As filed with the Securities and Exchange Commission on December 15, 2010

Registration No. 333-170674

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

Pre-Effective Amendment No. 2
to
FORM F-1

REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933

 

SGOCO Group, Ltd.

(Exact Name of Registrant as Specified in Its Charter)

Cayman Islands		3663		N/A
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

SGOCO Technology Park, Luoshan
Jinjiang City, Fujian, China 362200
+86 (595) 8200-5598

(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant’s Principal Executive Offices)

 

Corporation Service Company
2711 Centerville Road, Suite 400
Wilmington, DE 19808

(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)

 

With copies to:

Ralph V. De Martino Cavas S. Pavri Cozen O’Connor 1900 Market Street Philadelphia, Pennsylvania 19103 Telephone: (215) 665-5542 Facsimile: (215) 701-2478		Betty Louie DLA Piper Italy Via Gabrio Casati 1 Milan, Italy 20123 Telephone: 39 02 806181 Facsimile: 39 02 80618201

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: o

If this Form is filed to register additional shares for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: o

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CALCULATION OF REGISTRATION FEE

Title of each class of securities to be registered		Amount to be registered (1)				Proposed maximum offering price per security (1)				Proposed maximum aggregate offering price (1)				Amount of registration fee
Ordinary Shares, par value US$0.001			1,533,333	(2)		$	7.50	(3)		$	11,499,998	(2)		$	820
Representative’s Unit Purchase Option			1			$	100.00			$	100.00			$	1.00
Ordinary shares underlying Representative’s Unit Purchase Option			66,667			$	9.00			$	600,003			$	43
Total														$	864	(4)

(1)

Estimated solely for the purposes of computing the amount of the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended.

(2)

Includes shares that may be purchased by the underwriters pursuant to an over-allotment option.

(3)

$7.50 is the high point of the estimated range of public offering price.

(4)

Previously paid.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to completion, Preliminary prospectus dated December 13, 2010

1,333,333 Shares

SGOCO GROUP, LTD.

Ordinary Shares

We are selling 1,333,333 of our ordinary shares. We expect the public offering price to be between $6.00 and $7.50 per ordinary share.

Our ordinary shares are quoted on the OTC Bulletin Board under the symbol “SGTLF.” On December 10, 2010, the last reported market price of our shares was $8.00 per share. We have applied to list our ordinary shares on the NASDAQ Global Market under the symbol “SGOC.”

Investing in our ordinary shares involves certain risks. See “Risk Factors” beginning on page 9 for a discussion of information that should be considered in connection with an investment in our ordinary shares.

		Per share				Total
Public offering price		$				$
Underwriting discounts and commissions (1)		$				$
Proceeds, before expenses, to SGOCO		$				$

(1)

This amount does not include a non-accountable expense allowance in the amount of 2% of the gross proceeds, or $  ($  per share) payable to the underwriters. In connection with this offering, we have agreed to issue to I-Bankers Securities, Inc., as the representative of the underwriters, for $100, warrants to purchase an aggregate number of our common shares equal to 5% of the ordinary shares sold in this offering at an exercise price of 120% of the offering price of the ordinary shares sold in this offering.

The underwriters may also purchase up to an additional 200,000 ordinary shares from us, at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover overallotments, if any.

The ordinary shares will be ready for delivery on or about , 2010.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

I-Bankers Securities, Inc. Bookrunner		Hudson Securities, Inc.
Joseph Gunnar & Co., LLC

The date of this prospectus is , 2010.

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SGOCO Group, Ltd.

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PROSPECTUS SUMMARY			1
OFFERING SUMMARY			5
SUMMARY CONSOLIDATED FINANCIAL DATA			7
RISK FACTORS			9
FORWARD-LOOKING STATEMENTS			25
USE OF PROCEEDS			26
DIVIDEND POLICY			27
CAPITALIZATION			28
DILUTION			29
ENFORCEABILITY OF CIVIL LIABILITIES			30
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA			31
MARKET PRICE INFORMATION			32
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			33
BUSINESS			47
CORPORATE HISTORY AND ORGANIZATION			56
MANAGEMENT			59
PRINCIPAL SHAREHOLDERS			65
RELATED PARTY TRANSACTIONS			66
DESCRIPTION OF SHARE CAPITAL			67
MEMORANDUM AND ARTICLES OF ASSOCIATION			69
TAXATION			73
UNDERWRITING			81
EXPENSES RELATING TO THIS OFFERING			87
LEGAL MATTERS			87
EXPERTS			87
WHERE YOU CAN FIND MORE INFORMATION			87

You should rely only on the information contained in this prospectus and in any free writing prospectus we may authorize to be delivered or made available to you. We and the underwriters have not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We and the underwriters are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

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CONVENTIONS USED IN THIS PROSPECTUS

Unless otherwise indicated in this prospectus:

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Risks and Challenges

Some of the primary risks and challenges we face include:

Historical Structure and Acquisition of Honesty Group

We were a blank check corporation organized under the laws of the Cayman Islands on July 18, 2007. We were originally incorporated as “Hambrecht Asia Acquisition Corp.” We were originally formed for the purpose of acquiring one or more operating businesses in China through a merger, stock exchange, asset acquisition or similar business combination or control through contractual arrangements.

Pursuant to our charter documents, we were required to enter into a business combination transaction to acquire control of a business with its primary operation in the PRC with a fair market value of at least 80% of the trust account established at the time of our IPO, or the Trust Account, (excluding certain deferred underwriting commissions) prior to March 12, 2010, or dissolve and liquidate. The approval of the business combination transaction required the approval of a majority of the outstanding shares and was conditioned, among other matters, on not more than 30% of the outstanding shares being properly tendered for redemption under our charter documents. Each ordinary share issued in our IPO was entitled to be redeemed if it was voted against the business combination transaction at a price equal to the amount in the Trust Account divided by the number of shares issued in the IPO outstanding at the time, estimated to be approximately $7.98 as of February 17, 2010. We entered into various forward purchase agreements with various hedge funds and other institutions for us to repurchase a total of 2,147,493 shares for an aggregate purchase price of $17,285,811 immediately after the closing of the business combination.

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On March 12, 2010, we acquired all of the outstanding shares of Honesty Group. In addition, at the meeting to approve the acquisition, the holders of our outstanding warrants approved an amendment to the warrant agreement under which the warrants were issued to increase the exercise price per share of the warrants from $5.00 to $8.00 and to extend by one year the exercise period, or until March 7, 2014, and to provide for the redemption of the publicly-held warrants, at the option of the holder, for $0.50 per warrant upon the closing of the acquisition. We may redeem the warrants at a price of $0.01 per warrant upon a minimum of 30 days’ prior written notice of redemption if, and only if, the last sale price of our ordinary share equals or exceeds $11.50 per share (subject to adjustment for splits, dividends, recapitalization and other similar events) for any 20 trading days within a 30 trading day period ending three business days before we send the notice of redemption.

After payment of various fees and expenses, the redemption prices of shares and warrants and the forward purchase contracts, the balance of approximately $5.4 million in the Trust Account was released to us upon consummation of the acquisition of Honesty Group. After the closing of the Acquisition and the settlement of related transactions, we had outstanding 16,094,756 ordinary shares, of which 859,668 shares were initially issued in our IPO, and warrants to purchase 1,816,027 shares at a price of $8.00 per share, of which 1,566,027 were initially issued in our IPO.

Corporate Structure

Following the consummation of the Acquisition, Honesty Group became the only wholly-owned subsidiary of SGOCO. Honesty Group is a limited liability company registered in Hong Kong on September 13, 2005. Honesty Group owns 100% of Guanke, Guanwei, and Guancheng. Guanke, Guanwei and Guancheng are limited liability companies established in Jinjiang City, Fujian Province under the corporate laws of the PRC and have business operating licenses. All three companies qualify as wholly foreign-owned enterprises under PRC law. Jinjiang Guanke is a limited liability company established in Jinjiang City, Fujian Province under the corporate laws of the PRC and has a business operating license, and is a subsidiary of Guanke. In order to create business synergies in line with our strategic goals two subsidiaries in addition to Guanke were established. We formed Guancheng to manufacture injection molded products and other related items. Guanwei was formed to manufacture electronic components. Both companies are expected to sell their products to Guanke and to other outside customers. Guancheng began operations from June 2010. Guanwei and Jinjiang Guanke have no operations as of the date of this prospectus.

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The following diagram sets forth our corporate structure as of the date of this prospectus:

Recent Events

On November 17, 2010, we held an extraordinary meeting of shareholders at which our shareholders voted to approve a name change of our company to “SGOCO Group, Ltd.” and voted to adopt our 2010 Equity Compensation Plan.

SGOCO’s Offices

Our principal executive offices are located at SGOCO Technology Park, Luoshan, Jinjiang City, Fujian, China 362200 and our telephone number is 086-595-8200-5598. Our website address is www.sgocogroup.com. The information on, or that can be accessed through, our website is not part of this prospectus.

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OFFERING SUMMARY

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The number of our ordinary shares outstanding following this offering is based on 16,094,756 including 6,566,823 shares in escrow of our ordinary shares outstanding as of November 15, 2010. This number does not include:

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SUMMARY CONSOLIDATED FINANCIAL DATA

The following summary consolidated financial information for the periods and as of the dates indicated should be read in conjunction with our consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

The summary consolidated statement of income data presented below for the years ended December 31, 2007, 2008 and 2009 and the summary consolidated balance sheet data as of December 31, 2008 and 2009 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The audited consolidated financial statements have been prepared and presented in accordance with U.S. GAAP.

The summary consolidated financial data for the nine months ended September 30, 2009 and 2010 and the summary consolidated balance sheet data as of September 30, 2010 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus and have been prepared on the same basis as the audited consolidated financial data. The unaudited financial information includes all adjustments, consisting only of normal and recurring adjustments, that we consider necessary for a fair presentation of our financial position and operating results for the periods presented. In addition, our unaudited results for the nine months ended September 30, 2010 may not be indicative of the results for the full year ending December 31, 2010.

		For the Years Ended December 31												For the nine months ended September 30
		2009				2008				2007				2010				2009
														(Unaudited)				(Unaudited)
Consolidated Statement of Income
Net revenues			67,874,304				43,790,842				10,482,997				134,087,699				33,128,434
Cost of goods sold			(57,764,335	)			(37,709,028	)			(9,507,978	)			(114,775,444	)			(28,098,577	)
Gross profit			10,109,969				6,081,814				975,019				19,312,255				5,029,857
Selling expenses			(116,918	)			(211,198	)			(34,230	)			(366,347	)			(76,677	)
General and administrative expenses			(889,481	)			(562,265	)			(326,274	)			(3,034,763	)			(515,049	)
Total operating expenses			(1,006,399	)			(773,463	)			(360,504	)			(3,401,110	)			(591,726	)
Income from operations			9,103,570				5,308,351				614,515				15,911,145				4,438,131
Interest income			7,221				4,640				2,658				63,184				3,618
Interest expense			(841,613	)			(70,108	)			(62,367	)			(660,319	)			(576,378	)
Other income (expense), net			(75,893	)			(18,438	)			(68,911	)			(563,901	)			6,037
Change in fair value of warrant derivative liability			—				—				—				(813,748	)			—
Income before provision for income taxes			8,193,285				5,224,445				485,895				13,936,361				3,871,408
Provision for income taxes			(1,034,212	)			—				—				(2,021,024	)			(493,170	)
Net income			7,159,073				5,224,445				485,895				11,915,337				3,378,238
Income per share:
Basic – ordinary share			0.84				0.61				0.06				1.29				0.40
Diluted – ordinary share			0.84				0.61				0.06				1.28				0.40
Weighted average shares used in calculating net income per share:
Basic			8,500,000				8,500,000				8,500,000				9,260,594				8,500,000
Diluted			8,500,000				8,500,000				8,500,000				9,278,054				8,500,000

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Consolidated Balance Sheet Data

		As of December 31,								As of September 30, 2010
		2009				2008
										(unaudited)
Total assets			79,472,678				40,461,169				136,798,748
Total liabilities			47,470,026				18,680,726				90,144,381
Total shareholders’ equity			32,002,652				21,780,443				46,654,367

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Honesty Group has unfulfilled registered capital obligation for its two subsidiaries, Guanwei and Guancheng.

Two of Honesty Group’s subsidiaries, Guanwei and Guancheng, were formed on June 22, 2007, with registered capital of $11,880,000 and $7,800,000. Under PRC law, the registered capital of a company is regarded as corporate property, and it is the shareholder’s obligation to fulfill its subscribed capital contribution according to the provisions of PRC law and the PRC company’s charter documents. The charter document for each PRC company, which consists of the company’s articles of association, is the agreement that sets forth the amount of registered capital required to be paid. Honesty Group has the obligation to fulfill the registered capital obligations of Guanwei and Guancheng.

As of September 30, 2010, $3,130,000 and $4,969,970 had been invested by Honesty Group in the above subsidiaries. According to an agreement reached with the local government agency, the Jinjiang Bureau of China’s State Administration of Industry and Commerce, or SAIC, the remaining registered capital of $8,750,000 and $2,830,030 must be contributed by the end of 2010. The SAIC provided Honesty Group with additional time to make the registered capital payments because Honesty Group is in the process of investing in infrastructure in the region through its investment in the SGOCO Technology Park. If Honesty Group is unable to make the registered capital payments during 2010, it believes it will be able to reach agreement with the SAIC to further defer its obligation to pay the remaining registered capital for an additional 12 months, provided that the SAIC believes Honesty Group is progressing with the timetable for making its infrastructure investments in the SGOCO Technology Park. Honesty Group does not have a specific timetable for paying these obligations, and does not presently know when it will pay these obligations. If it fails to reach such an agreement for deferral, Honesty Group would have an obligation to fund these two subsidiaries or to apply for a reduction in the remaining registered capital, which may not be granted. If Honesty Group fails to contribute the registered capital, it may be penalized with fines of 5 – 15% over the amount of unpaid capital, and, in certain cases, the business licenses for Guanwei and Guancheng may be revoked, which would result in the inability of Guanwei and Guancheng to conduct business in China. If Honesty Group is required to fund the remaining registered capital, Honesty Group will need to raise external financing, and there is no assurance that sufficient external financing could be raised to fund the registered capital amount.

Honesty Group has not informed the SAIC of the change in its ownership due to the Acquisition because such disclosure is not required by applicable law. SGOCO does not believe that the change in ownership will impact any future deferrals or reduction applications it may receive from the SAIC with respect to Honesty Group’s registered capital commitments. Furthermore, if the business license of Guanwei or Guancheng was revoked due to Honesty Group’s failure to pay the required registered capital, the individuals that serve as the legal representatives of Guanwei or Guangcheng would not be subject to penalties for such failures.

We granted an investor a put option at $8.00 per share exercisable for a three month period commencing February 15, 2011, which, if exercised, would require us to repurchase up to 250,000 shares for a total of $2.0 million.

In March 2010, we and Mr. Burnette Or, personally, granted an investor a put option that permits the investor to require us or Mr. Or to purchase up to 250,000 ordinary shares from the investor at $8.00 per share commencing February 15, 2011 until May 15, 2011. To the extent the price of our ordinary shares during the option period is less than $8.00 per share, it is likely that the investor will require us or Mr. Or to purchase the shares for an aggregate purchase price of $2.0 million. If the investor requires us to purchase the shares, the funds used to make the purchase would reduce our working capital.

We have generated a significant percentage of our revenues from related parties.

In the past, we have generated a significant percentage of our revenues from related parties. During the nine months ended September 30, 2010, related parties represented 9.4% of our revenues. For the years ended December 31, 2009, 2008 and 2007, related parties represented 9.1%, 22.2% and 18.4% of our revenues, respectively. We can provide no assurance that we will be able to continue to generate revenues from related parties in the future. If we are unable to generate revenues from related parties in the future, or if we are unable to replace any lost revenues from related parties in the future, our operating results may be adversely affected.

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We sell most of our products through a few customers with which we do not have long-term agreements, and, accordingly, we may have risks from our level of customer concentration.

We derive a significant portion of our sales from several large distributors. For 2008 and 2009, sales to our top three customers accounted for approximately 66% and 64%, respectively, of our total revenue and, for the nine months ended September 30, 2010, sales to our top three customers accounted for approximately 22%, 14%, and 11%, respectively, of our total revenue.

The identity of our large customers has generally changed from period to period, such that only one of the customers that represented greater than 10% of our revenue during the nine month period ended September 30, 2010, represented greater than 10% of our revenue during the year ended December 31, 2009. The table below shows the changing nature of our customers that represented at least 10% of SGOCO’s revenues during the relevant period:

		For nine months ended September 30, 2010				For the year ended December 31, 2009				For the year ended December 31, 2008				For the year ended December 31, 2007
Customer A*			14	%			10	%
Customer B			22	%
Customer C			11	%
Customer D**											22	%			18	%
Customer E							21	%
Customer F							27	%			27	%
Customer G							16	%
Customer H											17	%
Customer I											13	%
Customer J											11	%			28	%

For the nine month period ended September 30, 2010, our customers that represented greater than 10% of our revenue during the period consisted of two distributors (Customers A and B above), and one OEM customer (Customer C). Customers A and B are Chinese companies, and Customer C is a Hong Kong company.

The main reason for the increase in revenue from these customers is reduction in OEM revenue beginning in 2008. As a part of our strategy, production capacity is primarily focused on our own brand products. Because of demand for our own branded products, we could not take on any OEM contracts in 2009. While we expect current distributors to have similar or larger volume in 2010, our revenue mix will begin to change in 2010. As we completed a move to a new production facility in 2009 with increased production capacity, we expect that 2010 will have additional revenue from OEM customers. We also expect revenue to grow from sales to SGOCO Club members. Nonetheless, any substantial reduction in purchases from our top distributors, or any failure to renew their agreements with us, may result in a significant loss of sales and our business, financial condition and results of operation may be materially adversely affected. None of these customers have long-term contracts with us and they each order as needed based on purchase orders. Sales to customers are entered into based on individual purchase orders.

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We are exposed to the credit risks of our customers.

Our accounts receivable aging period typically ranges from 30 to 60 days. Our financial position and profitability is dependent on the creditworthiness of our customers. Thus, we are exposed to the credit risks of our customers, and this risk increases the larger the orders are. The table below shows the number of customers that represented at least 10% of SGOCO’s accounts receivable as of relevant period:

		As of September 30, 2010				As of December 31, 2009				As of December 31, 2008				As of December 31, 2007
Customer A			15	%			40	%
Customer B			47	%
Customer D											50	%			49	%
Customer E							18	%
Customer G							16	%
Customer H											10	%
Customer J											20	%			40	%

Although there has not been any material collection problem for trade receivables or bad debts in the last three fiscal years, there is no assurance that we will not encounter doubtful or bad debts in the future. If we were to experience any unexpected delay or difficulty in collections from our customers, our cash flows and financial results may be adversely affected.

We may experience pressure from panel manufacturers to make greater prepayments for our inventory.

We pay advances to vendors for inventory purchases, which amounted to $12.0 million, $4.4 million and $0.2 million as of December 31, 2009, 2008 and 2007, respectively, and $17.2 million at September 30, 2010. The amount of the advance is negotiated with the vendor. These advance payments require a substantial commitment of our working capital. In the future, suppliers may demand higher levels of advances for future purchases as demand grows for LCD panels.

The table below shows the number of suppliers that represented at least 10% of advances to suppliers, including related parties, as of the relevant period:

		As of September 30, 2010				As of December 31, 2009				As of December 31, 2008				As of December 31, 2007
Supplier A							25	%
Supplier B*							43	%			71	%			40	%
Supplier C			32	%			15	%
Supplier D											16	%
Supplier F			17	%
Supplier G			15	%
Supplier H			14	%
Supplier I			11	%

Our successful operation relies upon an adequate supply of LCD panels, at acceptable prices and quantity, in a timely manner.

We have no production capability to manufacture LCD panels, and our operations are significantly dependent on the sufficient supply of LCD panels obtained at reasonable prices. We currently source LCD panels from multiple distributors. We are exposed to the market risk of availability and price fluctuations for LCD panels. The price and availability of LCD panels may vary significantly from year to year due to factors such as global demand from end users, China’s import restrictions, producer capacity, market conditions and costs of raw materials. We do not have long-term contracts with our suppliers or guarantees of supply or price. If the prices of LCD panels rise too high or the supply of LCD panels becomes scarce, our profit

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margins may decline and we may be unable to fulfill order contracts placed prior to production. We are currently in negotiation directly with additional LCD panel suppliers as a strategy to diversify supply risks and reduce material costs.

We face increasing labor costs and other costs of production in the PRC, which could reduce our profitability.

Labor costs in China have been increasing in recent years and labor costs in the PRC could continue to increase in the future. If labor costs in the PRC continue to increase, production costs will likely increase. This may in turn affect the selling prices of our products, which may then affect the demand of such products and thereby adversely affect our sales, financial condition and results of operations. We are actively reviewing manufacturing processes to continue to simplify our production processes and to continue to control and build more of our components internally.

We may not be able to retain, recruit and train adequate management, sales and marketing personnel, and our inability to attract and retain qualified personnel may limit our development.

Our success is dependent to a large extent on our ability to retain the services of our executive management personnel, who have contributed to our growth and expansion and also to recruit talented executives to lead new initiatives. The industry experience, entrepreneurial skills and contributions of our executive directors and other members of our senior management are essential to our continuing success. Our future success will depend on the continued service of our senior management. In particular, Mr. Burnette Or, Chairman of the Board and President, has over 10 years’ experience in the consumer electronics industry and is responsible for the overall corporate strategy, planning and business development of Honesty Group. His experience and leadership is critical to our operations and financial performance. If we lose the services of Mr. Or, or any of our key executive personnel, and cannot replace them in a timely manner, such loss may reduce our competitiveness, and may adversely affect our financial condition, operating results and future prospects. In addition, our retail expansion plan and SGOCO Club model are dependent upon our ability to identify and recruit an adequate sales force in China. Given the current rate of economic growth in China, competition for qualified personnel will be substantial.

We do not currently have a full-time chief financial officer with experience as a chief financial officer of a United States publicly traded company.

Mr. Lv Zhongsheng is currently SGOCO’s Treasurer, chief accountant and acting chief financial officer. We are seeking a chief financial officer with substantial experience in U.S. GAAP and public company reporting requirements and the ability to speak Mandarin Chinese fluently. The pool of candidates meeting our criteria is small. We have entered into discussions with a small number of candidates to assume the chief financial officer position, but have not finalized an agreement with a candidate and can provide no assurance that we will do so in a timely manner. The delay in obtaining the services of qualified chief financial officer may hinder our ability to timely comply with our reporting requirements as a U.S. public company.

We may not be able to manage our growth effectively and our growth may slow down in the future.

We have been expanding our business rapidly and expect to continue to do so either through organic growth or through acquisitions and investments in related businesses as we deem appropriate. Such expansion may place a significant strain on our managerial, operational and financial resources. We will need to manage our growth effectively, which may entail devising and implementing business plans, training and managing a growing workforce, managing costs and implementing adequate control and reporting systems in a timely manner. There can be no assurance that our personnel, procedures and controls will be managed effectively to support future growth adequately. Failure to manage expansion effectively may affect our success in executing our business plan and adversely affect our business, financial condition and results of operation. In addition, our growth in percentage terms may slow in the future. Accordingly, you should not rely on our historic growth rate as an indicator for our future growth.

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SGOCO Technology Park is subject to a purchase option that may limit our ability to fully realize on our plans to develop SGOCO Technology Park for our benefit.

As a condition to the execution of the share exchange agreement we entered into as part of the Acquisition, Honesty Group entered into a purchase option in favor of SGOCO’s President, Mr. Burnette Or, which allows Mr. Or, or a company designated by him, to purchase the SGOCO Technology Park for cost at any time prior to March 18, 2011, and also allows Honesty Group to put the property to Mr. Or if he fails to exercise his option by such date. The option may be extended by one year at the request of Mr. Or. Mr. Or’s exercise of the purchase option is conditioned on Mr. Or, or the designated company, agreeing with Guanke for a long-term lease of the property at the prevailing market price. Our ability to fully develop the SGOCO Technology Park and benefit from that development may be limited if this option is exercised by Mr. Or.

We rely on short-term credit facilities and loans to fund our operations, and the failure to renew these facilities on a regular basis may adversely effect our ability to operate our business.

We fund much of our operations from short term credit facilities and loans with various PRC banks. As of September 30, 2010, our notes and letters of credit totaled approximately $21.7 million and our short term bank loans totaled $22.2 million.

We have written credit facilities with four banks pursuant to which we issued a portion of the amounts discussed above. We have a facility with the Bank of Communications that expires in August 2011. We have several facilities with the Agricultural Bank of China that expire in January 2011 and March 2011, respectively. We have a facility with the Industrial and Commercial Bank of China that was renewed in September 2010 for a one-year period. The remainder of our short-term borrowings are with Industrial Bank Co., Ltd., and consist of short-term loans.

All of our borrowings mature at various dates within one year. We have been making these types of arrangements since our inception, and, in the past, we have been able to renew these facilities and repay the loans and borrow again from the same banks. However, there is no assurance that we will be able to renew these facilities in the future. If we are unable to renew these facilities in the future, we will need to raise financing from alternative sources for which we have no commitments.

The SGOCO Technology Park and our equipment located at the SGOCO Technology Park are subject to mortgages with our lenders.

We have several credit facilities with the Agricultural Bank of China in the total amount of RMB 76 million, of which we are currently permitted to utilize RMB 68 million. In connection with the credit facility for RMB 58 million, which expires March 3, 2011, the Agricultural Bank of China has a mortgage on our land use rights for the SGOCO Technology Park. This mortgage secures all credit extensions under this facility from March 4, 2009 until March 3, 2011. The Agricultural Bank of China also has a mortgage on our machinery equipment located at the SGOCO Technology Park pursuant to a credit facility for RMB 18 million, which expires January 26, 2011. This mortgage secures all credit extensions under this facility from January 27, 2011 until January 26, 2011. Both of these credit facilities are short-term. Although in the past, we have been able to renew these facilities, there is no assurance that we will be able to renew these facilities in the future. In the event that we are not able to renew the facilities upon the expiration of their terms, or we cannot pay off the amounts borrowed under the facilities, both our land use rights for the SGOCO Technology Park and the machinery equipment located at the SGOCO Technology Park would be subject to foreclosure.

We currently enjoy certain preferential tax treatment in China, which may not continue in future periods.

Pursuant to the PRC Income Tax Laws, prior to January 1, 2008, Chinese companies were subject to Enterprise Income Taxes, or EIT, at a statutory rate of 33%. Beginning January 1, 2008, the new EIT law replaced the existing laws for Domestic Enterprises and Foreign Invested Enterprises, or FIEs. The new standard EIT rate of 25% replaced the 33% rate, except for “High Tech” companies, which pay a reduced rate of 15%. Companies established before March 16, 2007 were able to continue to enjoy tax holiday treatment approved by the local government for a grace period of the five years or until the tax holiday term is completed, whichever is sooner.

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Guanke was established before March 16, 2007 and therefore is qualified to continue enjoying the reduced tax rate as described above. Guanke was granted an income tax exemption for two years commencing from January 1, 2007, and is subject to 50% of the 25% EIT tax rate, or 12.5%, from January 1, 2009 through December 31, 2011. Guanke is currently applying for the High Technology company status. If qualification as a High Technology company is achieved, Guanke will be entitled to preferential tax treatment and enjoy the benefit of a reduced income tax rate at 15% starting 2012. Guanwei is in the development stage. Guancheng began its operations in June 2010. Guanwei and Guancheng had no taxable income for the years ended December 31, 2009, 2008 and 2007. Future changes in Chinese tax law could change existing or future tax benefits or rates. Such changes could adversely affect our results.

As all of our operations are in China, we may face risks related to health epidemics and other outbreaks in China, which could adversely affect our operations.

Our business could be materially and adversely affected by the outbreak of avian flu, severe acute respiratory syndrome or another epidemic. From time to time, there have been reports on the occurrences of avian flu in various parts of China, including a few confirmed human cases and deaths. Any prolonged recurrence of avian flu, severe acute respiratory syndrome or other adverse public health developments in China or elsewhere in Asia may have a material and adverse effect on our business operations.

Our operations may be disrupted and our business, financial condition and/or results of operations may be adversely affected by a failure in our facilities or our suppliers’ facilities for reasons beyond our control.

Our manufacturing operations, or that of our LCD panel suppliers, could be disrupted for reasons beyond our control. The causes of disruptions may include extreme weather conditions, landslides, earthquakes, fires, natural catastrophes, raw material supply disruptions, equipment and system failures, labor force shortages, energy shortages, workforce actions or environmental issues. Any significant disruption to our or our major suppliers’ operations could adversely affect our ability to make and sell products. In addition, the occurrence of any of these events could have a material adverse effect on the productivity and profitability of any of our manufacturing facilities and on our business, financial condition or results of operations.

Changes in existing laws and regulations or additional or stricter laws and regulations on environmental protection in the PRC may cause us to incur additional capital expenditures.

Our production facility is located in Jinjiang City, Fujian province and is subject to PRC environmental protection laws and regulations. These laws and regulations require enterprises engaged in manufacturing that may generate industrial waste to adopt effective measures to control and properly dispose of such waste. The relevant administrative department for environmental protection can levy fines for any violations of such environmental laws or regulations. For material violations, the PRC government may suspend or close any or all of our operations. Upon completion of construction of our facilities, an environmental report was prepared and approved by the Jinjiang Municipal Environment Protection Bureau, but there is no assurance that the local municipal or central PRC government will not change the existing laws or regulations or impose additional or stricter laws or regulation. Compliance with any of these additional or stricter laws or regulations may cause us to incur additional capital expenditures, which we may be unable to pass on to our customers through higher prices for our products.

Our current insurance coverage may not be sufficient to cover the risks related to our operations.

Our operations are subject to hazards and risks normally associated with manufacturing operations, which may cause damage to persons or property. Currently, we maintain insurance policies for damage to real property and for employer liability for personal injury of employees. We are not required under PRC law to maintain, and we do not maintain, any product liability insurance. If we were found liable for any product liability claim, we may be required to pay substantial damages. Even if we were successful in defending such a claim, we may incur substantial financial and other resources in defending such a claim. Under such circumstances, our financial results will be adversely affected. Depending on the outcome of any such claim, the reputation of our brands may also be adversely affected. Further, we do not maintain business interruption insurance or third party liability insurance against claims for property damage, personal injury and environmental liabilities. The occurrence of any of these events may result in interruption of our operations

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and subject us to significant losses or liabilities. Any losses or liabilities that are not covered by our current insurance policies may have a material adverse effect on our business, financial condition and results of operations.

Our risk management and internal control systems improvements may not be adequate or effective, which could adversely affect our business, financial condition and results of operations.

We have established risk management and internal control systems consisting of establishing an organizational framework, and implementing policies, procedures and risk management methods that we believe are appropriate for our business operations, and we seek to continue to improve such risk management and internal control systems from time to time. However, as a small company with few non-production/sales employees and due to the inherent limitations in the design and implementation of risk management and internal control systems, there can be no assurance that our risk management and internal control systems will be sufficiently effective in identifying and preventing all such risks.

In addition, as some of our risk management and internal control policies and procedures are relatively new, we may need to establish and implement additional risk management and internal control policies and procedures to further improve our systems from time to time. Since our risk management and internal control systems also depend on their implementation by our employees, there can be no assurance that such implementation will not involve any human errors or mistakes. If we fail to timely adopt and implement risk management and internal control policies and procedures, our business, results of operations and financial condition could be materially adversely affected.

Our market is subject to rapidly changing consumer preferences and we may not be able to predict or meet consumer preferences or demand accurately.

We derive a significant amount of revenue from the LCD products that are subject to rapidly changing consumer preferences. Our sales and profits are sensitive to these changing preferences and our success depends on our ability to identify, originate and define product and fashion trends as well as to anticipate, gauge and react to changing consumer demands in a timely manner. All of our products are subject to changing consumer preferences that we cannot predict with certainty. If we fail to anticipate accurately and respond to trends and shifts in consumer preferences, we could experience lower sales, excess inventories and lower profit margins, any of which could have an adverse effect on our results of operations and financial condition.

Guanke, our principal operating subsidiary, failed to pay social insurance premiums with respect to approximately two-thirds of its employees and it may be liable for past due social insurance premiums and penalties.

We have been advised that under PRC law Guanke should have paid social insurance premiums for its employees covering endowment insurance, unemployment insurance, and medical insurance with respect to its employees. Guanke may be required to pay the administrative authority of labor and social security the unpaid premiums plus a surcharge of 2% of the overdue premiums. There may also be a fine levied against the employee of Guanke who was responsible for the filings. We plan to make necessary payments and do not consider the liability material.

Following the Acquisition, we did not receive sufficient amounts from the Trust Account to fully fund our operations and execute our business plan.

Of the funds in the Trust Account, a substantial portion were used for repurchases of ordinary shares pursuant to forward purchase contracts, to redeem the ordinary shares of shareholders who elected to exercise their redemption rights, to redeem the warrants of warrantholders who elected to exchange their warrants for cash, or to pay other transaction expenses. We received approximated $5.4 million from the Trust Account. In order to fund our operations and grow our business, we may require additional working capital which the Trust Account did not provide. If we do not obtain equity or debt financing, we may not be able to operate our business or execute our business plan as expected.

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We may not be able to secure financing needed for future operating needs on favorable terms, or on any terms at all.

From time to time, we may seek additional financing to provide the capital required to maintain our business if cash flow from operations is insufficient to do so. We cannot predict with certainty the timing or amount of any such capital requirements. If such financing is not available on satisfactory terms, we may be unable to expand our business or to develop new business at the rate desired, and our results of operations may be adversely affected. If we are able to incur debt, we may be subject to certain restrictions imposed by the terms of the debt and the repayment of such debt may limit our cash flow and our ability to grow. If we are unable to incur debt, we may be forced to issue additional equity, which could have a dilutive effect on our current shareholders.

We may qualify as a passive foreign investment company, or “PFIC,” which could result in adverse U.S. federal income tax consequences to U.S. holders of our ordinary shares and warrants.

In general, we will be treated as a PFIC for any taxable year in which either (1) at least 75% of our gross income (looking through certain 25% or more-owned corporate subsidiaries) is passive income or (2) at least 50% of the average value of our assets (looking through certain 25% or more-owned corporate subsidiaries) is attributable to assets that produce, or are held for the production of, passive income. Passive income generally includes, without limitation, dividends, interest, rents, royalties, and gains from the disposition of passive assets. If we are determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. holder of our ordinary shares, the U.S. holder may be subject to increased U.S. federal income tax liability and may be subject to additional reporting requirements. Our actual PFIC status for our 2010 taxable year or any subsequent taxable year will not be determinable until after the end of such taxable year. Accordingly, there can be no assurance as to our status as a PFIC for our 2010 taxable year or any future taxable year. U.S. holders of our ordinary shares are urged to consult their own tax advisors regarding the possible application of the PFIC rules.

Honesty Group did not operate as a public company prior to the Acquisition. Fulfilling our obligations incident to reporting as a “foreign private issuer” will be expensive and time consuming.

Hambrecht Asia Acquisition Corporation was not an operating company prior to the Acquisition of Honesty Group, which was a private company. Since the Acquisition, we have maintained a relatively small finance, accounting and internal auditing staff and, prior to the Acquisition, we were not required to maintain and establish disclosure controls and procedures and internal control over our financial reporting as required for a public company trading in the United States. Under the Sarbanes Oxley Act of 2002 and the related rules and regulations of the Securities and Exchange Commission, or SEC, we have begun to implement additional corporate governance practices and adhere to a variety of reporting requirements and complex accounting rules. Compliance with these obligations requires significant management time, places significant additional demands on our finance and accounting staff and on our financial, accounting and information systems, and increases our insurance, legal and financial compliance costs. We have engaged consultants and added additional accounting and financial staff with appropriate public company experience and technical accounting knowledge.

Being a foreign private issuer exempts us from certain SEC requirements that provide shareholders the protection of information that must be made available to shareholders of United States public companies.

We are a foreign private issuer within the meaning of the rules promulgated under the Securities Exchange Act of 1934, or Exchange Act. As such, we are exempt from certain provisions applicable to United States public companies including:

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Because of these exemptions, our shareholders will not be afforded the same protections or information generally available to investors holding shares in public companies organized in the United States.

Expansion of our business may put added pressure on our management, which may impede our ability to meet any increased demand for our products and adversely affect our results of operations.

Our business plan is to significantly grow our operations. Growth in our business may place a significant strain on our personnel, management, financial systems and other resources. The evolution of our business also presents numerous risks and challenges, including:

If we are successful growing our SGOCO Club participants, we may be required to provide a large amount of financial support to potential members and deliver LCD products to customers on a timely basis at a reasonable cost to those customers. Such demands would require more capital than we currently have available and we may be unable to meet the needs of our customers, which could adversely affect our relationships with our customers and results of operations.

Under the EIT Law, SGOCO may be classified as a “resident enterprise” of the PRC. Such classification could result in adverse tax consequences to SGOCO and its non-PRC resident shareholders.

Under the new EIT Law and the Implementing Rules, an enterprise established outside of the PRC with “de facto management bodies” within the PRC is considered as a resident enterprise and will be subject to PRC income tax on its global income. According to the Implementing Rules, “de facto management bodies” refer to “establishments that carry out substantial and overall management and control over the manufacturing and business operations, personnel, accounting, properties, etc. of an enterprise.” Accordingly, our holding company, SGOCO Group, Ltd., may be considered a resident enterprise and may therefore be subject to PRC income tax on our global income. The State Administration of Taxation issued the Notice Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, or Circular 82, on April 22, 2009. Circular 82 provides certain specific criteria for determining whether the “de facto management body” of a Chinese-controlled offshore incorporated enterprise is located in China. Although Circular 82 only applies to offshore enterprises controlled by PRC enterprises and not those invested in by individuals or foreign enterprises like SGOCO, the determining criteria set forth in Circular 82 may reflect the State Administration of Taxation’s general position on how the “de facto management body” test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises or controlled by or invested in by individuals or foreign enterprises. If we are considered a resident enterprise and earn income other than dividends from our PRC subsidiary, such PRC income tax on our global income could significantly increase our tax burden and materially and adversely affect our cash flow and profitability. Since the EIT Law became effective in 2008, SGOCO has not been treated as a “resident enterprise.”

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If the PRC tax authorities determine that SGOCO is a “resident enterprise” for PRC enterprise income tax purposes, a number of PRC tax consequences could follow. First, SGOCO may be subject to enterprise income tax at a rate of 25% on SGOCO’s worldwide taxable income, as well as PRC enterprise income tax reporting obligations. Second, under the EIT Law and its implementing rules, dividends paid between “qualified resident enterprises” are exempt from enterprise income tax. As a result, if both SGOCO and Honesty Group are treated as PRC “resident enterprises,” all dividends from the PRC operating subsidiaries to Honesty Group and from Honesty Group to SGOCO would be exempt from PRC tax.

If SGOCO were treated as a PRC “non-resident enterprise” under the EIT Law, then dividends that SGOCO receives from its PRC operating subsidiaries (assuming such dividends were considered sourced within the PRC) (1) may be subject to a 5% PRC withholding tax, if the Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (the “PRC-Hong Kong Tax Treaty”) were applicable, or (2) if such treaty does not apply (i.e., because the PRC tax authorities may deem Honesty Group to be a conduit not entitled to treaty benefits), may be subject to a 10% PRC withholding tax. Any such taxes on dividends could materially reduce the amount of dividends, if any, SGOCO could pay to its shareholders.

Finally, the new “resident enterprise” classification could result in a situation in which a 10% PRC tax is imposed on dividends SGOCO pays to its non-PRC shareholders that are not PRC tax “resident enterprises” and gains derived by them from transferring SGOCO’s ordinary shares, if such income is considered PRC-sourced income by the relevant PRC authorities. In such event, SGOCO may be required to withhold the 10% PRC tax on any dividends paid to its non-PRC resident shareholders. SGOCO’s non-PRC resident shareholders also may be responsible for paying PRC tax at a rate of 10% on any gain realized from the sale or transfer of ordinary shares in certain circumstances. SGOCO would not, however, have an obligation to withhold PRC tax with respect to such gain. If any such PRC taxes apply, a non-PRC resident shareholder may be entitled to a reduced rate of PRC taxes under an applicable income tax treaty and/or a foreign tax credit against such shareholder’s domestic income tax liability (subject to applicable conditions and limitations). Prospective investors should consult with their own tax advisors regarding the applicability of any such taxes, the effects of any applicable income tax treaties, and any available foreign tax credits.

Intercompany loans from SGOCO to its operating subsidiary must be made in compliance with PRC law.

Any loans we make to our Chinese subsidiaries, which are treated as foreign-invested enterprises under Chinese law, cannot exceed statutory limits and must be registered with the State Administration of Foreign Exchange, or SAFE, or its local counterparts. Under applicable Chinese law, the Chinese regulators must approve the amount of a foreign-invested enterprise’s registered capital, which represents shareholders’ equity investments over a defined period of time, and the foreign-invested enterprise’s total investment, which represents the total of the company’s registered capital plus permitted loans. The registered capital/total investment ratio cannot be lower than the minimum statutory requirement and the excess of the total investment over the registered capital represents the maximum amount of borrowings that a foreign invested enterprise is permitted to have under Chinese law. If we were to advance funds to our Chinese subsidiaries in the form of loans and such funds exceed the maximum amount of borrowings of the subsidiary, we would have to apply to the relevant government authorities for an increase in their permitted total investment amounts. The various applications could be time consuming and their outcomes would be uncertain. Concurrently with the loans, we might have to make capital contributions to the subsidiary in order to maintain the statutory minimum registered capital/total investment ratio, and such capital contributions involve uncertainties of their own, as discussed below. Furthermore, even if we make loans to our Chinese subsidiaries that do not exceed their current maximum amount of borrowings, we will have to register each loan with SAFE or its local counterpart within 15 days after the signing of the relevant loan agreement. Subject to the conditions stipulated by SAFE, SAFE or its local counterpart will issue a registration certificate of foreign debts within 20 days after reviewing and accepting its application. In practice, it may take longer to complete such SAFE registration process.

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We cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans by us to our Chinese subsidiaries or affiliated entities or with respect to future capital contributions by us to our Chinese subsidiaries. If we fail to complete such registrations or obtain such approvals, our ability to use such future loans or capital contributions to capitalize or otherwise fund our Chinese operations may be negatively affected, which could adversely and materially affect our liquidity and our ability to fund and expand our business.

Risks Related to Doing Business in China

Adverse changes in political and economic policies of the Chinese government could have a material adverse effect on the overall economic growth of China, which could reduce the demand for our products and adversely affect our competitive position.

Our business operations will continue to be conducted in China, and a substantial portion of our sales will continue to be made in China. Accordingly, our business, financial condition, results of operations and prospects will be affected significantly by economic, political and legal developments in China. The Chinese economy differs from the economies of most developed countries in many respects, including:

While the Chinese economy has experienced significant growth in the past 30 years, growth has been uneven, both geographically and among various sectors of the economy. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall Chinese economy, but may also have a positive or negative effect on us.

The Chinese economy has been transitioning from a planned economy to a more market-oriented economy. Although in recent years the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, the Chinese government still owns a substantial portion of the productive assets in China. The continued control of these assets and other aspects of the national economy by the Chinese government could adversely affect our business. The Chinese government also exercises significant control over Chinese economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Any adverse change in the economic conditions or government policies in China could have a material adverse effect on overall economic growth in China, which in turn could lead to a reduction in demand for our products.

Investors may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions in China based on U.S. judgments against us or our subsidiaries, affiliates, officers, directors and shareholders.

Substantially all of our assets are located outside of the U.S. and most of our directors and executive officers reside outside of the U.S. As a result, it may not be possible for investors in the U.S. to effect service of process within the U.S. or elsewhere outside China on us, our subsidiaries, officers, directors and shareholders, and others, including with respect to matters arising under U.S. federal or state securities laws. China does not have treaties providing for reciprocal recognition and enforcement of judgments of courts with the U.S. and many other countries. As a result, recognition and enforcement in China of these judgments in relation to any matter, including U.S. securities laws and the laws of the Cayman Islands, may be difficult or impossible. Furthermore, an original action may be brought in China against our assets or our subsidiaries, officers, directors, shareholders and advisors only if the actions are not required to be arbitrated by Chinese law and the facts alleged in the complaint give rise to a cause of action under Chinese law and the actions satisfy certain prerequisite conditions prescribed by Chinese law. In connection with such an original action, a

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Chinese court may award civil liabilities, including monetary damages. Notwithstanding the ability to bring original actions, we believe it is unlikely that the courts in China would entertain original actions brought in China against us or our directors or officers predicated upon the securities laws of the United States or any state or territory within the United States.

Future changes in laws, regulations or enforcement policies in China could adversely affect our business.

Laws, regulations or enforcement policies in China are evolving and subject to future changes. Future changes in laws, regulations or administrative interpretations, or stricter enforcement policies by the Chinese government, could impose more stringent requirements on us, including fines or other penalties. Changes in applicable laws and regulations may also affect our operating costs. Compliance with these requirements could impose substantial additional costs or otherwise adversely affect our future growth. These changes may relax some requirements, which could be beneficial to our competitors or could lower market entry barriers and increase competition. In addition, any litigation or governmental investigation or enforcement proceedings in China may be protracted and result in substantial costs and diversion of resources and management attention.

Changes in Chinese tax laws could adversely affect our results.

Our Chinese subsidiaries are governed by the Income Tax Law of the PRC concerning Foreign Investment Enterprises and Foreign Enterprises and various local income tax laws. Beginning January 1, 2008, the new EIT law replaced the previous laws for Domestic Enterprises and FIEs. The new standard EIT rate of 25% has replaced the 33% rate previously applicable to both Domestic Enterprises and FIEs. Companies established before March 16, 2007 will continue to enjoy tax holiday treatment approved by local government for a grace period of the next 5 years or until the tax holiday term is completed, whichever is sooner. Guanke was established before March 16, 2007 and therefore is qualified to continue enjoying the reduced tax rate as described above. Guanke was granted an income tax exemption for two years commencing from January 1, 2007, and is subject to 50% of the 25% EIT tax rate, or 12.5% from January 1, 2009, through December 31, 2011. Guancheng was established before March 16, 2007 and is subject to 25% EIT tax rate on its taxable income. Guancheng started operations in June 2010 and had a net loss for the nine months ended September 30, 2010. Accordingly, no provision was made in the periods. Guancheng was under development stage and had no taxable income for the years ended December 31, 2009, 2008 and 2007. Future changes in Chinese tax law could change existing or future tax benefits or rates. Such changes could adversely affect our results.

Uncertainties with respect to the Chinese legal system could have a material adverse effect on us.

The Chinese legal system is a civil law system based on written statutes. Unlike in the common law system, prior court decisions may be cited for reference, but have limited precedential authority in China. Since 1979, Chinese legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. We conduct all of our business through our subsidiaries, which are established in China. As a result, we will be subject to laws and regulations applicable to foreign investments in China and, in particular, laws applicable to wholly foreign-owned enterprises. However, since the Chinese legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties, which may limit legal protections available to us. For example, we may have to resort to administrative and court proceedings to enforce the legal protection that we or our subsidiaries enjoy either by law or contract. Since Chinese administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we would enjoy in more developed legal systems. These uncertainties may impede our ability to enforce contracts or other rights. Furthermore, intellectual property rights and confidentiality protections in China may not be as effective as in the U.S. or other countries. Accordingly, we cannot predict the effect of future developments in the Chinese legal system including the promulgation of new laws, changes to existing laws or the interpretation or enforcement of these laws, or the preemption of local regulations by national laws. These uncertainties could limit the legal protections available to us and our shareholders. In addition, any litigation in China may be protracted and result in substantial costs and diversion of our resources and management attention.

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The Chinese government exerts substantial influence over the manner in which we will conduct our business activities.

The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation, state ownership or otherwise. Our ability to operate in China may be harmed by changes in its laws, regulations and policies of the Chinese government. We believe that our operations in China will be in material compliance with all applicable legal and regulatory requirements. However, the central or local governments may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure compliance with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support economic and other reforms or regional or local variations in the implementation of economic and other policies, could have a significant effect on economic and social conditions in China or particular regions thereof, and could have an adverse effect on the manner in which we conduct our business.

The Chinese central government has a policy of aggressively subsidizing both consumption of domestic manufactured electronics and infrastructure building in smaller cities. A plan that went into effect nationwide in February 2009 targets rural area consumers through a rural subsidy scheme. The Chinese government program encourages consumer spending on technology in rural areas by offering a 13% subsidy of the purchase price of designated home appliances (up to a capped price), which subsidy is split 80% / 20% between the central and local government. The PRC Ministry of Finance announced in March 2009 that the 2009 budget from the central government for this subsidy plan was RMB 20 billion, which would help increase household appliance sales by more than RMB 100 billion. Changes in their policies to reduce subsidies or promote competing technologies could negatively impact our operations.

If China imposes restrictions to reduce inflation, future economic growth in China could be curtailed which could adversely affect our business and results of operation.

While the economy of China has experienced rapid growth, this growth has been uneven among various sectors of the economy and in different geographical areas of the country. Rapid economic growth can lead to growth in the supply of money and rising inflation. In order to control inflation, the Chinese government may impose controls on bank credits, limits on loans for fixed assets and restrictions on state bank lending. If similar restrictions are imposed, it may lead to a slowing of economic growth and decrease the interest in our LCD products leading to a decline in our profitability.

We may have difficulty establishing and maintaining adequate management, legal, and financial controls in the PRC.

Prior to the Acquisition, our Chinese subsidiaries were operated as privately-held companies. As a result, we may experience difficulty in establishing and maintaining management, legal and financial controls, collecting financial data and preparing financial statements, books of account and corporate records and instituting business practices that meet the required U.S. regulatory and financial reporting standards.

Changes in foreign exchange regulations in China may affect our operating subsidiary’s ability to pay dividends in foreign currency or conduct other foreign exchange business.

RMB is not a freely convertible currency currently, and the restrictions on currency exchanges may limit our ability to use revenues generated in RMB to fund our business activities outside China or to make dividends or other payments in U.S. dollars. In China, SAFE regulates the conversion of RMB into foreign currencies. Over the years, foreign exchange regulations in China have significantly reduced the government’s control over routine foreign exchange transactions under current accounts (e.g., remittance of foreign currencies for payment of dividends, etc.). However, conversion of RMB for capital account items, such as direct investment, loan, security investment and repatriation of investment, is still subject to the approval of the SAFE. Under China’s existing foreign exchange regulations, Honesty Group’s Chinese primary operating subsidiary, Guanke, is able to pay dividends in foreign currencies, without prior approval from the SAFE, by complying with certain procedural requirements. However, we cannot assure you that the Chinese government will not take measures in the future to restrict access to foreign currencies for current account transactions.

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Fluctuation in the value of the Renminbi (RMB) may reduce our profitability.

The change in value of the RMB against U.S. dollars, Euro and other currencies is affected by, among other things, changes in China’s political and economic conditions. On July 21, 2005, the PRC government changed its policy of pegging the RMB to U.S. dollars. Under the new policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. While the international reaction to the RMB revaluation has generally been positive, there remains significant international pressure on the Chinese government to adopt an even more flexible currency policy, which could result in significant fluctuation of the RMB against U.S. dollars. Any significant revaluation of the RMB may have a material adverse effect on our revenues and financial condition. For example, to the extent that we need to convert U.S. dollars we receive into RMB for our operations, appreciation of the RMB against U.S. dollars would reduce the RMB amount we receive from the conversion. Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of making payments for dividends on our shares or for other business purposes, appreciation of U.S. dollars against the RMB would reduce the U.S. dollar amount available to us.

Exchange controls that exist in China may limit our ability to use our cash flows effectively.

Most of our revenues and expenses are denominated in Renminbi. We may need to convert a portion of our revenues into other currencies to meet our foreign currency obligations, including, among others, payment of dividends, if any, in respect of our shares. Under China’s existing foreign exchange regulations, we are able to purchase foreign exchange for settlement of current account transactions, including payment of dividends in foreign currencies, without prior approval from SAFE by complying with certain procedural requirements. However, we cannot assure you that the Chinese government will not take further measures in the future to restrict access to foreign currencies for current account transactions. Any future restrictions on currency exchanges may limit our ability to use cash flows for the distribution of dividends to our shareholders or to fund operations we may have outside of China.

Foreign exchange transactions continue to be subject to significant foreign exchange controls and require the approval of or registration with the Chinese governmental authorities, including SAFE. In particular, if Honesty Group borrows foreign currency loans from us or other foreign lenders, these loans must be registered with SAFE, and if we finance Honesty Group by means of additional capital contributions, these capital contributions must be approved by certain government authorities, including the Ministry of Commerce or its local counterparts. These limitations could affect the ability of Honesty Group to obtain additional foreign exchange through debt or equity financing.

Chinese government ownership of all real property may limit our ability to fully develop our licensed real estate.

Chinese laws prohibiting the private ownership of land and limiting “land use rights” may hamper our ability to maximize our subsidiaries’ property. All land in the PRC is owned by the Chinese government. Guanke, Guancheng, and Guanwei have “land use rights” to use the land on which our SGOCO Technology Park is located for 50 years, beginning June 29, 2007. The Chinese government must not recall the land use right during the term of the land use agreement, unless it is for legitimate public interests with due process and compensation, including but not limited to compensation for the facilities on the land and the foreseeable losses to the holder in the remaining years. Once the land use right fee has been fully paid up, the holder is entitled to dispose of the land use right at its discretion, such as transferring, leasing, and mortgaging the land to others. One year before the expiration of the term, if the holder intends to extend the term, unless the land is required for then current public interests, the government is obliged to renew the land use right agreement upon re-negotiated terms and land use right fees.

Risks Relating to Our Shares

Prior to this offering, the former Honesty Group shareholders own approximately 89% of our ordinary shares, and this voting control may limit your ability to influence the outcome of matters requiring shareholder approval, including the election of our directors.

Prior to this offering, the former shareholders of Honesty Group will own over 89% of our voting shares. These shareholders can control substantially all matters requiring approval by our shareholders, including the election of directors and the approval of other business transactions. This concentration of ownership could

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have the effect of delaying or preventing a change in control of us or discouraging a potential acquirer from attempting to obtain control of us, which could prevent our shareholders from realizing a premium over the market price for their ordinary shares.

We do not expect to pay dividends, so our shareholders will only benefit from an investment in our shares if such shares appreciate in value.

We do not expect to pay dividends to our shareholders in the foreseeable future. The board of directors may determine to pay dividends in the future, depending upon results of operations, financial condition, contractual restrictions, including restrictions in credit agreements, imposed by applicable law, including the laws of China governing dividend payments, currency conversion and loans, and other factors our board of directors deems relevant. Accordingly, realization of a gain on shareholders’ investments will depend on the appreciation of the price of our shares. There is no guarantee that our shares will appreciate in value or even maintain the price at which shareholders purchased their shares.

Shares to be potentially issued may have an adverse effect on the market price of our shares.

As of November 15, 2010, we had 16,094,756 shares and 1,816,027 warrants outstanding. We also issued an option to purchase up to a total of 280,000 units at $10 per unit to the underwriters in our IPO, which, if exercised, will result in the issuance of 280,000 shares and 280,000 warrants. In addition, assuming certain net income targets are met, shares currently outstanding but held in escrow pursuant to the Share Exchange Agreement may be released to the former shareholders of Honesty Group and certain founders.

On November 17, 2010, our shareholders approved the adoption of a stock incentive plan that provides for the issuance of stock options, restricted stock or other awards up to 7% of the fully diluted outstanding shares to the employees, directors and consultants of SGOCO and its subsidiaries.

In addition, we have authorized capital stock under our charter of 50,000,000 ordinary shares and 1,000,000 preferred shares. Subject to any restrictions of a stock exchange on which our shares may be listed in the future, these shares may be issued without shareholder approval.

The sale, or even the possibility of sale, of the foregoing shares could have an adverse effect on the market price for our securities or on our ability to obtain future public financing. Upon the issuance of the additional shares, you may experience dilution to your holdings.

Due to the lack of unrestricted ordinary shares available to be sold, there is severely limited liquidity for our ordinary shares.

As of November 15, 2010, we had 16,094,756 shares outstanding. Of these shares, 859,668 shares are held by persons not affiliated with us and are freely eligible to be resold in the public market. The remaining shares are either being held in escrow or are “restricted” securities not eligible to be resold in the public market. As a result of the lack of unrestricted securities available to be resold in the public market, there is limited liquidity in our ordinary shares, which may limit your ability to sell our ordinary shares or reduce the price at which the shares may be sold. In addition, the lack of a liquid market in our shares may make the listed market price of our shares less meaningful.

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CAPITALIZATION

The following table sets forth our capitalization as of September 30, 2010:

•

on an actual basis; and

•

on a pro forma as adjusted basis to give effect to the issuance and sale of 1,333,333 of our ordinary shares by us in this offering, assuming a public offering price of $6.75 per ordinary share, which is the midpoint of the estimated range of the public offering price set forth on the cover of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us of approximately $1,310,000, assuming that the underwriters do not exercise their over-allotment option and there is no other change to the number of ordinary shares sold by us as set forth on the cover page of this prospectus.

You should read this table together with our financial statements and the related notes appearing at the end of this prospectus and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this prospectus.

		Actual				Pro forma as adjusted
DEBT
Bank overdraft		$	1,476,136			$	1,476,136
Notes payables			21,703,423				21,703,423
Short term loan			22,177,905				22,177,905
Total debt			45,357,464				45,357,464
OTHER LIABILITIES
Warrant derivative liability			1,908,698				1,908,698
Put option derivative liability			2,000,000				2,000,000
Total other liabilities			3,908,698				3,908,698
SHAREHOLDERS’ EQUITY
Preferred shares, $0.001 par value, 1,000,000 shares authorized, none issued and outstanding			—				—
Ordinary shares, $0.001 par value, 50,000,000 shares authorized, 16,094,756 outstanding			16,095				17,428
Paid-in capital			19,037,683				27,536,347
Statutory reserves			2,726,310				2,726,310
Retained earnings			21,870,055				21,870,055
Accumulated other comprehensive income			3,004,224				3,004,224
Total shareholders’ equity			46,654,367				55,154,364
Total capitalization		$	95,920,529				104,420,526

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DILUTION

If you invest in our ordinary shares, your interest will be diluted to the extent of the difference between the public offering price per ordinary share and our net tangible book value per ordinary share after this offering. Dilution results from the fact that the public offering price per ordinary share is substantially in excess of the book value per ordinary share attributable to the existing shareholders for our presently outstanding ordinary shares. The 16,094,756 ordinary shares outstanding, include 6,566,823 ordinary shares currently held in escrow.

Our net tangible book value as of September 30, 2010 was approximately $38.1million, or $2.37 per ordinary share including 6,566,823 shares in escrow. Net tangible book value represents the amount of our total consolidated tangible assets, less the amount of our total consolidated liabilities. Dilution is determined by subtracting net tangible book value per ordinary share, from the public offering price per ordinary share.

Without taking into account any other changes in net tangible book value after September 30, 2010, other than to give effect to our sale of the ordinary shares offered in this offering at the midpoint of the public offering price of $6.75 per ordinary share after deduction of the underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma net tangible book value as of September 30, 2010 would have been $46.6 million, or $2.67 per outstanding ordinary share. This represents an immediate increase in net tangible book value of $0.30 per ordinary share to the existing shareholders and an immediate dilution in net tangible book value of $1.71 per ordinary share, to investors purchasing ordinary shares in this offering. The following table illustrates such dilution:

		Per Ordinary Share
Public offering price		$	6.75
Net tangible book value as of September 30, 2010		$	2.37
Pro forma net tangible book value after giving effect to this offering		$	2.67
Amount of dilution in net tangible book value to new investors in the offering		$	1.71

The following table summarizes, on a pro forma basis as of September 30, 2010, the differences between existing shareholders and the new investors with respect to the number of ordinary shares purchased from us, the total consideration paid and the average price per ordinary share paid before deducting the underwriting discounts and commissions and the estimated offering expenses. The total number of ordinary shares does not include ordinary shares underlying the ordinary shares issuable upon the exercise of the over-allotment option granted to the underwriters.

		Ordinary Shares Purchased								Total Consideration								Average Price Per Ordinary Share
		Number				Percent				Amount				Percent
		(in millions)
Existing shareholders			16,094,756				92.3	%		$	24.2				73.0	%		$	1.50
New investors			1,333,333				7.7				9.0				27.0				6.75
Total			17,428,089				100.0	%		$	33.2				100.0	%			1.76

The pro forma information discussed above is illustrative only. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual public offering price of our ordinary shares and other terms of this offering determined at pricing.

The discussion and tables above assume no exercise of any outstanding warrants or the put option discussed in the section “Corporate History and Organization.” As of the date of this prospectus, there were 2,096,027 ordinary shares issuable upon exercise of outstanding warrants at an exercise price of $8.00 per share (this amount includes warrants underlying the purchase option granted to the underwriter in our IPO).

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following selected financial information should be read in connection with, and is qualified by reference to, our consolidated financial statements and their related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus. The consolidated statement of operations data for the three fiscal years ended December 31, 2009, 2008 and 2007 and the balance sheet data as of December 31, 2009 and 2008 are derived from audited consolidated financial statements included elsewhere in this prospectus. The consolidated statement of operations data for the nine months ended September 30, 2010 and 2009 and the balance sheet data as of September 30, 2010 are derived from unaudited consolidated financial statements included elsewhere in this prospectus. We started operating during the fourth quarter of 2006, and as such, there is no comparative information available for the year ended December 31, 2006. Our historical results for any prior period are not necessarily indicative of results to be expected in any future period.

		For the Years Ended December 31												For the nine months ended September 30
		2009				2008				2007				2010				2009
														(Unaudited)				(Unaudited)
Consolidated Statement of Income
Net revenues			67,874,304				43,790,842				10,482,997				134,087,699				33,128,434
Cost of goods sold			(57,764,335	)			(37,709,028	)			(9,507,978	)			(114,775,444	)			(28,098,577	)
Gross profit			10,109,969				6,081,814				975,019				19,312,255				5,029,857
Selling expenses			(116,918	)			(211,198	)			(34,230	)			(366,347	)			(76,677	)
General and administrative expenses			(889,481	)			(562,265	)			(326,274	)			(3,034,763	)			(515,049	)
Total operating expenses			(1,006,399	)			(773,463	)			(360,504	)			(3,401,110	)			(591,726	)
Income from operations			9,103,570				5,308,351				614,515				15,911,145				4,438,131
Interest income			7,221				4,640				2,658				63,184				3,618
Interest expense			(841,613	)			(70,108	)			(62,367	)			(660,319	)			(576,378	)
Other income (expense), net			(75,893	)			(18,438	)			(68,911	)			(563,901	)			6,037
Change in fair value of warrant derivative liability			—				—				—				(813,748	)			—
Income before provision for income taxes			8,193,285				5,224,445				485,895				13,936,361				3,871,408
Provision for income taxes			(1,034,212	)			—				—				(2,021,024	)			(493,170	)
Net income			7,159,073				5,224,445				485,895				11,915,337				3,378,238
Income per share:
Basic – ordinary share			0.84				0.61				0.06				1.29				0.40
Diluted – ordinary share			0.84				0.61				0.06				1.28				0.40
Weighted average shares used in calculating net income per share:
Basic			8,500,000				8,500,000				8,500,000				9,260,594				8,500,000
Diluted			8,500,000				8,500,000				8,500,000				9,278,054				8,500,000

Consolidated Balance Sheet Data

		As of December 31,								As of September 30, 2010
		2009				2008
										(unaudited)
Total assets			79,472,678				40,461,169				136,798,748
Total liabilities			47,470,026				18,680,726				90,144,381
Total shareholders’ equity			32,002,652				21,780,443				46,654,367

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MARKET PRICE INFORMATION

Our ordinary shares and warrants are quoted on OTC Bulletin Board under the symbols SGTLF and SGTWF, respectively. Our ordinary shares, warrants, and units were previously traded on the OTC Bulletin Board under the symbols HMAQF.OB, HMAWF.OB, and HMAUF.OB, respectively. Each of the foregoing units consisted of one ordinary share and one warrant. Our ordinary shares and warrants commenced to trade separately from April 9, 2008.

The following table sets forth, for the calendar months, quarters and years indicated, the monthly, quarterly and annual high and low bid information prices for our ordinary shares, warrants and units as reported on the OTC Bulletin Board. Over the counter market quotations on the OTC Bulletin Board reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

		Units								Ordinary Shares								Warrants
Annual Highs and Lows		High				Low				High				Low				High				Low
2009		$	9.50			$	7.00			$	7.98			$	7.00			$	0.65			$	0.05
2008		$	8.15			$	6.50			$	7.37			$	6.12			$	0.85			$	0.13

Quarterly Highs and Lows		High				Low				High				Low				High				Low
2010
Third Quarter		$	N/A			$	N/A			$	8.00			$	6.25			$	1.00			$	0.59
Second Quarter		$	N/A			$	N/A			$	8.00			$	6.25			$	1.15			$	0.59
First Quarter		$	9.25			$	7.00			$	8.00			$	6.25			$	1.02			$	0.34
2009
Fourth Quarter		$	9.50			$	7.805			$	7.82			$	7.56			$	0.75			$	0.15
Third Quarter		$	7.65			$	7.52			$	7.98			$	7.58			$	0.16			$	0.11
Second Quarter		$	7.25			$	7.25			$	7.65			$	7.35			$	0.55			$	0.05
First Quarter		$	7.90			$	7.00			$	7.49			$	7.00			$	0.20			$	0.05
2008
Fourth Quarter		$	7.15			$	6.50			$	7.00			$	6.12			$	0.42			$	0.13
Third Quarter		$	7.90			$	7.60			$	7.37			$	6.85			$	0.73			$	0.50
Second Quarter		$	7.90			$	7.60			$	7.16			$	6.95			$	0.85			$	0.60
First Quarter		$	8.15			$	7.85			$	—			$	—			$	—			$	—

Monthly Highs and Lows		High				Low				High				Low				High				Low
November 2010		$	N/A			$	N/A			$	8.00			$	6.25			$	1.00			$	0.59
October 2010		$	N/A			$	N/A			$	8.00			$	6.25			$	1.00			$	0.59
September 2010		$	N/A			$	N/A			$	8.00			$	6.25			$	1.00			$	0.59
August 2010		$	N/A			$	N/A			$	8.00			$	6.25			$	1.00			$	0.59
July 2010		$	N/A			$	N/A			$	8.00			$	6.25			$	1.00			$	0.59
June 2010		$	N/A			$	N/A			$	8.00			$	6.25			$	1.00			$	0.59

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The exchange rates used to translate amounts in RMB into US$ for the purposes of preparing the consolidated financial statements or otherwise stated in this prospectus were as follows:

Critical Accounting Estimates

Our plan of operation is based in part upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of financial statements in accordance with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including the recoverability of tangible and intangible assets, disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of expenses during the periods covered. A summary of accounting policies that have been applied to the historical financial statements can be found in the notes to the consolidated financial statements.

Our management evaluates our estimates on an on-going basis. The most significant estimates relate to collectability of receivables and the fair value of financial instruments. We base our estimates on our historical and industry experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from those estimates.

The following is a brief discussion of these critical accounting policies and methods, and the judgments and estimates used by us in their application:

Accounts receivable and other receivables

Our management reviews the composition of receivables 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, known bad debts are written off against allowance for doubtful accounts when identified. As we continue to expand our business, we may loosen credit terms with customers with long term relationships. We also perform credit checks on new customers to ensure new customers have strong financial conditions. Further, as a part of the allowance assessment, our management reviews payment history. The aforementioned procedures all rely on historical performance; however, historical results are not indicative of future collection performance, which may expose us to adjustments that could have material impact.

Fair value of financial instruments

We generally do not use derivative financial instruments to hedge exposures to cash-flow risks or market-risks. However, certain financial instruments, such as warrants, which are indexed to our common stock, are classified as liabilities. Determining the fair value on derivative financial instruments involves judgment and the use of certain relevant assumptions including, but not limited to, interest rate risk, credit risk, and equivalent volatility. The use of different assumptions could have a material effect on the estimated fair value amounts.

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Analysis of Operations Results

Comparison of Nine Months Ended September 30, 2010 and 2009

Revenue

Revenue for the nine months ended September 30, 2010 was $134.1 million, up 304.8% from $33.1 million for the nine months of 2009. The significant increase in sales was due to several factors. In mid 2009, we relocated to a new manufacturing facility thereby expanding our production capacity. We benefited from a broadening of our sales base with the addition of new customers as well as an increase in export sales. Finally, we believe that the improved economy of 2010 following the economic crisis has led to stronger sales compared to the first nine months of 2009.

The percentage of SGOCO brand sales, non-SGOCO brand and OEM manufacturing sales and the sale of other electronic components for the nine months ended September 30, 2010 and 2009 are as follows:

		For nine months ended September 30, 2010				For nine months ended September 30, 2009
SGOCO brand sales			65.7	%			83.1	%
Non-SGOCO brand and OEM manufacturing			27.1	%			12.0	%
Other (electronic components)			7.2	%			4.9	%

The number of SGOCO Club retailers increased substantially since the establishment of the first club in the fourth quarter of 2009. We have utilized our numerous distributor relationships to assist us in locating suitable candidates to become SGOCO Club members, which has allowed us to rapidly increase the number of SGOCO Club members in recent periods. When we enter into new arrangements with SGOCO Club members, our primary initial costs are supplying a showcase with SGOCO’s logo for the retailers to use in their stores. We do not incur any other material upfront costs when we add a SGOCO Club member. We also provide our SGOCO Club members in future periods with marketing materials and/or storefront improvements. The cost related to SGOCO club was $0.3 million for the nine months ended September 30, 2010. We did not incur any costs during the nine months ended September 30, 2009, as the SGOCO Club model was established in the fourth quarter of 2006.

Our largest customers have generally changed from period to period, such that no customers that represented greater than 10% of our revenue during the nine month period ended September 30, 2010, represented greater than 10% of our revenue during the nine months ended September 30, 2009. Our largest customers have changed from previous periods primarily as a result of our limited operating history and rapid growth, coupled with a broadening of our customer base. In addition, we sell our products to the customers with whom we have been able to negotiate the most favorable terms thereby resulting in changes from period to period.

During the nine months ended September 30, 2010, 9.4% of our revenues were generated from sales to BORO and Mosview. For the years ended December 31, 2009, 2008 and 2007, BORO and Mosview represented 9.1%, 22.2% and 18.4% of our revenues, respectively. In addition, we purchased panels from Mosview. Sun Zone Investments Limited, which is controlled by Mr. Tin Man Or, was the parent company of Mosview and BORO. Sun Zone Investments Limited no longer owns an interest in Mosview or BORO.

As we continue to grow, we expect to expand our customer base, which may lessen our reliance on related party revenue in the future. We believe that the panel purchases we made from Mosview were at fair market value, and as such, we believe that we will be able to purchase panels from third parties at similar prices. Therefore, we do not believe the loss of Mosview as a supplier of panels would adversely affect our business.

In June 2010, we entered into a three-year brand usage agreement with TCL Business System Technology (Huizhou) Co. Ltd., a Chinese television manufacturer and distributor, pursuant to which we will manufacture TCL branded LCD monitors from July 1, 2010 to June 30, 2013. There are no minimum purchase requirements in the agreement, and, as such, the future impact of the agreement is unknown.

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Gross Margins

As a percentage of total sales, the overall gross margin was 14.4% for the nine months ended September 30, 2010, compared to 15.2% for the nine months ended September 30, 2009. The slight decline in gross margin followed increased sales of electronic components recorded in Other Operating Income. These components are low margin but offered an opportunity for additional profits. The costs related to our SGOCO Club were $0.3 million for the nine months ended September 30, 2010. We did not incur any costs during the nine months ended September 30, 2009, as the SGOCO Club model was established in the fourth quarter of 2009.

Selling, General and Administrative Expenses

Selling expense amounted to approximately $0.4 million for the nine months ended September 30, 2010, an increase of $0.3 million, or 377.8% compared to approximately $ 0.1 million in the nine months ended September 30, 2009. With our business expansion and increased sales, our selling expenses increased accordingly.

General and administrative expenses amounted to approximately $3.0 million for the nine months ended September 30, 2010, an increase of approximately $2.5 million, or 489.2% compared to approximately $0.5 million in the nine months ended September 30, 2009. $1.0 million was due to costs related to our reverse merger in March 2010, and $0.6 million was due to cost related to professional fees including audit, legal and consulting fees associated with being a public company.

Income taxes

The amount of income tax was $2.0 million for the nine months ended September 30, 2010 compared with $0.5 million in income taxes during the nine months ended September 30, 2009. The increase in income taxes resulted from our greater profits.

Net Income

Net income for the nine months of 2010 was $11.9 million, up 252.7% from $3.4 million recorded for the same period last year. Fully Diluted EPS was $1.28 as compared to $0.40, up by 220.0%.

Comparison of Three Months Ended September 30, 2010 and 2009

Revenue

Revenue for the third quarter ended September 30, 2010 was $71.7 million, an increase of 295.0% from $18.2 million in the third quarter of 2009. We saw strong sales growth as we expanded our sales base with new customers. Additionally, the improved economic environment and strong growth in exports supported the trend.

Gross Margin

The gross margin as a percent of sales was 13.6% for the three months ended September 30, 2010, compared to 24.4% for the three months ended September 30, 2009. The gross margin in the third quarter 2009 was exceptionally high due to a firming of average selling prices while at the same time we sold inventory that had been acquired at depressed prices during the financial crisis. The costs related to SGOCO Club were $0.3 million for the three months ended September 30, 2010. We did not incur any costs during the three months ended September 30, 2009, as the SGOCO Club model was established in the fourth quarter of 2009.

Net Income and EPS

Net income for the third quarter of 2010 was $7.5 million, compared to $3.5 million recorded for the same period last year. Non-GAAP net income which excludes changes in fair value related to warrant derivative liability was $7.3 million, compared to $3.5 million a year ago. Diluted EPS was $0.79 in the third quarter of 2010, compared to $0.42 in the third quarter of 2009. Non-GAAP diluted EPS, which excludes changes in fair value of warrant derivative liability, was $0.77 in the third quarter of 2010, compared to $0.42 in the third quarter of 2009.

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Operating Expenses

Selling, general and administrative expenses amounted to approximately $0.9 million for the three months ended September 30, 2010, an increase of approximately $0.6 million, or 202. 2% compared to $0.3 million for the three months ended September 30, 2009. As our sales increased, selling expenses increased accordingly. The increase in general and administrative expenses was mainly due to: (i) additional costs related to professional fees including audit and legal fees associated with being a public company as we completed our reverse merger in March 2010 and (ii) an increase in headcount to meet production growth and the hiring of new officers.

Provision for Income Taxes

Income tax was $1.1 million for the three months ended September 30, 2010 compared to $0.5 million, during the three months ended September 30, 2009. The increase in income taxes resulted from our greater profits.

Cash and Working Capital

As of September 30, 2010, we had cash and cash equivalents of $11.8 million and working capital of $24.8 million, compared to $5.8 million and $7.9 million, respectively, as of December 31, 2009. The Current Ratio was 1.29 as of September 30, 2010 compared to 1.17 as of December 31, 2009.

Comparison of Fiscal Years Ended December 31, 2009 and 2008

Revenue

Our sales increased by $24.08 million, or 55.0%, to $67.87 million in the year ended December 31, 2009, from $43.79 million in the year ended December 31, 2008. The significant increase in sales was due to our growth during the year.

The percentage of SGOCO brand sales, non-SGOCO brand and OEM manufacturing sales and other sales of electronic components for the years ended December 31, 2009 and 2008 are as follows:

		For the year ended December 31, 2009				For the year ended December 31, 2008
SGOCO brand sales			79.2	%			69.6	%
Non-SGOCO brand and OEM manufacturing			10.4	%			22.6	%
Other (electronic components)			10.4	%			7.8	%

The identity of our largest customers has generally changed from period to period. During the year ended December 31, 2009, 47% of our revenues were generated from three customers that were not material customers during 2008. Further, during 2009, we lost three material customers that comprised 41% of our revenues during fiscal 2008. Our largest customers have changed from previous periods primarily as a result of our rapid growth, coupled with a broadening customer base, which decreased the significance of these customers. In addition, we sell our products to the customers with whom we have been able to negotiate the most favorable terms, as a result, our customer base can change from period to period.

Cost of goods sold

Cost of goods sold increased by $20.05 million, or 53.2%, to $57.76 million in the year ended December 31, 2009 from $37.71 million in the year ended December 31, 2008. The cost of LCD sales is primarily composed of the cost of direct raw materials, direct labor and other overhead expenses. The increase in cost of goods sold was mainly due to the increase in sales volume and a corresponding increase in cost of raw materials to manufacture products.

Our main production materials are LCD panels, main boards, plastic parts, speakers, packing materials, metal parts and cables.

Gross margin

As a percentage of total sales, our overall gross margin was 14.9% for the year ended December 31, 2009, compared to 13.9% for the same period the previous year. The one percentage point increase in gross margin was primarily due to more efficient cost control and greater pricing power in the distribution channel.

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Selling expenses

During the year ended December 31, 2009, selling expenses were approximately $0.12 million, a decrease of $0.09 million, or 44.6%, from $0.21 million the year before. The decrease was due to reduced export business expenses, such as customs fees, docking fees and other export related expenses offset by increased sales and distribution expenses.

General and administrative expenses

General and administrative expenses amounted to approximately $0.89 million for the year ended December 31, 2009, an increase of approximately $0.33 million, or 58.2%, compared to approximately $0.56 million the previous year. The increase also reflected the increase in employee benefits to $0.25 million in fiscal 2009 from $0.20 million in fiscal 2008, a net increase of 25.0%.

Interest expense

Net interest expense was approximately $0.83 million, an increase of $0.77 million, from $0.06 million the year before. The increase was due to the increase in debt necessary to support sales growth and investment in new production capacity.

Income before income taxes

As a result of the foregoing factors, income before tax increased by $2.97 million, or 56.9%, to $8.19 million in the year ended December 31, 2009, compared with $5.22 million for fiscal 2008.

Income taxes

Income tax was $1.03 million in fiscal 2009 compared with none for fiscal 2008 due to an income tax holiday. Guanke was granted income tax exemption for two years commencing from January 1, 2007, and is subject to 50% of the 25% EIT tax rate, or 12.5%, from January 1, 2009 through December 31, 2011.

Net income

Net income increased $1.93 million, or 37.2%, to $7.16 million in fiscal year 2009 from $5.22 million in fiscal year 2008, as a result of the various factors described above. The net income margins were 10.6% and 11.9% for the fiscal years ended December 31, 2009 and 2008, respectively. The lower margin in 2009 was attributable to income taxes from which we were exempt in 2008; without the income tax effect, the comparable margin (pre-tax income) in 2009 was 12.1%.

Comparison of Fiscal Years Ended December 31, 2008 and 2007

Revenue

Our sales increased by $33.3 million, or 317.7%, to $43.8 million in the year ended December 31, 2008, from $10.5 million in the year ended December 31, 2007. We were established in 2006, and did not start operations until the fourth quarter of 2006. As we began to establish ourselves in the marketplace, our sales dramatically increased from 2007 to 2008.

The percentage of SGOCO brand sales, non-SGOCO brand and OEM manufacturing sales and other sales of electronic components for the years ended December 31, 2008 and 2007 are as follows:

		For the year ended December 31, 2008				For the year ended December 31, 2007
SGOCO brand sales			69.6	%			51.0	%
Non-SGOCO brand and OEM manufacturing			22.6	%			49.0	%
Other (electronic components)			7.8	%			—

The identity of our largest customers has generally changed from period to period. During the year ended 2008, 58% of our revenues were generated from three customers that were not material customers during 2007. Further, during 2008, we lost one material customer that comprised 23% of our revenues during fiscal 2007. Our largest customers have changed from previous periods primarily as a result of our rapid growth, coupled with a broadening customer base.

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Cost of goods sold

Cost of goods sold increased by $28.2 million, or 296.6%, to $37.7 million in the year ended December 31, 2008 from $9.5 million in the year ended December 31, 2007. The cost of LCD sales is primarily composed of the cost of direct raw materials, direct labor and other overhead expenses. The increase in cost of goods sold was mainly due to the increase in sales volume and a corresponding increase in cost of raw materials to manufacture products.

Our main production materials are LCD panels, main boards, plastic parts, speakers, packing materials, metal parts and cables.

Gross margin

As a percentage of total sales, our overall gross margin was 13.9% for the year ended December 31, 2008, compared to 9.3% for the same period the previous year. As the company’s sales increased it was able to realize increased economies of scale resulting in higher gross margins over the previous year.

Selling expenses

During the year ended December 31, 2008, selling expenses were approximately $0.2 million, an increase of $0.17 million, or 517.0%, from $0.03 million the year before.

General and administrative expenses

General and administrative expenses amounted to approximately $0.6 million for the year ended December 31, 2008, an increase of approximately $0.3 million, or 72.3%, compared to approximately $0.3 million the previous year. The increase was due to an increase in headcount as the company expanded to meet increased demand.

Interest expense

Net interest expense was approximately $0.07 million, an increase of $0.01 million, from $0.06 million the year before.

Income taxes

Guanke, our sole operating subsidiary in 2007 and 2008, was granted income tax exemption for two years from January 1, 2007 to December 31, 2008. Therefore we incurred no income tax expenses for 2007 and 2008.

Net income

Net income increased $4.7 million, or 975.2%, to $5.2 million in fiscal year 2008 from $0.5 million in fiscal year 2007, as a result of the various factors described above. The net income margins were 11.9% and 4.6% for the fiscal years ended December 31, 2008 and 2007, respectively.

Analysis of Financial Condition

Comparison as of September 30, 2010 and December 31, 2009

Advances to suppliers increased to $17,246,462 as of September 30, 2010 from $11,950,074 as of December 31, 2009. The significant increase in advances to suppliers was due to increased production capacity. During the third quarter of 2010, we built additional production lines to produce 42-inch LCD TVs and 60-inch LCD TVs. In addition to capacity, we have increased production output in order to ensure we have sufficient inventory for any increased future sales.

We expect future advances to suppliers to stabilize once the new capacity is available. Advances are made based on future projections and will fluctuate throughout the year. We evaluate new suppliers prior to conducting business. We have not experienced a situation where suppliers were not able to fulfill their obligations or where we were unable to recover the advances from the suppliers.

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As of September 30, 2010, we had $11.8 million in unrestricted cash and $24.8 million in working capital. As of December 31, 2009, we had $5.8 million in unrestricted cash and $7.8 million in working capital. The current ratios were 1.29 as of September 30, 2010 and 1.17 as of December 31, 2009.

		September 30, 2010				December 31, 2009
Cash including restricted cash			US $18.2 million				US $11.4 million
Working Capital			24.8 million				7.8 million
Current Ratio (Current assets/Current liabilities)			1.29				1.17

Comparison of Fiscal Years Ended December 31, 2009 and 2008

Compared to 2008, Honesty Group experienced a slight weakening in capitalization and liquidity measures in 2009 due to its rapid sales growth, newly developing retail distribution channels, and capital investment program. These business factors led Honesty Group to extend its receivables payment terms, make significant cash investments in long-term productive assets, and take on more debt.

		FY 2009				FY 2008
Cash (including restricted cash)		$	11.4 million			$	0.5 million
Current Ratio (Current assets/Current liabilities)			1.16				1.70
Operating Leverage (non-current assets/Total assets)			0.30				0.21
Debt		$	38.6 million			$	8.7 million
Net Debt (Debt less cash)		$	27.2 million			$	8.1 million
Debt Leverage (Debt/Equity)			1.21				0.40
Equity Gearing (Equity/Total assets)			0.40				0.54

The Company’s plan is to increase liquidity and equity capitalization during 2010 through continued profitability and through an increase in capital, by issuing capital stock, an acquisition or other transaction.

Product Development

In 2009, we initiated several product development initiatives aimed at meeting evolving market demand and at strengthening our position as a value-priced producer of branded LCD products:

We have historically outsourced a significant portion of our product development to third-party design houses working on a project basis. This has allowed us to control engineering expenses while we increased revenues to a larger base. In 2010 and going forward, we anticipate bringing more of these critical engineering functions in-house.

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The amount of research and development spending in recent periods are as follow:

For nine months ended September 30, 2010		For nine months ended September 30, 2009				For the year ended December 31, 2009				For the year ended December 31, 2008
$40,866			$23,165				$31,606				$29,244

Liquidity and Capital Resources

In 2009, our aggressive sales and distribution expansion activities, coupled with our investment in a new manufacturing facility within SGOCO Technology Park, resulted in a significant increase in expenses. We met these requirements through a combination of additional capital contributions, bank financing, and government subsidies.

The 55% increase in revenues in 2009 was accompanied by a material slowing of accounts receivable turnover to 5.1x (or a 71-day average collection period, or ACP) from 10.4x (or a 35-day ACP) in 2008. This was the result of modifying the previous years’ policy of requiring payment from customers at the time we shipped them products. In 2009, as a means of encouraging more sales, we began allowing certain customers to defer payment until products were delivered to them. However, we maintained control over the credit quality of our customers and, consequently, we were able to significantly increase sales without experiencing any losses on our accounts receivables.

Our 2009 inventory turnover rate improved significantly to 9.6x (or 38 days on hand, or DOH) from 6.4x (or 57 DOH) in 2008. This was the result of better coordination between our sales and manufacturing departments and a revamping of our logistics system. The overall cash conversion cycle in 2009 was 109 days (ACP plus DOH). Our goal is to manage our accounts receivable and inventory within a tighter 90 to 100 days conversion cycle in the future.

Accounts payable turnover in 2009 was relatively stable at about 20.7x (or 18 days average payment period) compared to the previous year. The relative speed with which we pay our vendors is largely a function of our desire to maintain continued, timely access to quality supplies of LCD panels, the critical component in all our products. To further ensure LCD panel supply, we secure allocations of future production by paying advances to key LCD panel suppliers, directly as well as through related entities that serve as our purchasing agents.

Our working capital requirement in 2009 was approximately $6.6 million, broken out as follows:

Increase in accounts receivable (including with related parties)		$	11.2 million
Advances to suppliers (including through related parties)			5.7 million
Less: Increase in accounts payable			(1.4) million
Less: Increase in customer deposits (including through related parties)			(0.7) million
Less: Increase in taxes payable			(3.9) million
Less: Decrease in inventory			(4.3) million
Net working capital requirement in 2009		$	6.6 million

Also in 2009, we undertook a significant scale-up of our manufacturing capacity in order to support future growth. This required heavy investment in equipment, building, and the acquisition of land use rights for SGOCO Technology Park. The cash required by this investment program in 2009 was approximately $19.5 million broken out as follows:

Equipment purchases		$	5.5 million
Building construction		$	8.0 million
Land rights acquisition		$	6.0 million
Total investment requirement in 2009		$	19.5 million

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We had sufficient capital resources, both internal and external, to cover our working capital and investment requirements. In addition to operating profits, we relied upon (a) additional equity contributions from shareholders, (b) a subsidy from the Jinjiang City Government to support technology development and manufacturing; and (c) various short-term lines of credit and trade finance facilities from several commercial banks.

Internal Capital
Net Income		$	7.2 million
Depreciation and amortization			0.6 million
External Capital
Equity Contribution			3.1 million
Government Subsidy			3.4 million
Bank Financing (net of Repayments and Cash Collateral Requirements, and including bank financing through Related Parties)		$	15.9 million
Total Capital Resources		$	30.2 million
Less: Working Capital & Investment Requirement		$	(26.1) million
Increase in Company Cash		$	4.1 million

As of September 30, 2010, we had $0.4 million remaining under our multi-year technology and manufacturing grant from Jinjiang City. Because of our record of growth, profitability, and technology-based manufacturing, we believe that the Jinjiang City government and its banking group may continue to support us with needed capital resources in the future, although there is no assurance that we will receive such support.

Our principal source of liquidity has been cash generated by our operations, borrowings and the net proceeds received from the business combination we completed in March 2010. In the past, we have received interest-free working capital loans from related parties, and have provided such loans to related parties. As of September 30, 2010, we held $11.8 million in unrestricted cash and had working capital of $24.8 million. Our unrestricted cash consists of cash on hand and demand deposits in accounts maintained with financial institutions or state owned banks within the PRC and Hong Kong.

Our principal uses of cash have been to fund working capital requirements and to scale-up our manufacturing capacity through investments in equipment, construction and land use rights. Our principal sources of cash have been from the credit facilities discussed in more detail in the section titled “Debt” below. As described below, we have in the past been able to renew our credit facilities. We renewed one credit facility with Bank of Communications in August 2010 and other credit facilities with Industrial and Commercial Bank of China and Agricultural Bank of China in September 2010. We have been making these types of credit arrangements since our inception and expect to be able to renew these facilities in the future. Based on our current expectations, we believe the amounts available to us from our credit facilities will be sufficient to fund our operations during the next twelve months. The foregoing assumes that we are able to renew these facilities when they expire, that our accounts receivables are converted to cash on a timely basis and that we do not encounter any unforeseen costs or expenses. The expiration dates of our facilities are discussed in more detail in the section titled “Debt” below, and range from August 2011 to December 2011. Although, we have in the past been able to renew these facilities and repay the loans and borrow again from the same banks, there is no assurance that we will be able to renew these facilities in the future. If we are unable to renew these facilities in the future, we will need to raise financing from alternative sources for which we have no commitments during the next twelve months. During this period, we also expect to continue to invest funds in the development of the Technology Park and the expansion of the SGOCO Club model. In order to make these investments, we will require additional external financing. Although we have committed to investing not less than $50 million in development of the Technology Park, there is no compulsory schedule or deadline by which SGOCO must complete its investment commitment. As of September 30, 2010, we had already invested in excess of $34.7 million in the SGOCO Technology Park. The investment includes $8.6 million of costs to acquire the land and $26.1 million of building infrastructure and equipment, which includes grants received from the PRC municipal government of $6.7 million. In addition to

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the investments we expect to make in the development of the Technology Park during the next 12 months, if we are able to maintain our current rate of growth for 3 to 5 years, we anticipate needing to construct additional production facilities or partnering with other manufacturers interested in locating in the SGOCO Technology Park. The amount and timing of any future investments in the SGOCO Technology Park will be based on our future growth. Based on our current growth rate, we expect to invest between $3.0 – 5.0 million during the next 12 months in the SGOCO Technology Park. This amount may be increased if our operations expand more rapidly than expected, or it may be decreased if our operations do not increase at its current rate or if we are is unable to fund such additional investments. We may require external financing to fund these additional investments, and the failure to obtain such financing may limit our ability to make the foregoing investments. We believe that the investments we have previously made in the Technology Park and the investments we intend to make in the Technology Park in the future will enable us to reach agreement with the SAIC to further defer Honesty Group’s obligation to pay the remaining registered capital for Guancheng for at least an additional 12 months.

In order to raise additional financing, we may sell additional equity or debt securities or borrow from lending institutions. Financing may be unavailable in the amounts we need or on terms acceptable to us. The sale of additional equity securities, including convertible debt securities, would dilute our earnings per share. The incurrence of debt would divert cash from working capital and capital expenditures to service debt obligations and could result in operating and financial covenants that restrict our operations and ability to pay dividends to shareholders, among other restrictions. If we cannot obtain additional equity or debt financing as required, we will, among other items, be required to tighten credit terms, hold less inventory, reduce advances to suppliers and slow investment in plant and machinery, which would result in slower growth in revenues and profits.

In addition, if we are required to fund the remaining registered capital commitments for our Chinese subsidiaries during 2010, as discussed in more detail in the section titled “Registered Capital Commitments” below, we will require additional cash for which we currently have no commitments. We intend to use the funds from any registered capital to continue the development of the SGOCO Technology Park.

Debt

We fund much of our operations from short term notes drawn upon lines of credit, as well as short term bank loans, with various PRC banks. As of September 30, 2010, our notes and letters of credit totaled approximately $21.7 million and our short term bank loans totaled $22.1 million.

When purchasing raw materials, we often issue a short term note payable to the vendor funded with draws on the lines of credit. These short term notes are guaranteed by the bank for its complete face value through a letter of credit and usually mature within three to six months of issuance. The banks either charge interest or require us to deposit a certain amount of cash at the bank as a guarantee deposit which is classified on the balance sheet as restricted cash. As of September 30, 2010, $6.3 million of restricted cash was collateral for the $21.7 million in notes payable. The notes payable are also secured by a pledge of our operating equipment.

Our bank loans represent amounts due to various banks and are normally due within one year and can be renewed with the banks. As of September 30, 2010, approximately $16.3 million of the bank loans are secured with our land use rights, and $22.1 million of the bank loans are guaranteed by Messrs. Burnette Or and Tin Man Or.

We have written credit facilities with four banks pursuant to which we issued a portion of the notes payable and bank loans discussed above. We have:

The renewal term of these facilities is one year and does not contain any requirement for the maintenance of financial covenants, although we are required to maintain certain amounts of restricted cash against these

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credit facilities. As of September 30, 2010, we had approximately RMB 1.4 million (or $0.2 million based on the exchange rate as of September 30, 2010) available to us with Agricultural Bank of China, RMB 6.1 million (or $0.9 million based on the exchange rate as of September 30, 2010) available under our facility with Bank of Communications, and RMB 34.7 million (or $5.2 million based on the exchange rate as of September 30, 2010) availability with Industrial and Commercial Bank of China.

The remainder of our short-term borrowings are with Industrial Bank Co., Ltd., and consist of short-term loans, each of which is represented by a written note agreement. All of our borrowings mature at various dates within one year. The renewal term of the facilities is generally one year and generally do not contain any requirement for the maintenance of financial covenants. In the past, we have been able to pay off the loans on the due dates and borrow again from the same banks. We have been making these types of loan arrangements since our inception. These types of financing arrangements are very similar to revolving lines of credit in the United States and are common practice in China. Amounts outstanding under these short term notes, lines of credit and bank loans are presented in our financial statements as short term loans.

Intercompany Loans and Capital Contributions

We may make loans or additional capital contributions to our PRC subsidiaries to finance their operations. Any loans or capital contributions to our PRC operating subsidiaries are subject to restrictions or approvals under PRC laws, rules and regulations. For example, loans by us to our operating subsidiaries in China, which are foreign-invested enterprises, to finance their activities may not exceed statutory limits and must be registered with the local SAFE branch. We may also decide to finance our PRC operating subsidiaries by making additional capital contributions to such entities. The PRC Ministry of Commerce or its local counterparts must approve these capital contributions. Although we have been able to obtain these government approvals in the past, we cannot assure you that we will be able to obtain these government approvals on a timely basis, if at all, with respect to any such loans or capital contributions. If we fail to receive such approvals, our ability to use the proceeds of any equity or debt offerings to capitalize our PRC operations may be negatively affected, which could adversely affect our ability to fund and expand our business.

Registered Capital Commitments

Two of Honesty Group’s subsidiaries, Guanwei and Guancheng, have registered capital of $11,880,000 and $7,800,000. As of September 30, 2010, $3,130,000 and $4,969,970 had been invested by Honesty Group in the above subsidiaries. According to an agreement reached with the local government agency, the Jinjiang Bureau of China’s State Administration of Industry and Commerce, or SAIC, the remaining registered capital of $8,750,000 and $2,830,030 must be contributed by the end of 2010. The SAIC provided Honesty Group with this additional time to make the registered capital payments because Honesty Group is in the process of investing in infrastructure in the region through its investment in the SGOCO Technology Park. If Honesty Group is unable to make the registered capital payments during 2010, it believes it will be able to reach agreement with the SAIC to further defer its obligation to pay the remaining registered capital, provided that the SAIC believes Honesty Group is progressing with the timetable for making its infrastructure investments in the Technology Park. If it fails to reach such an agreement for deferral, Honesty Group would have an obligation to fund these two subsidiaries or to apply for a reduction in the remaining registered capital, which may not be granted. If Honesty Group fails to contribute their registered capital, they may be penalized with fines of 5 – 15% over the amount of unpaid capital, and, in certain cases, the subsidiaries business licenses may be revoked, which may result in the companies inability to conduct business in China. If Honesty Group is required to fund the remaining registered capital in full, SGOCO or Honesty Group will need to raise external financing, for which they have no commitments.

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largest loan amounts outstanding from BORO for the benefit of SGOCO were $2.3 million, $2.8 million and $38,000, respectively, and the largest loan amounts outstanding from SGOCO for the benefit of BORO were $2.8 million, $733 and $0, respectively. As of the date hereof, no amounts remained outstanding from either party. Sun Zone no longer holds an interest in BORO.

Based on current expectations, we believe the amounts available to us from credit facilities with banking institutions will be sufficient to fund our operations during the next twelve months. We do not believe we will require future working capital loans from related parties, although we may engage in future related party borrowings if we believe such borrowings will be beneficial. To the extent that we engage in any future related party loan transactions, we intend to enter into formal written documentation for such transactions.

Off-balance Sheet Arrangements

We do not have any outstanding off-balance sheet guarantees, interest rate swap transactions or foreign currency forward contracts. We do not engage in trading activities involving non-exchange traded contracts. In our ongoing business, we do not enter into transactions involving, or otherwise form relationships with, unconsolidated entities or financial partnerships that are established for the purpose of facilitating off-balance sheet arrangements for other contractually narrow or limited purposes.

Contractual Obligations

We entered into a SGOCO Technology Park Investment Agreement with the Municipal Government of Jinjiang City on March 31, 2006, as amended on July 7, 2006. Pursuant to this investment agreement, the government was responsible for providing infrastructure such as water, power, and roads available for construction and development. We are committed to investing not less than $50 million in development of the Technology Park. As of September 30, 2010, the Company has already invested in excess of $34.7 million in the SGOCO Technology Park. The investment includes $8.6 million of costs to acquire the land and $26.1 million of building infrastructure and equipment, which includes grants received from the PRC municipal government of $6.7 million. There is no compulsory schedule or deadline by which we must complete its investment commitment.

Two of Honesty Group’s subsidiaries, Guanwei and Guancheng, were formed on June 22, 2007, with registered capital of $11,880,000 and $7,800,000. Under PRC law, the registered capital of a company is regarded as corporate property, and it is the shareholder’s obligation to fulfill its subscribed capital contribution according to the provisions of PRC law and the PRC company’s charter documents. As of September 30, 2010, $3,130,000 and $4,969,970 had been invested by Honesty Group in the above subsidiaries. According to an agreement reached with the SAIC, the remaining registered capital of $8,750,000 and $2,830,030 must be contributed by the end of 2010. The SAIC provided Honesty Group with additional time to make the registered capital payments because Honesty Group is in the process of investing in infrastructure in the region. If Honesty Group is unable to make the registered capital payments during 2010, it believes it will be able to reach agreement with the SAIC to further defer the obligation to pay the remaining registered capital, provided that the SAIC believes Honesty Group is progressing with the timetable for making its infrastructure investments.

Except as discussed above, we do not have any long term debt, capital lease obligations, operating lease obligations, purchase obligations or other long term liabilities.

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to the dollar. Although the People’s Bank of China, China’s central bank, regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future, PRC authorities may lift restrictions on fluctuations in the RMB exchange rate and lessen intervention in the foreign exchange market.

Because substantially all of our earnings and cash assets are denominated in RMB, but our reporting currency is the U.S. dollar, fluctuations in the exchange rate between the U.S. dollar and the RMB will affect our balance sheet and our earnings per share in U.S. dollars. In addition, appreciation or depreciation in the value of the RMB relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations.

Very limited hedging transactions are available in China to reduce exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in order to reduce our exposure to foreign currency exchange risk. While we may enter into hedging transactions in the future, the availability and effectiveness of these transactions may be limited, and we may not be able to successfully hedge its exposure at all. In addition, foreign currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currencies.

Inflation

Inflationary factors, such as increases in the cost of raw materials and components and overhead costs, could impair our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of revenue if the selling prices of our products do not increase with these increased costs.

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While our primary focus is to manufacture in support of our own brands, when manufacturing capacity allows, we will temporarily use spare capacity for OEM customers. For example, in 2007, approximately 50% of our revenue was derived from OEM customers such as Haier, G-tech, Benteq, Cruise, Hyundai MultiCAV and Brimax. In 2008 and 2009, OEM revenue decreased to less than 10% of total revenue because the production focus had switched to our own brands. In 2009, we moved all of the production to the newly built facility in SGOCO Technology Park. Due to this expansion in production capacity, we expect our OEM revenue to increase in 2010.

Our Industry

China’s Economy

Large, Fast Growing Chinese Economy .  China is the world’s most populous country, with a population of 1.3 billion as of the end of 2008 according to the Census Bureau of China. China’s gross domestic product, or GDP, grew from $1.8 trillion in 2003 to $4.3 trillion in 2008, representing a compound annual growth rate, or CAGR, of 19.0%. Despite the recessionary environment in the global economy, the Chinese economy’s pace of expansion reached double-digits (10.7% year-in-year) in the last quarter of 2009.

Demographics Fueling Consumption Growth .  The Chinese central government has a policy of aggressively subsidizing both consumption of domestic manufactured electronics and infrastructure building in smaller cities. The most recent plan is targeting rural area consumers through its rural subsidy scheme, which went into effect nationwide in February 2009. The Chinese government program encourages consumer spending on technology in rural areas by offering a 13% subsidy of the purchase price of designated home appliances (up to a capped price), which subsidy is split 80% / 20% between the central and local government. The PRC Ministry of Finance announced in March 2009 that the 2009 budget from the central government for this subsidy plan was RMB 20 billion, which would help increase household appliance sales by more than RMB 100 billion. According to a rural home appliance consumer survey published by Sunning Appliance, one of the largest home appliance retail stores in China, TV is still the most popular home appliance in rural China with 43.6% of surveyed households intending to make a purchase.

Urbanization Trend .  China has witnessed a growing trend toward urbanization in the past decade. According to the China Statistical Yearbook, the urban population represented approximately 45% of the overall population in China as of December 31, 2008 compared to approximately 20% in the early 1980s. Furthermore, according to an article by Xinhau News Agency, the official press agency of China, the urban population will represent approximately 50% of China’s total population by the end of 2020.

Increasing Consumption .  China has recently overtaken Germany to become the world’s third largest economy behind the U.S. and Japan but is ranked the fifth in terms of consumer spending. Private consumption in China currently accounts for 36% of total GDP, the lowest percentage of any major economy of the world. Consumption is expected to grow over 8% annually over the next 15 years and is expected to become the world’s third-largest consumer market by 2020 according to an estimate by McKinsey Global Institution. According to a January 2010 report released by Credit Suisse, China’s consumer market is expected to rise from US$1.72 trillion in 2009 to US$15.94 trillion in 2020, and the share of global consumption to rise from 5.2% in 2009 to 23.1% in 2020, overtaking the US as the largest consumer market in the world. The Credit Suisse survey also observed a rising interest in LCD televisions.

Global LCD Industry

In 2008, the global LCD industry was negatively impacted by the global economic crisis. In 2009, unit shipments of LCD monitors were up by 3.8%, and global LCD monitor shipments rose to 176.5 million units in 2009, up from 170.1 million in 2008. Global LCD TV shipments reached 146 million units in 2009, and flat panel TV technologies like LCD enjoyed better growth in 2009 on a unit basis than during 2008, rising 37% vs. 34%, respectively. The global TV market is expected to reach 228 million units in 2010, up from the previous forecast of 218 million units, due to the rapid transition to flat panel technologies in emerging markets, the robust level of growth even in mature markets and the positive influence of new technology introductions such as 3D and LED, according to DisplaySearch. According to DisplaySearch, LCD TVs are now projected to exceed 180 million units in 2010, a 24% increase over 2009, such growth to be helped by the introduction of new technologies like 3D, as well as the expansion of newer features like LED backlights

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and internet connectivity. DisplaySearch also noted that price erosion was the major factor contributing to the excellent growth in 2009, with LCD TV average prices falling 24% from 2008, much more than any preceding year.

The global PC market grew 22.4% in the second quarter of 2010, according to IDC. The factors leading to the growth include an aging commercial installed base, a proliferation of low-cost media-centric PCs, and low PC penetration through much of the world, which will remain to be key drivers going forward.

China’s LCD Industry

DisplaySearch forecasts the Europe, the Middle East and Africa region, which is currently the top LCD monitor market, will continue to dominate in the years to come, but by 2011 China is expected to pass the United States as the largest market after the Europe, the Middle East and Africa region and hold over 21% of the market. China’s share in the LCD monitor market is expected to grow from 18.4% in 2008 to 21.1% in 2011 and 22.1% in 2012.

We believe the demand for PCs and LCD monitors is accelerating due to increasing popularity of the Internet. According to China Daily, as of June 2010, the population of China’s Internet users climbed to 420 million, 36 million more than the end of 2009. The penetration rate of Internet users rose to 31.8%, as compared to more than 70% in mature markets. It was 28.9% at the end of 2009.

Government Subsidy for Consumer Electronics in Rural Area

The Chinese central government has a policy of aggressively subsidizing both consumption of domestic manufactured electronics and infrastructure building in Tier 3 cities. The most recent plan is targeting rural area consumers through its rural subsidy scheme, which went into effect nationwide in February 2009. The Chinese government program encourages consumer spending on technology in rural areas by offering a 13% subsidy of the purchase price of designated home appliances (up to a capped price), which subsidy is split 80% / 20% between the central and local government. The PRC Ministry of Finance announced in March 2009 that the 2009 budget from the central government for this subsidy plan was RMB 20 billion, which would help increase household appliance sales by more than RMB 100 billion. According to a rural home appliance consumer survey published by Sunning Appliance, one of the largest home appliance retail stores in China, TV is still the most popular home appliance in rural China with 43.6% of surveyed households intending to make a purchase.

SGOCO Products

We offer a wide range of LCD products with designs and feature sets primarily targeting retail and commercial customers in the China market. Our current product line includes:

Additionally, we also provide custom manufacturing for application-specific LCD monitors, such as rotating screens (self-adjusting on a horizontal-vertical axis), CCTV monitors for security systems, billboard monitors for advertising and public notice systems and touch screens for non-keyed entries, ideal for retail applications.

We currently sell products from two primary branded product lines: SGOCO, which includes high-quality, feature rich LCD products, and Edge 10, a unique line of products currently aimed at the educational marketplace in the U.K. During the nine months ending September 30, 2010, sales of our product lines represented 65.7% of total sales.

Through our research and development group, our engineers are developing new all-in-one e-reader notebook and mobile internet device product lines and provide LCD systems solutions for industry clients, such as medical centers, educational institutions, government complexes, public emergency response systems, and corporate offices. These are customized hardware and software solutions for turnkey delivery to industry clients.

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Our products (including custom systems) are subject to statutory warranty obligations. Generally, these requirements obligate us to a one-year repair or replace obligation. Products returned within seven days of the invoice date must be refunded, repaired or replaced at the customer’s option. Products returned after the first week but within the 15-days following the invoice date must be repaired. If the product cannot be repaired after two attempts during the one-year warranty period, the manufacturer must offer the customer a replacement or refund. In addition to statutory warranties, we provide additional contractual warranties for our products.

Properties and Manufacturing Facility

Our principal manufacturing operations and headquarters are located at the recently constructed SGOCO Technology Park, Jinjiang City, Fujian Province, China. SGOCO Technology Park has a total area of over 242,811 square meters (approximately 60 acres), strategically located in Jinjiang’s new city center, 10 km away from the Jinjiang airport. We entered into a SGOCO Technology Park Investment Agreement with the Municipal Government of Jinjiang City on March 31, 2006, as amended on July 7, 2006. Pursuant to this investment agreement, the government was responsible for providing infrastructure, such as water, power, and roads available for construction and development. We committed to investing not less than US$50 million in development of the Technology Park. As of September 30, 2010, we had already invested in excess of $34.7 million in the SGOCO Technology Park. The investment includes $8.6 million of costs to acquire the land and $26.1 million of building infrastructure and equipment, which includes grants received from the PRC municipal government of $6.7 million. There is no compulsory schedule or deadline by which we must complete our investment commitment.

The property consists of three parcels, occupying 204,113 square meters in total. The industrial land use rights of the property were purchased by Guanke, Guancheng, and Guanwei, respectively. Pursuant to PRC laws, the land use rights are renewable upon expiration at a renegotiated reasonable compensation. Guanke, Guanwei, and Guancheng intend to apply before the Municipal Government of Jinjiang City to renew the land use right one year prior to the expiration date. The Municipal Government of Jinjiang City is expected to agree to renew the land use rights unless there are legitimate public interest considerations that weigh against renewal at that time. Unlike the land use rights, Guanke own the facilities constructed on the land and can dispose of them at their sole discretion. If Guanke, Guancheng, and Guanwei decide not to renew their land use rights, or their application is denied by the Municipal Government of Jinjiang City, they are entitled to a claim to the fair monetary value of the facilities from the Municipal Government of Jinjiang City.

Guanke purchased a 50-year land use right of a 65,331 square meter parcel of land for RMB12,631,748 on June 30, 2007. Guanke paid the purchase price for this land use right on July 11, 2008. The Municipal Government of Jinjiang City issued a land use right certificate for this land on October 14, 2008.

Guancheng purchased a 50-year land use right for a 68,002 square meter parcel of land for RMB13,148,187 on June 30, 2007. Guancheng paid the purchase price for this land use right in full on April 20, 2009. The Municipal Government of Jinjiang City issued a Land Use Right Certificate for this land on April 24, 2009.

Guanwei purchased a 50-year land use right for a 70,780 square meter parcel of land for RMB13,685,313 on June 30, 2007. Guanwei paid the purchase price for this land use right in full on February 5, 2009. The Municipal Government of Jinjiang City issued Guanwei’s Land Use Right Certificate on February 6, 2009.

Guanwei purchased a 50-year land use right for a 28,688 square meter parcel of land for RMB5,546,825 on June 30, 2007. Guanwei paid the purchase price for this land use right in full on November 12, 2009. The Municipal Government of Jinjiang City issued Guanwei’s Land Use Right Certificate on November 20, 2009.

The land use rights have been mortgaged to various lenders as security for various loans.

In addition to the above land use rights obtained from the Municipal Government of Jinjiang City, Guanke also reached agreements regarding the development plan and land reservation matters with the government for its future expansion. Guanke entered into an agreement for reserving the land use right of a 210,793.30 square meter parcel of land immediately on the west side of SGOCO Technology Park on May 24, 2006. The terms and conditions of the future purchase of this reserve land are subject to the then-current negotiation between Jinjiang Land Reservation Center and Guanke. The land plan for construction on this

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parcel of land was approved by the Planning, Construction, and Real Estate Management Bureau of Jinjiang City on May 19, 2006. Guanke is not required to purchase the land use right. If it reaches agreement on price with the JinJiang Land Reservation Center and purchases the right, that right would not be subject to the current agreement granting Mr. Or a purchase option on the land described below.

As of September 30, 2010, we had already invested in excess of $34.7 million in the SGOCO Technology Park. The investment includes $8.6 million of costs to acquire the land and $26.1 million of building infrastructure and equipment, which includes grants received from the PRC municipal government of $6.7 million. We intend to continue to construct, maintain and operate additional facilities to meet our increasing production capacity. In addition, we plan to include developing the parcels with supply chain partners (such as LCD upstream suppliers of glass, backlights, polarizers, and lamps), at our own cost or share such costs with those partners, in order to provide just on time delivery of components to our manufacturing facilities, reducing our inventory and overhead costs. Once suppliers co-locate at SGOCO Technology Park, we expect to achieve synergies with reduced transportation costs and time and additional contract manufacturing capabilities to provide increased economies of scale. In the meantime, as owner of the facility, we may also collect rents for leasing such facilities to our partners.

In May 2009, Guanke moved its existing production lines to the new factory at SGOCO Technology Park. SGOCO Technology Park currently contains one manufacturing building and two dormitories occupying 19,948 square meters of land. The current manufacturing building has four production lines with maximum capacity for eight production lines. The current manufacturing building has two monitor production lines with maximum annual capacity of three million units, two television production lines with maximum annual capacity of two million units, and one SMT production line with maximum annual capacity of 22 million print points. Upon full utilization of the current manufacturing building, we expect to be able to double our current production capacity.

SGOCO Technology Park is subject to an option to Mr. Burnette Or to purchase the land-use rights and the facilities at any time prior to March 18, 2011, subject to entering into a long-term fair market value lease to Guanke for the entire facility. The purchase price for the option will be the sum of all our costs and expenses to acquire the land use rights plus all costs and expenses relating to the building of structures on the land. As of September 30, 2010 the costs to acquire the land were $8.6 million and the total expenses related to buildings and improvements were $16.1 million, which includes a government subsidy of $6.0 million. The terms of such lease will be negotiated at the time, if any, that the option is exercised, which terms will address the party responsible for the continued development of the land and facilities. The option may be extended by one year at the request of Mr. Or. The option does not include the land use right for the 210,793.30 square meter parcel of land immediately on the west side of SGOCO Technology Park that Guanke has an agreement to acquire.

As an incentive to the development of SGOCO Technology Park, the Fujian provincial government built a 110kW transformer substation on site at a cost of US$5 million, which provides power supply for the SGOCO Technology Park.

Research and Development

As a result of our internal product development and in-house manufacturing capabilities, we have developed a focused and compact line of high-quality LCD-based electronic products. We focus our research and development in appearance design, utilities, and major components such as mother boards and high voltage switchboards. In order to have a more cost efficient R&D process, we currently outsource certain non-core R&D projects, such as plate driver and circuit board research, to local R&D design houses. We then purchase those parts developed by outsourced design houses upon qualifying the products to meet our standards. In order to strengthen product development capabilities, we expect to further invest in industrial production lines for LED lighting equipment, digital audio/video recording devices, and advanced digital camcorders.

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Manufacturing

The new manufacturing facility at SGOCO Technology Park has been certified to meet ISO 9001-2000 standards. Its environmental management meets ISO 14001-2004 standards. Workflow, parts, inventory and costs are managed through an ERP system. Other than the LCD panels and flat panel glass, the major components, such as electronic boards, main boards, monitor casings, LED backlights on certain LCD products, high voltage switchboards, power cords, and transformers are manufactured and assembled by us.

We procure LCD panels from reputable third party suppliers (independent distributors of LCD panels manufacturer) located in Fujian Province. The contract value ordered by us from our top ten LCD panels supplier ranged from US$133,377 to US$1,165,527 during 2008 and 2009. Historically, the raw material prices for our products have not been volatile. In the past, we have been able to procure sufficient flat panel glass for our LCD related products manufacture at market prices.

Our Printed Circuit Board Assembly factory has a Surface Mounting Technology (“SMT”) production line, which produces main board, display card, key-press board, set-top boxes, as well as cameras, cell phone boards, and other components. The SMT production system is equipped with high-speed SMT production lines, lead-free wave soldering, plug-in, repair welding, assembly lines, and other facilities. The SMT production line has a capacity of 22 million print points per year. We produce plastic and metal frames in our molding factory, where injection, stamping, plastic painting, and printing are processed. To make our products more cost efficient, we purchase some cables (signal cables, power cables, and audio and video cables) from local suppliers.

We believe that our ability to manufacture our own products is a significant competitive advantage for the following reasons:

Marketing and Distribution

While we initially utilized a network of distributors that sold to retailers without our involvement, since 2009, we have been building a model, which we call SGOCO Clubs, as we enter new markets that more directly connects us to the retailers that sell our products. Under the SGOCO Club model, we convert existing small specialty retailers (mom-and-pop stores) into retailers of SGOCO-owned brands. The conversion entails the re-decoration of the retail space or a portion within existing stores based upon our specification. We provide the retail stores a selective line of products (of different screen size and features) under one or multiple brands owned or licensed by us. Through regular interaction with SGOCO Club operators, our management is able to better understand the needs of end-consumers in the market place and is able to respond quicker to market demands. We then endeavor to quickly design and add new features to our future product offerings. The SGOCO Club model is designed to:

As of September 30, 2010, we had over 400 retail stores covering 13 provinces and municipalities in China. We plan to reach approximately 600 and 1,000 SGOCO Club locations in 2010 and 2011, respectively.

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SGOCO Clubs are currently classified into 3 different types:

As of September 30, 2010, SGOCO has signed contracts for 403 stores, including 25 Type A stores, 176 Type B stores and 202 Type C stores.

We provide our SGOCO Club members with marketing materials and/or storefront improvements. The minimum term for our agreements with SGOCO Club members is one year. We believe that we will be able to expand quickly with the SGOCO Club model. The SGOCO Club model helps business owners with initial setup costs as we provide the store set-up materials. In the future, we intend to provide incentives based on meeting sales quotas. This ties personal success to that of a national brand portfolio and provides incentives for the business owners to promote our brand in local regions. We provide not only multiple branded product lines, but also sales, marketing and management assistance to help local operators succeed.

SGOCO Club members are encouraged to build and manage their own business to sell products carrying SGOCO brands. We believe a network of SGOCO Club members is an effective way to distribute products especially in Tier 3 and Tier 4 cities because the SGOCO Club members engage in localized person-to-person product education and after sales servicing, which is not readily available through traditional distribution channels. Additionally, we believe that our approach through our SGOCO Club model appeals to a cross-section of potential partners, such as entrepreneurial operators of specialty retailers (mom-and-pop retail stores) who may want a differentiated branded retail presence, or internet café operators who may already use a large number of LCD products in their business, and who may be seeking to supplement their income by selling products. We consider our high-quality products, compact product lines, and higher potential gross margins to be attractive components of our SGOCO Club marketing system.

We believe the SGOCO Club model will help create brand identity and trust relationships that can be leveraged in the future to sell other consumer electronics with the ability to provide better sales and service support in an efficient and timely manner. The SGOCO Club model also provides valuable and timely intelligence on shifting consumer tastes and demands and allows us to have a faster response to the market. We believe our retail presence will also become a marketing vehicle to increase awareness of our brand in China’s emerging consumer market.

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Recently, large LCD panel makers from Japan and South Korea have announced plans to build manufacturing plants in China. Sharp Corporation announced a preliminary agreement with China Electronics Nanjing for an eighth generation fabrication plant, and LG Display signed a preliminary agreement with the Guangzhou government to build an LCD manufacturing plant. Samsung Electronics Co, the largest LCD maker by revenue has indicated an interest in building a manufacturing plant in China. Although previously prohibited by Taiwanese government regulation from technology investments in China, Taiwanese companies have recently reported possible easing of restrictions on bans on setting up manufacturing plants in China. AU Optronics Corporation, the world’s third-largest flat panel maker by revenue after Samsung and LG Display Co, announced that it would apply to set up a flat panel plant in China to be nearer to its assembly plants in China’s Suzhou, Xiamen, Shanghai and Sichuan Provinces as soon as the Taiwan government allowed such investments.

Intellectual Property

We do not own any patents. Mr. Or Wenpu (no relation to Burnette or Tin Man Or), SGOCO’s vice president of business affairs, has five appearance design patent applications and four utilities patent applications before the State Intellectual Property Office. To date, all of the foregoing applications are pending. Or Wenpu has orally committed to transfer such patents to SGOCO once the applications are approved.

We own the trademarks “SGOCO” and “Guanke.” In a Letter of Authorization dated February 1, 2008, BORO authorized Guanke to print the following trademarks on its products from February 1, 2008, to January 31, 2017: (1) “edge10”; (2) a mark comprised of two Chinese characters which together mean “warrior”; and (3) a mark comprised of three Chinese characters which together are pronounced “si ke te.” In a Letter of Authorization dated May 1, 2008, Mosview authorized Guanke to print the following trademarks on its products from January 1, 2008, to December 31, 2017: (1) “SGOCO” (this mark was later transferred to Guanke on June 8, 2009); (2) a figurative mark which is a circle with a number “10” in the middle; and (3) “OPTIC10.” We do not pay any royalties to the owners of these marks. These trade mark licenses are in the process of being filed with the Trade Mark Office of State Administration of Industry and Commerce.

There are no legal disputes currently pending or threatened against us for any claimed intellectual property infringement.

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Brand Usage Agreement

In June 2010, we entered into a three-year brand usage agreement with TCL Business System Technology (Huizhou) Co. Ltd., a Chinese television manufacturer and distributor, pursuant to which we will manufacture TCL branded LCD monitors from July 1, 2010 to June 30, 2013. There are no minimum purchase requirements in the agreement, and, as such, the future impact of the agreement is unknown.

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CORPORATE HISTORY AND ORGANIZATION

Corporate History

Honesty Group, a limited liability company registered in Hong Kong, was incorporated on September 13, 2005. Honesty Group owns 100% of the equity interests of three subsidiaries: Guanke, Guanwei, and Guancheng. Guanke, Guanwei, and Guancheng are limited liability companies established in Jinjiang City, Fujian Province under the corporate laws of the PRC. All three companies qualify as wholly foreign-owned enterprises under PRC law and have business operating licenses. Jinjiang Guanke is a limited liability company established in Jinjiang City, Fujian Province under the corporate laws of the PRC and has a business operating license, and is a subsidiary of Guanke. Guanke was formed on January 16, 2006, with a registered capital of $11,880,000. Guanwei and Guancheng were formed on June 22, 2007, with registered capital of $11,880,000 and $7,800,000, respectively, of which $3,130,000 and $4,969,970, respectively, had been invested by Honesty Group as of September 30, 2010. According to an agreement reached with the SAIC, the remaining registered capital of $8,750,000 and $2,830,030 must be fulfilled by end of 2010. The SAIC provided Honesty Group with additional time to make the registered capital payments because Honesty Group is in the process of investing in infrastructure in the region. If Honesty Group is unable to make the registered capital payments during 2010, it believes it will be able to reach agreement with the SAIC to further defer its obligation to pay the remaining registered capital, provided that the SAIC believes Honesty Group is progressing with the timetable for making its infrastructure investments. If it fails to reach such an agreement for deferral, Honesty Group would have an obligation to fund these two subsidiaries or to apply for a reduction in the remaining registered capital, which may not be granted. If Honesty Group fails to contribute their registered capital, they may be penalized with fines of 5-15% over the amount of unpaid capital, and, in certain cases, the subsidiaries business licenses may be revoked, which may result in the inability of the subsidiaries to conduct business in China. If Honesty Group is required to fund the remaining registered capital in full, SGOCO or Honesty Group will need to raise external financing, for which they have no commitments. Guancheng began operations from June 2010. Guanwei has no operations as of September 30, 2010. These subsidiaries do, however, hold certain land use rights for SGOCO Technology Park in Fujian Province, China. Jinjiang Guanke has no operations.

The Acquisition Transaction

On March 11, 2010, our shareholders approved the acquisition of all of the outstanding shares of Honesty Group. Pursuant to the terms of our charter documents, public shareholders who voted against the transaction were entitled to elect to have their shares redeemed at $7.98 per share. Following the Acquisition, holders of 1,232,139 shares elected to have their shares redeemed for $7.98 per share.

In addition, on March 11, 2010, holders of our outstanding warrants to purchase ordinary shares approved an amendment to the warrant agreement under which the warrants were issued to: (a) increase the exercise price per share of the warrants from $5.00 to $8.00, (b) extend the exercise period by one year to March 7, 2014, and (c) provide for the redemption of the publicly-held warrants, at the option of the holder, for $0.50 per warrant upon the closing of the Acquisition. Following the acquisition, holders of 2,673,273 of the 4,239,300 publicly held warrants elected to have their warrants redeemed at $0.50 each. Holders of the remaining 1,566,027 publicly held warrants elected to retain their warrants, as amended, with the new exercise price of $8.00 per share and March 7, 2014 expiration date.

The Acquisition resulted in the issuance of: (a) 8,500,000 ordinary shares to the former shareholders of Honesty Group, and (b) 5,800,000 ordinary shares to the former shareholders of Honesty Group to be held in escrow and released if the following milestones are met by the combined company:

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In connection with the transactions, we entered into agreements to purchase 2,147,493 ordinary shares from the holders of such shares in a series of transactions for an aggregate price of approximately $17.3 million. In addition, the original shareholders of the company who acquired ordinary shares prior to our initial public offering, we and the Honesty Shareholders entered into a Sponsor Agreement, dated as of February 12, 2010, which was amended by Amendment No. 1 to Sponsor Agreement, dated March 11, 2010, pursuant to which the original shareholders of the company agreed to forfeit 124,738 of their ordinary shares and 1,300,000 of their warrants to acquire ordinary shares. The remaining 250,000 warrants acquired by the original shareholders of the company were transferred without consideration to Pope Investments II, LLC. Concurrently, we and Mr. Burnette Or, personally, granted Pope Investments a put option, guaranteed by Messrs. Robert Eu (former Chairman of the Board of Hambrecht Asia and a current director) and John Wang (former Chief Executive Officer of Hambrecht Asia) to purchase 250,000 ordinary shares at $8.00 per share exercisable for a three month period commencing February 15, 2011. In connection with the foregoing, Pope Investments agreed to purchase 250,000 shares, and on March 9-10, 2010, Pope Investments purchased 250,000 shares at an aggregate purchase price of $1,996,590. There is no relationship between Pope Investments and SGOCO or its affiliates, other than as described above.

In addition, 766,823 shares held by the original shareholders of the company were placed in escrow pending satisfaction of certain conditions. Those conditions include our reaching the earn-out certain milestones discussed above, as well as: (i) Messrs. Robert Eu and John Wang providing 30 hours per month in services to us in connection with investor relations, listing on the Nasdaq Global Stock Market or Nasdaq Global Select Stock Market, introducing investors and advisors; (ii) listing of our shares on such stock markets if we act in good faith to obtain such a listing once the listing criteria are met; and (iii) providing the opportunity for us to raise an additional $15 million in equity subject to meeting certain prescribed pricing criteria.

In connection with the issuance of the 5,800,000 escrowed shares and the 766,823 escrowed shares, we, the original shareholders of the company, and the Honesty Shareholders entered into an escrow agreement with Grand Pacific Investment Limited as escrow agent, pursuant to which the escrow agent agreed to hold the foregoing shares pending satisfaction of certain conditions within the applicable time periods. If the conditions are not met, some or all of the foregoing shares, will be delivered to us and canceled and returned to the status of authorized and unissued ordinary shares.

As a condition to the completion of the transactions, we entered into a Registration Rights Agreement, dated March 12, 2010, with the Honesty Shareholders pursuant to which we agreed to register for resale on request shares issued to the Honesty Shareholders.

The Trust Account established at the time of our IPO was released to us upon consummation of the acquisition of Honesty Group. Although the share exchange agreement required that at least $6.5 million remain in the Trust Account at the closing of the business combination, the Honesty Group shareholders waived this condition, and approximately $5.4 million from the Trust Account remained with SGOCO after shareholders and public warrantholders redeemed their securities.

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Corporate Structure

The following diagram sets forth our corporate structure as of the date of this prospectus:

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MANAGEMENT

Executive Officers and Directors

Our directors and executive officers are set forth in the table below followed by a brief biography.

Name		Age		Position
Burnette Or		44		Chief Executive Officer, President and Director
Zhongsheng Lv		48		Treasurer
Xiaoling Xu		29		Corporate Secretary
Robert Lu		47		Chief Executive Officer of Guanke
William Krolicki		42		Vice President of Finance
Tin Man Or		68		Director
Weiwei Shangguan		37		Director
Frank Wu		39		Director
Robert Eu		48		Director
John Chen		38		Director
James C. Hu		37		Director

Burnette Or, Chief Executive Officer, President and Director .  Mr. Or is a seasoned IT entrepreneur with experience in sales, marketing, business development and investment and finance in China and the U.S. Mr. Or started his career in the manufacturing division of Hewlett Packard where he worked from 1989 to 1997. From 1997 to 2005, Mr. Or served as Chief Representative of the China region for Chuntex Electronics Co. (Taiwan), maker of “CTX” brand of LCD monitors and was instrumental in establishing CTX as a top market participant in China. He holds bachelor’s and master’s of science degrees in electrical engineering from Oregon State University in the United States. Mr. Burnette Or is the son of Tin Man Or.

Zhongsheng Lv, Treasurer of SGOCO .  Mr. Lv has acted as Treasurer for Guanke since September 2008. He is experienced in auditing and financial management. Mr. Lv served as Financial Director for Quanzhou ZhengYi Sports Utilities Co., Ltd. from 2006 to 2008 and for Quanzhou TongHai Auto Dealing & Services Co., Ltd. from 2003 to 2006. Prior to that, Mr. Lv was the financial manager at Quanzhou WanGuo Auto Dealing & Services Co., Ltd. and Quazhou FengZeHuiHao Plastic Products Co., Ltd. Mr. Lv started his career as financial manager and deputy director of Quanzhou Honglong Fire Resistant Materials Factory. Mr. Lv holds a degree from the Vocational School of China Railway Corporation in financial management.

Xiaoling Xu, corporate secretary of SGOCO .  Ms. Xu joined SGOCO in April 2010. Ms. Xu is a senior auditor with audit experience under US GAAP. She served as an auditor in Deloitte Touche Tohmatsu CPA Ltd. Beijing Branch from 2005 – 2009. She started her career as an auditor in Pan-China CPA Ltd. firm and worked there from 2004 to 2005. Ms. Xu obtained her bachelor of financial management from Renmin University of China in 2004.

Robert Lu, Chief Executive Officer of Guanke .  Mr. Lu, has been the Chief Executive Officer of Guanke since October 19, 2009. Mr. Lu has over 20 years experience in the display industry in China and North America. Prior to joining SGOCO in 2009, Mr. Lu served as vice general manager at TPV Technology Group China operations, responsible for AOC products sales, marketing, and OEM business development. Before 2004, Mr. Lu held various management positions at TPV Technology Group North America operations in executive staff, product development, customer service, field marketing, OEM, e-commerce business development and corporate marketing. From 1992 to 1994, Mr. Lu worked as the special assistant of VP at TPV China manufacturing facility in charge of product development and quality assurance. Mr. Lu earned a bachelor’s degree in Space Physics from National Wuhan University and a masters’ degree in Electrical Engineering from the City University of New York in the United States.

William Krolicki, Vice President of Finance of SGOCO .  Mr. Krolicki joined SGOCO in August 2010. From 2002 until August 2010 Mr. Krolicki worked as an independent consultant advising companies on investments in China. The scope of his work included mergers and acquisitions and foreign direct investment in China. Mr. Krolicki holds an MBA from the Wharton Business School and is CFA candidate who has passed both the Level I and Level II certification examinations.

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Tin Man Or, Director ,  Mr. Or has over 35 years of experience in the manufacturing industry. He was a teacher of Jinjiang Yinling Elementary School from 1963 to 1973. From 1974 to 1980, he served as engineer in a textile company in Hong Kong. After that, he worked as general managers in Hong Kong Dong Sheng Trading Co., Ltd., Hong Kong Di Gao Trading Co., Ltd., and Hong Kong Run Feng Group Co., Ltd. Mr. Or has served as general manager of Honesty Group since 2005. Mr. Tin Man Or owns Sun Zone Investments Limited, which owned 80% of the outstanding stock of Honesty Group prior to the Acquisition. Sun Zone Investments Limited is also the parent company of Mosview Technology Group Ltd., a PRC company that owns BORO (Fujian) Electronic Co., Ltd., a supplier to Guanke.

Weiwei Shangguan, Director .  Ms. Shangguan worked with China Ping An Insurance Co., Ltd., Yichuang Branch as claim management manager from 1995 to 2000. She worked as deputy general manager with New China Life Insurance Co., Ltd. Wuhan Branch from 2000 to 2002. After leaving the insurance industry, she served as assistant to chairman of the board of Beijing Kangdi Pharmacy Eo., Ltd. for two years and, from 2004 to 2006, as deputy general manager and vice president of ADI Cheng Zhou Technology Co., Ltd., a leading monitor manufacturer. Ms. Shangguang holds a bachelor’s degree in accounting from Hubei University. Ms. Shangguang joined Honesty Group as director in 2006.

Frank Wu, Director .  Mr. Wu is currently the director of the sales department for Massachusetts Mutual Life Insurance Co. Prior to his current position, Mr. Wu served as the director of the accounting department for the Beijing Branch of Anbang Insurance Co. from 2005-2007. While with Anbang Insurance Co. Mr. Wu was responsible for managing Anbang’s financial affairs in the Beijing area. Mr. Wu holds a Bachelor of Arts degree in business management from Beifang Technology University.

Robert Eu, Director .  Mr. Eu has been a director since our inception. He was our Secretary and Chief Financial Officer until September 4, 2009. Since 1998, Mr. Eu has served as a Managing Director for W.R. Hambrecht + Co., LLC (“WR Hambrecht + Co”) a San Francisco-based investment bank. Mr. Eu founded WR Hambrecht + Co’s investment banking practice in Asia in 2003. Prior to WR Hambrecht + Co, Mr. Eu was a Managing Director of H&Q Asia Pacific from 1992 until 1998, an affiliate of Hambrecht & Quist, where he co-founded its Hong Kong office and China investment practice. Mr. Eu has been a director of Eu Yang Sang (Hong Kong) Limited, a manufacturer and retailer of traditional Chinese medicine, since 1997 and became non-executive chairman of the Board on January 1, 2010. Mr. Eu has been a director and the Chairman of AEX Enterprises Limited (“AEX Enterprises”) since 2003. AEX Enterprises’ primary operating subsidiary is Boom Securities (H.K.) Limited (“Boom Securities”). Boom Securities is a licensed broker/dealer regulated by the Securities and Futures Commission (SFC) of Hong Kong and headquartered in Hong Kong. Mr. Eu worked for Citibank from 1987 until 1992 in the Private Banking Group in Hong Kong. Mr. Eu is a graduate of Northwestern University with a B.A. in History.

John Chen, Director .  Mr. Chen has been a director since November 2010. Since May 2004, Mr. Chen has served as the Chief Financial Officer of General Steel Holdings, Inc., a NYSE listed company. From October 1997 until May 2003, Mr. Chen served as a Senior Accountant at Frazer Frost, LLP. Mr. Chen holds a Bachelor of Science degree in business administration and accounting from California State Polytechnic University, Pomona.

James C. Hu, Director .  Mr. Hu has been a director since November 2010. Since 2006, Mr. Hu has served as Head of Credit Analysis at Standard Chartered Bank (China) Ltd. From 2004 until 2006, Mr. Hu served as Senior Finance Manager of Anesiva, Inc. From 1996 until 1999, Mr. Hu served as a Senior Auditor at Deloitte Touche Tohmatsu. Mr. Hu holds a MBA from the Darden Graduate School of the University of Virginia and a Bachelor of Arts degree in economics from the University of California at Berkeley.

Board of Directors

Our Board of Directors currently has seven directors. Under our amended and restated memorandum and articles of association, our Board of Directors may not consist of less than two directors with no maximum number. Our directors will be elected by the holders of our ordinary shares or by the directors. There are no agreements or understandings between any of our executive officers or directors and any other person pursuant to which such executive officer or director was selected to serve as a director or executive officer of our company. Subject to any provision to the contrary in the Articles, a Director may be removed by way of (i) an ordinary resolution of the Members at any time before the expiration of his period of office notwithstanding

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anything in the Articles or in any agreement between the Company and such Director (but without prejudice to any claim for damages under any such agreement), or (ii) a two-thirds vote of the Board of Directors if such removal is for cause at any time before the expiration of his period of office notwithstanding anything in these Articles or in any agreement between the Company and such Director (but without prejudice to any claim for damages under any such agreement). The office of a Director shall be vacated if the Director (1) resigns his office by notice in writing delivered to the Company at the Office or tendered at a meeting of the Board; (2)becomes of unsound mind or dies; (3) without special leave of absence from the Board, is absent from meetings of the Board for six consecutive months and the Board resolves that his office be vacated; or (4) becomes bankrupt or has a receiving order made against him or suspends payment or compounds with his creditors; (5) is prohibited by law from being a Director; or (6) ceases to be a Director by virtue of any provision of the Statutes or is removed from office pursuant to these Articles. No contract or transaction between the Company and 1 or more of its Directors or officers, or between the Company and any other corporation, partnership, association, or other organization in which 1 or more of its Directors or officers, are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the Director or officer is present at or participates in the meeting of the Board or committee which authorizes the contract or transaction, or solely because any such Director’s or officer’s votes are counted for such purpose, if (1) the material facts as to the Director’s or officer’s relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) the material facts as to the Director’s or officer’s relationship or interest and as to the contract or transaction are disclosed or are known to the Shareholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the Shareholders; or (3) the contract or transaction is fair as to the Company as of the time it is authorized, approved or ratified, by the Board, a committee or the Shareholders. The board of directors may exercise all the powers of the company to borrow money, mortgage its undertakings, property and uncalled capital, and issue debentures, debenture stock and other securities whenever money is borrowed or pledged as security for any obligation of the company or of any third party.

Nasdaq Requirements for Director Independence

Under the Nasdaq Stock Market Marketplace Rules, or the Nasdaq rules, a majority of our directors must meet the definition of “independence” contained in those rules. Our Board has determined that Ms. Shangguan, Mr. Wu, Mr. Chen, and Mr. Hu meet the independence standards contained in the Nasdaq rules. We do not believe that any of these directors have any relationships that would preclude a finding of independence under these rules and, in reaching its determination, our Board determined that any other relationships that these directors have with us do not and would not impair their independence.

Committees of Our Board of Directors

We have established three committees of the Board of Directors: an audit committee, a compensation committee and a nominating committee. We have adopted a charter for each of the committees. Each committee’s members and functions are described below.

Audit Committee .  Our audit committee consists of Messrs. Chen (Chairperson), Hu and Wu. Our board of directors has determined that all of the audit committee members satisfy the “independence” requirements of Rule 10A-3 under the Securities Exchange Act of 1934, as amended, and Rule 5605 of Nasdaq rules. In addition, our board of directors has determined that Messrs. Chen and Hu are “audit committee financial experts,” as defined by Regulation S-K promulgated by the SEC. The audit committee will be responsible for, among other things:

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Compensation Committee .  Our compensation committee consists of Messrs. Wu (Chairperson), Hu and Chen. We have determined that all of the compensation committee members satisfy the “independence” requirements of Rule 5605 of Nasdaq rules. The purpose of the compensation committee will be, among other things, to discharge the responsibilities of our board of directors relating to compensation of our directors, executive officers and other key employees, including reviewing and evaluating and, if necessary, revising the compensation plans, policies and programs of the company adopted by the management. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated. The compensation committee will be responsible for, among other things:

Nominating Committee .  Our nominating committee consists of Ms. Shangguan (Chairperson), Mr. Wu and Mr. Hu. We have determined that all of the nominating committee members satisfy the “independence” requirements of Rule 5605 of Nasdaq rules. The nominating committee will assist our Board in selecting individuals qualified to become members of our Board and in determining the composition of our Board and its committees. The corporate governance and nominating committee will be responsible for, among other things:

Code of Ethics

We have adopted a Code of Ethics. The Code of Ethics is designed to deter wrongdoing and to promote ethical conduct and full, fair, accurate, timely and understandable reports that the company files or submits to the SEC and others. Employees are prohibited from engaging in transactions that pose a conflict of interest with their duties to our company, taking corporate opportunities from our company, as well as other illegal activities, including insider trading and bribery. A copy of the Code of Ethics is included as Exhibit 99.1 to the registration statement of which this prospectus forms a part.

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Compensation

None of Burnette Or or the officers or directors of SGOCO have received compensation from SGOCO, Honesty Group or Guanke for their service before April 1, 2010.

We entered into an employment agreement with Mr. Burnette Or on February 1, 2010, as amended on April 2, 2010, pursuant to which Mr. Or agreed to become the President and Chief Executive Officer of SGOCO with an annual gross salary of $350,000. Mr. Or will be eligible to receive certain performance bonuses (to be determined at year end) and may be entitled to certain stock options (to be determined after a stock option plan is put in place). Mr. Or is an at-will employee of SGOCO and either party may terminate the employment agreement at any time for any reason or no reason. Mr. Or agreed to waive his base salary for the year 2010.

We entered into an employment agreement with Mr. Robert Lu on February 1, 2010, as amended on April 2, 2010, pursuant to which Mr. Lu agreed to become the Chief Executive Officer of Guanke with an annual gross salary of $100,000. Mr. Lu will be eligible to receive performance bonuses up to 10% of his annual salary and may be entitled to certain stock options (to be determined after a stock option plan is put in place). Mr. Lu is an at-will employee of SGOCO and either party may terminate the employment agreement at any time for any reason or no reason.

We entered into an employment agreement with Mr. William A. Krolicki effective as of July 31, 2010, pursuant to which Mr. Krolicki agreed to become the Vice President of Finance of SGOCO with a base salary of 60,000 RMB per month. Mr. Krolicki will also receive 3,700 restricted stock shares, which shall be granted on and vest on January 1, 2011 and he will also be eligible to participate in SGOCO’s bonus program. The initial term of Mr. Krolicki’s employment is for three years during which time he may only be terminated as set forth in the agreement, and his employment is at-will thereafter. If we terminate Mr. Krolicki during the initial term as a result of death or disability or for cause (as defined in the employment agreement), or at any point after the initial term, he is entitled to his base salary through the date of termination and any benefits legally required to be paid to him. If we terminate Mr. Krolicki during the first year of the initial term without cause, he is entitled to one month of his base salary; if we terminate during the second year, he is entitled to two months salary; and if we terminate during the third year, he is entitled to three months salary.

2010 Equity Incentive Plan

On September 27, 2010, our board of directors approved the 2010 Equity Incentive Plan, or 2010 Plan, subject to shareholder approval which occurred on November 17, 2010.

Purpose.   The purpose of the 2010 Plan is to promote our success and to increase shareholder value by providing an additional means through the grant of equity compensation awards to attract, motivate, retain and reward selected employees and other eligible persons of SGOCO.

Shares Subject to 2010 Plan.   Subject to adjustments under certain conditions, the maximum number of shares that may be delivered pursuant to awards under the 2010 Plan is equal to 7% of the aggregate number of shares outstanding from time to time.

Administration.   The 2010 Plan shall be administered by, and all equity compensation awards under the 2010 Plan shall be authorized by, the board or one or more committees appointed by the Board (the “Administrator”). Any committee of the board that serves as the Administrator shall be comprised solely of one or more directors or such number of directors as may be required under applicable laws and may delegate some or all of its authority to another committee so constituted. Unless otherwise provided in our Memorandum and Articles of Association or the applicable charter of any Administrator: (a) a majority of the members of the acting Administrator shall constitute a quorum, and (b) the vote of a majority of the members present assuming the presence of a quorum or the unanimous written consent of the members of the Administrator shall constitute action by the acting Administrator.

Eligibility.   The Administrator may grant equity compensation awards under the 2010 Plan only to those persons that the Administrator determines to be either an officer, employee, director of SGOCO or a consultant or advisor of SGOCO (each of the foregoing, an “Eligible Person”); provided, however, that incentive stock options may only be granted to an Eligible Person who is an employee of SGOCO. Notwithstanding the

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foregoing, a person who is otherwise an Eligible Person may participate in the 2010 Plan only if such participation would not compromise our ability to comply with applicable laws (including securities laws). A participant may, if otherwise eligible, be granted additional equity compensation awards if the Administrator shall so determine.

Type and Form of Awards.   The Administrator shall determine the type or types of equity compensation award(s) to be made to each selected Eligible Person. Under the 2010 Plan, the Administrator may grant options to purchase ordinary shares, share appreciation rights, restricted shares, and restricted share units. Such awards may be granted singly, in combination or in tandem. Awards also may be made in combination or in tandem with, in replacement of, as alternatives to, or as the payment form for grants or rights under any other employee or compensation plan of SGOCO.

Performance-Based Awards.   The Administrator may grant equity compensation awards as performance-based shares under the 2010 Plan. Each such equity compensation award will have an initial value that is established by the Administrator on or before the date of grant. The grant, vesting, exercisability or payment of performance-based equity compensation awards may depend on the degree of achievement of one or more performance goals relative to a pre-established targeted level or a level using one or more of the business criteria (on an absolute or relative basis) for SGOCO on a consolidated basis or for one or more of SGOCO’s subsidiaries, segments, divisions or business units, or any combination of the foregoing.

Transfer Restrictions.   Except as specifically provided in the 2010 Plan, (a) all equity compensation awards are non-transferable and shall not be subject in any manner to sale, transfer, anticipation, alienation, assignment, pledge, encumbrance or charge; (b) equity compensation awards shall be exercised only by the relevant participant; and (c) amounts payable or shares issuable pursuant to any equity compensation award shall be delivered only to (or for the account of) the relevant participant. The 2010 Plan provides that incentive share options may not be transferred except by will or the laws of descent and distribution. The Administrator has discretion to permit transfers of other awards where it concludes such transferability is appropriate and desirable.

Amendment and Termination.   The 2010 Plan will continue in effect until the 10th anniversary of its approval by the shareholders, unless earlier terminated by our board. Our board may amend, suspend or terminate the 2010 Plan as it shall deem advisable, except that no amendment may adversely affect a grantee with respect to awards previously granted unless such amendments are in connection with compliance with applicable laws; provided that the board may not make any amendment in the 2010 Plan that would, if such amendment were not approved by the shareholders, cause the 2010 Plan to fail to comply with any requirement of applicable laws, unless and until shareholder approval is obtained. No award may be granted during any suspension of the 2010 Plan or after termination of the 2010 Plan. No amendment, suspension or termination of the 2010 Plan or change affecting any outstanding equity compensation award shall, without written consent of the relevant participant, affect in any manner materially adverse to the relevant participant any rights or benefits of the relevant participant or obligations of SGOCO under any equity compensation award granted under the 2010 Plan prior to the effective date of such change.

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PRINCIPAL SHAREHOLDERS

The following table sets forth information, as of November 15, 2010, with respect to the beneficial ownership of our ordinary shares by:

•

each director and executive officer; and

•

each person known by us to own beneficially more than 5.0% of our outstanding ordinary shares.

Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. For each person and group included in this table, percentage ownership is calculated by dividing the number of shares beneficially owned by such person or group and the number of ordinary shares such person or group has the right to acquire within 60 days after November 15, 2010 by the sum of (1) 16,094,756, being the number of ordinary shares outstanding as of November 15, 2010, plus (1) the number of ordinary shares such person or group has the right to acquire within 60 days after November 15, 2010. Except as indicated in the footnotes to the table, the persons named in the table have sole voting and investment power with respect to all shares of ordinary shares shown as beneficially owned by them. Our major shareholders do not have different voting rights than any other shareholder.

Percentage of ordinary shares beneficially owned after this offering further includes ordinary shares to be issued in this offering and assumes that the underwriters do not exercise their over-allotment option. The underwriters may choose to exercise the over-allotment options in full, in part or not at all.

Name Directors and Executive Officers		Shares Beneficially Owned Prior to Offering								Shares Beneficially Owned After Offering
		Number				Percent				Number				Percent
Tin Man Or (1)			11,440,000				71.1	%			11,440,000				65.6	%
Robert Eu (2)			230,818				1.4	%			230,818				1.3	%
Burnette Or			—				—				—				—
Zhongsheng Lv			—				—				—				—
Xiaoling Xu			—				—				—				—
Robert Lu			—				—				—				—
William Krolicki			—				—				—				—
Weiwei Shangguan			—				—				—				—
Frank Wu			—				—				—				—
John Chen			—				—				—				—
James C. Hu			—				—				—				—
Principal Shareholders
Sze Kit Ting			2,860,000				17.7	%			2,860,000				16.4	%

(1)

The shares listed in the table are held by Sun Zone Investments Limited, a British Virgin Islands corporation, formed for the purpose of holding stock in Honesty Group by Mr. Tin Man Or, father of Burnette Or. Of the shares listed, 4,640,000 shares owned by Sun Zone are held in escrow pursuant to an escrow agreement entered into in connection with the Acquisition and will only be released to the record owners if certain conditions are met.

(2)

Includes 77,937 shares held by AEX Enterprises Limited. Mr. Eu is the Chairman and a director of AEX Enterprises Limited and has voting and dispositive power over the shares held by AEX Enterprises Limited.

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RELATED PARTY TRANSACTIONS

Mr. Tin Man Or owns Sun Zone Investments Limited, a British Virgin Islands corporation, that owned 80% of the outstanding stock of Honesty Group prior to the Acquisition. Sun Zone Investments Limited was also the parent company of Mosview Technology Group Ltd., or Mosview, and BORO (Fujian) Electronic Co., Ltd., or BORO. Sun Zone no longer owns an interest in Mosview or BORO. Honesty Group has conducted business with Mosview and BORO in the ordinary course of business. Mosview is an electronics trading company. We sell products to Mosview and purchases panels from Mosview. BORO is a manufacturing enterprise and a wholesale trader. We sell products to BORO, but do not purchase materials from BORO. As of September 30, 2010, the only advances to related parties outstanding were to Mosview for $27,315. In addition to information disclosed in Note 18 in the Notes to Consolidated Financial Statements, we had the following related party transactions related to sales and purchases for the years ended December 31:

Sales Name of related parties		For the year ended December 31, 2009				For the year ended December 31, 2008				For the year ended December 31, 2007
BORO		$	3,806,102			$	—			$	—
Mosview		$	2,395,599			$	9,704,467			$	1,924,836
Revenues – Related Party		$	6,201,701			$	9,704,467			$	1,924,836

Purchases Name of related parties		For the year ended December 31, 2009				For the year ended December 31, 2008				For the year ended December 31, 2007
BORO		$	—			$	—			$	—
Mosview		$	5,585,445			$	3,984,623			$	924,339

In the past, we and BORO have provided working capital loans to each other. The loans were all interest-free demand loans and were not formalized in written documents. We utilized loans from BORO rather than banking institutions because the approval process was faster and the loans were interest free. We provided BORO with such loans in prior periods as BORO was a significant customer of SGOCO.

During the nine month period ended September 30, 2010, the largest loan amount outstanding from BORO for the benefit of SGOCO was $2.9 million, and the largest loan amount outstanding from SGOCO for the benefit of BORO was $4.8 million. During the years ended December 31, 2009, 2008 and 2007, the largest loan amounts outstanding from BORO for the benefit of SGOCO were $2.3 million, $2.8 million and $38,000, respectively, and the largest loan amounts outstanding from SGOCO for the benefit of BORO were $2.8 million, $733 and $0, respectively. As of the date hereof, no amounts remained outstanding from either party.

Mr. Tin Man Or and Mr. Burnette Or have guaranteed certain indebtedness of Guanke to various banks under lines of credit. In addition, Guanke borrowed $190,411 payable on demand without interest for working capital needs from Mr. Burnette Or as of December 31, 2009, none of which was outstanding at September 30, 2010.

Mr. Wen Pu Or, Guanke’s Vice President of Business Affairs, has granted Guanke an oral license to use certain patent pending technology and agreed to transfer the patents to Guanke without charge after the patent registration is complete.

In January 2010, we entered into promissory note agreements with two of our shareholders, Robert Eu and John Wang. Each loan was for a sum of $50,000, had a maturity date of July 1, 2010, which was extended to September 30, 2010, and bore interest at a rate of 5.25% per annum. The notes were satisfied by September 30, 2010.

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We have established these redemption criteria to provide warrantholders with a significant premium to the initial warrant exercise price as well as a sufficient degree of liquidity to cushion the market reaction, if any, to our redemption call. If the foregoing conditions are satisfied and we issue notice of redemption of the warrants, each warrant holder shall be entitled to exercise his, her or its warrant prior to the scheduled redemption date. However, there can be no assurance that the price of the ordinary shares will exceed the redemption trigger price or the warrant exercise price after the redemption notice is issued.

The warrants were issued in registered form under a warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and us. You should review a copy of the warrant agreement, and the related amendment to the Warrant Agreement for a complete description of the terms and conditions of the warrants.

The exercise price and number of ordinary shares issuable on exercise of the warrants may be adjusted in certain circumstances including in the event of a share dividend, or our recapitalization, merger or consolidation. However, the exercise price and number of ordinary shares issuable on exercise of the warrants will not be adjusted for issuances of ordinary shares at a price below the warrant exercise price.

The warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the warrant agent, with the exercise form on the reverse side of the warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price, by certified check payable to us, for the number of warrants being exercised. Warrantholders do not have the rights or privileges of holders of ordinary shares, including voting rights, until they exercise their warrants and receive ordinary shares. After the issuance of ordinary shares upon exercise of the warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by shareholders.

No fractional shares will be issued upon exercise of the warrants. If a holder exercises warrants and would be entitled to receive a fractional interest of a share, we will round up the number of ordinary shares to be issued to the warrant holder to the nearest whole number of shares.

Underwriter’s Option to Purchase Units

In connection with our IPO, we issued the representative of our underwriters the option to acquire 280,000 units, each consisting of on ordinary share and one warrant. The ordinary shares and warrants which would be issued upon exercise of the option for the units have the same terms and conditions as the ordinary shares and warrants described above. The option is exercisable at $10.00 per Unit.

Nasdaq Stock Market Listing

We have applied to list our ordinary shares for quotation on the Nasdaq Global Market.

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MEMORANDUM AND ARTICLES OF ASSOCIATION

The following represents a summary of certain key provisions of our amended and restated memorandum and articles of association (the “Amended and Restated Memorandum and Articles of Association”). The summary does not purport to be a summary of all of the provisions of our Amended and Restated Memorandum and Articles of Association or all relevant provisions of Cayman Islands law governing the management and regulation of Cayman Islands exempted companies.

Register

We are a company incorporated in the Cayman Islands on July 18, 2007, under the Companies Law of the Cayman Islands (the “Companies Law”) with company registration number 191444. We are authorized to issue up to 50,000,000 ordinary shares, par value $0.001 per share, and 1,000,000 preferred shares, par value $0.001 per share. Under the Company’s Amended and Restated Memorandum and Articles of Association, the Registered Office of the Company is at the offices of Codan Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman, KY1-1111, Cayman Islands, telephone: (345) 949 1040, or at such other place as the directors may from time to time decide.

Objects and Purposes

Our Amended and Restated Memorandum and Articles of Association grants us full power and authority to carry out any objectives not prohibited by the Companies Law or any other law of the Cayman Islands.

Directors

No contract or transaction between the Company and 1 or more of its Directors or officers, or between the Company and any other corporation, partnership, association, or other organization in which 1 or more of its Directors or officers, are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the Director or officer is present at or participates in the meeting of the Board or committee which authorizes the contract or transaction, or solely because any such Director’s or officer’s votes are counted for such purpose, if (1) the material facts as to the Director’s or officer’s relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) the material facts as to the Director’s or officer’s relationship or interest and as to the contract or transaction are disclosed or are known to the Shareholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the Shareholders; or (3) the contract or transaction is fair as to the Company as of the time it is authorized, approved or ratified, by the Board, a committee or the Shareholders. Directors also may exercise their powers to borrow money, issue debt securities and to mortgage or charge any of the undertakings or property of SGOCO. The Amended and Restated Memorandum and Articles of Association specify that a director is not required to hold any shares in SGOCO as a qualification to office.

Rights, Preferences and Restrictions Attaching to the Company’s Shares

Each ordinary share has the right to an equal share in any dividend as may be declared by the board of directors subject to the Companies Law, the right to one vote on all matters upon which the ordinary shares are entitled to vote, and the right to an equal share in the distribution of surplus in the event of liquidation. Subject to the provisions of the Companies Law, we may issue shares on the terms that they are, or at our option or at the option of the holders are, subject to redemption on such terms and in such manner as may be determined by special resolution. The board of directors may from time to time make calls upon shareholders for any amounts unpaid on their shares in a notice served to such shareholders at least 14 days prior to the specified time that includes the place of payment. The shares that have been called upon and remain unpaid are subject to forfeiture.

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Alteration of Rights of Shareholders.

Shareholders may change the rights of their class of shares by passing a special resolution at a meeting of the shareholders of that class.

Meetings.

Subject to our regulatory requirements, an annual general meeting and any extraordinary general meeting shall be called by not less than 10 days’ notice in writing. Notice of every general meeting will be given to all of our shareholders other than those that, under the provisions of our Amended and Restated Memorandum and Articles of Association or the terms of issue of the shares they hold, are not entitled to receive such notices from us, and also to our directors and principal external auditors. Extraordinary general meetings may be called only by the chairman of our board of directors, our chief executive officer or a majority of our board of directors, and may not be called by any other person.

If a meeting is called on less than 14 days’ prior notice, then, subject to applicable regulatory requirements, it will be deemed to have been duly called if it is so agreed (1) in the case of a meeting called as an annual general meeting by all of our shareholders entitled to attend and vote at the meeting, or (2) in the case of any other meeting, by a majority in number of our shareholders having a right to attend and vote at the meeting, being a majority together holding not less than 95% in nominal value of the ordinary shares giving that right.

A quorum required for a meeting of shareholders consists of at least two shareholders holding at least one-third of our outstanding voting shares, present in person or by proxy or, if a corporation or other non-natural person, by its duly authorized representative.

Limitations on the Right to Own Securities.

There are no limitations on the rights to own securities of SGOCO, or limitations on the rights of non-resident or foreign shareholders to hold or exercise voting rights on SGOCO’s securities, contained in the Amended and Restated Memorandum and Articles of Association.

Cayman Islands Company Considerations

Our corporate affairs are governed by our Amended and Restated Memorandum and Articles of Association and by the Companies Law (2010 Revision) and the common law of the Cayman Islands. The Companies Law of the Cayman Islands is modeled on English Law but does not follow recent English Law statutory enactments, and differs from laws applicable to United States corporations and their shareholders. Set forth below is a summary of the material differences between the provisions of the Companies Law applicable to us and the laws applicable to companies incorporated in Delaware and their shareholders. A brief discussion of the procedure for mergers and similar arrangements in the Cayman Islands also follows.

There have been few, if any, court cases interpreting the Companies Law in the Cayman Islands, and we cannot predict whether Cayman Islands courts would reach the same conclusions as U.S. courts. Therefore, you may have more difficulty in protecting your interests in the face of actions by the management, directors or controlling shareholders than would shareholders of a corporation incorporated in a United States jurisdiction which has developed a substantial body of case law. The following table provides a comparison between the statutory provisions of the Companies Law and the Delaware General Corporation Law relating to shareholders’ rights.

Cayman Islands		Delaware
Shareholders’ Meeting:		Shareholders’ Meeting:
•   Held at a time and place as designated in the Articles of Association		•   Held at such time or place as designated in the certificate of incorporation or the bylaws, or if not so designated, as determined by the board of directors
•   May be held within or without the Cayman Islands		•   May be held within or without Delaware

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Cayman Islands		Delaware
Notice:		Notice:
•   Whenever shareholders are required to take action at a meeting, written notice shall state the place, date and hour of the meeting and indicate that it is being issued by or at the direction of the person calling the meeting		•   Whenever shareholders are required to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, if any, date and hour of the meeting, and the means of remote communication, if any, by which shareholders may be deemed present at the meeting
•   A copy of the notice of any meeting shall be given personally or sent in the manner(s) designated in the Articles of Association		•   Written notice shall be given not less than 10 nor more than 60 days before the meeting
Shareholders’ Voting Rights:		Shareholders’ Voting Rights:
•   Any action required to be taken by meeting of shareholders may be taken without meeting if consent is in writing and is signed by all the shareholders entitled to vote if permitted by the Articles of Association		•   Any action required to be taken by meeting of shareholders may be taken without meeting if consent is in writing and is signed by shareholders having the minimum number of shares required to take such action
•   Any person authorized to vote may authorize another person or persons to act for him by proxy if permitted by the Articles of Association		•   Any person authorized to vote may authorize another person or persons to act for him by proxy
•   Quorum is as designated in the Articles of Association.		•   For stock corporations, certificate of incorporation or bylaws may specify the number to constitute a quorum but in no event shall a quorum consist of less than one third of shares entitled to vote at a meeting. In the absence of such specifications, a majority of shares entitled to vote shall constitute a quorum
•   The Memorandum and Articles of Association may provide for cumulative voting in the election of directors		•   The certificate of incorporation may provide for cumulative voting
Directors:		Directors:
•   Board must consist of at least one member		•   Board must consist of at least one member
•   Maximum number of directors can be changed by a resolution of members and/or an amendment to the Articles of Association.		•   Number of board members shall be fixed by the bylaws, unless the certificate of incorporation fixes the number of directors, in which case a change in the number shall be made only by amendment of the certificate.
•   If the board is authorized to change the number of directors actually appointed, provided that the number still falls within the maximum and the minimum number of directors as set out in the Articles of Association, it can do so provided that it complies with the procedure set out in the Articles of Association.

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Cayman Islands		Delaware
Fiduciary duties:		Fiduciary duties:
In summary, directors and officers owe the following fiduciary duties:		•   Directors and officers must act in good faith, with the care of a prudent person, and in the best interest of the corporation as a whole.
•   Duty to act in good faith in what the directors believe to be in the best interests of the company as a whole;		•   Directors and officers must refrain from self- dealing, usurping corporate opportunities and receiving improper personal benefits.
•   Duty to exercise powers for the purposes for which those powers were conferred;		•   Decisions made by directors and officers on an informed basis, in good faith and in the honest belief that the action was taken in the best interest of the corporation will be protected by the “business judgment rule.”
•   Duty to exercise powers fairly as between different groups of shareholders;		•   Decisions made by directors and officers on an informed basis, in good faith and in the honest belief that the action was taken in the best interest of the corporation will be protected by the “business judgment rule.”
•   Duty not to put himself in a position of conflict; and
•   Duty to exercise independent judgment
In addition to the above, directors also owe a duty of care which is not fiduciary in nature. This duty has been defined as a requirement to act as “a reasonably diligent person having both: the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company, and the general knowledge, skill and experience that that director has”.
As set out above, directors have a duty not to put themselves in a position of conflict and this includes a duty not to engage in self dealing, or to otherwise benefit as a result of his position. How ever, in some instances a breach of this duty can be forgiven and/or authorized in advance by the shareholders provided that there is full disclosure by the directors. This can be done by way of permission granted in the Articles of Association or alternatively by shareholder approval at general meetings.

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Finally, the new “resident enterprise” classification could result in a situation in which a 10% PRC tax is imposed on dividends SGOCO pays to its non-PRC shareholders that are not PRC tax “resident enterprises” and gains derived by them from transferring SGOCO’s ordinary shares or warrants, if such income is considered PRC-sourced income by the relevant PRC authorities. In such event, SGOCO may be required to withhold the 10% PRC tax on any dividends paid to its non-PRC resident shareholders. SGOCO’s non-PRC resident shareholders also may be responsible for paying PRC tax at a rate of 10% on any gain realized from the sale or transfer of ordinary shares or warrants in certain circumstances. SGOCO would not, however, have an obligation to withhold PRC tax with respect to such gain. If any such PRC taxes apply, a non-PRC resident shareholder may be entitled to a reduced rate of PRC taxes under an applicable income tax treaty and/or a foreign tax credit against such shareholder’s domestic income tax liability (subject to applicable conditions and limitations). Prospective investors should consult with their own tax advisors regarding the applicability of any such taxes, the effects of any applicable income tax treaties, and any available foreign tax credits.

U.S. Federal Income Taxation

Circular 230 Notice

THE FOLLOWING DESCRIPTION OF TAX CONSEQUENCES IS NOT INTENDED OR WRITTEN TO BE USED, AND IT CANNOT BE USED BY ANY TAXPAYER, FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON THE TAXPAYER. THE DESCRIPTION HAS BEEN WRITTEN TO SUPPORT THE PROMOTION OR MARKETING OF THE ORDINARY SHARES. PROSPECTIVE INVESTORS ARE STRONGLY URGED TO SEEK ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.

General

The following is a summary of the material U.S. federal income tax consequences of owning and disposing of our ordinary shares. The discussion below of the U.S. federal income tax consequences to “U.S. Holders” will apply to a beneficial owner of our shares that is for U.S. federal income tax purposes:

If a beneficial owner of our shares is not described as a U.S. Holder and is not an entity treated as a partnership or other pass-through entity for U.S. federal income tax purposes, such owner will be considered a “Non-U.S. Holder.” The U.S. federal income tax consequences applicable specifically to Non-U.S. Holders is described below under the heading “Tax Consequences to Non-U.S. Holders of Ordinary Shares.”

This summary is based on the Internal Revenue Code of 1986, as amended, or the Code, its legislative history, existing and proposed Treasury regulations promulgated thereunder, published rulings and court decisions, all as currently in effect. These authorities are subject to change or differing interpretations, possibly on a retroactive basis.

This discussion does not address all aspects of U.S. federal income taxation that may be relevant to us or to any particular holder of our shares based on such holder’s individual circumstances. In particular, this discussion considers only holders that own our shares as capital assets within the meaning of Section 1221 of the Code. This discussion also does not address the potential application of the alternative minimum tax or the U.S. federal income tax consequences to holders that are subject to special rules, including:

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This discussion does not address any aspect of U.S. federal non-income tax laws, such as gift or estate tax laws, or state, local or non-U.S. tax laws. Additionally, this discussion does not consider the tax treatment of partnerships or other pass-through entities or persons who hold our securities through such entities. If a partnership (or other entity classified as a partnership for U.S. federal income tax purposes) is the beneficial owner of our shares, the U.S. federal income tax treatment of a partner in the partnership will generally depend on the status of the partner and the activities of the partnership. This discussion also assumes that any distribution made (or deemed made) in respect of our shares and any consideration received (or deemed received) by a holder in connection with the sale or other disposition of such shares will be in U.S. dollars.

We have not sought, and will not seek, a ruling from the Internal Revenue Service, or IRS, or an opinion of counsel as to any U.S. federal income tax consequence described herein. The IRS may disagree with one or more aspects of the discussion herein, and its determination may be upheld by a court. Moreover, there can be no assurance that future legislation, regulations, administrative rulings or court decisions will not adversely affect the accuracy of the statements in this discussion.

BECAUSE OF THE COMPLEXITY OF THE TAX LAWS AND BECAUSE THE TAX CONSEQUENCES TO SGOCO OR TO ANY PARTICULAR HOLDER OF OUR SECURITIES MAY BE AFFECTED BY MATTERS NOT DISCUSSED HEREIN, EACH HOLDER OF OUR SECURITIES IS URGED TO CONSULT WITH ITS TAX ADVISOR WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF OUR SECURITIES, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND NON-U.S. TAX LAWS, AS WELL AS U.S. FEDERAL TAX LAWS AND APPLICABLE TAX TREATIES.

Tax Consequences to U.S. Holders of Ordinary Shares

Taxation of Distributions Paid on Ordinary Shares

Subject to the passive foreign investment company, or PFIC, rules discussed below, a U.S. Holder generally will be required to include in gross income as ordinary income the amount of any cash dividend paid on our ordinary shares. A cash distribution on such shares will be treated as a dividend for U.S. federal income tax purposes to the extent the distribution is paid out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes). Such dividend will not be eligible for the dividends-received deduction generally allowed to domestic corporations in respect of dividends received from other domestic corporations. Any distributions in excess of such earnings and profits generally will be applied against and reduce the U.S. Holder’s basis in its ordinary shares and, to the extent in excess of such basis, will be treated as gain from the sale or exchange of such ordinary shares.

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With respect to non-corporate U.S. Holders for taxable years beginning before January 1, 2011, dividends may be taxed at the lower applicable long-term capital gains rate (see “— Taxation on the Disposition of Ordinary Shares” below) provided that (1) our ordinary shares are readily tradable on an established securities market in the United States or, in the event we are deemed to be a Chinese “resident enterprise” under the EIT Law, we are eligible for the benefits of the Agreement between the Government of the United States of America and the Government of the People’s Republic of China for the Avoidance of Double Taxation and the Prevention of Tax Evasion with Respect to Taxes on Income, or the “U.S.-PRC Tax Treaty,” (2) we are not a PFIC, as discussed below, for either the taxable year in which the dividend was paid or the preceding taxable year, and (3) certain holding period requirements are met. Under published IRS authority, shares are considered for purposes of clause (1) above to be readily tradable on an established securities market in the United States only if they are listed on certain exchanges, which presently include the Nasdaq Stock Market but do not include the OTC Bulletin Board. Although we intend to file an application for listing on the Nasdaq Stock Market, prior to any such listing, or if we are unable to obtain such a listing, it is anticipated that our ordinary shares will be quoted and traded only on the OTC Bulletin Board, in which case any dividends paid on our ordinary shares would not qualify for the lower rate unless we are deemed to be a Chinese “resident enterprise” under the EIT Law and are eligible for the benefits of the U.S.-PRC Tax Treaty. Unless the special provisions described above, dealing with the taxation of qualified dividend income at the lower long-term capital gains rate, are extended, this favorable treatment will not apply to dividends in taxable years beginning on or after January 1, 2011. U.S. Holders should consult their own tax advisors regarding the availability of the lower rate for any dividends paid with respect to our ordinary shares.

If PRC taxes apply to dividends paid to a U.S. Holder on our ordinary shares, such U.S. Holder may be entitled to a reduced rate of PRC tax under the U.S-PRC Tax Treaty. In addition, such PRC taxes may be treated as foreign taxes eligible for credit against such holder’s U.S. federal income tax liability (subject to certain limitations). U.S. Holders should consult their own tax advisors regarding the creditability of any such PRC tax and their eligibility for the benefits of the U.S.-PRC Tax Treaty.

Taxation on the Disposition of Ordinary Shares

Upon a sale or other taxable disposition of our ordinary shares, and subject to the PFIC rules discussed below, a U.S. Holder should recognize capital gain or loss in an amount equal to the difference between the amount realized and the U.S. Holder’s adjusted tax basis in the ordinary shares.

Capital gains recognized by U.S. Holders generally are subject to U.S. federal income tax at the same rate as ordinary income, except that long-term capital gains recognized by non-corporate U.S. Holders are generally subject to U.S. federal income tax at a maximum rate of 15% for taxable years beginning before January 1, 2011 (and 20% thereafter). Capital gain or loss will constitute long-term capital gain or loss if the U.S. Holder’s holding period for the ordinary shares exceeds one year. The deductibility of capital losses is subject to various limitations.

If PRC taxes would otherwise apply to any gain from the disposition of our ordinary shares by a U.S. Holder, such U.S. Holder may be entitled to a reduction in or elimination of such taxes under the U.S.-PRC Tax Treaty. Any PRC taxes that are paid by a U.S. Holder with respect to such gain may be treated as foreign taxes eligible for credit against such holder’s U.S. federal income tax liability (subject to certain limitations which could reduce or eliminate the available tax credit). U.S. Holders should consult their own tax advisors regarding the creditability of any such PRC tax and their eligibility for the benefits of the U.S.-PRC Tax Treaty.

Passive Foreign Investment Company Rules

A foreign (i.e., non-U.S.) corporation will be a PFIC if at least 75% of its gross income in a taxable year of the foreign corporation, including its pro rata share of the gross income of any corporation in which it is considered to own at least 25% of the shares by value, is passive income. Alternatively, a foreign corporation will be a PFIC if at least 50% of its assets in a taxable year of the foreign corporation, ordinarily determined based on fair market value and averaged quarterly over the year, including its pro rata share of the assets of any corporation in which it is considered to own at least 25% of the shares by value, are held for the

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production of, or produce, passive income. Passive income generally includes dividends, interest, rents and royalties (other than certain rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of passive assets.

Based on the composition of our assets during 2008 and 2009 (which largely consisted of cash and other investment assets), as well as the composition of our income in such periods (which largely consisted of interest), it is likely that we qualified as a PFIC with respect to our 2008 and 2009 taxable years. Based on our current composition and assets, we do not expect to be treated as a PFIC under the tax laws as enacted and construed at the present time. Our actual PFIC status for our 2010 taxable year or any subsequent taxable year, however, will not be determinable until after the end of such taxable year. Accordingly, there can be no assurance with respect to our status as a PFIC for our current taxable year or any future taxable year.

If we are determined to be a PFIC and a U.S. Holder did not make either a timely qualified electing fund, or QEF, election for our first taxable year as a PFIC in which the U.S. Holder held (or was deemed to hold) ordinary shares, or a mark-to-market election, as described below, such holder generally will be subject to special rules with respect to:

Under these rules,

In general, a U.S. Holder may avoid the PFIC tax consequences described above in respect to our ordinary shares by making a timely QEF election to include in income its pro rata share of our net capital gains (as long-term capital gain) and other earnings and profits (as ordinary income), on a current basis, in each case whether or not distributed, in the taxable year of the U.S. Holder in which or with which our taxable year ends. There can be no assurance, however, that we will pay current dividends or make other distributions sufficient for a U.S. Holder who makes a QEF election to satisfy the tax liability attributable to income inclusions under the QEF rules, and the U.S. Holder may have to pay the resulting tax from its other assets. A U.S. Holder may make a separate election to defer the payment of taxes on undistributed income inclusions under the QEF rules, but if deferred, any such taxes will be subject to an interest charge.

The QEF election is made on a shareholder-by-shareholder basis and, once made, can be revoked only with the consent of the IRS. A U.S. Holder generally makes a QEF election by attaching a completed IRS Form 8621 (Return by a Shareholder of a Passive Foreign investment Company or Qualified Electing Fund), including the information provided in a PFIC annual information statement, to a timely filed U.S. federal income tax return for the tax year to which the election relates. Retroactive QEF elections generally may be made only by filing a protective statement with such return and if certain other conditions are met or with the consent of the IRS. In order to comply with the requirements of a QEF election, a U.S. Holder must receive certain information from us. Upon request from a U.S. Holder, we will endeavor to provide to the U.S. Holder

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no later than 90 days after the request such information as the IRS may require, including a PFIC annual information statement, in order to enable the U.S. Holder to make and maintain a QEF election. However, there is no assurance that we will have timely knowledge of our status as a PFIC in the future or of the required information to be provided.

If a U.S. Holder has made a QEF election with respect to our ordinary shares, and the special tax and interest charge rules do not apply to such shares (because of a timely QEF election for our first taxable year as a PFIC in which the U.S. Holder holds (or is deemed to hold) such shares), any gain recognized on the appreciation of our ordinary shares generally will be taxable as capital gain and no interest charge will be imposed. As discussed above, U.S. Holders of a QEF are currently taxed on their pro rata shares of its earnings and profits, whether or not distributed. In such case, a subsequent distribution of such earnings and profits that were previously included in income generally should not be taxable as a dividend to those U.S. Holders who made a QEF election. The tax basis of a U.S. Holder’s shares in a QEF will be increased by amounts that are included in income, and decreased by amounts distributed but not taxed as dividends, under the above rules. Similar basis adjustments apply to property if by reason of holding such property the U.S. Holder is treated under the applicable attribution rules as owning shares in a QEF.

Although a determination as to our PFIC status will be made annually, an initial determination that our company is a PFIC will generally apply for subsequent years to a U.S. Holder who held ordinary shares while we were a PFIC, whether or not we meet the test for PFIC status in those years. A U.S. Holder who makes the QEF election discussed above for our first taxable year as a PFIC in which the U.S. Holder holds (or is deemed to hold) our ordinary shares, however, will not be subject to the PFIC tax and interest charge rules discussed above in respect to such shares. In addition, such U.S. Holder will not be subject to the QEF inclusion regime with respect to such shares for any taxable year of ours that ends within or with a taxable year of the U.S. Holder and in which we are not a PFIC. On the other hand, if the QEF election is not effective for each of our taxable years in which we are a PFIC and the U.S. Holder holds (or is deemed to hold) our ordinary shares, the PFIC rules discussed above will continue to apply to such shares unless the holder makes a purging election, and pays the tax and interest charge with respect to the gain inherent in such shares attributable to the pre-QEF election period.

Alternatively, if a U.S. Holder, at the close of its taxable year, owns shares in a PFIC that are treated as marketable stock, the U.S. Holder may make a mark-to-market election with respect to such shares for such taxable year. If the U.S. Holder makes a valid mark-to-market election for the first taxable year of the U.S. Holder in which the U.S. Holder holds (or is deemed to hold) shares in us and for which we are determined to be a PFIC, such holder generally will not be subject to the PFIC rules described above in respect to its ordinary shares. Instead, in general, the U.S. Holder will include as ordinary income each year the excess, if any, of the fair market value of its ordinary shares at the end of its taxable year over the adjusted basis in its ordinary shares. The U.S. Holder also will be allowed to take an ordinary loss in respect of the excess, if any, of the adjusted basis of its ordinary shares over the fair market value of its ordinary shares at the end of its taxable year (but only to the extent of the net amount of previously included income as a result of the mark-to-market election). The U.S. Holder’s basis in its ordinary shares will be adjusted to reflect any such income or loss amounts, and any further gain recognized on a sale or other taxable disposition of the ordinary shares will be treated as ordinary income.

The mark-to-market election is available only for stock that is regularly traded on a national securities exchange that is registered with the SEC, or on a foreign exchange or market that the IRS determines has rules sufficient to ensure that the market price represents a legitimate and sound fair market value. Although we intend to file an application for listing on the Nasdaq Stock Market, prior to any such listing, or if we are unable to obtain such a listing, it is anticipated that our ordinary shares will continue to be quoted and traded only on the OTC Bulletin Board. If our ordinary shares were to be quoted and traded only on the OTC Bulletin Board, such shares may not currently qualify as marketable stock for purposes of the election. U.S. Holders should consult their own tax advisors regarding the availability and tax consequences of a mark-to-market election in respect to our ordinary shares under their particular circumstances.

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If we are a PFIC and, at any time, have a foreign subsidiary that is classified as a PFIC, U.S. Holders generally would be deemed to own a portion of the shares of such lower-tier PFIC, and generally could incur liability for the deferred tax and interest charge described above if we receive a distribution from, or dispose of all or part of our interest in, the lower-tier PFIC. Upon request, we will endeavor to cause any lower-tier PFIC to provide to a U.S. Holder no later than 90 days after the request the information that may be required to make or maintain a QEF election with respect to the lower-tier PFIC. However, there is no assurance that we will have timely knowledge of the status of any such lower-tier PFIC or will be able to cause the lower-tier PFIC to provide the required information. U.S. Holders are urged to consult their own tax advisors regarding the tax issues raised by lower-tier PFICs.

If a U.S. Holder owns (or is deemed to own) shares during any year in a PFIC, such holder may have to file an IRS Form 8621 (whether or not a QEF election or mark-to-market election is made).

The rules dealing with PFICs and with the QEF and mark-to-market elections are very complex and are affected by various factors in addition to those described above. Accordingly, U.S. Holders of our ordinary shares should consult their own tax advisors concerning the application of the PFIC rules to our ordinary shares under their particular circumstances.

Tax Consequences to Non-U.S. Holders of Ordinary Shares

Dividends paid to a Non-U.S. Holder in respect to its ordinary shares generally will not be subject to U.S. federal income tax, unless the dividends are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment or fixed base that such holder maintains in the United States).

In addition, a Non-U.S. Holder generally will not be subject to U.S. federal income tax on any gain attributable to a sale or other disposition of our ordinary shares, unless such gain is effectively connected with its conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment or fixed base that such holder maintains in the United States) or the Non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of sale or other disposition and certain other conditions are met (in which case, such gain from United States sources generally is subject to tax at a 30% rate or a lower applicable tax treaty rate).

Dividends and gains that are effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment or fixed base in the United States) generally will be subject to tax in the same manner as for a U.S. Holder and, in the case of a Non-U.S. Holder that is a corporation for U.S. federal income tax purposes, may also be subject to an additional branch profits tax at a 30% rate or a lower applicable tax treaty rate.

Backup Withholding and Information Reporting

In general, information reporting for U.S. federal income tax purposes should apply to distributions made on our ordinary shares within the United States to a non-corporate U.S. Holder and to the proceeds from sales and other dispositions of our ordinary shares by a non-corporate U.S. Holder to or through a U.S. office of a broker. Payments made (and sales and other dispositions effected at an office) outside the United States will be subject to information reporting in limited circumstances. In addition, backup withholding of United States federal income tax, currently at a rate of 28%, generally will apply to dividends paid on our ordinary shares to a non-corporate U.S. Holder and the proceeds from sales and other dispositions of shares by a non-corporate U.S. Holder, in each case who (a) fails to provide an accurate taxpayer identification number; (b) is notified by the IRS that backup withholding is required; or (c) in certain circumstances, fails to comply with applicable certification requirements. Unless current individual income tax rates are extended, the backup withholding rate will increase to 31% for payments made on or after January 1, 2011. A Non-U.S. Holder generally may eliminate the requirement for information reporting and backup withholding by providing certification of its foreign status, under penalties of perjury, on a duly executed applicable IRS Form W-8 or by otherwise establishing an exemption.

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Backup withholding is not an additional tax. Rather, the amount of any backup withholding will be allowed as a credit against a U.S. Holder’s or a Non-U.S. Holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided that certain required information is timely furnished to the IRS. Holders are urged to consult their own tax advisors regarding the application of backup withholding and the availability of and procedure for obtaining an exemption from backup withholding in their particular circumstances.

For taxable years beginning after March 18, 2010, individual U.S. Holders may be required to report ownership of our ordinary shares and certain related information on their individual federal income tax returns in certain circumstances. Generally, this reporting requirement will apply if (1) the ordinary shares are held in an account of the individual U.S. Holder maintained with a “foreign financial institution” or (2) the ordinary shares are not held in an account maintained with a “financial institution,” as such terms are defined in the Code. The reporting obligation will not apply to an individual, however, unless the total aggregate value of the individual’s foreign financial assets exceeds $50,000 during a taxable year. For avoidance of doubt, this reporting requirement should not apply to ordinary shares held in an account with a U.S. brokerage firm. Failure to comply with this reporting requirement, if it applies, will result in substantial penalties. In certain circumstances, additional tax and other reporting requirements may apply, and U.S. Holders of our ordinary shares are advised to consult with their own tax advisors concerning all such reporting requirements.

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UNDERWRITING

We have entered into an underwriting agreement with I-Bankers Securities, Inc., who is acting as the representative of the underwriters. The address of I-Bankers Securities, Inc. is 505 Park Avenue, 3rd Floor, New York, NY 10022.

The underwriting agreement provides for the purchase of a specific number of ordinary shares by each of the underwriters. The underwriters’ obligations are several, which means that each underwriter is required to purchase a specified number of ordinary shares, but is not responsible for the commitment of any other underwriter to purchase ordinary shares. Subject to the terms and conditions of the underwriting agreement, each underwriter has severally agreed to purchase the number of ordinary shares set forth opposite its name below:

Underwriter		Number of Ordinary Shares
I-Bankers Securities, Inc.
Hudson Securities, Inc.
Joseph Gunnar & Co., LLC
Aegis Capital Corp.
Total

The underwriters have agreed to purchase all of the ordinary shares offered by this prospectus (other than those covered by the over-allotment option described below) if any are purchased. Some of the underwriters are expected to make offers and sales both inside and outside the United States through their respective selling agents. Any offers and sales in the United States will be conducted by broker-dealers registered with the SEC. Under the underwriting agreement, if an underwriter defaults in its commitment to purchase ordinary shares, the commitments of non-defaulting underwriters may be increased or the underwriting agreement may be terminated, depending on the circumstances.

The ordinary shares should be ready for delivery on or about     against payment in immediately available funds. The underwriters are offering the ordinary shares subject to various conditions and may reject all or part of any order. The representative has advised us that the underwriters propose to offer the ordinary shares directly to the public at the public offering price that appears on the cover page of this prospectus. In addition, the representatives may offer some of the ordinary shares to other securities dealers at such price less a concession of $     per ordinary shares. The underwriters may also allow, and such dealers may reallow, a concession not in excess of $     per ordinary shares to other dealers. After the ordinary shares hares are released for sale to the public, the representatives may change the offering price and other selling terms at various times. The underwriting discounts and commissions are 7% of the public offering price.

We have granted the underwriters an over-allotment option. This option, which is exercisable for up to 30 days after the date of this prospectus, permits the underwriters to purchase a maximum of 200,000 additional ordinary shares from us to cover over-allotments, if any. If the underwriters exercise all or part of this option, they will purchase ordinary shares covered by the option at the public offering price that appears on the cover page of this prospectus, less the underwriting discount, but not the non-accountable expense allowance. If this option is exercised in full, the total price to public will be $     and the total proceeds to us will be $    . The underwriters have severally agreed that, to the extent the over-allotment option is exercised, they will each purchase a number of additional ordinary shares proportionate to the underwriter’s initial amount reflected in the foregoing table.

The following table provides information regarding the amount of the discount and allowance to be paid to the underwriters by us:

Per Share

Total without Exercise of the Over-Allotment Option

Total with Full Exercise of Over-Allotment Option

Underwriting discounts and commissions

$

$

$

Non-accountable expense allowance (1)

$

$

$

(1)

The non-accountable expense allowance of 2% of the gross proceeds of this offering is payable to underwriters with respect to the ordinary shares sold on a firm commitment basis.

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The underwriter estimates that the maximum expense allowance to be paid by us for the underwriter’s road show and legal expenses will be $160,000.

We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933.

We have agreed to issue to I-Bankers Securities, Inc., as the representative of the underwriters, for $100, warrants to purchase an aggregate number of our ordinary shares equal to 5% of the ordinary shares sold in this offering at an exercise price of 120% of the offering price of the ordinary shares sold in this offering. Such warrants are exercisable commencing ____ days after the effective date of the registration statement related to this offering, and will expire five (5) years from the effective date of the registration statement.

Pursuant to the terms and subject to the conditions of the engagement letter between I-Bankers Securities, Inc. and us, in consideration of the services to be provided as an underwriter in this offering, during the period of twelve months from the successful completion of this offering, I-Bankers Securities, Inc. will have a right of first refusal to act as co-managing underwriters, or co-placement agents or co-managers or co-arrangers, as the case may be, on any offering of an equity, equity-linked or debt security for us, in each case, only in those circumstances where we desire to engage an investment bank to perform such role in connection with the offering.

We, our officers and directors and certain shareholders have agreed to a 180 day “lock up” with respect to the ordinary shares and other of our securities that they beneficially own, including securities that are convertible into our ordinary shares and securities that are exchangeable or exercisable for our ordinary shares. This means that, for a period of 180 days following the date of this prospectus, we and such persons may not offer, sell, pledge or otherwise dispose of these securities without the prior written consent of I-Bankers Securities, Inc.

If (i) during the last 17 days of the 180 day lock up period, we issue an earnings release or material news or a material event occurs or (ii) before the expiration of the 180 day lock up period, we announce that we will release earnings results or become aware that material news or a material event will occur during the 16-day period beginning on the last day of the 180 day lock up period, the lock up restrictions will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.

The representative has informed us that they do not expect discretionary sales by the underwriters to exceed five percent of the ordinary shares offered by this prospectus.

Our shares are quoted on the OTC Bulletin Board under the symbol “SGTLF”. We have applied to list our ordinary shares on the NASDAQ Global Market under the symbol “SGOC”. On November 15, 2010, the last report market price of our shares was $8.00 per share. The public offering price of the shares has been determined by agreement between us and the underwriter. Although quotations are an important factor in determining the public offering price, these quotations cannot be the sole factor in determining the public offering price because the trading market for the shares has been generally inactive and illiquid. Among the other factors considered in determining the public offering price of the shares, in addition to prevailing market conditions and our market price, were our historical performance, estimates of our business potential and earnings prospects, an assessment of our management and the consideration of the above factors in relation to market valuation of companies in related businesses.

We cannot be sure that the public offering price will correspond to the price at which our ordinary shares will trade in the public market following this offering or that an active trading market for our shares will develop and continue after this offering.

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Rules of the Securities and Exchange Commission may limit the ability of the underwriters to bid for or purchase ordinary shares before the distribution of the ordinary shares is completed. However, the underwriters may engage in the following activities in accordance with the rules:

Similar to other purchase transactions, the underwriter’s purchases to cover the syndicate short sales or to stabilize the market price of our ordinary shares may have the effect of raising or maintaining the market price of our ordinary shares or preventing or mitigating a decline in the market price of our ordinary shares. As a result, the price of our ordinary shares may be higher than the price that might otherwise exist in the open market. The imposition of a penalty bid might also have an effect on the price of the ordinary shares if it discourages resales of the ordinary shares.

Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of the ordinary shares. These transactions may occur on NASDAQ Global Market or otherwise. If such transactions are commenced, they may be discontinued without notice at any time.

Electronic Delivery of Preliminary Prospectus :  A prospectus in electronic format may be delivered to potential investors by the underwriter participating in the offering. The prospectus in electronic format will be identical to the paper version of such preliminary prospectus. Other than the prospectus in electronic format, the information on any underwriter’s web site and any information contained in any other web site maintained by an underwriter is not part of the prospectus or the registration statement of which this prospectus forms a part.

Notice to Prospective Investors in the EEA

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”), and effective as of the date on which the Prospectus Directive is implemented in that Relevant Member State (the “Relevant Implementation Date”), no Securities has been offered to the public in that Relevant Member State and brought to the attention of the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive. Notwithstanding the foregoing, an offer of Securities may be made effective as of the relevant Implementation Date to the public in that

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Relevant Member State at any time (i) to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; (ii) to any legal entity which has two or more of (a) an average of at least 250 employees during the last financial year; (b) a total balance sheet of more than €43,000,000 and (c) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; or (iii) in any other circumstances which do not require the publication by the issuer of a prospectus pursuant to Article 3 of the Prospectus Directive. For the purposes of this paragraph, the expression an “offer of Securities to the public” in relation to any Securities in any relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Securities to be offered so as to enable an investor to decide to purchase or subscribe the Securities, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member States.

United Kingdom

This document does not constitute a prospectus for the purpose of the prospectus rules issued by the United Kingdom Financial Services Authority (“FSA”) pursuant to section 84 of the Financial Services and Markets Act 2000 (as amended) (“FSMA”) and has not been approved by or filed with the FSA. The Securities may not be offered or sold to the public in the United Kingdom within the meaning of section 102B of the FSMA, except to legal entities which have been authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities or otherwise in circumstances which do not require the publication by the company of a prospectus within the meaning of the prospectus rules of the FSA. In addition, no person may communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) received by it in connection with the issue or sale of any Offer Shares except in circumstances in which section 21(1) of FSMA does not apply to the Company. This prospectus is directed only at (i) persons outside the United Kingdom; or (ii) persons having professional experience in matters relating to investments who fall within the definition of “investment professionals” in article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotions) order 2005 (as amended) (“FPO”); or (iii) high net worth bodies corporate, unincorporated associations and partnerships and trustees of high value trusts as described in article 49 of the FPO or persons who fall within another exemption to the FPO.

Switzerland

The Securities may not be publicly offered, sold or advertised, directly or indirectly, in or from Switzerland. Neither this document nor any other offering or marketing material relating to the Securities constitutes a prospectus as such term is understood pursuant to article 652a or article 1156 of the Swiss Federal Code of Obligations or a listing prospectus within the meaning of the listing rules of the SIX Swiss Exchange Ltd., and neither this document nor any other offering or marketing material relating to the Securities may be publicly distributed or otherwise made publicly available in Switzerland.

Singapore

This Prospectus has not been and will not be registered as a prospectus with the Monetary Authority of Singapore under the Securities and Futures Act, Chapter 289 of Singapore (“SFA”).

Accordingly, this Prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Shares may not be circulated or distributed, nor may the Shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly nor may the Shares, within a period of six months from the date of acquisition, be subsequently resold, to the public or any member of the public in Singapore other than (i) to an institutional investor under Section 274 of the SFA, (ii) to a relevant person, pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions, specified in Section 275 of the SFA; or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provisions of the SFA.

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Where the Shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:

shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the Shares pursuant to an offer made under Section 275 except:

Italy

The offering of the Shares has not been registered pursuant to Italian securities legislation and accordingly, no Shares may be offered, sold or delivered, nor may copies of the Programme Memorandum, any Series Memorandum or any other document relating to the Shares be distributed in the Republic of Italy, except:

Any offer, sale or delivery of the Shares or distribution of copies of the Programme Memorandum, any Series Memorandum or any other document relating to the Notes or Alternative Investments in the Republic of Italy under (a) or (b) above must be:

Please note that, in accordance with Article 100- bis of the Financial Services Act, where no exemption under (b) above applies, the subsequent distribution of the Shares on the secondary market in Italy must be made in compliance with the rules on offers of securities to be made to the public provided under the Financial Services Act and the Regulation 11971/1999. Failure to comply with such rules may result, inter alia , in the sale of such Shares being declared null and void and in the liability of the intermediary transferring the Shares for any damages suffered by the investors.

France

Neither this prospectus nor any other offering material relating to the Shares described in this prospectus has been submitted to the clearance procedures of the Autorité des Marchés Financiers or of the competent authority of another member state of the European Economic Area and notified to the Autorité des Marchés

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Financiers . The Shares have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France. Neither this prospectus nor any other offering material relating to the Shares has been or will be:

Such offers, sales and distributions will be made in France only:

The Shares may be resold directly or indirectly, only in compliance with articles L.411-2 and L.412-1, and L.621-8 through L.621-8-3 of the French Code monétaire et financier .

Germany

This offering has been made as private offer in Germany. As this prospectus does not comply with the requirements of the Prospectus Directive, the implementation ordinances or national measures implementing it, these securities may not be offered publicly within the European Economic Area, if no according prospectus has been prepared and approved by the supervision authority, except if (section 3 para 2 Securities Trading Act (Wertpapierhandelsgesetz) “STA”):

Hong Kong

The offer shares being offered in the public offering will not be offered or sold in Hong Kong by means of any document other than (a) to “professional investors” as defined in the Securities and Futures Ordinance (Cap 571 of the Laws of Hong Kong) and the rules made thereunder or (b) in other circumstances which do not result in the document being “prospectus” as defined in the Companies Ordinance (Cap 32 of the Laws of Hong Kong) or which do not constitute an offer to the public within the meaning of the Companies Ordinance. No advertisement, invitation or document relating to the offer shares will be issued which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong except if permitted under the securities laws of Hong Kong; and any advertisement, invitation or document relating to the offer shares will be issued only to persons outside Hong Kong or “professional investors” as defined in the Securities and Futures Ordinance and the rules made thereunder.

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EXPENSES RELATING TO THIS OFFERING

The following table sets forth all expenses, other than underwriting discounts and commissions, payable by us in connection with the sale of our ordinary shares being registered. All amounts shown are estimates except for the SEC registration fee, the Nasdaq Stock Market listing fee and the FINRA filing fee.

SEC registration fee
FINRA filing fee		$	1,710
Nasdaq Stock Market listing fee		$	125,000
Printing expenses
Legal fees and expenses
Accounting fees and expenses
Transfer agent fees
Other fees and expenses
Total

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SGOCO GROUP, LTD AND SUBSIDIARIES
(Formally Hambrecht Asia Acquisition Corp.)

INDEX TO FINANCIAL STATEMENT

Consolidated Financial Statements for the Three and Nine Months Ended September 30, 2010 (unaudited)
Consolidated Balance Sheets			F-2
Consolidated Statements of Income and Other Comprehensive Income			F-3
Consolidated Statement of Shareholders’ Equity			F-4
Consolidated Statements of Cash Flows			F-5
Notes to the Consolidated Financial Statements			F-6
HAMBRECHT ASIA ACQUISITION CORP.
Condensed Financial Statements for the Six Months December 31, 2009 (unaudited)
Condensed Balance Sheets			F-27
Condensed Statements of Operations			F-28
Condensed Statements of Shareholders’ Equity			F-29
Condensed Statements of Cash Flows			F-30
Notes to Condensed Interim Financial Statements			F-31
Audited Financial Statements for the transition period ended and to June 30, 2009 and the years ended December 31, 2008 and 2007
Report of Independent Registered Public Accounting Firm			F-41
Balance Sheets			F-42
Statements of Operations			F-43
Statements of Shareholders’ Equity			F-44
Statements of Cash Flows			F-45
Notes to the Financial Statements			F-46
SGOCO TECHNOLOGY, LTD AND SUBSIDIARIES
Audited Financial Statements for the years ended December 31, 2009, 2008 and 2007
Report of Independent Registered Public Accounting Firm			F-55
Consolidated Balance Sheets			F-56
Consolidated Statements of Income and Other Comprehensive Income			F-57
Consolidated Statement of Shareholders’ Equity			F-58
Consolidated Statements of Cash Flows			F-59
Notes to the Consolidated Financial Statements			F-60

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SGOCO GROUP, LTD. AND SUBSIDIARIES
  
CONSOLIDATED BALANCE SHEETS

		September 30, 2010				December 31 2009
		(Unaudited)
ASSETS
CURRENT ASSETS
Cash		$	11,827,788			$	5,808,013
Restricted cash			6,325,444				5,596,699
Accounts receivable, trade			48,717,301				18,641,548
Accounts receivable – related parties			251,299				224,407
Other receivables			216,041				121,226
Other receivables – related parties			656,154				—
Inventories			25,375,216				4,011,505
Advances to suppliers			17,246,462				11,950,074
Advances to suppliers – related parties			27,315				8,954,051
Other current assets			374,080				20,746
Total current assets			111,017,100				55,328,269
PLANT AND EQUIPMENT, NET			17,228,019				15,729,350
OTHER ASSETS
Intangible assets, net			8,553,629				8,412,366
Other non-current assets			—				2,693
Total other assets			8,553,629				8,415,059
Total assets		$	136,798,748			$	79,472,678
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable, trade		$	36,074,666			$	3,490,937
Accrued liabilities			126,106				74,147
Bank overdraft			1,476,136				717,562
Notes payable			21,703,423				18,709,038
Short-term loan			22,177,905				19,230,756
Other payables			1,024,567				382,978
Other payables – related parties			—				198,875
Customer deposits			2,054,556				457,761
Customer deposits – related parties			—				335,056
Taxes payable			1,598,324				3,872,916
Total current liabilities			86,235,683				47,470,026
OTHER LIABILITIES
Warrant derivative liability			1,908,698				—
Put option derivative liability			2,000,000				—
Total other liabilities			3,908,698				—
Total liabilities			90,144,381				47,470,026
COMMITMENT AND CONTINGENCIES
SHAREHOLDERS’ EQUITY
Preferred stock, $0.001 par value, 1,000,000 shares authorized, nil issued and outstanding as of September 30, 2010 and December 31, 2009			—				—
Ordinary shares, $0.001 par value, 50,000,000 shares authorized, 16,094,756 and 14,300,000 issued and outstanding as of September 30, 2010 and December 31, 2009			16,095				14,300
Additional paid-in-capital			19,037,683				17,263,916
Statutory reserves			2,726,310				1,286,942
Retained earnings			21,870,055				11,394,086
Accumulated other comprehensive income			3,004,224				2,043,408
Total shareholders’ equity			46,654,367				32,002,652
Total liabilities and shareholders’ equity		$	136,798,748			$	79,472,678