loan
|
|
7
|
|
|
270
|
Payments on
shareholder loan
|
|
(75)
|
|
|
(505)
|
Proceeds from
convertible debt
|
|
298
|
|
|
204
|
Net cash provided
by (used in) financing activities
|
|
230
|
|
|
(31)
|
|
|
|
|
|
|
EFFECT OF EXCHANGE
RATE ON CASH
|
|
(1)
|
|
|
150
|
|
|
|
|
|
|
(DECREASE)
INCREASE IN CASH
|
|
(130)
|
|
|
91,550
|
|
|
|
|
|
|
CASH, beginning of
period
|
|
345
|
|
|
92
|
|
|
|
|
|
|
CASH, end of
period
|
|
215
|
|
|
91,642
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF NON-CASH INVESTING AND
FINANCING
ACTIVITIES INFORMATION
|
|
|
|
|
|
Receivable from
convertible note holders under promissory notes
|
|
-
|
|
|
575
|
Common stock issued
on conversion of convertible notes
|
|
3,674
|
|
|
-
|
Common stock issued
for acquisition of a subsidiary
|
|
4,080
|
|
|
-
|
SGOCO GROUP, LTD AND SUBSIDIARIES
NOTES TO THE
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(In thousands of U.S. dollars, except for shares
and per share data)
Note 1 - Organization and description of business
SGOCO Group, Ltd., formerly known as Hambrecht Asia Acquisition
Corp. (the "Company" or "SGOCO" or "we", "our" or "us") was
incorporated under Cayman Islands'
law on July 18, 2007. The Company was
formed as a blank check company for the purpose of acquiring one or
more operating businesses in the People's
Republic of China (the "PRC") through a merger, stock
exchange, asset acquisition or similar business combination or
control through contractual arrangements.
The Company completed its initial public offering ("IPO") of
units consisting of one ordinary share and one warrant to purchase
one ordinary share in March 12,
2008. On March 12, 2010, the
Company completed a share-exchange transaction with Honesty Group
Holdings Limited ("Honesty Group") and its shareholders,
and Honesty Group became a wholly-owned subsidiary of the
Company (the "Acquisition"). On the closing date, the Company
issued 3,575,000 of its ordinary shares to Honesty Group in
exchange for 100% of the capital stock of Honesty Group. Prior to
the share-exchange transaction, the Company had 5,299,126 ordinary
shares issued and outstanding. After the share-exchange
transaction, the Company had 4,023,689 ordinary shares issued and
outstanding.
The share-exchange transaction was accounted for as
reorganization and recapitalization of Honesty Group. As a
result, the consolidated financial statements of the Company (the
legal acquirer) were, in substance, those of Honesty Group (the
accounting acquirer), with the assets and liabilities, and revenues
and expenses, of the Company being included effective from the date
of the share-exchange transaction. There was no gain or loss
recognized based on the transaction. The historical financial
statements for periods prior to March 12,
2010 are those of Honesty Group, except that the equity
section and earnings per share have been retroactively restated to
reflect the reorganization and recapitalization.
SGOCO International (HK) Limited, a limited liability company
registered in Hong Kong, or "SGOCO
International," is a wholly owned subsidiary of SGOCO.
On February 22, 2011, SGO
Corporation ("SGO") was established in Delaware USA. On March
14, 2011, SGOCO International purchased 100% of the
outstanding shares of common stock of SGO. SGO was founded for the
purpose of marketing, sales and distribution of SGOCO's high
quality LCD/LED products in America. SGO commenced sales in June
2012.
On July 28, 2011, SGOCO
(Fujian) Electronic Co., Ltd.
("SGOCO (Fujian)"), a limited
liability company under the laws of the PRC was established by
SGOCO International for the purpose of conducting LCD/LED monitor
and TV product-related design, brand development and
distribution.
On December 26, 2011, SGOCO
International established a wholly owned subsidiary, Beijing SGOCO
Image Technology Co. Ltd. ("Beijing SGOCO"), a limited liability
company under the laws of the PRC for the purpose of conducting
LCD/LED monitor, TV product-related and application-specific
product design, brand development and distribution.
On November 14, 2013, SGOCO
International established a wholly owned subsidiary, SGOCO
(Shenzhen) Technology Co., Ltd.
("SGOCO Shenzhen"), a limited liability company under the laws of
the PRC for the purpose of conducting LCD/LED monitor and TV
product-related and application-specific product design, brand
development and distribution.
In April 2014, the Company
relocated its corporate headquarters from Beijing, China to Hong Kong, China.
On December 24, 2014, the Company
entered into a Sale and Purchase Agreement to sell its 100% equity
ownership interest in SGOCO (Fujian) to Apex Flourish Group Limited
("Apex"), which is an independent third party with interests in
real estate and forestry products. Apex previously purchased
Honesty Group Holdings Limited, SGOCO's prior manufacturing
business, on November 15, 2011. The
Company considers December 31, 2014
as the disposal effective date since the operational and management
control over SGOCO (Fujian) was
shifted from SGOCO to Apex on December 31,
2014. The Sale of SGOCO (Fujian) allowed SGOCO to reform the business
and reduce the reliance of traditional flat panel LED and LCD
monitor products. It provided greater flexibility and scalability
for the Company's business model, which enables the Company to
focus on finding new business acquisition opportunities and
exploring new products.
The sales price for all the equity of SGOCO (Fujian) is equivalent to the net asset value
of SGOCO (Fujian) on December 31, 2014. The final amount is
$11.0 million.
The Company has effected a
1-for-4 reverse stock split of the Company's authorized ordinary
shares, accompanied by a corresponding decrease in the Company's
issued and outstanding shares of ordinary shares and an increase of
the par value of each ordinary share from $0.001 to $0.004
(the "Reverse Stock Split") on January 19,
2016. All references in this report to share and per share
data have been adjusted, including historical data which have been
retroactively adjusted, to give effect to the reverse stock split
unless specified otherwise.
On August 10, 2016, the
shareholders of the Company approved an increase of the authorized
ordinary shares of the Company from 12,500,000 shares to 50,000,000
shares at the annual shareholders meeting.
The Company is focused on designing innovative products and
developing its own-brands for sale in the Chinese flat-panel
display market and providing energy saving products and services
worldwide. Its main products are LCD/LED monitors, TVs and other
application-specific products. The Company intends to offer high
quality LCD/LED products under brands that it controls and licenses
such as "SGOCO", "No. 10" and "POVIZON" to consumers residing in
China's Tier 3 and Tier 4 cities.
The Company is also distributing the LCD/LED products to the
international markets.
Note 2 - Accounting policies
Basis of presentation and principle of
consolidation
The accompanying consolidated financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of
America ("U.S. GAAP") for interim financial information.
Accordingly, they do not include all of the information and
footnotes required by U.S. GAAP for complete financial statements.
Certain information and note disclosures normally included in our
annual financial statements prepared in accordance with U.S. GAAP
have been condensed or omitted consistent with Article 10 of
Regulation S-X. In the opinion of management, our consolidated
financial statements and accompanying notes include all adjustments
(consisting of normal recurring adjustments) considered necessary
by management to fairly state the results of operations, financial
position and cash flows for the interim periods presented. Interim
results of operations are not necessarily indicative of the results
for the full year or for any future period. These financial
statements should be read in conjunction with the annual financial
statements and the notes thereto also included
herein.
The accompanying consolidated financial statements include the
financial statements of the Company and all its majority-owned
subsidiaries that require consolidation. Intercompany transactions
and balances have been eliminated in the consolidation.
The Company had a working capital deficiency and recorded a loss
in the current period. These factors raise substantial doubt about
the Company's ability to continue as a going concern.
On May 9, 2016, the Company
entered into a share purchase agreement with certain investors
whereby the Company agrees to sell to these investors 1,900,000
shares of the Company's unregistered ordinary shares for an amount
of $7 million. On May 11, 2016, the investors paid the first
tranche of $350,000. The Company
shall issue 95,000 shares within 30 working days upon receipt of
such payment. The investors paid the balance of $6,650,000 on August 11,
2016, and the Company issued 1,900,000 shares on
September 19, 2016.
The Company believes that with the financing and the successful
transition of business to provision of products and projects
utilizing "green" energy technologies with the acquisition of Boca
(see Note 4), it can return to profitability.
Use of estimates
Preparing consolidated financial statements in conformity with
U.S. GAAP requires management to make estimates and assumptions
affecting the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. The more significant areas
requiring the use of management's estimates and assumptions relate
to the collectability of its receivables, the fair value and
accounting treatment of certain financial instruments, the
valuation and recognition of share-based compensation arrangements,
fair value of assets and liabilities acquired in business
combination, useful life of intangible assets and assessment of
impairment of long-lived assets, intangible assets and goodwill.
Management bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under
the circumstances. Accordingly, actual results may differ
significantly from these estimates. In addition, different
assumptions or circumstances could reasonably be expected to yield
different results.
Business combinations
The Company accounts for its business combinations using the
acquisition method of accounting in accordance with Accounting
Standards Codification ("ASC") 805 "Business Combinations." The
cost of an acquisition is measured as the aggregate of the
acquisition date fair values of the assets transferred and
liabilities incurred by the Company to the sellers and equity
instruments issued. Transaction costs directly attributable to the
acquisition are expensed as incurred. Identifiable assets and
liabilities acquired or assumed are measured separately at their
fair values as of the acquisition date, irrespective of the extent
of any noncontrolling interests. The excess of (i) the total
costs of acquisition, fair value of the noncontrolling interests
and acquisition date fair value of any previously held equity
interest in the acquiree over (ii) the fair value of the
identifiable net assets of the acquiree is recorded as goodwill. If
the cost of acquisition is less than the fair value of the net
assets of the subsidiary acquired, the difference is recognized
directly in the consolidated statements of comprehensive income.
During the measurement period, which can be up to one year from the
acquisition date, the Company may record adjustments to the assets
acquired and liabilities assumed with the corresponding offset to
goodwill. Upon the conclusion of the measurement period or final
determination of the values of assets acquired or liabilities
assumed, whichever comes first, any subsequent adjustments are
recorded to the consolidated statements of comprehensive
income.
In a business combination achieved in stages, the Company
re-measures the previously held equity interest in the acquiree
immediately before obtaining control at its acquisition-date fair
value and the re-measurement gain or loss, if any, is recognized in
the consolidated statements of comprehensive income.
When there is a change in ownership interests that result in a
loss of control of a subsidiary, the Company deconsolidates the
subsidiary from the date control is lost. Any retained
noncontrolling investment in the former subsidiary is measured at
fair value and is included in the calculation of the gain or loss
upon deconsolidation of the subsidiary.
Intangible assets
Intangible assets acquired through business acquisitions are
recognized as assets separate from goodwill if they satisfy either
the "contractual-legal" or "separability" criterion. Purchased
intangible assets and intangible assets arising from the
acquisitions of subsidiaries are recognized and measured at fair
value upon acquisition. Separately identifiable intangible assets
that have determinable lives continue to be amortized over their
estimated useful lives using the straight-line method as
follows:
Proprietary
technology
|
|
20 years
|
Backlog
|
|
1 year
|
Separately identifiable intangible assets to be held and used
are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may
not be recoverable. Determination of recoverability is based on an
estimate of undiscounted future cash flows resulting from the use
of the asset and its eventual disposition. Measurement of any
impairment loss for identifiable intangible assets is based on the
amount by which the carrying amount of the assets exceeds the fair
value of the assets.
Goodwill
Goodwill represents the excess of the purchase consideration
over the fair value of the identifiable tangible and intangible
assets acquired and liabilities assumed of the acquired entity as a
result of the Company's acquisitions of interests in its
subsidiaries. Goodwill is not amortized but is tested for
impairment on an annual basis, or more frequently if events or
changes in circumstances indicate that it might be impaired. The
Company first assesses qualitative factors to determine whether it
is necessary to perform the two-step quantitative goodwill
impairment test. In the qualitative assessment, the Company
considers primary factors such as industry and market
considerations, overall financial performance of the reporting
unit, and other specific information related to the operations.
Based on the qualitative assessment, if it is more likely than not
that the fair value of each reporting unit is less than the
carrying amount, the quantitative impairment test is performed.
In performing the two-step quantitative impairment test, the
first step compares the fair values of each reporting unit to its
carrying amount, including goodwill. If the fair value of each
reporting unit exceeds its carrying amount, goodwill is not
considered to be impaired and the second step will not be required.
If the carrying amount of a reporting unit exceeds its fair value,
the second step compares the implied fair value of goodwill to the
carrying value of a reporting unit's goodwill. The implied fair
value of goodwill is determined in a manner similar to accounting
for a business combination with the allocation of the assessed fair
value determined in the first step to the assets and liabilities of
the reporting unit. The excess of the fair value of the reporting
unit over the amounts assigned to the assets and liabilities is the
implied fair value of goodwill. This allocation process is only
performed for the purposes of evaluating goodwill impairment and
does not result in an entry to adjust the value of any assets or
liabilities. Application of a goodwill impairment test requires
significant management judgment, including the identification of
reporting units, assigning assets, liabilities and goodwill to
reporting units, and determining the fair value of each reporting
unit.
Impairment of long-lived assets other than goodwill
The Company reviews long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying
amount of an asset to the future undiscounted net cash flows
expected to be generated by the asset. If such assets are
considered to be impaired, the impairment recognized is measured by
the amount by which the carrying amount of the assets exceeds the
fair value of the assets. No impairment of long-lived assets other
than investment in equity investees was recognized for the periods
presented.
Accounts receivable and other receivables
Receivables include trade accounts due from customers and other
receivables such as cash advances to employees, related parties and
third parties and advances to suppliers. Management reviews the
composition of accounts receivable and analyzes historical bad
debts, customer concentration, customer credit worthiness, current
economic trends and changes in customer payment patterns to
determine if the allowance for doubtful accounts is adequate. An
estimate for doubtful accounts is made when collection of the full
amount is no longer probable. Delinquent account balances are
written-off after management has determined that the likelihood of
collection is not probable and known bad debts are written off
against the allowance for doubtful accounts when identified. As of
June 30, 2016 and December 31, 2015, there was $1 and $1 allowance
for uncollectible accounts receivable, respectively. Management
believes that the remaining accounts receivable are
collectible.
Fair value of financial instruments
The Company's financial instruments primarily consist of cash
and cash equivalents, accounts receivable, accounts payable, other
receivables, other payables and accrued liabilities, advances to
suppliers, short-term loans, customer deposits and convertible
notes.
As of the balance sheet dates, the estimated fair value of cash
and cash equivalents, accounts receivable, accounts payable, other
receivables, other payables and accrued liabilities, advances to
suppliers, short-term loans and customer deposits were not
materially different from their carrying values as presented due to
the short maturities of these instruments and that the interest
rates on the borrowings approximate those that would have been
available for loans for similar remaining maturity and risk profile
at the respective reporting periods.
The fair value measurement accounting standard defines fair
value, establishes a three-level valuation hierarchy for
disclosures of fair value measurement and enhances disclosure
requirements for fair value measures. The three levels are defined
as follows:
-
|
Level 1
|
inputs to the
valuation methodology are quoted prices (unadjusted) for identical
assets or liabilities in active markets.
|
-
|
Level 2
|
inputs to the
valuation methodology include quoted prices for similar assets and
liabilities in active markets, and inputs that are observable for
the assets or liability, either directly or indirectly, for
substantially the full term of the financial
instruments.
|
-
|
Level 3
|
inputs to the
valuation methodology are unobservable and significant to the fair
value.
|
The following table sets forth by level within the fair value
hierarchy our financial assets and liabilities that were accounted
for at fair value on a recurring basis:
|
Carrying Value at
June 30, 2016
|
|
Fair Value Measurement at
June 30, 2016
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Convertible notes
measured at fair value
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
Carrying Value at
December 31, 2015
|
|
Fair Value Measurement at
December 31, 2015
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Convertible notes
measured at fair value
|
$
|
2,169
|
|
$
|
-
|
|
$
|
-
|
|
$
|
2,169
|
A summary of changes
in financial liabilities for the period ended June 30, 2016 was as
follows:
|
|
|
|
Balance at January 1,
2015
|
$
|
2
|
Change in fair value
of warrant derivative liability
|
|
(2)
|
Issuance of
convertible notes
|
|
1,149
|
Fair value loss on
issuance of convertible notes
|
|
1,019
|
Interest expenses on
convertible notes
|
|
56
|
Change in fair value
of convertible notes
|
|
21
|
Conversion of
convertible notes
|
|
(76)
|
Balance at December
31, 2015
|
|
2,169
|
Interest expenses on
convertible notes
|
|
5
|
Conversion of
convertible notes
|
|
(3,674)
|
Change in fair value
of convertible notes
|
|
1,500
|
Balance at June 30,
2016
|
|
-
|
Fair value of the
convertible notes is determined using the binomial model using the
following assumptions at
|
inception and on
subsequent valuation dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
|
|
Black
|
|
JSJ
|
|
Crown
|
|
LG Capital
|
|
Adar
|
|
Service
|
|
VIS
|
notes
|
|
Forest
|
|
Investment
|
|
Bridge
|
|
Funding
|
|
Bays
|
|
Trading
|
|
Vires
|
holder
|
|
Capital,
LLC
|
|
Inc
|
|
Partners
LLC
|
|
LLC
|
|
LLC
|
|
Co LLC
|
|
Group Inc
|
Appraisal Date
(Inception Date)
|
|
7/17/15
|
|
6/3/15
|
|
9/11/15
|
|
6/10/15
|
|
6/11/15
|
|
6/25/15
|
Risk-free
Rate
|
|
0.77%
|
|
0.42%
|
|
0.85%
|
|
0.78%
|
|
0.79%
|
|
0.77%
|
Applicable Closing
Stock Price
|
|
$0.61
|
|
$0.70
|
|
$0.45
|
|
$0.79
|
|
$0.87
|
|
$0.66
|
Conversion
Price
|
|
$0.34
|
|
$0.28
|
|
$0.23
|
|
$0.39
|
|
$0.39
|
|
$0.40
|
Volatility
|
|
31.45%
|
|
N/A
|
|
37.23%
|
|
30.18%
|
|
30.19%
|
|
31.58%
|
Dividend
Yield
|
|
0.00%
|
Credit
Spread
|
|
2.75%
|
|
2.59%
|
|
3.00%
|
|
2.85%
|
|
2.80%
|
|
2.76%
|
Liquidity Risk
Premium
|
|
5.00%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Appraisal
Date
|
|
12/31/15
|
Risk-free
Rate
|
|
0.87%
|
|
2.16%
|
|
0.94%
|
|
0.79%
|
|
0.79%
|
|
0.61%
|
Applicable Closing Stock Price
|
|
$0.39
|
|
|
|
|
|
|
|
|
|
|
Conversion
Price
|
|
$0.19
|
|
$0.19
|
|
$0.19
|
|
$0.21
|
|
$0.21
|
|
$0.22
|
Volatility
|
|
43.13%
|
|
N/A
|
|
38.86%
|
|
47.18%
|
|
47.18%
|
|
44.59%
|
Dividend
Yield
|
|
0.00%
|
|
|
|
|
|
|
|
|
|
|
Credit
Spread
|
|
4.08%
|
|
4.39%
|
|
4.08%
|
|
4.08%
|
|
4.08%
|
|
3.66%
|
Liquidity Risk
Premium
|
|
5.00%
|
Comprehensive income
U.S. GAAP generally requires that recognized revenue, expenses,
gains and losses be included in net income or loss. Although
certain changes in assets and liabilities are reported as separate
components of the equity section of the consolidated balance sheet,
such items, along with net income, are components of comprehensive
income or loss. The components of other comprehensive income or
loss consist of foreign currency translation adjustments net of
realization of foreign currency translation gain relating to
disposal of subsidiaries.
Revenue recognition
The Company's revenue recognition policies are consistent with
the accounting standards. Sales revenue is recognized at the date
of shipment to customers. The Company recognizes revenue from the
sale of products and services when all the following criteria ae
met: persuasive evidence for an arrangement exists, the price is
fixed or determinable, the delivery is completed or services have
been provided, no other significant obligations of the Company
exist and collectability is reasonably assured. For products that
are required to be examined by customers, sales revenue is
recognized after the customer examination is completed. Payments
received before all of the relevant criteria for revenue
recognition are met are recorded as customer deposits. Generally,
our outsourced manufacturers are obligated to provide at least
one-year repair or replacement obligation. Management did not
estimate future warranty liabilities as historical warranty
expenses were minimal.
Sales revenue is recognized net of value-added taxes, sales
discounts and returns. There was nil and $27 sales returns during the six months ended
June 30, 2016 and 2015,
respectively.
Income taxes
The Company accounts for income taxes in accordance with the
accounting standard issued by the Financial Accounting Standard
Board ("FASB") for income taxes. Under the asset and liability
method as required by this accounting standard, deferred income
taxes are recognized for the tax consequences of temporary
differences by applying enacted statutory tax rates applicable to
future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and
liabilities. The charge for taxation is based on the results for
the reporting period as adjusted for items which are non-assessable
or disallowed. It is calculated using tax rates that have been
enacted or substantively enacted by the balance sheet date. The
effect on deferred income taxes of a change in tax rates is
recognized in income in the period that includes the enactment
date. A valuation allowance is recognized if it is more likely than
not that some portion, or all of, a deferred tax asset will not be
realized.
Under the accounting standard regarding accounting for
uncertainty in income taxes, a tax position is recognized as a
benefit only if it is "more likely than not" that the tax position
would be sustained in a tax examination, with a tax examination
being presumed to occur. The amount recognized is the largest
amount of tax benefit that is greater than 50% likely of being
realized on examination. For tax positions not meeting the "more
likely than not" test, no tax benefit is recorded. Penalties and
interest incurred related to underpayment of income tax are
classified as income tax expense in the year incurred. During the
years ended December 31, 2015, 2014
and 2013, the Company incurred nil, $24 and $71 of
interest related to income taxes. U.S. GAAP also provides guidance
on de-recognition, classification, interest and penalties,
accounting in interim periods, disclosures and transition.
According to the PRC Tax Administration and Collection Law, the
statute of limitations is three years if the underpayment of taxes
is due to computational errors made by the taxpayer or its
withholding agent. The statute of limitations extends to five years
under special circumstances, which are not clearly defined. In the
case of a related party transaction, the statute of limitations is
ten years. There is no statute of limitations in the case of tax
evasion.
According to the Circular on the State Administration of
Taxation on Strengthening the Management of EIT Collection of
Proceeds from Equity Transfers by Non-Resident Enterprises
(Guoshuihan [2009] No. 698) ("Circular 698") and the State
Administration of Taxation Notice [2015] No. 7, a non-PRC Tax
Resident Enterprise is subject to the PRC EIT on the taxable gain
arising from a sale of transfer of any intermediate offshore
company which directly or indirectly holds an interest, including
any assets, subsidiaries, or other forms of business operations, in
the PRC, or otherwise stipulated in an applicable tax treaty or
arrangement. Circular 698 applies to all transactions conducted on
or after January 1, 2008.
Share-based compensation
The Company accounts for equity instruments issued in exchange
for the receipt of goods or services from consultants in accordance
with the accounting standards regarding accounting for stock-based
compensation and accounting for equity instruments that are issued
to other than employees for acquiring or in conjunction with
selling goods or services. Costs are measured at the estimated fair
market value of the consideration received or the estimated fair
value of the equity instruments issued, whichever is more reliably
determinable. The value of equity instruments issued for
consideration other than employee services is determined on the
earlier of a performance commitment or completion of performance by
the provider of goods or services as defined by these accounting
standards. In the case of equity instruments issued to consultants,
the fair value of the equity instrument is recognized over the term
of the consulting agreement if there is a term.
The Company accounts for equity instruments issued in exchange
for the receipt of services from employees in the financial
statements based on their fair values at the date of grant. The
fair value of awards is amortized over the requisite service
period.
Foreign currency translation
The reporting currency of the Company is the U.S. Dollar. The
functional currency of the Company and its PRC subsidiaries is the
RMB. The functional currencies of its Hong Kong subsidiaries SGOCO International and
Boca are the U.S. Dollar and Hong Kong Dollar, respectively.
Results of operations and cash flow are translated at average
exchange rates during the period, and assets and liabilities are
translated at the unified exchange rate as quoted by the People's
Bank of China at the end of the
period. Capital accounts are translated at their historical
exchange rates when the capital transaction occurred. Translation
adjustments resulting from this process are included in accumulated
other comprehensive income. Transaction gains and losses that arise
from exchange rate fluctuations on transactions denominated in a
currency other than the functional currency are included in the
results of operations as incurred.
The balance sheet amounts with the exception of equity were
translated at RMB6.63 and
RMB6.49 to $1.00 at June 30,
2016 and December 31, 2015,
respectively. The equity accounts were stated at their historical
exchange rates. The average translation rates applied to the income
and cash flow statement amounts for the six months ended
June 30, 2016 and 2015 were
RMB6.53 and RMB6.13 to $1.00,
respectively.
Note 3 - Accounts receivable, trade
Accounts receivable
as of June 30, 2016 and December 31, 2015 consisted of the
following:
|
|
|
June 30,
2016
|
|
December 31,
2015
|
|
|
|
|
Accounts
receivable
|
$
|
4,512
|
|
$
|
229
|
Allowance for
doubtful accounts
|
|
(1)
|
|
|
(1)
|
|
$
|
4,511
|
|
$
|
228
|
|
The movements in
allowance for doubtful accounts are as follows:
|
|
|
June 30,
2016
|
|
December 31,
2015
|
|
|
|
|
Balance at the
beginning of the period
|
$
|
1
|
|
$
|
-
|
Addition
|
|
-
|
|
|
1
|
Balance at the end of
the period
|
$
|
1
|
|
$
|
1
|
All of the Company's customers are located in the PRC and
Hong Kong. The Company provides
credit in the normal course of business. The Company performs
ongoing credit evaluations of its customers and maintains
allowances for doubtful accounts based on factors surrounding the
credit risk of specific customers, historical trends, and other
information.
Note 4 - Acquisition of subsidiary and deposits paid for
acquisition of subsidiaries
|
(a)
|
Acquisition of
Boca
|
|
|
On December 28, 2015,
SGOCO International entered into a Share Sale and Purchase
Agreement (the "SPA") with Richly Conqueror Limited (the "Vendor")
pursuant to which SGOCO International will acquire all of the
issued share capital of Boca International Limited, a company
incorporated in Hong Kong ("Boca"). Total consideration of the Sale
Shares includes $52,000 in the form of cash, plus up to 19.9% new
shares in SGOCO (as enlarged by the issuance). In December 2015,
the Company paid a $52,000 refundable deposit to the
Vendor.
|
|
|
|
|
|
Boca is principally
engaged in environmental protection, energy saving technologies,
equipment development and applications. Its business involves
production and sales of phase change thermal energy storage
materials as well as central air conditioning cooling and heating
system application engineering.
|
|
|
|
|
|
The Company and
Richly Conqueror Limited entered into a supplemental agreement on
February 29, 2016, pursuant to which SGOCO International agreed to
issue 1,162,305 ordinary shares of the Company to the Vendor on or
before March 15, 2016 and both parties confirmed the closing date
of the transaction shall be March 31, 2016. The shares were issued
on March 7, 2016, and the fair value of the shares was $3.51 per
share on the closing date, March 31, 2016.
|
|
|
|
|
|
After the completion
of the acquisition, Boca became a wholly owned subsidiary of the
Company.
|
|
|
|
|
|
The following table
sets forth the Company's best estimate of fair value of the assets
acquired and the liabilities assumed. The Company is in the process
of obtaining a third-party valuation for the assets acquired and
liabilities assumed, and will refine fair value estimates when the
valuation is completed using the balances as of the closing date,
March 31, 2016.
|
|
|
Boca
|
|
|
|
Net liabilities
acquired
|
|
$
|
(337)
|
Amortizable
intangible assets (i)
|
|
|
|
Backlog
contract
|
|
|
372
|
Proprietary
technology
|
|
|
26,179
|
Goodwill
|
|
|
36,504
|
Deferred tax
liabilities
|
|
|
(6,638)
|
Total
|
|
$
|
56,080
|
|
|
|
|
Total purchase price
comprised of:
|
|
|
|
–
cash consideration
|
|
$
|
52,000
|
–
share-based consideration
|
|
|
4,080
|
Total
|
|
$
|
56,080
|
|
(i)
|
Acquired amortizable
intangible asset-backlog contract and proprietary technology have
estimated amortization periods of one year and twenty years,
respectively.
|
|
|
|
|
|
The transaction
resulted in a purchase price allocation of $36,172 to goodwill,
representing the financial, strategic and operational value of the
transaction to the Company. Goodwill is attributed to the premium
that the Company paid to obtain the value of the business of Boca
and the synergies expected from the combined operations of Boca and
the Company, the assembled workforce and their knowledge and
experience in provision of products and projects utilizing "green"
energy technologies. The total amount of the goodwill acquired is
not deductible for tax purposes.
|
|
|
|
|
(b)
|
Potential Acquisition
of Sola Green
|
|
|
|
|
|
On December 22, 2015,
the Company signed a memorandum of understanding ("MOU") to acquire
all of the issued share capital of Sola Green Technologies Limited,
a company incorporated in Hong Kong ("Sola Green"), for a purchase
price of $40,000 in form of cash or new shares in SGOCO, subject to
satisfactory due diligence and customary purchase price
adjustments. In December 2015, a refundable deposit of $34,000 was
paid to the shareholders of Sola Green. On March 1, 2016, an
extension of the MOU was signed pursuant to which both parties
originally expected that the definitive agreements would be
executed and the transaction would be closed by June 30,
2016. The completion of the transaction is dependent on the
completion of due diligence. Both parties had spent significant
amount of time and efforts in the due diligence in 2016 but were
unable to complete the process with satisfaction to both
parties.
|
|
|
|
|
|
On November 20, 2016,
the Company sent an official notice to the Seller to terminate the
due diligence process and requested full refund of the deposit paid
to the Seller. On November 30, 2016, the Company received full
deposit back from the Seller.
|
|
|
|
|
|
Sola Green invests
and develops an Energy-saving Glass Coating. By applying
nano-technology, Sola Green integrates rare earth elements with
other materials to produce a liquid form thermal insulation coating
material. The coating could reduce UV and infrared radiation from
sunlight, while maintaining acceptable visibility through the
coated glass. As a result of reducing infrared radiation from
sunlight, a general temperature reduction of 5-7°C to indoor space
could be achieved.
|
Note 5 - Intangible assets, net
Intangible assets,
net, as of June 30, 2016 and December 31, 2015 consisted of the
following:
|
|
|
|
|
|
June 30,
2016
|
|
December 31,
2015
|
|
|
|
|
Backlog
contract
|
$
|
372
|
|
$
|
-
|
Proprietary
technology (Note 8)
|
|
26,179
|
|
|
-
|
Accumulated
amortization
|
|
(420)
|
|
|
-
|
Intangible assets,
net
|
$
|
26,131
|
|
$
|
-
|
Amortization expenses
of intangible assets were $420 for the six months ended June 30,
2016.
|
As of June 30, 2016,
amortization expenses related to intangible assets for future
periods are estimated to be as
follows:
|
|
|
|
|
For the years ending
December 31,
|
|
Remainder of
2016
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021 and
thereafter
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
Amortization
expenses
|
|
840
|
|
|
1,401
|
|
|
1,308
|
|
|
1,308
|
|
|
1,308
|
|
|
19,966
|
Note 6 - Convertible notes
The Company entered
into a series of Securities Purchase Agreements (the "Agreements")
with certain investors
between June and
September, 2015. Pursuant to the Agreements, the Company issued
certain convertible notes (the
"Notes") to the
investors in a total principal amount of $1,149. A summary of the
major terms of the Agreements are
presented as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor
|
|
Principal
amount
|
|
|
Issue date
|
|
Maturity date
|
|
Interest rate
|
|
Conversion
discount
rate (b)
|
|
LG Capital Funding,
LLC
|
|
$
|
231
|
|
|
6/10/2015
|
|
6/10/2016
|
|
|
8
|
%
|
|
35
|
%
|
JSJ Investments
INC
|
|
|
150
|
|
|
6/3/2015
|
|
12/3/2015
|
(a)
|
|
12
|
%
|
|
43
|
%
|
Crown Bridge Partner,
LLC
|
|
|
46
|
|
|
9/11/2015
|
|
8/25/2016
|
|
|
5
|
%
|
|
42
|
%
|
Service Trading
Company, LLC
|
|
|
105
|
|
|
6/11/2015
|
|
6/11/2016
|
|
|
8
|
%
|
|
35
|
%
|
Adar Bays,
LLC
|
|
|
158
|
|
|
6/11/2015
|
|
6/11/2016
|
|
|
8
|
%
|
|
35
|
%
|
Vis Vires Group,
INC
|
|
|
159
|
|
|
6/10/2015
|
|
3/15/2016
|
|
|
8
|
%
|
|
39
|
%
|
Black Forest Capital,
LLC
|
|
|
300
|
|
|
7/17/2015
|
|
7/17/2016
|
|
|
12
|
%
|
|
42
|
%
|
|
|
$
|
1,149
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
At any time before,
on and after the maturity date, this note has a cash redemption
premium of 150%.
|
(b)
|
The rate is the
discount to the lowest closing bid price of the Company's ordinary
shares for the 10 or 20 days
prior to the date of
conversion or execution of the convertible note agreements, as the
case may be.
|
The conversion feature is dual indexed to the Company's stock,
and is considered an embedded derivative which needs to be
bifurcated from the host instrument in accordance with ASC 815.
ASC 815-15-25 provides that if an entity has a hybrid financial
instrument that would require bifurcation of embedded derivatives
under ASC 815, the entity may irrevocably elect to initially and
subsequently measure a hybrid financial instrument in its entirety
at fair value with changes in fair value recognized in earnings.
The fair value election can be made instrument by instrument and
shall be supported by concurrent documentation or a preexisting
documented policy for automatic election.
The Company elected to measure the Notes in their entirety at
fair value with changes in fair value recognized as non-operating
income or loss at each balance sheet date in accordance with ASC
815-15-25. In addition, issuance costs of $44 and $25
associated with the Notes offering have been expensed as incurred
in the six months ended June 30, 2016
and 2015, respectively.
Fair value of the Notes of $2,169
as of December 31, 2015 is determined
using the binomial model, one of the option pricing methods. The
valuation involves complex and subjective judgment and the
Company's best estimates of the probability of occurrence of future
events, such as fundamental changes, on the valuation date. Under
the binomial valuation model, the Group uses a weighted risk-free
and risk interest rate (the combination of the risk free rate plus
the credit spread for the underlying Notes) weighted by the
probability of conversion as internally solved out by binomial
model in discounting its cash flows. The main inputs to this model
include the underlying share price, the expected share volatility,
the expected dividend yield, the risk free and risk interest
rate.
During 2015, the note holders converted the Notes with a total
principal amount of $35 into 51,511
ordinary shares of the Company.
As of June 30, 2016, the note
holders have fully converted the Notes with a total principal
amount of $1,149 into 1,394,936
ordinary shares of the Company.
Note 7 - Other payables and accrued liabilities
Other payables and
accrued liabilities as of June 30, 2016 and December 31, 2015
consisted of the following:
|
|
|
|
|
|
June 30,
2016
|
|
December 31,
2015
|
|
|
|
|
Accrued professional
fees
|
$
|
30
|
|
$
|
132
|
Accrued staff costs
and staff benefits
|
|
60
|
|
|
15
|
Advances from
unrelated parties
|
|
547
|
|
|
-
|
Others
|
|
26
|
|
|
22
|
|
$
|
663
|
|
$
|
169
|
|
The advances from
unrelated parties are unsecured, interest free and have no fixed
terms of repayment.
|
Note 8 - Other loan
The amount represents a loan of $256 advanced from an unrelated party to the
Company, plus accrued interest. The loan is bearing 5% interest per
annum and has no fixed term of repayment. The loan is secured by
certain intangible assets of the Company (Note 5).
Note 9 - Capital transactions
Preferred stock
On January 29, 2008, the Company
amended its articles of association and authorized 1,000,000
preferred shares. No preferred shares were issued or registered in
the IPO. There were no preferred shares issued and outstanding as
of December 31, 2015 and 2014.
Issuance of capital stock
The Company and Richly Conqueror Limited entered into a
supplemental agreement on February 29,
2016, pursuant to which SGOCO International agreed to issue
1,162,305 ordinary shares of the Company to the Vendor on or before
March 15, 2016 and both parties
confirmed the closing date of the transaction shall be March 31, 2016. The shares were issued on
March 7, 2016, and the fair value of
the shares was $3.51 per share on the
closing date, March 31, 2016.
On March 29, 2016, a total of
31,250 shares were issued to a consultant of the Company. The grant
date fair value for such shares was $3.38 per share. Consulting expense of
$106 was recorded in the statement of
comprehensive loss during the six months ended June 30, 2016.
On March 15, 2016, a total of
48,000 shares were issued to the Company's independent directors,
certain employees and consultants, which vested immediately. The
grant date fair value was $3.35 per
share. Compensation expense of $161
was recorded in the statement of comprehensive loss during the six
months ended June 30, 2016.
On February 29, 2016, a total of
60,000 shares were issued to the certain IR service providers. The
grant date fair value was $3.37 per
share. Consulting expense of $202 was
recorded in the statement of comprehensive loss during the six
months ended June 30, 2016.
During the six months ended June 30,
2016, certain of holders agreed to convert convertible notes
with a principal amount of $1,114 for
a total of 1,343,425 of ordinary shares.
On March 5, 2015, a total of
45,000 ordinary shares were issued to the Company's directors and
certain employees, which vested immediately. The grant date fair
values were $2.80 per share.
Share-based compensation expense of $126 was recognized in the consolidated statement
of comprehensive loss during the six months ended June 30, 2015.
Note 10 - Statutory reserves
Statutory reserves
The laws and regulations of the PRC require that before an
enterprise distributes profits to its owners, it must first satisfy
all tax liabilities, provide for losses in previous years, and make
allocations in proportions determined at the discretion of the
Board of Directors after the statutory reserves.
Surplus reserve fund
As stipulated by the Company Law of the PRC, as applicable to
Chinese companies with foreign ownership, net income after taxation
can only be distributed as dividends after appropriation has been
made for the following:
|
1.
|
Making up cumulative
prior years' losses, if any;
|
|
|
|
|
2.
|
Allocations to the
"Statutory surplus reserve" of at least 10% of income after tax, as
determined under PRC accounting rules and regulations, until the
fund amounts to 50% of the company's registered capital;
and
|
|
|
|
|
3.
|
Allocations to the
discretionary surplus reserve, if approved in the shareholders'
general meeting.
|
The surplus reserve fund is non-distributable other than during
liquidation and can be used to fund previous years' losses, if any.
It may be utilized for business expansion or converted into share
capital by issuing new shares to existing shareholders in
proportion to their shareholding or by increasing the par value of
the shares currently held by them, provided that the remaining
reserve balance after such issue is not less than 25% of the
registered capital.
The Company did not make appropriations to the statutory
reserves for the six months ended June 30,
2016 and 2015. No appropriations were made to surplus
reserve fund.
Note 11 - Income taxes
Income is subject to tax in the various countries in which the
Company operates.
The Company is a tax-exempted company incorporated in the
Cayman Islands.
SGO is incorporated in the State of
Delaware and is subject to U.S. federal taxes at
United States federal income tax
rate of 34%. SGOCO International and Boca are incorporated in
Hong Kong and is subject to
Hong Kong taxation on income
derived from their activities conducted in Hong Kong. Hong Kong Profits Tax has been
calculated at 16.5% of the estimated assessable profit for the six
months ended June 30, 2016 and 2015.
The Company mainly conducts its operating business through its
subsidiaries in China. These
subsidiaries are governed by the Income Tax Law of the PRC
concerning foreign invested enterprises and foreign enterprises and
various local income tax laws (the Income Tax Laws), and do not
have any deferred tax assets or deferred tax liabilities under the
income tax laws of the PRC because there are no temporary
differences between financial statement carrying amounts and the
tax bases of existing assets and liabilities.
All subsidiaries in China are
subject to 25% EIT tax rate throughout the periods presented.
The Income Tax Laws also impose a 10% withholding income tax for
dividends distributed by a foreign invested enterprise to its
immediate holding company outside China for distribution of earnings generated
after January 1, 2008. Under the
Income Tax Laws, the distribution of earnings generated prior to
January 1, 2008 is exempt from the
withholding tax. As our subsidiaries in the PRC will not be
distributing earnings to the Company for the six months ended
June 30, 2016 and fiscal 2015, no
deferred tax liability has been recognized for the undistributed
earnings of these PRC subsidiaries at June
30, 2016 and December 31,
2015. Total undistributed earnings of the Company's PRC
subsidiaries at June 30, 2016 were
nil (December 31, 2015: nil).
The following table
reconciles the U.S. statutory rates to the Company's effective tax
rate for the six months ended
June 30, 2016 and
2015:
|
|
|
|
|
|
|
For the six months ended June
30,
|
|
|
|
2016
|
|
|
2015
|
|
U.S. Statutory
rates
|
|
|
34
|
%
|
|
|
34
|
%
|
Foreign income not
recognized in USA
|
|
|
(34.0)
|
|
|
|
(34.0)
|
|
China income
taxes
|
|
|
25.0
|
|
|
|
25.0
|
|
Impact of tax rate in
other jurisdiction
|
|
|
(0.9)
|
|
|
|
(2.6)
|
|
Valuation
allowance
|
|
|
(2.8)
|
|
|
|
(11.3)
|
|
Other (a)
|
|
|
(17.6)
|
|
|
|
(11.1)
|
|
Effective income
taxes
|
|
|
3.7
|
%
|
|
|
-
|
%
|
|
Notes:
|
|
|
(a)
|
There were no other
material items affecting the effective income tax for the six
months ended June 30, 2016
and 2015 except for
(i) losses incurred by SGOCO of approximately $2.0 million
and $0.6 million,
respectively, where
there is no tax in the Cayman Islands; and (ii) under-provision of
Hong Kong profits tax as
a result of certain
non-deductible expenses in prior year.
|
Deferred income taxes
reflect the net tax effects of temporary differences between the
carrying amounts of assets
and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant
components of
deferred income tax assets and liabilities are as
follows:
|
|
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
Deferred income tax
assets:
|
|
|
|
|
|
|
|
|
Net operating loss
carry-forward
|
|
$
|
1,231
|
|
|
$
|
939
|
|
Less: Valuation
allowance
|
|
|
(1,231)
|
|
|
|
(939)
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-current Deferred
tax liability
|
|
|
|
|
|
|
|
|
Intangible assets
arisen from business combination
|
|
$
|
6,533
|
|
|
$
|
-
|
|
|
|
$
|
6,533
|
|
|
$
|
-
|
|
The deferred income tax assets wholly relates to net tax loss
carry forwards. The net operating loss carry forwards derived from
the Company's PRC entities, HK entities and U.S. entity.
The net tax loss attributable to those PRC entities can only be
carried forward for a maximum period of five years. As of
June 30, 2016 and December 31, 2015, the Company had $2,471 and $2,361,
respectively, of deductible tax loss carry forwards that expire
through December 31, 2021. The net
tax loss of the Hong Kong entities
of $2,460 and $867 as of June 30,
2016 and December 31, 2015,
respectively, available for offset against future profits may be
carried forward indefinitely. Management believes that the Company
will not realize these potential tax benefits as the Company's
operations in these PRC and Hong
Kong entities will not generate any operating profits in the
foreseeable future. As a result, the full amount of the valuation
allowance was provided against the potential tax
benefits.
As of June 30, 2016 and
December 31, 2015, the Company's U.S.
eet tax loss carry-forwards of $609
and $606, respectively, available to
reduce future taxable income which will expire in various years
through 2031. Management believes that the Company will not realize
these potential tax benefits as the Company's U.S. operations will
not generate any operating profits in the foreseeable future. As a
result, the full amount of the valuation allowance was provided
against the potential tax benefits.
Note 12 - Loss per share
The following is a
reconciliation of the basic and diluted loss per share
computation:
|
|
|
|
|
|
|
For the six months
ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,703)
|
|
|
$
|
(1,309)
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of shares outstanding - basic and diluted
|
|
|
6,476,467
|
|
|
|
4,382,965
|
|
|
|
|
|
|
|
|
|
|
Loss per
share – basic and diluted
|
|
$
|
(0.42)
|
|
|
$
|
(0.30)
|
|
As of June 30, 2015 and 2016, all
the Company's outstanding warrants and convertible notes were
excluded from the diluted loss per share calculation as they were
anti-dilutive.
Note 12 - Segment information
The Company's segments are business units that offer different
products and services and are reviewed separately by the chief
operating decision maker (the "CODM"), or the decision making
group, in deciding how to allocate resources and in assessing
performance. The Group's CODM is the Company's Chief Executive
Officer. During fiscal 2015, there was only one segment, ie the
sale of LCD/LED products. During 2016, after the acquisition of
Boca, there is one additional segment, consisting of the provision
of green energy products and services.
For the six months
ended June 30, 2016
|
|
LCD/LED
products
|
|
|
Green energy
products
and services
|
|
|
Corporate
unallocated
(note)
|
|
|
Consolidated
|
|
Revenues
|
|
|
4,676
|
|
|
|
2
|
|
|
|
|
|
|
|
4,678
|
|
Gross
profit
|
|
|
187
|
|
|
|
2
|
|
|
|
|
|
|
|
189
|
|
Operating
expenses
|
|
|
594
|
|
|
|
424
|
|
|
|
454
|
|
|
|
1,472
|
|
Loss from
operations
|
|
|
(407)
|
|
|
|
(422)
|
|
|
|
(454)
|
|
|
|
(1,283)
|
|
Other income
(expenses)
|
|
|
(1)
|
|
|
|
(3)
|
|
|
|
(1,521)
|
|
|
|
(1,525)
|
|
Loss before provision
for income taxes
|
|
|
(408)
|
|
|
|
(425)
|
|
|
|
(1,975)
|
|
|
|
(2,808)
|
|
Income tax
credit
|
|
|
-
|
|
|
|
105
|
|
|
|
-
|
|
|
|
105
|
|
Net loss
|
|
|
(408)
|
|
|
|
(320)
|
|
|
|
(1,975)
|
|
|
|
(2,703)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable
long-lived assets
|
|
|
6
|
|
|
|
26,131
|
|
|
|
-
|
|
|
|
26,137
|
|
Total
assets
|
|
|
4,886
|
|
|
|
95,962
|
|
|
|
76
|
|
|
|
100,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note:
|
The Company does not
allocate its assets located and expenses incurred outside Hong Kong
and China to
its reportable
segments because these assets and activities are managed at a
corporate level.
|
For the six months
ended June 30, 2015
|
|
LCD/LED
products
|
|
|
Green energy
products
and services
|
|
|
Consolidated
|
|
Revenues
|
|
|
504
|
|
|
|
-
|
|
|
|
504
|
|
Gross
profit
|
|
|
24
|
|
|
|
-
|
|
|
|
24
|
|
Operating
expenses
|
|
|
865
|
|
|
|
-
|
|
|
|
865
|
|
Loss from
operations
|
|
|
(841)
|
|
|
|
-
|
|
|
|
(841)
|
|
Other income
(expenses)
|
|
|
(467)
|
|
|
|
-
|
|
|
|
(467)
|
|
Loss before provision
for income taxes
|
|
|
(1,308)
|
|
|
|
-
|
|
|
|
(1,308)
|
|
Provision for income
taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net loss
|
|
|
(1,308)
|
|
|
|
-
|
|
|
|
(1,308)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable
long-lived assets
|
|
|
8
|
|
|
|
-
|
|
|
|
8
|
|
Total
assets
|
|
|
1,189
|
|
|
|
85,693
|
|
|
|
86,882
|
|
The Company does not have material long-lived assets located in
foreign countries other than PRC.
Geographic area data
is based on product shipment destination. In accordance with the
enterprise-wide disclosure
requirements of the
accounting standard, the Company's net revenue from external
customers by geographic areas is
as
follows:
|
|
|
|
|
|
|
For the six months
ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
China
|
|
$
|
363
|
|
|
$
|
399
|
|
Hong Kong
|
|
|
4,315
|
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,678
|
|
|
$
|
504
|
|
Note 13 - Commitments and contingencies
The management is not currently aware of any threatened or
pending litigation or legal matters, which would have a significant
effect on the Company's consolidated financial statements as of
June 30, 2016 and December 31, 2015.
Our contractual obligations primarily consist of operating lease
obligations and capital commitments. The following table sets forth
a breakdown of our contractual obligations as of June 30, 2016 and their maturity
profile:
|
|
|
|
|
For the years ending
December 31,
|
|
|
|
Remainder
of 2016
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021 and
thereafter
|
|
|
Total
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Future minimum
lease
payments under
non-
cancelable operating
lease
agreements
|
|
|
38
|
|
|
|
42
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
80
|
|
Capital contributions
(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
38
|
|
|
|
42
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
80
|
|
|
(1)
|
The registered
capital of SGOCO Shenzhen is $5,000. As of December 31, 2015, SGOCO
International had not
injected capital to
SGOCO Shenzhen. Initially, SGOCO International was required to pay
$1,000 and the
remaining $4,000
within 3 months and within one year, respectively, of the date of
issuance of the subsidiary's
business license
according to PRC registration capital management rules. According
to the revised PRC
company law which
became effective on March 1, 2014, it has abolished the time
requirement of the registered
capital
contributions. SGOCO International has its own discretion to
consider the timing of the registered
capital
contributions. SGOCO International is in the process of amending
the charter to adopt the requirement
of the revised PRC
company law.
|
Note 14 - Concentration of risks
The Company's operations are carried out in the PRC and its
operations in the PRC are subject to specific considerations and
significant risks not typically associated with companies in
North America and Western Europe. These include risks associated
with, among others, the political, economic and legal environments
and foreign currency exchange. The Company's results may be
adversely affected by changes in government policies regarding laws
and regulations, anti-inflationary measures, currency conversion
and remittance abroad, and rates and methods of taxation, among
other things.
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist primarily of
cash, accounts receivable and advances to suppliers. As of
June 30, 2016 and December 31, 2015, substantially all of the
Company's cash was held in major financial institutions located in
the PRC, Hong Kong and
the United States of America,
which management considers being of high credit quality.
China does not have an official
deposit insurance program, nor does it have an agency similar to
The Federal Deposit Insurance Corporation (FDIC) in the United States. However, the Company
believes that the risk of failure of any of these PRC banks is
remote. Bank failure is extremely uncommon in China and the Company believes that those
Chinese banks that hold the Company's cash are financially sound
based on public available information.
The Company provides unsecured credit terms for sales to certain
customers. As a result, there are credit risks with the accounts
receivable balances. The Company constantly re-evaluates the credit
worthiness of customers buying on credit and maintains an allowance
for doubtful accounts.
Sales revenue from a major customer was $4,315, or approximately 92.2% of the Company's
total sales for the six months ended June
30, 2016. No other single customer accounted for more than
10% of the Company's total revenues during the six months ended
June 30, 2016. The Company's accounts
receivable from this customer was approximately $4,315 as of June 30,
2016, and nil as of December 31,
2015.
Sales revenue from 2 major customers was $312, or approximately 61.9% of the Company's
total sales for the six months ended June
30, 2015, with each customer individually accounting for
41.1% and 20.8% of revenue, respectively. No other single customer
accounted for more than 10% of the Company's total revenues during
the six months ended June 30,
2015.
A major vendor provided approximately 92.8% of total purchases
by the Company during the six months ended June 30, 2016. The Company's accounts payable due
to this vendor was approximately $4,166 as of June 30,
2016, and nil as of December 31,
2015.
3 major vendors provided approximately 78.5% of total purchases
(including 35.4% of purchases from Honesty Group) by the Company
during the six months ended June 30,
2015.
Note 15 - Subsequent events
On December 8, 2016, a total of
320,000 shares were issued to certain of the Company's directors,
certain employees and consultants, which vested immediately. The
grant date fair value was $3.43 per
share. Compensation expense of $1,097
will be recorded in the statement of comprehensive income (loss)
during 2016.
To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/sgoco-group-ltd-announces-2016-unaudited-interim-financial-results-300383394.html
SOURCE SGOCO Group, Ltd.