GSOL Global Sources Ltd.

  

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

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 or 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

For the three months ended March 31, 2015

 

Commission File Number

000-30678

 

 GLOBAL SOURCES LTD.

(Translation of Registrant's Name into English)

 

Canon’s Court

22 Victoria Street

Hamilton, HM 12, Bermuda

(Address of Principal Executive Office)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

Form 20-F....X.... Form 40-F........

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ____

 

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ____

 

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant's "home country"), or under the rules of the home country exchange on which the registrant's securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant's security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

 

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes........ No....X....

 

If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ________

 

 

Exhibit 1      Year 2015 / 1^st Quarter Results of Operations of GLOBAL SOURCES LTD.

 

Exhibit 2      Unaudited Selected Consolidated Financial Information of GLOBAL SOURCES LTD. at March 31, 2015.

 

 

Signatures

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

GLOBAL SOURCES LTD.
(Registrant)
By:	/s/ Connie Lai
	Name: Connie Lai
	Title: Chief Financial Officer

 

 

Date: May 22, 2015

 

 

 

 

 

 

 

EXHIBIT 1

 

YEAR 2015 / 1^st QUARTER

RESULTS OF OPERATIONS

OF GLOBAL SOURCES LTD.

 

The following discussion of our financial condition and results of operations should
be read in conjunction with the accompanying financial statements.

 

Overview

 

We are a leading business-to-business (B2B) media company and a primary facilitator of two-way trade with Greater China. The core business is facilitating trade from Greater China to the world, using a wide range of English-language media. The other key business segment facilitates trade from the world to Greater China using Chinese-language media. We provide sourcing information to volume buyers and integrated marketing services to suppliers. Our mission is to facilitate global trade between buyers and suppliers by providing the right information, at the right time, in the right format. Although our range of media has grown, for more than 40 years we have been in the same primary business of helping buyers worldwide find products and suppliers in Asia.

 

Our key business objective is to be the preferred provider of content, services and integrated marketing solutions that enable our customers to achieve a competitive advantage.

 

We believe we offer the most extensive range of media and export marketing services in the industries we serve through our three primary channels – online marketplaces, magazines and trade shows.

 

We were originally incorporated under the laws of Hong Kong in 1970. In 1971, we launched Asian Sources, a trade magazine to serve global buyers importing products in volume from Asia. Realizing the importance of the Internet, we became one of the first providers of business-to-business online services by launching Asian Sources Online in 1995. In 1999, we changed the name of Asian Sources Online to Global Sources Online.

 

In April 2000, we completed a share exchange with a publicly-traded company based in Bermuda, and our shareholders became the majority shareholders of the Bermuda corporation. As a result of the share exchange, we became incorporated under the laws of Bermuda and changed our name to Global Sources Ltd.

 

Business Strategy

 

Our primary target market is comprised of professional small, medium and large-sized buyers and suppliers. Moreover, our focus is on verified suppliers and verified buyers. Our business strategy is to serve our markets with online, print and trade show media that address our customers’ needs at all stages of the buying process.

 

The Global Sources strategy is built around the following four key foundations: to strengthen our position in the core, export-focused business; new product and market development; expansion in China’s domestic B2B market; and acquisitions, joint ventures, and alliances.

 

·

Strengthen position in core, export focused business. Our objective is to leverage the combined strengths of GlobalSources.com and our trade shows.

 

 

·

New product and market development. Our plans include the launch of new verticals and entries into new geographies.

 

·

Expansion in China’s domestic B2B market. We have more than a dozen individual media properties serving this market and plans include further development of these businesses and expansion into new verticals.

 

·

Acquisitions, joint ventures and/or alliances. We are focused on complementary businesses, technologies and products that will help us maintain or achieve market leading positions in particular niche markets.

 

Revenue

 

We derive revenue from two principal sources:

 

Online and Other Media Services; and Exhibitions, trade shows and seminars.

 

Online and Other Media Services consists of following two primary revenue streams:

 

Online Services — Our primary service is creating and hosting marketing websites that present suppliers’ product and company information in a consistent and easily searchable manner on Global Sources Online. We also offer banner advertising and publish digital magazines.

 

Other Media Services — We publish trade magazines, which consist primarily of product advertisements from suppliers and our independent editorial reports and product surveys. Suppliers pay for advertising in our trade magazines to promote their products and companies. We also derive revenue from buyers that subscribe to our trade publications.

 

We recognize revenue from our Online and Other Media Services rateably over the period in which the advertisement is displayed.

 

Exhibitions – trade shows and seminars — Our Global Sources trade shows, previously known as China Sourcing Fairs, offer international buyers direct access to manufacturers in China and elsewhere in Asia. The first trade show was held in the fourth quarter of 2003. Subsequently, we launched trade shows in Hong Kong, Dubai, Mumbai (which were moved to New Delhi in 2013), India, Johannesburg, South Africa, Miami, USA, Sao Paulo, Brazil and Jakarta, Indonesia and held many events since 2004. These shows bring buyers from around the world to meet face-to-face with suppliers. Our largest shows are our Global Sources trade shows which are held in Hong Kong each spring and fall. We also host our International IC China Conferences and Exhibitions and the China International Optoelectronic Expo as well as FashionSZshow in Shenzhen, China in the third quarter of each year. In addition, in March 2014, we held our first Shenzhen International Machinery Manufacturing Industry Exhibition and its related shows (“SIMM machinery shows”) in Shenzhen, China. In 2015, we moved our SIMM machinery shows to second quarter of 2015 from first quarter last year.

 

We derive revenue primarily from rental of exhibit space, and also from advertising and sponsorship fees in show guides and other locations in and around our event venues. We recognize exhibitor services revenue at the completion of the related events. As our major trade shows in Hong Kong are scheduled to be held in the second quarter and fourth quarter of each financial year, our second and fourth quarter revenues are expected to be higher than the first and third quarter revenue.

 

 

Consolidated Results

 

		Three months ended March 31,
		2015				2014
		(Unaudited)				(Unaudited)
Revenue
Online and other media services (Note 1)		$	20,054			$	23,842
Exhibitions			260				8,860
Miscellaneous			1,889				1,768
			22,203				34,470
Operating Expenses:
Sales			6,456				9,046
Event production			98				1,804
Community and content			4,562				5,443
General and administrative (Note 2)			11,002				14,128
Information and technology			3,297				3,191
Total Operating Expenses			25,415				33,612
Profit / (loss) from Operations			(3,212	)			858
Net profit / (loss) attributable to the Company’s shareholders		$	(2,127	)		$	145
Diluted net profit / (loss) per share attributable to the Company’s shareholders		$	(0.07	)			*
Shares used in diluted net profit / (loss) per share calculations			31,361,130				36,174,507

 

* Basic and diluted net profit per share attributable to the Company’s shareholders is less than $0.01

 

Note:

1.

Online and other media services consists of:

 

		Three months ended March 31,
		2015				2014
		(Unaudited)				(Unaudited)
Online services		$	17,917			$	21,252
Print services			2,137				2,590
		$	20,054			$	23,842

 

Note:

2.

General and administrative expenses consist of:

 

		Three months ended March 31,
		2015				2014
		(Unaudited)				(Unaudited)
General and administrative expenses before amortization of intangible assets and foreign exchange losses		$	9,412			$	9,026
Amortization of intangible assets			1,273				3,461
Foreign exchange losses			317				1,641
		$	11,002			$	14,128

 

The following table represents our revenue by geographical areas:

 

		Three months ended March 31,
		2015				2014
		(Unaudited)				(Unaudited)
China		$	18,067			$	29,279
Rest of Asia			3,197				4,039
United States			897				1,102
Europe			32				36
Others			10				14
Total revenue		$	22,203			$	34,470

 

 

Revenue

 

Our Online and Other Media Services revenue declined by 16% from $23.8 million during the three months ended March 31, 2014 to $20.1 million during the three months ended March 31, 2015, resulting mainly from a 14% decline in our Online and Other Media Services revenue in our China market and declines in other Asian markets. Our China market represented 81% of Online and Other Media Services revenue during the first quarter of 2015 compared to 79% during the first quarter of 2014. The decline in our Online and Other Media Services revenue resulted from a reduction of 16% in our revenue relating to hosting online websites for our customers and a 17% decline in our revenue relating to our print advertising services. A continued weak growth in China export market resulting from the global economic downturn coupled with various types of products and services launched by our competitors contributed to a reduced revenue yield from our customers, which impacted our first quarter Online Services revenue negatively and in addition, magazine advertising continues to be under pressure from the global shift by advertisers to alternative forms of advertising.

 

We moved our SIMM machinery shows to second quarter of 2015 from first quarter last year and we did not host any major event in the first quarter of 2015; as a result our Exhibitions revenue for the three months ended March 31, 2015 was $0.3 million compared to $8.9 million during the three months ended March 31, 2014.

 

Total revenue declined to $22.2 million during the three months ended March 31, 2015 from $34.5 million during the three months ended March 31, 2014 resulting mainly from moving our SIMM machinery shows to second quarter of 2015 from first quarter last year and a 16% decline in our Online and Other Media Services revenue.

 

Operating expenses

 

Sales. We utilize independent sales representatives employed by independent sales representative organizations in various countries and territories to promote our products and services. Under these arrangements, the sales representative organizations are entitled to commissions as well as marketing fees. These representative organizations sell online services, advertisements in our trade magazines and exhibitor services and earn commission as a percentage of revenue generated. The commission expenses are expensed as incurred. For Online and Other Media Services, the commission expense is incurred when the associated revenue is recognized or when the associated accounts receivable are paid, whichever is earlier. For Exhibitions, the commission expense is incurred when the associated revenue is recognized upon conclusion of the event. Sales costs consist of operating costs for our sales departments and the commissions, marketing fees and incentives provided to our independent sales representative organizations, as well as sales support fees for processing sales contracts.

 

Sales costs declined by 28% from $9.0 million during the three months ended March 31, 2014 to $6.5 million during the three months ended March 31, 2015. This was mainly due to decline in sales commissions due to the absence of our SIMM machinery shows revenue and a 16% decline in our Online and Other Media Services revenue in the first quarter of 2015 compared to the first quarter of last year.

 

Event Production. Event production costs consist of the costs incurred for hosting the exhibition or trade show and seminar events. The event production costs include venue rental charges, booth construction costs, travel costs incurred for the event hosting and other event organizing costs. The event production costs are deferred and recognized as an expense when the related event occurs.

 

 

Event production costs declined from $1.8 million for the three months ended March 31, 2014 to $0.1 million for the three months ended March 31, 2015. The decline resulted mainly from the rescheduling of our SIMM machinery shows to second quarter of 2015 from first quarter last year.

 

Community and Content. Community and content costs consist of the costs incurred for servicing our buyer community, for marketing our products and services to the global buyer community and our content management services costs for our print publications business and online services business. Community and content costs also include costs relating to our trade magazine publishing business and marketing inserts business, specifically printing, paper, bulk circulation and magazine subscription promotions, promotions for our on-line services, customer services costs and the event specific promotions costs incurred for promoting the trade shows and the technical conferences, exhibitions and seminars to the buyer community. The event specific promotion costs incurred for events are expensed as incurred.

 

Community and content costs declined by 16% from $5.4 million during the three months ended March 31, 2014 to $4.6 million during the three months ended March 31, 2015 due mainly to decline in buyer promotion costs for our exhibition events and reduction in our content management services costs.

 

General and Administrative. General and administrative costs consist mainly of corporate staff compensation, marketing costs, office rental, depreciation, communications and travel costs, foreign exchange gains/losses arising from the revaluation of monetary assets and monetary liabilities, amortization of software and intangible assets as well as the impairment charge of intangible assets that may arise.

 

We have issued share awards under an equity compensation plans (“ECP”), the Global Sources Retention Share Grant Plan and the Global Sources Retention Share Grant Plan II (amended effective as of May 1, 2012) to former employees, consultants and employees of third party service providers when they resign or retire from their respective employment or consultancy service. Under these plans, the share grants vest over a five-year period on a graded vesting basis, with 20% of shares vesting each year. The grantee is subject to the non-competition terms stipulated in the plan. There is no vesting condition other than the non-competition terms. Under the above plans, if the grantee fails to comply with the non-competition terms, his or her unvested shares may be forfeited. We recognize the intangible asset relating to the non-competition provisions of these awards at the fair value of the respective award. The intangible assets are amortized over the non-competition period on a straight line basis. The amortization expense relating to these intangible assets is included in the general and administrative costs.

 

In December 2009, our subsidiary, eMedia Asia Limited, acquired a 70% interest in China International Optoelectronic Expo exhibition business. We recorded the acquired intangible assets at fair value of $5.8 million and goodwill of $2.5 million in connection with this acquisition. The amortization expense relating to these acquired intangible assets is included in the general and administrative costs.

 

On April 2, 2011, our subsidiary, eMedia Asia Limited acquired a 100% interest in EDN China and EDN Asia publications business and recorded the acquired intangible assets at fair value of $1.6 million and goodwill of $2.0 million in connection with this acquisition. The goodwill was fully impaired by the end of 2012. The amortization expense relating to these acquired intangible assets is included in the general and administrative costs.

 

 

On March 9, 2012, we acquired an 80% interest in FashionSZshow (formerly known as China (Shenzhen) International Brand Clothing & Accessories Fair) in mainland China. We recorded the acquired intangible assets at a fair value of $20.4 million, goodwill of $5.0 million and related deferred tax liabilities of $5.1 million in connection with this acquisition. Based on the subsequent impairment reviews performed by the management, the goodwill was fully impaired in 2013 and we recorded impairment charges to the acquired intangible assets of $3.5 million in 2013 and $2.2 million in the second quarter of 2014. In October 2013, we also reviewed the useful lives of intangible assets relating to this acquisition and revised the useful lives of the intangible assets to seven years from the original seventeen years. The amortization expense relating to these acquired intangible assets is included in the general and administrative costs.

 

We completed the acquisition of a majority interest in the SIMM machinery shows business on January 1, 2014. We recorded the acquired intangible assets at fair value of $16.5 million and the related deferred tax liabilities of $4.1 million and goodwill of $9.0 million in connection with this acquisition. The trade mark intangible assets have useful lives of 10 years and the contractual backlog has a useful life of 3 months. The amortization expense relating to the acquired intangible assets is included in the general and administrative costs. This transaction is discussed under liquidity and capital resources section of this document.

 

General and administrative costs declined by 22% from $14.1 million during the three months ended March 31, 2014 to $11.0 million during the three months ended March 31, 2015, due mainly to a reduction in amortization of intangible assets relating to our acquired SIMM machinery shows business, as the acquired contractual backlog intangible assets with useful life of three months were fully amortized in the first quarter of 2014, and a reduction in exchange loss recorded by us on the revaluation of the foreign currency denominated monetary assets and liabilities into our reporting currency, the U.S. Dollar.

 

Information and Technology. Information and technology costs consist mainly of payroll, office rental and depreciation costs and fees paid to third parties relating to our information and technology support services and the updating and maintenance of Global Sources Online. Information and technology costs increased from $3.2 million for the three months ended March 31, 2014 to $3.3 million during the three months ended March 31, 2015 due to increase in payroll costs and depreciation costs.

 

Non-Cash Compensation Expense. We have issued share awards under several equity compensation plans (“ECP”) to both employees and non-employees. The Company’s share awards to non-employees are share grants to consultants and to employees of third party service providers. We also recognize non-cash compensation expenses relating to the share awards granted to our directors under The Global Sources Directors Share Grant Award Plan.

 

The share grants to employees and non-employees vest over a six-year period on a graded vesting basis, with a percentage of shares vesting each year. The share grants have a service condition that the awardees who received the share grants must continue to provide the services during the vesting period. The awardees will receive the shares on the respective vesting dates if they continue to render services to the Company. If an awardee ceases to provide services, any shares that have not vested are forfeited.

 

Persons eligible to receive grants under the Global Sources Directors Share Grant Award Plan are the directors of the Company. Share grants to directors will be vested at the end of four years or in accordance with such other vesting schedule as may be determined by the Plan Committee.

 

 

The Company accelerates the vesting of share grants in the event of death of an awardee or if the Company is in liquidation or in certain cases, if there is a takeover or a change of control of the Company.

 

The total non-cash compensation expenses, resulting from ECP and The Global Sources Directors Share Grant Award Plan recorded by us and included under the respective categories of expenses during the three months ended March 31, 2015 and the three months ended March 31, 2014 were $0.5 million and $0.2 million, respectively.

 

The corresponding amounts for the non-cash compensation expenses were credited to shareholders’ equity.

 

Profit/(loss) from Operations. The total loss from operations during the three months ended March 31, 2015 was $3.2 million as compared to a profit of $0.9 million during the three months ended March 31, 2014. The decline in profit from operations resulted mainly from the decline in revenue off-set partially by declines in sales costs, event production costs, community and content costs and general and administrative costs.

 

Interest Income and gain on sale of available-for-sale securities. We recorded interest income of $0.3 million arising mainly from term deposits placed with banks during the three months ended March 31, 2015 compared to an interest income of $0.4 million during the three months ended March 31, 2014. The reduction was mainly due to reduction in our term deposits placed with banks in the first quarter of 2015 as we paid $50.0 million for our tender offer and $10.8 million for the second instalment of the purchase consideration for the SIMM machinery shows business acquisition during the second quarter of 2014. We also recorded a gain on available sale securities of $0.2 during the three months ended March 31, 2015 compared to a gain on available sale securities of $0.01 million during the three months ended March 31, 2014.

 

Interest expenses. Interest expense represents the unwinding of the discount on the contingent consideration payable for the acquisition of the SIMM machinery shows business.

 

Income Taxes. Certain subsidiaries of the group operate in the Cayman Islands and other jurisdictions where there are no taxes imposed on companies. Some of our subsidiaries operate in Hong Kong SAR, Singapore, China and certain other jurisdictions and are subject to income taxes in their respective jurisdictions.

 

We reported a tax credit of $0.2 million during the three months ended March 31, 2015 compared to a tax expense of $0.4 million during the three months ended March 31, 2014 as the tax provision relating to our SIMM exhibition events was recorded in the first quarter of 2014.

 

Net Profit/(loss) Attributable to the Company. Net loss attributable to the Company was $2.1 million during the three months ended March 31, 2015 compared to a net profit of to $0.1 million during the three months ended March 31, 2014. The decline in net profit attributable to the Company resulted mainly from the decline in revenue off-set partially by declines in sales costs, event production costs, community and content costs, general and administrative costs and income tax expense.

 

Diluted Net Profit/(loss) per Share. The diluted net loss per share attributable to the Company’s shareholders was $0.07 for the three months ended March 31, 2015 compared to a diluted net profit per share attributable to the Company’s shareholders of less than $0.01 for the three months ended March 31, 2014. The number of shares used for the computation of net

 

 

profit per share declined from 36.2 million to 31.4 million resulting from the 5.0 million shares repurchased by the company during the second quarter of 2014.

 

Liquidity and Capital Resources

 

We financed our activities for the year ended March 31, 2015 using cash generated from our operations and we had no bank debt as at March 31, 2015.

 

Net cash generated from operating activities was $4.8 million for the three months ended March 31, 2015, compared to $13.1 million for the three months ended March 31, 2014. The primary source of cash from operating activities was collections from our customers received through our independent sales representative organizations. The majority of our customers in mainland China pay us in advance for our Online and Other Media Services business. The majority of our Exhibitions business collections are advance payments.

 

Receivables from sales representative organizations increased from $7.9 million as at December 31, 2014 to $13.6 million as at March 31, 2015 as the sales representatives collected money for our second quarter 2015 trade shows. These collections will be transferred to our bank accounts in the coming months. The receivables from sales representatives represent cash receipts from our customers, net of commissions and fees payable, and which are collected by the independent sales representatives on our behalf. These cash receipts are banked into designated bank accounts owned by the independent sales representatives in China. For credit risk management purposes, our employees are the only authorized signatories for the withdrawal of cash from these bank accounts. We have long standing relationships with a majority of these independent sales representatives, for whom there is no recent history of default in transferring the funds to us. In the long term, if our China business and our exhibition business grow as the economic climate improves, the receivables from sales representative organizations may increase.

 

Currently we own 15,364.50 square meters of office space in commercial buildings in Shenzhen China, approximately 6,668 square meters of office space in a commercial building in Shanghai, China and approximately 50,265 square feet of office space together with three car parking spaces in commercial buildings in Hong Kong. These buildings are situated on leasehold lands with lease periods ranging between 50 and 75 years. We record the depreciation on these assets on a straight-line basis over the remaining lease term or 50 years, whichever is shorter. In addition, we also own approximately 22,496.50 square feet of office space, together with appurtenant roof top accessory lots in a commercial building situated on freehold land in Singapore. We record the depreciation on the building portion of this asset on a straight-line basis over 50 years.

 

Based on the Company’s intention, the portion of the properties that is designated to generate rental income in the short to medium term has been classified as Investment Properties. The net book value of the portion of these properties classified as Investment Properties as at March 31, 2015 and as at December 31, 2014 was $85.1 million and $85.5 million respectively. The total net book value of these office properties including the portion classified as Investment Properties and the portion classified under Property and Equipment as at March 31, 2015 and as at December 31, 2014 was $141.0 million and $142.2 million respectively. The total market value of the office properties held as at December 31, 2014 was $242.5 million based on independent valuation reports prepared by Savills Valuation and Professional Services Limited, Hong Kong for properties situated in Hong Kong SAR and China and by Savills Valuation and Professional Services (S) Pte Ltd, Singapore for the property situated in Singapore. Based on our management‘s assessment the total market value of the office properties as at March 31, 2015, was not less than their total market value as at

 

 

December 31, 2014. We did not record the market valuation gains as we record our Property and Equipment and Investment Properties at cost less the accumulated depreciation.

 

We continuously monitor collections from our customers and maintain an adequate provision for impairment of receivables. While credit losses have historically been within our expectations and the allowances established, if bad debts significantly exceed our provisions, additional provisions may be required in future.

 

We invest our excess cash in term deposits with commercial banks, U.S. Treasury securities and available-for-sale securities to generate income from interest received as well as capital gains, while the funds are held to support our business.

 

Generally, we hold securities with specified maturity dates such as Treasury Bills until their maturity. We invest excess cash on hand in U.S. Treasury Bills, in term deposits with major banks and available-for-sale securities to generate interest income. The market values of U.S. Treasury Bills, term deposits with banks and other available-for-sale securities as at March 31, 2015 were nil, $63.1 million and $4.2 million respectively, compared to the market values of U.S. Treasury Bills, term deposits with banks and other available-for-sale securities as at December 31, 2014 of $nil, $61.3 million and $4.0 million respectively. We do not engage in buying and selling of securities with the objective of generating profits on short-term differences in price or for other speculative purposes. Our objective is to invest to support our capital preservation strategy.

 

We hold a Documentary Credit facility with the Hongkong and Shanghai Banking Corporation Limited, for providing documentary credits to our suppliers. This facility has a maximum limit of approximately $0.6 million. As at March 31, 2015, the unutilized amount under this facility was approximately $0.5 million. Hongkong and Shanghai Banking Corporation Limited has also provided a guarantee on our behalf to our suppliers. As at March 31, 2015, such guarantee amounted to $0.003 million.

 

We did not recognize deferred income tax assets of $9.8 million in respect of losses as at March 31, 2015 that can be carried forward against future taxable income as the losses arose from dormant and/or loss-making subsidiaries whereby the realization of the related tax benefit through future taxable profits is not probable.

 

In 2012, 2014 and again in April 2015, we entered into venue license agreements for future exhibition events from 2015 to 2018 for a total amount of $46.7 million. The above agreements are cancelable under force majeure or other specified conditions, or upon notice and payment of cancellation charges to the other party. The amounts paid will be expensed when the related events are held. As at March 31, 2015, we have paid approximately $8.1 million in aggregate under these agreements.

 

On February 4, 2008, our Board of Directors authorized a program to buy back up to $50.0 million of common shares. We may, from time to time, as business conditions warrant, purchase shares in the open market or through private transactions. The buyback program does not obligate us to buy back any specific number of shares and may be suspended or terminated at any time at management’s discretion. The timing and amount of any buyback of shares will be determined by management based on its evaluation of market conditions and other factors. As at March 31, 2015, we have not bought back any of our shares under this program.

 

In 2014, we acquired a controlling interest in Shenzhen International Machinery Manufacturing Industry Exhibition and its related shows (“SIMM machinery shows”). These events are held annually in Shenzhen, China. The completion date of this transaction was

 

 

January 1, 2014. The total consideration for this acquisition was approximately $16.3 million. We paid a total of $13.0 million in 2013 and 2014 towards the purchase consideration. The balance of cash consideration of $3.3 million is payable in several instalments over next three years upon certain conditions being fulfilled. In addition, there is a potential obligation to pay not more than approximately $1.2 million for transaction cost, which will be expensed upon payment. The contingent consideration is measured at fair value on the date of acquisition and held as a financial liability on the balance sheet. We recorded this acquisition as a business combination.

 

We anticipate that our cash and securities on hand and expected positive cash-flows from our operations will be adequate to satisfy our working capital needs, capital expenditure requirements and cash commitments for the next 12 months. However, looking to the long term, we may raise additional share capital, or sell debt securities, or obtain credit facilities as and when required to further enhance our liquidity position, and an issue of additional shares could result in dilution to our shareholders.

 

Recent Accounting Pronouncements

 

The following recent accounting pronouncement is applicable for accounting periods beginning after the final standard is announced and comes into effect:

 

i.

IFRS 9, “Financial instruments”

ii.

IFRS 15, “Revenue from contracts with customers”

 

The above accounting pronouncements are discussed in detail in the following paragraphs:

 

IFRS 9, ‘Financial instruments’, addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July 2014. It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through OCI and fair value through P&L. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the ‘hedged ratio’ to be the same as the one management actually use for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under IAS 39. The standard is effective for accounting periods beginning on or after 1 January 2018. Early adoption is permitted. We are currently assessing the impact of the adoption of IFRS 9 on our financial statements.

 

IFRS 15, ‘Revenue from contracts with customers’ deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is recognized when a customer obtains control of a goods or service and thus has the ability to direct the use and obtain the benefits from the goods or service. The standard replaces IAS 18 ‘Revenue’ and IAS 11 ‘Construction

 

 

contracts’ and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2017 and earlier application is permitted. We are currently assessing the impact of the adoption of IFRS 15 on our financial statements.

 

Qualitative and Quantitative Disclosures about Market Risk

 

During the three months ended March 31, 2015 and the three months ended March 31, 2014, we have not engaged in foreign currency hedging activities.

 

In the three months ended March 31, 2015 and the three months ended March 31, 2014, we derived more than 90% of our revenue from customers in the Asia-Pacific region. We expect that a majority of our future revenue will continue to be generated from customers in this region. Future political or economic instability in the Asia-Pacific region could negatively impact our business.

 

Forward-looking Statements

 

Except for any historical information contained herein, the matters discussed in this report contain certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to our financial condition, results of operations and business. These statements relate to analyses and other information which are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects, developments and business strategies. These forward-looking statements are identified by their use of terms and phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “project,” “plan,” “predict,” “strategy,” “forecast,” “will” and similar terms and phrases, including references to assumptions.

 

These forward-looking statements include current trend information, projections for deliveries, business growth strategies and plans, projected capital expenditure, expansion plans and liquidity. These forward looking statements involve risks and uncertainties that may cause our actual future activities and results of operations to be materially different from those suggested or described in this report on Form 6-K. These risks include but are not limited to: product demand; customer satisfaction and quality issues; labor disputes; competition, changes in technology and the marketplace; our ability to achieve and execute internal business plans; the success of our business partnerships and alliances; worldwide political instability and economic growth; changes in regulatory and tax legislation in the countries in which we operate; and the impact of any weakness in the currencies in Asia in which we operate.

 

In addition to the foregoing factors, certain other risks and uncertainties, which could cause actual results to differ materially from those expected, estimated or projected can be found in the section “Risk Factors” in our Annual Report on Form 20-F filed with the United States Securities and Exchange Commission.

 

If one or more of these risks or uncertainties materializes, or if underlying assumptions prove incorrect, our actual results may vary materially from those expected, estimated or projected. Given these uncertainties, users of the information included in this report on Form 6-K, including investors and prospective investors, are cautioned not to place undue reliance on such forward-looking statements. We do not intend to update the forward-looking statements included in this report.

 

 

 

 

EXHIBIT 2

 

GLOBAL SOURCES LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In U.S. Dollars Thousands, Except Number of Shares and Per Share Data)

 

		As at March 31,				As at December 31,
		2015				2014
		(Unaudited)
ASSETS
Current assets
Cash and cash equivalents		$	92,802			$	90,223
Term deposits with banks			6,676				4,285
Financial assets, available-for-sale			4,155				3,952
Accounts receivables, net			1,868				2,269
Receivables from sales representatives			13,568				7,900
Inventories			180				154
Prepaid expenses and other current assets			25,597				17,027
			144,846				125,810
Non-current assets
Property and equipment			62,316				63,519
Investment properties			85,091				85,546
Intangible assets			36,750				37,732
Long term investment			100				100
Deferred income tax assets			253				196
Other non-current assets			1,611				1,108
			186,121				188,201
Total assets		$	330,967			$	314,011
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable		$	9,373			$	9,418
Deferred income and customer prepayments			108,713				84,869
Accrued liabilities			16,262				19,100
Income tax liabilities			784				3,848
			135,132				117,235
Non-current liabilities
Accounts payable			290				889
Deferred income and customer prepayments			6,116				3,971
Deferred income tax liabilities			6,583				6,842
			12,989				11,702
Total liabilities			148,121				128,937
Equity attributable to Company’s shareholders
Common shares			532				529
Treasury shares			(200,089	)			(200,089	)
Other reserves			161,676				161,242
Retained earnings			207,797				209,924
Total Company shareholders’ equity			169,916				171,606
Non-controlling interests			12,930				13,468
Total equity		$	182,846			$	185,074
Total liabilities and equity		$	330,967			$	314,011

 

 

GLOBAL SOURCES LTD. AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS

(In U.S. Dollars Thousands, Except Number of Shares and Per Share Data)

 

		Three months ended March 31,
		2015				2014
		(Unaudited)				(Unaudited)
Revenue
Online and other media services (Note 1)		$	20,054			$	23,842
Exhibitions			260				8,860
Miscellaneous			1,889				1,768
			22,203				34,470
Operating Expenses:
Sales (Note 2)			6,456				9,046
Event production			98				1,804
Community and content (Note 2)			4,562				5,443
General and administrative (Note 2 & 3)			11,002				14,128
Information and technology (Note 2)			3,297				3,191
Total Operating Expenses			25,415				33,612
Profit / (loss) from Operations			(3,212	)			858
Interest income			312				417
Gain on sale of available-for-sale securities			188				10
Interest expenses			(46	)			(47	)
Profit / (loss) before income taxes			(2,758	)			1,238
Income tax credit / (expense)			171				(355	)
Net profit / (loss)		$	(2,587	)		$	883
Net (profit) / loss attributable to non-controlling interests			460				(738	)
Net profit / (loss) attributable to the Company’s shareholders		$	(2,127	)		$	145
Basic net profit / (loss) per share attributable to the Company’s shareholders		$	(0.07	)			*
Shares used in basic net profit / (loss) per share calculations			30,095,203				34,688,355
Diluted net profit / (loss) per share attributable to the Company’s shareholders		$	(0.07	)			*
Shares used in diluted net profit /(loss) per share calculations			31,361,130				36,174,507

 

* Basic and diluted net profit per share attributable to the Company’s shareholders is less than $0.01

 

Note:

1.

Online and other media services consists of:

 

		Three months ended March 31,
		2015				2014
		(Unaudited)				(Unaudited)
Online services		$	17,917			$	21,252
Print services			2,137				2,590
		$	20,054			$	23,842

 

 

GLOBAL SOURCES LTD. AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS

(In U.S. Dollars Thousands, Except Number of Shares and Per Share Data)

 

Note:

2.

Non-cash compensation expenses associated with the several equity compensation plans and Global Sources Directors Share Grant Award Plan included under various categories of expenses are as follows:

 

		Three months ended March 31,
		2015				2014
		(Unaudited)				(Unaudited)
Sales		$	37			$	7
Community and content			10				(59	)
General and administrative			364				183
Information and technology			77				70
		$	488			$	201

 

Note:

3.

General and administrative expenses consist of:

 

		Three months ended March 31,
		2015				2014
		(Unaudited)				(Unaudited)
General and administrative expenses before amortization of intangible assets and foreign exchange losses		$	9,412			$	9,026
Amortization of intangible assets			1,273				3,461
Foreign exchange losses			317				1,641
		$	11,002			$	14,128