Profits up 20.31% at VLOV in 2011

13 Apr '12

6 min read

All of our products are manufactured by third parties, based on orders for our products that we receive from our distributors and from our own stores. Historically, we have outsourced to two types of manufacturers:
• Sub-contractors, which require us to provide them with the raw materials for our products,
• O.E.M. manufacturers that supply their own raw materials. Beginning in 2009
We have shifted almost all of our outsourcing entirely to O.E.M. manufacturers. We did not use sub-contractors for manufacturing during the year ended December 31, 2011 and such type of manufacturing accounted for less than 5% of net sales for the year ended December 31, 2010.

Total cost of sales for 2011 was $50,064, an increase of 18.190% from $43,863 for 2010, primarily due to increased sales. Our cost of sales as a percentage of net sales decreased to 56.36% of total net sales for 2011 from 59.41% of total net sales for 2010. Consequently, gross margin as a percentage of net sales increased to 43.64% for 2011 from 40.59% for 2010. Our gross margin primarily increased due to higher average selling prices of our apparels.

Selling expenses for 2011 increased by 82.29% to $15,619 as compared to 2010. The increase was mainly due to increased spending on advertising, as well as fashion events such as the Mercedes-Benz New York Fashion Week as well as operating our own store locations. We expect that our selling expenses will continue to increase as we continue to expand our retail distribution network, our marketing efforts to support our existing distribution network and penetrate potential new markets in these regions as well as establish our brand amongst our target demographic. We believe that our selling expenses will also increase as a percentage of our total net sales and in absolute dollars.

General and administrative expenses increased by 34.76% from $4,056 for 2010 to $5,466 for 2011. The higher general and administrative expenses for 2011 resulted from the higher cost of operating a U.S. publicly traded company as well as increased research and development costs. As we are now operating the retail network of our Fujian distributor that we acquired on June 30, 2011, as well as additional stores that we have opened, we expect our general and administrative expenses will also increase as a percentage of our net sales and in absolute dollars.

We issued common stock purchase warrants to the investors in our financings completed in October, November and December 2009. These warrants are accounted for at fair value as derivative instruments and are marked-to-market each period, with changes in the fair value charged or credited to income each period and do not impact cash flow as these are non-cash charges and credits. During 2011 and 2010, we recorded gains of $639 and $2,351, respectively. In future periods, we may experience significant gains or losses, as the value of these warrants fluctuates in responseto changes in our common stock price.

VLOV, Inc., a leading lifestyle apparel designer based in China, designs, sources, markets and distributes VLOV brand fashion-forward apparel for men ages 20 to 45 throughout China.

VLOV Inc

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