TIDMGMC
RNS Number : 9557O
Global Market Group Ltd
02 June 2015
2 June 2015
Global Market Group Limited
("Global Market" or the "Group")
Global Market Group announces Final Results
for the year ended 31 December 2014
Global Market Group Limited (AIM: GMC) ("GMG" or the "Company"),
a leading manufacturer-to-business ("M2B") online marketplace that
connects high-quality manufacturers in China with buyers from all
over the world announces today its final results for the year ended
31 December 2014.
Highlights
Gross group revenue increased by 13.9% year-on-year to US$29.27
million for the full year ended 31 December 2014. Revenue for the
M2B segment increased by 4.4% year-on-year to US$26.01 million,
leading to a return to profit for the segment, with net income
of US$2.47 million.
Over 30,000 manufacturers were vetted by the Company as at 31
December 2014, with online product offerings for the M2B segment
as at 31 December 2014 increasing 40.6% year-on-year to 4.5 million.
ARPU (M2B segment) for the full year ended 31 December 2014 increased
3.7% year-on-year to around US$10,399. The number of package service
subscribers decreased as some manufacturers chose the Free GMC
Scheme of basic listing services. However, registered buyers increased
15% year-on-year to 1.36 million as at 31 December 2014 (2013:
1.18 million). Small order transactions, which is an important
value-added service of the M2B segment, started trial operations
in the final quarter of 2014 and is targeted to officially launch
in Q3 2015.The Company anticipates that this will represent an
additional revenue stream for the business.
The Company invested approximately US$12.9 million into its M2C
e-commerce segment, FeiFei.com, for the full year ended 31 December
2014. Revenue for the M2C segment increased by 311.5% year-on-year
to US$3.26 million, however the segment overall recorded a net
loss of US$9.66 million. In the second quarter of 2015, the Company
started to explore new business models and has capped its monthly
expenses for the M2C segment at around $0.06 million. FeiFei will
adapt its business model from a M2C to M2B2C model and focus more
on serving the manufacturer.
China's national standard of high-quality e-commerce manufacturers,
issued by AQSIQ (General Administration of Quality Supervision,
Inspection and Quarantine of the People's Republic of China) and
SAC (Standardization Administration of the People's Republic of
China), on 31 December 2014 uses the selection criteria of the
GMC standard first established by GMG. Currently, this national
standard this is the only official evaluation criteria for e-commerce
suppliers vetting high quality manufacturers. The benefit to the
Company is that any manufacturer qualifying for the GMC standard
also qualifies for the national standard. The Company is leading
the way in integrating domestic Chinese manufacturers into the
fast-growing e-commerce economy.
The Company was awarded as one of the 2015 Best Cross-border Enterprises
at the China E-commerce Innovation and Development Summit held
in Guiyang, Guizhou province, in May 2015. This Summit is under
the guidance of the ministries and commissions under the State
Council of People's Republic of China, such as the National Development
and Reform Commission, General Administration of Customs, State
Administration for Industry & Commerce, AQSIQ and SAC.
The financial information in this announcement is derived from
the Company's audited financial statements for the year ended 31
December 2014, a copy of which is available on the Company's website:
www.globalmarket.com.
For further information, please visit www.globalmarket.com or contact:
Global Market Group Limited Tel: +86 (20) 8600 2299
David Ling/Cheandy Hu/Mophy
Fan
Grant Thornton UK LLP (Nominated Tel: +44 (0)20 7383 5100
Adviser)
Philip Secrett/ Maureen Tai/
Jen Clarke
Westhouse Securities Limited Tel:+44 (0)20 7601 6114
(Broker)
Martin Davison
CHAIRMAN'S STATEMENT
I am pleased to present the final results of Global Market Group
Limited for the year ended 31 December 2014.
Business review
During the two-year strategic adjustment period running until the
end of 2014, over 30,000 manufacturers have been vetted by the
Company and the M2B segment has returned to profit, although the
number of package service subscribers has decreased as a result
of the deliberate shift in the marketing strategy of the Company
to offer some manufacturers the Free GMC Scheme which provides
basic listing services for free. As a result of the Free GMC Scheme,
online product offerings for the M2B segment at 31 December 2014
increased by 40.6% year-on-year to 4.5 million. At the same time,
average revenue per user (or "ARPU") for the M2B segment for the
full year ended 31 December 2014 increased by 3.7% year-on-year
to around US$10,399, while deferred revenue decreased slightly
by 2.6% year-on-year to US$15.6 million.
Small order transactions or "Snowball" as it will be branded, which
is an important value-added service of the M2B segment and only
open to paying subscribers at this stage, started trial operations
in Q4 2014. As it develops, Snowball should help generate advertising
service revenue and we believe that it is through offering such
value-added services that www.globalmarket.com will gradually transform
from being a cross-border information publishing platform into
a cross-border transactional e-commerce platform.
The goal of introducing small order transactions is to integrate
the global supply chain by incorporating logistics, payment, insurance,
customs clearance and other services to create a one-stop solution
for the Company's manufacturer customers. Developing a cross-border
transactional e-commerce website will help to enhance cross-border
knowledge and small order transactions will help both manufacturers
who are inexperienced in conducting cross-border business and worldwide
online retailers who will be able to complete direct sales from
Chinese manufacturers.
Small order transactions will also help our over 30,000 domestic
and accredited manufacturers build up their own brands and sell
directly to overseas online retailers through the wholesale or
"dropship" model. The wholesale model will allow online retailers
to buy small quantities directly from Chinese manufacturers. The
"dropship" model will enable online retailers to sell to consumers
without owning the inventories. Once an online retailer receives
an order from a consumer, the retailer will place that order with
the manufacturer who will ship the required product directly to
that consumer. It will reduce costly elements of the supply chain,
build up trust with GMG, and help small order online retailers
offer more competitively priced, good quality products and better
service standards and guarantees. Over time, we aim to build up
global e-commerce alliances with worldwide marketplaces.
The trial operation of small order transactions started in the
final quarter of 2014 and some of the participating manufacturers
successfully received overseas orders during the trial operation
period. The initial investment has been small but the Company intends
to dedicate further resources as this new business line expands.
At present, the Company charges no commission on the orders but
as the initiative develops, it stands to benefit from advertising,
financing and global supply chain services as all the orders and
payments will happen on the www.globalmarket.com platform.
In 2014, the Company, through FeiFei.com, explored the Chinese
M2C business model and gained a lot of experience of the domestic
online transaction market. It became apparent over the course of
2014 that the end-consumer focused model faces excessive competition
in China and therefore, the Company's intention is to adapt the
focus of FeiFei's operations going forward. Of the US$12.9 million
investment spent on FeiFei for the full year ended 31 December
2014, the majority was on salaries, logistics, marketing and promotions.
Around US$5 million advertising resources, which is part of Guangzhou
Daily's investment, remained in FeiFei as at 31 December 2014.
With the continuing support of Guangzhou Daily, FeiFei will adapt
its business model from a M2C to M2B2C model and focus more on
serving the manufacturer, improving the user experience and building
up a service which will address the whole supply chain. By building
up the e-commerce alliance, FeiFei will help GMC manufacturers
establish their own brands and sell high quality products to Chinese
consumers through tens of millions of the domestic online retailers.
In this way, FeiFei will better focus on building up GMC trust
system, enhancing user experience and utilizing the resources of
manufacturers rather than investing in marketing to end consumers.
FeiFei will aim to become a leading cross-border transaction platform
in China's domestic market, linking 30,000 GMC manufacturers (from
China and possibly from overseas) with tens of millions of China's
online retailers by building up China's largest e-commerce alliance.
M2B and FeiFei will share the GMC brand, the database of over 30,000
accredited manufacturers and the IT transaction platform. However,
FeiFei.com will focus on selling to China's domestic market, while
www.globalmarket.com will focus on the overseas market.
Financial review
Revenues for the year ended 31 December 2014 rose by 13.9% to US$29.27million
(2013: US$25.71million). The net loss of US$7.44 million arose
after accounting for an investment of around US$12.9 million in
FeiFei.
Sales and marketing expenses (excluding share-based compensation
expenses of US$0.27 million) decreased by 30.2% to US$15.98million
(2013: US$22.89million). Heavy investment in FeiFei resulted in
an increase in sales and marketing expenses, but the decline in
sales salaries across all business segments helped minimise the
impact of the Company's investment in FeiFei.
The M2B segment revenue increased by 4.4% year-on-year to US$26.01
million, returning to profit with net income of US$2.47 million.
Revenue for the M2C segment increased by 311.5% year-on-year to
US$3.26 million, however the segment overall recorded a net loss
of US$9.66 million.
General and administrative expenses (excluding share-based compensation
expenses of US$0.20 million) increased by 43.7% to US$11.15 million
during the year (2013: US$7.76 million), largely attributable to
the investment in FeiFei. In the second quarter of 2015, the Company
started to explore new business models and has capped its monthly
expenses for the M2C segment at around $0.06 million, mainly for
salaries, administration, rental and marketing.
Outlook
Against the backdrop of weak global trade and declining exports
from both established economies and emerging market economies,
China's exports still maintained an increasing momentum in the
first half of 2015.It is expected by the Ministry of Commerce of
People's Republic of China that the foreign trade situation in
the second half of 2015 will be better than the first half of the
year and that foreign trade for the whole year will finish on a
rising trend.
We learned a lot in 2014 about the rapidly-changing and highly-competitive
domestic e-commerce market and in 2015 we have begun to adapt our
business model to suit our unique M2B and overseas buyer assets
and capabilities.2015 will be the most important year for China
cross-border e-commerce because it is developing rapidly and the
Chinese government, from central government to local governments,
has shown great support for its development. We are confident that
we are ready to take on the challenges and to make the most of
the market opportunities.
David Ling
Chairman and CEO
2 June 2015
GLOBAL MARKET GROUP LIMITED
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands of U.S. Dollars ("US$") except for number
of shares and per share data)
As of As of
December December
Notes 31, 2014 31, 2013
------ ---------- ----------
US$ US$
ASSETS
Current assets:
Cash and cash equivalents 11,271 17,519
Inventory 45 188
Accounts receivable (net of
allowance of nil and US$44
for December 31, 2013 and 2014,
respectively) 4 1,082 362
Prepayments and other current
assets 5 5,310 4,743
---------- ----------
Total current assets 17,708 22,812
---------- ----------
Non-current assets:
Property and equipment, net 6 4,922 4,415
Goodwill 7 6,508 6,510
Other intangible assets, net 7 4,550 4,408
Other non-current assets 8 3,856 3,663
---------- ----------
Total non-current assets 19,836 18,996
---------- ----------
TOTAL ASSETS 37,544 41,808
========== ==========
The accompanying notes are an integral part of the consolidated
financial statements.
GLOBAL MARKET GROUP LIMITED
CONSOLIDATED BALANCE SHEETS (continued)
(Amounts in thousands of U.S. Dollars ("US$") except for number
of shares and per share data)
As of As of
December December
Notes 31, 2014 31, 2013
------ ---------- ----------
US$ US$
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Accounts payable 479 398
Deferred revenue 15,607 16,018
Accrued expenses and other liabilities
(including accrued expenses and
other current liabilities of
the variable interest entity
without recourse to Global Market
Group Limited of US$18 and US$9
as of December 31, 2013 and 2014,
respectively) 9 6,600 7,307
Income tax payable 78 28
---------- ----------
Total current liabilities 22,764 23,751
---------- ----------
Non-current liabilities:
Deferred tax liabilities, non-current 12 101 98
Unrecognized tax benefits 12 2 2
---------- ----------
Total non-current liabilities 103 100
---------- ----------
Total liabilities 22,867 23,851
---------- ----------
Commitments and contingencies 17
Mezzanine Equity
Contingently redeemable noncontrolling
interests 10 6,979 -
Shareholders' Equity:
Ordinary shares (par value of
US$0.0002 per share; 250,000,000
and 250,000,000 shares authorized
as of December 31, 2013 and 2014,
respectively; 97,824,935 and
93,321,935 shares issued and
outstanding as at December 31,
2013 and 2014, respectively.) 11 19 20
Additional paid-in capital 44,510 44,593
Accumulated deficit (36,821) (26,714)
Accumulated other comprehensive
(loss) income 11 (10) 58
---------- ----------
Total shareholders' equity 7,698 17,957
---------- ----------
Total liabilities and shareholders'
equity 37,544 41,808
========== ==========
The accompanying notes are an integral part of the consolidated
financial statements.
GLOBAL MARKET GROUP LIMITED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Amounts in thousands of U.S. Dollars ("US$") except for number
of shares and per share data)
For the years ended
December 31,
------------------------
Notes 2014 2013
------ ----------- -----------
US$ US$
Revenues 18 29,271 25,709
Cost of revenues (6,725) (3,930)
----------- -----------
Gross profit 22,546 21,779
Operating expenses:
Fulfillment (3,235) (931)
Selling and marketing expenses (15,978) (22,893)
General and administrative expenses (11,152) (7,759)
----------- -----------
Operating loss (7,819) (9,804)
----------- -----------
Other income 35 21
Foreign exchange gain 59 64
Changes in fair value of derivative
financial liabilities 13 65
Interest income 285 303
----------- -----------
Loss before income tax (7,427) (9,351)
Income tax expense 12 (15) (197)
----------- -----------
Net loss (7,442) (9,548)
Less:
Net loss attributable to contingently
redeemable noncontrolling interests 985 -
Accretion of contingently redeemable
noncontrolling interests 10 (1,468) -
----------- -----------
Net loss attributable to Global
Market Group Limited's ordinary
shareholders (7,925) (9,548)
=========== ===========
Other comprehensive (loss) income,
net of tax
Foreign currency translation
adjustment (68) 204
----------- -----------
Other comprehensive (loss) income,
net of tax (68) 204
----------- -----------
Comprehensive loss attributable
to Global Market Group Limited's
ordinary shareholders (7,993) (9,344)
=========== ===========
Earnings per share:
Basic 19 (0.09) (0.10)
Diluted 19 (0.09) (0.10)
Weighted average number of ordinary
shares in computing:
Basic 19 93,667,371 97,801,236
Diluted 19 93,667,371 97,801,236
The accompanying notes are an integral part of the consolidated
financial statements.
GLOBAL MARKET GROUP LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in thousands of U.S. Dollars ("US$") except for number
of shares and per share data)
For the years ended
December 31,
2014 2013
---------- ----------
US$ US$
Cash flows from operating activities
Net loss (7,442) (9,548)
Adjustments to reconcile income
from continuing operations to net
cash generated from operating activities:
Share-based payment 479 761
Changes in fair value of derivative
liabilities (13) (65)
Depreciation of property and equipment 479 421
Amortization of other intangible
assets 987 491
Allowance for doubtful accounts 44 -
Write-off of obsolete inventories 117 -
Loss on disposal of property and
equipment 174 14
Deferred income tax expense 3 200
Unrealized foreign exchange (gain)
loss (68) 204
Changes in operating assets and
liabilities:
Decrease (increase) in inventory 26 (188)
(Decrease) increase in accounts
receivable (764) 1,466
Increase in prepayments and other
current assets (567) (226)
(Increase) decrease in other non-current
assets (770) 7
Increase in accounts payable 81 398
(Decrease) increase in deferred
revenue (411) 5,531
Increase in income tax payable 50 24
(Decrease) increase in accrued expenses
and other current liabilities (694) 2,708
Decrease in unrecognized tax benefits - (28)
---------- ----------
Net cash (used in) generated from
operating activities (8,289) 2,170
---------- ----------
Cash flows from investing activities
Acquisition of property and equipment (1,174) (3,048)
Acquisition of intangible assets (1,144) (3,183)
Loans to employees (1,326) (1,856)
Repayment of loans to employees 1,903 961
---------- ----------
Net cash used in investing activities (1,741) (7,126)
---------- ----------
The accompanying notes are an integral part of the consolidated
financial statements.
GLOBAL MARKET GROUP LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
(Amounts in thousands of U.S. Dollars ("US$") except for number
of shares and per share data)
For the years ended
December 31,
----------------------
2014 2013
---------- ----------
US$ US$
Cash flows from financing activities
Repurchase of ordinary share (2,183) -
Payment of deemed dividend to controlling
shareholder (562) -
Proceeds from issuance of contingently
redeemable noncontrolling interests 6,496 -
---------- ----------
Net cash generated from financing
activities 3,751 -
---------- ----------
Exchange rate effect on cash and
cash equivalent 31 (5)
---------- ----------
Net decrease in cash and cash equivalents (6,248) (4,961)
Cash and cash equivalents, beginning
of the period 17,519 22,480
---------- ----------
Cash and cash equivalents, end of
the period 11,271 17,519
========== ==========
Supplemental schedule of cash flows
information:
Income tax paid - -
The accompanying notes are an integral part of the consolidated
financial statements.
GLOBAL MARKET GROUP LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Amounts in thousands of U.S. Dollars ("US$") except for number of
shares and per share data)
Total Global Market Group Limited's Equity
---------------------------------------------------------------------------------
Accumulated
other
comprehensive
Ordinary shares income/(loss)
---------------------- ----------- ------------ -------------- --------------
Additional Total
Number paid-in Accumulated shareholders'
of shares Amounts capital deficit equity
------------ -------- ----------- ------------ -------------- --------------
Balance as of
1 January 2013 97,774,935 20 43,813 (17,166) (146) 26,521
Net loss - - - (9,548) - (9,548)
Other
comprehensive
income - - - - 204 204
Share-based
compensation - - 748 - - 748
Issuance of
ordinary
shares 50,000 - 32 - - 32
Balance as of
31 December ,
2013 97,824,935 20 44,593 (26,714) 58 17,957
============ ======== =========== ============ ============== ==============
Net loss - - - (7,442) - (7,442)
Other
comprehensive
income: - - - - (68) (68)
Net loss
attributable
to contingently
redeemable
noncontrolling
interests - - - 985 - 985
Accretion of
contingently
redeemable
non-controlling
interest - - - (1,468) - (1,468)
Share-based
compensation - - 479 - - 479
Deemed dividend
to controlling
shareholder - - (562) - - (562)
Repurchase of
ordinary shares (4,503,000) (1) - (2,182) - (2,183)
Balance as of
31 December
2014 93,321,935 19 44,510 (36,821) (10) 7,698
============ ======== =========== ============ ============== ==============
The accompanying notes are an integral part of the consolidated financial statements.
GLOBAL MARKET GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of U.S. Dollars ("US$") and in thousands
of Renminbi ("RMB") except for number of shares and per share
data)
1.ORGANISATION AND BASIS OF PRESENTATION
The Company was incorporated under the laws of the Cayman
Islands on May 13, 2002. The accompanying consolidated financial
statements include the financial statements of the Company, its
controlled subsidiaries and VIE (hereinafter subsidiaries and VIE
are collectively referred to as "subsidiaries" unless stated
otherwise). The Company and its subsidiaries are collectively
referred to as the "Group". The Group is principally engaged in
provision of manufacturer-to-business ("M2B") e-commerce services
and manufacturer-to-consumer ("M2C") e-commerce services. The
Company does not conduct any substantive operations on its own but
instead conducts its business operations through its subsidiaries
and VIE.
Global Market Group (Guangzhou) Co., Ltd ("Global Market
Guangzhou"), a PRC entity wholly owned by the Company entered into
a series of contractual arrangements ("VIE Arrangements" which are
more fully described below) with Guangzhou Shen Long Computer
Technology Co. Ltd ("Guangzhou Shen Long"), a PRC entity wholly
owned by Mr. Weijia Pan and Mr. Weinian Pan (the "Pan Brothers")
whose principal business is the provision of internet content
services, whereby Global Market Guangzhou obtained effective
control over the Guangzhou Shen Long through its ability to
exercise all the rights of Guangzhou Shen Long, the rights to
absorb substantially all of the economic residual benefits and the
obligation to fund all of the expected losses of the Guangzhou Shen
Long. In accordance with Accounting Standards Codification ("ASC")
topic 810 ("ASC 810"), "Consolidation", the Company, through Global
Market Guangzhou, consolidates the operating results of Guangzhou
Shen Long. The reason the Group entered into these VIE Arrangements
is due to the fact that PRC Laws and regulations (i) prohibit
direct foreign control in certain industries such as internet
services in which the Group operates and (ii) restrict an offshore
company controlled or established by a PRC enterprise or natural
person to acquire its PRC affiliates. As a result, in an effort to
ensure that the Group is not violating such PRC Laws or
regulations, it structured its legal organization using the
aforementioned VIE arrangements.
VIE Arrangements
The significant terms of the VIE Arrangement are listed
below:
(i)Exclusive Management, Technical Consultancy and Permission
Agreements
Global Market Guangzhou provides the following exclusive
management, technical consultancy and permission services to
Guangzhou Shen Long (hereafter, the "Contractual Services"): i)
daily management and operating services; ii) technical supports;
and iii) permission to use trademark and logo owned by Global
Market Guangzhou.
Global Market Guangzhou has the right to charge an amount equal
to Guangzhou Shen Long's total revenue less cost and expenses for
the Contractual Services. Global Market Guangzhou also has the
unilateral discretion in setting or adjusting the charge fees for
the Contractual Services.
Guangzhou Shen Long shall be operated and controlled by an
operating committee which is solely controlled by Global Market
Guangzhou. The operating committee has the right to assess and
approve the annual budget of Guangzhou Shen Long.
Global Market Guangzhou shall be obligated to provide financial
support to Guangzhou Shen Long in the event Guangzhou Shen Long
incurs losses.
Unless Global Market Guangzhou terminates the agreement, the
exclusive management, technology consultancy and permission
agreement will remain effective until the dissolution of Global
Market Guangzhou in accordance with the applicable PRC laws.
(ii)Exclusive Call Option Agreements
Global Market Guangzhou has the exclusive right to acquire from
the legal shareholders (i.e. Pan Brothers) their partial or entire
equity interests in Guangzhou Shen Long, or all the assets of
Guangzhou Shen Long, at a price equivalent to the registered
capital of Guangzhou Shen Long or at a lower cost as permitted by
applicable PRC laws and regulations when and if PRC laws permit
such a transaction.
Guangzhou Shen Long will not enter into any transaction that may
materially affect its net assets or operations without the prior
written consent of Global Market Guangzhou.
The legal shareholders of Guangzhou Shen Long, will not
transfer, sell, pledge or dispose of their equity interest in
Guangzhou Shen Long without the prior written consent of Global
Market Guangzhou.
Guangzhou Shen Long will not distribute any dividend without the
prior consent of Global Market Guangzhou.
The exclusive option agreement will remain effective until the
exclusive option is exercised to purchase the entire equity
interest of Guangzhou Shen Long.
(iii)Equity Pledge Agreements
The legal shareholders of Guangzhou Shen Long have pledged their
equity interests in Guangzhou Shen Long to Global Market Guangzhou
to secure the payment obligations of Guangzhou Shen Long under the
Contractual Services agreement.
Any dividends or distributions received by the legal
shareholders from Guangzhou Shen Long shall be paid to Global
Market Guangzhou, net of any tax.
Unless Global Market Guangzhou terminates the agreement, the
equity pledge agreement will remain effective until (i) Guangzhou
Shen Long fulfills all the obligations prescribed in the exclusive
call option agreements, the exclusive management, technology
consultancy and permission agreement or (ii) Global Market
Guangzhou acquires the entire equity interest of Guangzhou Shen
Long.
(iv)Powers of Attorney
The legal shareholders have executed a power of attorney in
September 2010 to irrevocably grant to Global Market Guangzhou or
its designee the power of attorney to exercise all of shareholders'
rights, including the right to appoint and elect board members and
senior management members, as well as other voting rights. The
power of attorney is effective for 20 years and will automatically
extend for next 1 year when expire.
Risks in relation to the VIE Arrangement
In the opinion of management, (i) the ownership structure of the
Company, and the VIE are in compliance with existing PRC laws and
regulations; (ii) the contractual arrangements with the VIE and its
shareholder are valid and binding, and will not result in any
violation of PRC laws or regulations currently in effect; and (iii)
the Company's business operations are in compliance with existing
PRC laws and regulations in all material respects.
However, there are substantial uncertainties regarding the
interpretation and application of current and future PRC laws and
regulations. Accordingly, the Company cannot be assured that PRC
regulatory authorities will not ultimately take a contrary view to
its opinion. If the current ownership structure of the Company and
its contractual arrangements with VIE are found to be in violation
of any existing or future PRC laws and regulations, the Company may
be required to restructure its ownership structure and operations
in the PRC to comply with the changing and new PRC laws and
regulations. In the opinion of management, the likelihood of loss
in respect of the Company's current ownership structure or the
contractual arrangements with VIE is remote based on current facts
and circumstances.
The Company's ability to control the VIE also depends on the
power of attorney Global Market Guangzhou has to vote on all
matters requiring shareholder approval in the VIE. As noted above,
the Company believes this power of attorney is legally enforceable
but may not be as effective as direct equity ownership.
In addition, if the legal structure and contractual arrangements
were found to be in violation of any existing PRC laws and
regulations, the Group may be subject to fines or other
actions.
The carrying amounts and classifications of the assets and
liabilities of the VIE are as follows:
As at December 31,
--------------------
2014 2013
US$ US$
ASSETS
Current assets:
Cash 29 8
Accounts receivable 2 -
Prepayments and other current
assets 404 373
--------- ---------
Total current assets 435 381
--------- ---------
Total assets 435 381
========= =========
LIABILITIES
Current liabilities:
Accrued expenses and other
liabilities 9 18
--------- ---------
Total current liabilities 9 18
--------- ---------
Non-current liabilities:
Deferred tax liabilities,
non-current 41 24
--------- ---------
Total liabilities 41 42
========= =========
The financial performance and cash flows of the VIE are as
follows:
For the years ended December
31,
-------------------------------
2014 2013
US$ US$
Net revenues 270 131
=============== ==============
Net income (loss) 50 (15)
=============== ==============
Net cash provided generated from
(used in) operating activities 23 3
=============== ==============
Net cash provided by investing
activities - -
=============== ==============
Net cash provided by financing
activities - -
=============== ==============
There are no consolidated VIE's assets that are collateral for
the VIE's obligations and which can only be used to settle the
VIE's obligations.
Creditors of the VIE have no recourse to the general credit of
Global Market Guangzhou, which is the primary beneficiary of the
VIE.
Details of the Company's subsidiaries and variable interest
entity as at December 31, 2014 are set out as follows:
Percentage
Date of Place of of ownership Principal
Company Establishment establishment by the Company activities
---------------------------- --------------- --------------- ---------------- ------------------
Global Market Group June 14, Hong Kong 100% Investment
(Asia) Limited ("Global 2000 holding and
Market Asia") M2B e-commerce
services
Global Market Group September PRC 100% M2B e-commerce
(Guangzhou) Co., 6, 2002 services
Ltd ("Global Market
Guangzhou")
Shenzhen Long Mei June 5, PRC 100% M2B e-commerce
Network Technology services
Co., Ltd ("Shenzhen
Long Mei")
2008
Shenzhen Global Market September PRC 100% M2B e-commerce
Information Technology 7, services
Co., Ltd ("Shenzhen
Global Market")
2009
Suzhou Long Mei Information April 9, PRC 100% M2B e-commerce
Technology Co., Ltd. 2010 services
("Suzhou Long Mei")
Guangzhou Long Tian July 27, PRC 100% M2B e-commerce
Software Technology 2011 services
Co., Ltd
("Guangzhou Long
Tian)
Guangzhou Longyuan March 28, PRC 100% M2B e-commerce
Software Technology 2013 services
Co., Ltd. ("Guangzhou
Long Yuan")
Guangzhou Longxiang September PRC 100% Logistic services
Supply Chain Management 19, 2014
Co., Ltd
GMCpay Limited ("GMCpay") June 10, BVI 100% Investment
2013 holding and
M2B e-commerce
services
Feifei Group Limited(BVI) June 19, BVI 100% Investment
("Feifei Group Ltd") 2013 holding and
M2C e-commerce
services
Guangzhou Feifei November PRC 100% M2C e-commerce
Information Technology 29, services
Co., Ltd ("Guangzhou
Feifei")
2013
Guangzhou Long Fei November PRC 89.47% M2C e-commerce
Software Technology 28, services
Co., Ltd. ("Guangzhou
Long Fei")
2012
Suzhou Feifei Software August 19, PRC 100% M2C e-commerce
Technology Co., Ltd services
2014
Global Pearl Group July 31, BVI 100% Investment
Limited ("Global 2014 holding
Pearl")
Guangzhou Longzhu August 22, PRC 100% Investment
Software Technology holding
Co., Ltd ("Guangzhou
Longfei")
2014
Guangzhou Zhaixing October 14, PRC 100% Investment
Information technology holding
Co., Ltd ("Guangzhou
Zhaixing")
2014
Guangzhou Shen Long June 23, PRC Nil Internet Content
Computer Technology 2003 Provision
Co., Ltd. ("Guangzhou ("ICP") services
Shen Long")
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and use of estimation
The accompanying consolidated financial statements have been
prepared in accordance with U.S. GAAP.
The preparation of consolidated financial statements in
conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities at
the balance sheet dates and the reported amounts of revenues and
expenses during the reporting periods. Significant estimates and
assumptions reflected in the Group's financial statements include,
but are not limited to, revenue recognition, allowance for doubtful
accounts, inventory write-down, useful lives of property and
equipment, impairment of property and equipment, intangible assets
and goodwill, realization of deferred tax assets, share-based
compensation and consolidation of variable interest entity. Actual
results could materially differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the financial
statements of the Company and its subsidiaries. All significant
intercompany transactions and balances have been eliminated upon
consolidation.
.
Foreign Currency
In accordance with ASC 830-10, "Foreign Currency Matters:
Overall", the functional currencies of the Company, Feifei
International Ltd., and Feifei Group Ltd., are determined to be the
United States dollars ("US$"), The functional currency of Global
Market Asia is determined to be Hong Kong dollars ("HK$"); and the
functional currency of the Company's PRC subsidiaries is the
Chinese Renminbi ("RMB"). The Company uses the US$ as its reporting
currency. The financial statements of foreign subsidiaries are
translated to U.S. dollars at the end-of-period exchange rates for
assets and liabilities and an average exchange rate for each period
for revenues and expenses. The resulting translation gains (losses)
are recorded in accumulated other comprehensive income (loss) as a
component of shareholders' equity.
Transactions denominated in foreign currencies are remeasured
into the functional currency at the exchange rates prevailing on
the transaction dates. Foreign currency denominated financial
assets and liabilities are remeasured at the balance sheet date
exchange rate. Exchange gains and losses are included in the
consolidated statements of comprehensive income.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and all highly
liquid investments purchased with original maturities of three
months or less at the date of purchase.
Accounts receivable and allowance for doubtful accounts
Accounts receivable are carried at net realizable value. An
allowance for doubtful accounts are recorded when collection is no
longer probable. In evaluating the collectability of receivable
balances, the Group considers factors such as customer
circumstances or age of the receivable. Accounts receivable are
written off after all collection efforts have ceased. Collateral is
not typically required, nor is interest charged on accounts
receivables.
Inventories
Inventories, consisting of products available for sale, are
accounted for using the first-in first-out method, and are valued
at the lower of cost or market. This valuation requires the Company
to make judgments, based on currently available information, about
the likely method of disposition, such as through sales to
individual customers, returns to product vendors, or liquidations,
and expected recoverable values of each disposition category.
Property and Equipment, net
Property and equipment are stated at cost and are depreciated
using the straight-line method over the estimated useful lives of
the assets, as follows:
Estimated Residual
Category Estimated Useful Life Value
Electronic and office
equipment 3-5 years 5% or 10%
Vehicles 5 years 5%
Buildings 36 years 10%
Leasehold improvement shorter of lease term -
or 5 years
Repair and maintenance costs are charged to expense as incurred,
whereas the cost of renewals and betterment that extend the useful
lives of property and equipment are capitalized as additions to the
related assets. Retirements, sales and disposals of assets are
recorded by removing the cost and accumulated depreciation from the
asset and accumulated depreciation accounts with any resulting gain
or loss reflected in the consolidated statements of operations.
Goodwill
Goodwill represents the excess of the purchase price over the
amount assigned to the fair value of assets acquired and
liabilities assumed. In accordance with ASC 350, "Intangibles -
Goodwill and Other", goodwill is not amortized, but rather is
tested for impairment annually or more frequently if indicators of
impairment present. The Group assigned and assessed goodwill for
impairment at the reporting unit level. The Group determines that
each reporting unit is identified at the operating segment level.
The Company adopted ASU No. 2011-08 ("ASU 2011-08"),
Intangibles-Goodwill and Other (ASC 350), pursuant to which the
Company has the option to first assess qualitative factors to
determine whether it is necessary to perform the two-step test. The
Company would not be required to calculate the fair value of a
reporting unit unless the entity determines, based on the
qualitative assessment, that it is more likely than not that its
fair value is less than its carrying amount. The Company would
perform the two-step quantitative goodwill impairment test if it is
not more likely than not that its fair value is less than its
carrying amount. The first step of the impairment test involves
comparing the fair value of the reporting unit with its carrying
amount, including goodwill. Fair value is primarily determined by
computing the future discounted cash flows expected to be generated
by the reporting unit. If the carrying value exceeds the fair
value, goodwill may be impaired. If this occurs, the Group performs
the second step of the goodwill impairment test to determine the
amount of impairment loss. The fair value of the reporting unit is
allocated to its assets and liabilities in a manner similar to a
purchase price allocation in order to determine the implied fair
value of the reporting unit goodwill. If the carrying amount of the
goodwill is greater than its implied fair value, the excess is
charged as an impairment loss. Annual goodwill impairment test is
performed as at December 31.
Other Intangible Assets
Other intangible assets consisting of computer software,
website, acquired customer relationship and capitalized software
development costs are carried at cost less accumulated amortization
and impairment, if any.
Acquired customer relationships are related to the ability to
sell existing services to existing customers. Customer
relationships acquired from third parties have been recognized
initially at fair value at the date of acquisition using a
valuation technique based on expected income. Customer
relationships acquired from an entity under common control are
measured at their carrying amounts in the accounts of the
transferring entity at the date of transfer.
Capitalized software development costs represent capitalized
costs of producing software for sale in accordance with ASC 985-20,
"Costs of software to be sold, leased or marketed". All costs
incurred prior to establishing the technological feasibility of a
computer software product to be sold, leased, or otherwise marketed
are charged to expense when incurred. Capitalization of computer
software costs ceases when the product is available for general
release to customers and is amortized over the useful life on a
straight line basis.
Intangible assets with a finite useful life are carried at cost
less accumulated amortization. Intangible assets with a finite
useful life are generally amortized on a straight-line basis over
the useful lives of the respective assets, which are set out as
follows:
Category Estimated Useful
Life
Computer software 5 years
Website 5 years
Acquired customers relationships 5-6.25 years
Capitalized software development costs 2-5 years
Impairment of Long-Lived Assets
The Group evaluates its long-lived assets or asset group with
finite lives for impairment whenever events or changes in
circumstances (such as a significant adverse change to market
conditions that will impact the future use of the assets) indicate
that the carrying amount of a group of long-lived assets may not be
fully recoverable. When these events occur, the Group evaluates the
impairment by comparing the carrying amount of the assets to future
undiscounted cash flows expected to result from the use of the
assets and their eventual disposition. If the sum of the expected
undiscounted cash flows is less than the carrying amount of the
assets, the Group recognizes an impairment loss based on the excess
of the carrying amount of the asset group over its fair value.
Fair Value of Financial Instruments
Financial instruments of the Group primarily comprise of cash
and cash equivalents, accounts receivables, other current assets,
accounts payable and derivative financial liabilities related to
the options granted to nonemployees. The carrying values of these
financial instruments, other than derivative financial liabilities,
approximate their fair values due to their short-term maturities.
The derivative financial liabilities which were reclassified from
equity as it meets the definition of derivative upon the
performance completion were recorded at fair value as determined on
the performance completion date related to the option granted to
nonemployee and subsequently adjusted to the fair value at each
reporting date (Note 20). The Group determined the fair values of
derivative financial liabilities with the assistance of an
independent third party valuation firm.
Revenue Recognition
Revenue is derived from M2B e-commerce services and M2C
e-commerce services. Revenue for each type of service is recognized
in accordance with ASC 605-10, "Revenue Recognition: Overall" when
the following four criteria are met: (i) persuasive evidence of an
arrangement exists; (ii) the service has been rendered; (iii) the
fees are fixed or determinable; (iv) collectability is reasonably
assured.
M2B e-commerce services
The Group provides M2B e-commerce services to connect
manufacturers in China with international buyers through its online
marketplaces. M2B e-commerce services consist principally of global
manufacturer certificate ("GMC") service, listing services,
matching services, storefront services, catalog services and
exhibition services.
The GMC service is based on a proprietary evaluation process
wherein a customer is awarded a certificate to indicate that it has
successfully met the evaluation criteria. The Group engages an
external third party with expertise in quality testing and
certification to execute the evaluation procedures which typically
require less than 1 month to complete.
Listing services involve the production and maintenance of
customer product or service offering information in databases
("Customer Database") that are interfaced to the Group's online
website to enable users to search for products, services and other
information provided by the Group's customers. The listing services
typically have a term of 1 or 2 years.
Matching services utilizes the information contained in the
Customer Database to identify suppliers whose product or service
offerings matches the sourcing requests obtained from potential
buyers. Once there is a match, the Group provides a notification to
both parties with their respective contact information and/or
facilitates contact between the parties. The Group does not
guarantee any business will arise from its matching results. The
matching services typically have a term of 1 or 2 years.
Storefront services utilize the information contained in the
Customer Database to develop virtual storefronts on the Group's
online website. These storefronts enable potential buyers to obtain
information concerning the customer. The storefront services
typically have a term of 1 or 2 years.
Catalog services involve the production and distribution of
monthly or bi-monthly product/service catalog that lists the
offerings of its customers. The catalog services typically have a
term of 1 or 2 years.
Exhibition services involve displaying products and distributing
a customer's marketing material of its products or services at
trade fairs. The exhibition services typically have a term of 1 or
2 years.
The Group enters into M2B service arrangements with its
customers that contain multiple service deliverables because each
of the services in the arrangement is explicitly referred to as an
obligation of the Group, requires distinct actions by the Group and
the inclusion or exclusion of each service in the contract are
expected to cause the service consideration to vary. GMC service
was provided on a standalone basis to a significant number of its
customers and as a result,the Group recognized GMC service as a
separate deliverable in multiple element arrangements that are
entered into. The Group will continue to monitor whether standalone
value of GMC service is established such that GMC services in the
multiple arrangements may be recognized as a separate deliverable.
According to ASC 605-25, "Multiple-Element Arrangements", the total
arrangement consideration is allocated to each unit of accounting
based on its relative selling price which is determined based on
the Group's best estimate of the selling price for that deliverable
because neither vendor-specificevidence nor third-party evidence of
selling price exists. In determining its best estimate of selling
price for each deliverable, the Group considered its overall
pricing model and objectives, as well as market or competitive
conditions that may impact the price at which the Group would
transact if the deliverable were sold regularly on a standalone
basis. The Group will monitor the conditions that affect its
determination of selling price for each deliverable and will
reassess such estimates periodically.
Written contracts are signed by the Group and customer to
document the agreed terms of each M2B service arrangement. Side
arrangements or subsequent changes are not made to signed
contracts. M2B arrangements have service terms of 1 or 2 years for
all services to be performed except the GMC service which is a
provision of a certificate to the customer to indicate that such
customer has undergone an evaluation process to certify certain
criteria have been met. The Group does not monitor whether the
customer continues to meet the criteria once the GMC certificate is
issued and cannot revoke the issued GMC certificate for any reason,
including if the GMC certificate holder does not meet the criteria
subsequent to the issuance of the GMC certificate. The arrangement
fee is fixed and not subject to variable or contingent provisions
or general rights to refund. The Group performs credit assessments
on its customers prior to selling on credit to ensure
collectability is reasonably assured. In accordance with ASC
605-10, revenue is recognized for each separate unit of accounting
upon satisfying the four criteria for revenue recognition stated
above. For listing services, catalog services and exhibition
services which are separate units of accounting, revenue is
recognized ratably over the service period, generally over a term
of 1 or 2 years, assuming the other criteria for revenue
recognition have been met. For GMC service which is sold by the
Group on a standalone basis, revenue is recognized upon the
delivery of the GMC certificate for the compliance of GMC standards
or when the customer is informed of its failure to comply with the
GMC standards. For those deliverables that are combined with the
last delivered element in an arrangement, the allocated amount to
the combined unit is recognized as revenue over the service period
in which the last delivered element is performed, generally over a
term of 1 or 2 years, assuming the other criteria for revenue
recognition have been met.
M2C e-commerce services
The Group provides M2C e-commerce service to sell general
merchandise sourced from manufacturers and distributors in China
and to operate the feifei.com marketplace program, under which
third-party merchants sell general merchandise on the Company's
website.
Customers place their order for products online fixing the
related selling price and shipping charge. Payment for the
purchased product is made before delivery. Revenue, net of
discounts and return allowances, are recorded when title passes to
customers upon delivery. Return allowances, which reduce product
revenue, are estimated based on historical experience. Shipping
charges to customers are included in product revenue and totaled
US$6 and US$518 for the years ended December 31, 2013 and 2014,
respectively.
Prior to December 2014, the Company is the primary obligor of
the transactions by assuming inventory risk. Starting from December
2014, the Company only acts as an agent to earn a fixed fee by
providing the platform for trading between manufacturers and
customers. In accordance with ASC 605, "Revenue Recognition", the
Company records product sales and related costs on a gross basis as
it is the primary obligor in a transaction. When the Company is not
the primary obligor in a transaction but instead acting as an
agent, fees earned are recorded on a net basis.
Cost of Revenues
Cost of revenue for M2B e-commerce service comprises direct
costs incurred for the provision of services and an allocation of
indirect overhead costs. Cost of revenue for M2C e-commerce service
represents the purchase price of consumer products sold by the
Company when the Company is the primary obligor in a
transaction.
The Group is subject to business taxes and surcharges levied on
services provided in China. In accordance with ASC 605-45, "Revenue
Recognition - Principal Agent Considerations", all such business
taxes and surcharges are presented as cost of revenues on the
consolidated statements of comprehensive income. Business taxes,
value-added taxes and surcharges for the years ended December 31,
2013 and 2014 are approximately US$1,426 and US$1,768,
respectively.
Commission Costs
The Group's sales personnel are entitled to commission
calculated based on a percentage of total service fees earned. The
commission is paid to the sales employees after the service fees
are collected from the customers. Since the commissions incurred
are considered direct and incremental to securing service revenue
agreements, they are capitalized and deferred in accordance with
ASC 605-20-25, "Revenue - Services - Recognition". Commissions are
charged to selling and marketing expenses in proportion to the
revenue recognized. Commission expenses were approximately US$3,130
and US$1,198 for the years ended December 31, 2013 and 2014,
respectively.
Fulfillment
Fulfillment costs represent packaging material costs and those
costs incurred in outbound shipping, operating and staffing the
Group's fulfillment and customer service centers, including costs
attributable to buying, receiving, inspecting and warehousing
inventories; picking, packaging and preparing customer orders for
shipment; processing payment and related transaction costs and
responding to inquiries from customers. Fulfillment costs also
contain third party transaction fees, such as credit card
processing and debit card processing fees. Shipping cost amounted
to US$136 and US$850 for the years ended December 31, 2013 and
2014, respectively.
Advertising Expenditure
Advertising costs are expensed when incurred and are included in
"selling and marketing expenses" in the consolidated statements of
comprehensive income. Advertising expenses were approximately
US$2,379 and US2,851 $for the years ended December 31, 2013 and
2014, respectively.
Leases
Leases are classified at the inception date as either a capital
lease or an operating lease. For the lessee, a lease is a capital
lease if any of the following conditions exists: a) ownership is
transferred to the lessee by the end of the lease term, b) there is
a bargain purchase option, c) the lease term is at least 75% of the
property's estimated remaining economic life or d) the present
value of the minimum lease payments at the beginning of the lease
term is 90% or more of the fair value of the leased property to the
lessor at the inception date. A capital lease is accounted for as
if there was an acquisition of an asset and an incurrence of an
obligation at the inception of the lease. All other leases are
accounted for as operating leases. The Group leases certain office
facilities under non-cancelable operating leases. The Group had no
capital lease for any of the periods stated herein.
Income Taxes
The Group follows the liability method of accounting for income
taxes in accordance with ASC 740, "Income Taxes". Under this
method, deferred tax assets and liabilities are determined based on
the difference between the financial reporting and tax bases of
assets and liabilities using enacted tax rates that will be in
effect in the period in which the differences are expected to
reverse. The Group records a valuation allowance to offset deferred
tax assets if based on the weight of available evidence, it is
more-likely-than-not that some portion, or all, of the deferred tax
assets will not be realized. The effect on deferred taxes of a
change in tax rates is recognized in the consolidated statements of
comprehensive income in the period that includes the enactment
date.
The Group applies ASC 740 to account for uncertainties in income
taxes. Interest and penalties arising from underpayment of income
taxes shall be computed in accordance with the related PRC tax law.
The amount of interest expense is computed by applying the
applicable statutory rate of interest to the difference between the
tax position recognized and the amount previously taken or expected
to be taken in a tax return. Interest and penalties recognized in
accordance with ASC 740-10 is classified in the consolidated
statements of comprehensive income as income tax expense.
In accordance with the provisions of ASC 740-10, the Group
recognizes in its financial statements the impact of a tax position
if a tax return position or future tax position is "more likely
than not" to prevail based on the facts and technical merits of the
position. Tax positions that meet the "more likely than not"
recognition threshold are measured at the largest amount of tax
benefit that has a greater than fifty percent likelihood of being
realized upon settlement. The Group's estimated liability for
unrecognized tax benefits which is included in the "accrued
expenses and other liabilities" account is periodically assessed
for adequacy and may be affected by changing interpretations of
laws, rulings by tax authorities, changes and/or developments with
respect to tax audits, and expiration of the statute of
limitations. The outcome for a particular audit cannot be
determined with certainty prior to the conclusion of the audit and,
in some cases, appeal or litigation process. The actual benefits
ultimately realized may differ from the Group's estimates. As each
audit is concluded, adjustments, if any, are recorded in the
Group's financial statements. Additionally, in future periods,
changes in facts, circumstances, and new information may require
the Group to adjust the recognition and measurement estimates with
regard to individual tax positions. Changes in recognition and
measurement estimates are recognized in the period in which the
changes occur.
Share-based compensation
Share options granted to employees are accounted for under ASC
718, "Share-Based Payment". In accordance with ASC 718, the Company
determines whether a share option or restricted share unit ("RSU")
should be classified and accounted for as a liability award or an
equity award. All grants of share options or RSUs to employees
classified as equity awards are recognized in the financial
statements based on their grant date fair values. Compensation cost
for an award with a performance condition shall be accrued only if
it is probable that the performance condition will be achieved.
Compensation cost related to performance options that only vest on
consummation of liquidity events such as initial public offerings
and change in control events is recognized when liquidity event is
consummated. The Company recognizes compensation expenses using the
accelerated method for share options granted and the straight-line
method for RSUs granted.
ASC 718 requires forfeitures to be estimated at the time of
grant and revised, if necessary, in the subsequent period if actual
forfeitures differ from initial estimates. Forfeiture rate is
estimated based on historical and future expectation of employee
turnover rate and are adjusted to reflect future change in
circumstances and facts, if any. Share-based compensation expense
is recorded net of estimated forfeitures such that expense was
recorded only for those share-based awards that are expected to
vest. To the extent the Company revises this estimate in the
future, the share-based payments could be materially impacted in
the period of revision, as well as in following periods.
The Company records share-based compensation expense for awards
granted to non-employees in exchange for services at fair value in
accordance with the provisions of ASC 505-50, "Equity based payment
to non-employees". For the awards granted to non-employees, the
Company will record compensation expenses equal to the fair value
of the share options at the measurement date, which is determined
to be the earlier of the performance commitment date or the service
completion date. Upon the performance completion, the awards will
subject to the requirements of ASC 815 and be reclassified from
equity to liability if it meets the definition of derivative.
Accordingly, the fair value of the awards will be measured at each
reporting date with changes in fair value recognized as
compensation expenses until the awards are exercised or
expired.
The Company, with the assistance of an independent valuation
firm, determined the fair values of the share-based compensation
options recognized in the consolidated financial statements. The
binomial option pricing model is applied in determining the
estimated fair value of the options granted to employees and
non-employees.
When the vesting conditions of a share-based payment are
modified, the Company first determines whether the original vesting
conditions were expected to be satisfied on the modification date.
When a vesting condition that is probable of achievement is
modified and the new vesting condition also is probable of
achievement, the compensation cost to be recognized if either the
original vesting condition or the new vesting condition is achieved
cannot be less than the grant-date fair value of the original
award. That compensation cost is recognized if either the original
or modified vesting condition is achieved. If the modification also
increases the fair value of the award, the incremental compensation
cost associated with the modification is recognized only if the
modified vesting condition is satisfied.
Earnings per Share
Earnings per share are calculated in accordance with ASC 260,
"Earnings Per Share". Basic earnings per ordinary share is computed
by dividing income attributable to holders of ordinary shares by
the weighted average number of ordinary shares outstanding during
the period. Diluted earnings per ordinary share reflect the
potential dilution that could occur if securities to issue ordinary
shares were exercised.
Government Grants
Government grants are provided by the relevant PRC municipal
government authorities to subsidize the cost of certain research
and development projects and to encourage investments in the PRC.
The amount of such government grants are determined solely at the
discretion of the relevant government authorities and there is no
assurance that the Company will continue to receive these
government grants in the future. Government grants are recognized
when it is probable that the Company will comply with the
conditions attached to them, and the grants are received. When the
grant relates to an expense item, it is recognized in the statement
of operations over the period necessary to match the grant on a
systematic basis to the costs that it is intended to compensate, as
a reduction of the related operating expense. Where the grant
relates to an asset, the government grant received is accounted as
a deduction from the carrying amount of the related asset.
Comprehensive Income (loss)
Comprehensive income is defined as the changes in equity of the
Group during a period from transactions and other events and
circumstances excluding transactions resulting from investments by
owners and distributions to owners. Accumulated other comprehensive
income, as presented on the consolidated balance sheets, includes
the cumulative foreign currency translation adjustments.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB")
issued ASU No. 2014-09 ("ASU 2014-09"), Revenue from Contracts with
Customers, which supersedes the revenue recognition requirements in
"Revenue Recognition (Topic 605)", and requires entities to
recognize revenue when it transfers promised goods or services to
customers in an amount that reflects the consideration to which the
entity expects to be entitled to in exchange for those goods or
services. The amendments in ASU 2014-09 are effective for annual
reporting periods beginning after December 15, 2016, including
interim period within that reporting period. Early adoption is not
permitted. On April 1, 2015, the FASB decided to propose a one-year
deferral of the effective date for its new revenue standard for
public and nonpublic entities reporting under U.S. GAAP. The
Company is in the process of evaluating the effect of the update on
the Company's consolidated financial statements.
In August 2014, the Financial Accounting Standards Board
("FASB") issued ASU No. 2014-15 ("ASU 2014-15"), Disclosure of
Uncertainties about an Entity's Ability to Continue as a Going
Concern, which requires management to assess company's ability to
continue as a going concern. The amendments are effective for
reporting periods beginning after December 15, 2016, including
interim periods within that reporting period. The Company does not
expect the adoption of ASU 2014-15 will have a significant effect
on its consolidated financial statements.
3.Concentration of credit risk
Assets that potentially subject the Group to significant
concentration of credit risk primarily consist of cash and accounts
receivable. As at December 31, 2014, substantially all of the
Group's cash was deposited in financial institutions located in the
PRC, including mainland China and Hong Kong, which management
believes are of high credit quality. Accounts receivable are
typically unsecured and are derived from revenue earned from
customers in the PRC. The risk with respect to accounts receivable
is mitigated by credit evaluations the Group performs on its
customers and its ongoing monitoring of outstanding balances.
Concentration of customers
There are no revenues from customers which individually
represent greater than 10% of the total revenue for any of the
periods presented.
Current vulnerability due to certain other concentrations
The Group's operations may be adversely affected by significant
political, economic and social uncertainties in the PRC. Although
the PRC government has been pursuing economic reform policies for
more than 30 years, no assurance can be given that the PRC
government will continue to pursue such policies or that such
policies may not be significantly altered, especially in the event
of a change in leadership, social or political disruption or
unforeseen circumstances affecting the PRC's political, economic
and social conditions. There is also no guarantee that the PRC
government's pursuit of economic reforms will be consistent or
effective.
Currency convertibility risk
The Group transacts the majority of its business in RMB, which
is not freely convertible into foreign currencies. On January 1,
1994, the PRC government abolished the dual rate system and
introduced a single rate of exchange as quoted daily by the
People's Bank of China (the "PBOC"). However, the unification of
the exchange rates does not imply that the RMB may be readily
convertible into United States dollars or other foreign currencies.
All foreign exchange transactions continue to take place either
through the PBOC or other banks authorized to buy and sell foreign
currencies at the exchange rates quoted by the PBOC. Approval of
foreign currency payments by the PBOC or other institutions
requires submitting a payment application form together with
suppliers' invoices, shipping documents and signed contracts.
Additionally, the value of the RMB is subject to changes in central
government policies and international economic and political
developments affecting supply and demand in the PRC foreign
exchange trading system market.
Other business risk
Internet related businesses are subject to significant
restrictions under current PRC laws and regulations. Specifically,
foreign investors are not allowed to own more than a 50% equity
interest in any ICP business. Currently, the Group conducts its ICP
operations in China through contractual arrangements among Global
Market Guangzhou, Guangzhou Shen Long and legal shareholders of
Guangzhou Shen Long. The relevant regulatory authorities may find
the current contractual arrangements and businesses to be in
violation of any existing or future PRC laws or regulations. If so,
the relevant regulatory authorities would have broad discretion in
dealing with such violations.
Foreign currency exchange rate risk
On July 21, 2005, the PRC government changed its decade-old
policy of pegging the value of the RMB to US$. Under the new
policy, the RMB is permitted to fluctuate within a narrow and
managed band against a basket of certain foreign currencies. This
change in policy has resulted in an approximately 0.2% and 3.0%
appreciation of the RMB against the US$ in 2012, 2013,
respectively, and an approximately 0.4% depreciation of the RMB
against the US$ in 2014. On June 19, 2010, the People's Bank of
China announced the end of the RMB's de facto peg to US$, a policy
which was instituted in late 2008 in the face of the global
financial crisis, to further reform the RMB exchange rate regime
and to enhance the RMB exchange rate flexibility. On March 15,
2014, the People's Bank of China announced the widening of the
daily trading band for RMB against US$. While the international
reaction to the RMB revaluation has generally been positive, there
remains significant international pressure on the PRC government to
adopt an even more flexible currency policy, which could result in
a further and more significant volatility of the RMB against the
US$.
4.ACCOUNTS RECEIVABLE
As at As at
December December
31, 2014 31, 2013
---------- ----------
US$ US$
Accounts receivable 1,126 362
Less: Allowance for doubtful
accounts (44) -
---------- ----------
Accounts receivable, net 1,082 362
========== ==========
Movement in allowance for doubtful accounts:
2014 2013
----- -----
US$ US$
Balance at beginning of the year - -
Additional provision charged
to expenses 44 -
Write-offs - -
----- -----
Balance at end of the year 44 -
===== =====
5.PREPAYMENTS AND OTHER CURRENT ASSETS
As at As at
December December
31, 2014 31, 2013
-------------------- --------------------
US$ US$
Prepaid expenses 1,458 2,184
Deposits for office leases 304 240
Capitalized commission costs 2,062 1,507
Advance to supplier 156 99
Others 1,330 713
-------------------- --------------------
Total 5,310 4,743
==================== ====================
6.PROPERTY AND EQUIPMENT, NET
As at As at
December December
31, 2014 31, 2013
-------------------- ----------
US$ US$
Electronic and office equipment 1,797 1,614
Vehicles 210 -
Buildings 1,925 1,932
Leasehold improvement 1,620 724
Construction in progress 1,132 1,443
-------------------- ----------
Property and equipment, cost 6,684 5,713
Less: Accumulated depreciation (1,762) (1,298)
-------------------- ----------
Property and equipment, net 4,922 4,415
==================== ==========
Depreciation expenses amounted to approximately US$421 and
US$479 for years ended December 31, 2013 and 2014,
respectively.
7.GOODWILL AND OTHER INTANGIBLE ASSETS, NET
The changes in carrying amount of goodwill for the years ended
December 31, 2013 and 2014 are as follows:
US$
Balance as at December 31, 2013 6,510
Foreign currency translation adjustment (2)
------
Balance as at December 31, 2014 6,508
======
Other intangible assets consist of the following:
As at As at
December December
31, 2014 31, 2013
---------- ----------
US$ US$
Computer software 1,810 1,451
Website 637 640
Acquired customers relationships 612 613
Capitalized software development
costs 3,803 3,033
Less: Accumulated amortization (2,312) (1,329)
---------- ----------
Total 4,550 4,408
========== ==========
Amortization expense amounting to approximately US$474 and
US$972 for the years ended December 31, 2013 and 2014,
respectively, were recorded in general and administrative expenses
on the consolidated statements of comprehensive income.
Amortization expense amounting to approximately US$17 and US$15 for
the years ended December 31, 2013 and 2014, respectively, were
recorded in cost of revenues on the consolidated statements of
comprehensive income.
The estimated annual amortization expense of intangible assets
for each of the following five fiscal years are as follows:
US$
------
2015 1,060
2016 1,056
2017 1,029
2018 756
2019 235
------
Total 4,136
======
8.OTHER NON-CURRENT ASSETS
As at As at
December December
31, 2014 31, 2013
US$ US$
Deposits 96 163
Prepaid land lease payment 93 -
Loans to employees 3,667 3,500
---------- ----------
Total 3,856 3,663
========== ==========
The Group granted interest-free loans to high performing senior
managers, managers and sales representatives to purchase cars. The
loans granted to senior managers and managers would be settled when
they exercised share options, while the loans granted to sales
representatives would be repaid through monthly salary deduction
over the next 15 months. The cars purchased by the employees are
pledged to the Group as collateral for the loans.
9.ACCRUED EXPENSES AND OTHER LIABILITIES
As at As at
December December
31, 2014 31, 2013
---------- ----------
US$ US$
Salary and welfare payable 3,129 3,642
Accrued operating expenses 2,734 3,092
Professional fees 112 115
Other taxes payable 550 414
Others 75 44
---------- ----------
Total 6,600 7,307
========== ==========
10. CONTINGENTLY REDEEMABLE NONCONTROLLING INTEREST
On March 26, 2014, Guangzhou Daily Newspaper Business Co.,
Limited ("Guangzhou Daily"), a third-party, injected US$6,496
(RMB40,000) to obtain 10.53% equity interests of the Company's
subsidiary, Guangzhou Longfei (the "Contingently Redeemable
Noncontrolling Interests").
Guangzhou Daily may require the Company to redeem all of its
equity interest in Guangzhou Longfei if i) the Company and its
subsidiaries (except Guangzhou Longfei) engage in business with
competition with Guangzhou Longfei; ii) Guangzhou Longfei cannot
achieve a success IPO on the stock exchange (domestic or oversea
stock exchange) before December 31, 2021; or iii) the Group does
not transfer all the registered trademarks for M2C business to
Guangzhou Longfei as specified in the share purchase agreement.The
redemption price will equal to the initial capital injection amount
increased at the rate of ten percent (10%) per annum.
In addition, Guangzhou Daily has a call option to obtain from
the Company an additional equity interest in Guangzhou Longfei of
up to 3.75% for nil consideration if Guangzhou Longfei's revenues
were below RMB150,000 during the period from April 1, 2014 to March
31, 2015 based on a predetermined formula. Conversely, the Company
has an option to obtain Guangzhou Daily's equity interest in
Guangzhou Longfei of up to 2.2% for nil consideration if Guangzhou
Longfei's revenues exceed RMB150,000 during the period from April
1, 2014 to March 31, 2015 based on a predetermined formula.
The Contingently Redeemable Noncontrolling Interests have been
classified as mezzanine equity as they can be redeemed at the
option of the holder upon the occurrence of certain contingent
events outside the control of the Company. The redemption feature
and the contingent call or put option features embedded in the
Contingently Redeemable Noncontrolling Interests were not required
to be bifurcated because the underlying equity interests of
Guangzhou Longfei are not net settleable, publicly traded nor
readily convertible into cash.
The initial carrying value of the Contingently Redeemable
Noncontrolling Interests is the Purchase Price of US$6,496. The
Company concluded that the Contingently Redeemable Noncontrolling
Interests are not redeemable currently, but it is probable that the
Contingently Redeemable Noncontrolling Interests will become
redeemable. The Company elected to recognize changes in the
redemption value immediately as they occur and adjust the carrying
value of the Contingently Redeemable Noncontrolling Interests to
equal the redemption value at the end of each reporting period. An
accretion charge of US$1,468 was recorded as a reduction of income
available to ordinary shareholders for the year ended December 31,
2014.
The movement of carrying value of the Contingently Redeemable
Noncontrolling Interests is as follows:
US$
Balance as at January 1, 2014 -
Initial capital injection 6,496
Net loss attributable (985)
Changes in redemption value 1,468
------
Balance as at December 31, 2014 6,979
======
11. SHAREHOLDERS' EQUITY
Ordinary shares
On September 26, 2013, the Company issued 50,000 ordinary shares
of US$0.0002 each to the Company's Independent Non-Executive
Director in accordance with his letter of appointment dated June 6,
2012.
On January 28, 2014, the Company repurchased in aggregate
4,503,000 ordinary shares of the Company from NIFSMBC-V2006S1
Investment Limited Partnership and NIFSMBC-V2006S3 Investment
Limited Partnership at an average price of GBP0.291 per share.
These shares are held as treasury shares.
The Company did not pay or declare any dividends on ordinary
shares for the years ended December 31, 2013 and 2014.
Accumulated other comprehensive loss
Changes in accumulated other comprehensive loss by component,
net of tax of nil, for the years ended December 31, 2013 and 2014
are as follows:
Foreign currency
translation Total
US$ US$
Balance as at January 1, 2013 (146) (146)
Other comprehensive income 204 204
----------------- --------
Balance as at December 31,
2013 58 58
Other comprehensive income (68) (68)
----------------- --------
Balance as at December 31,
2014 (10) (10)
================= ========
12. INCOME TAXES
Cayman Islands
Under the current laws of the Cayman Islands, the Company is not
subject to tax on income or capital gains.
British Virgin Islands
Under the current laws of the British Virgin Islands, the
Company is not subject to tax on income or capital gains.
Hong Kong
For the years ended 31 December 2013 and 2014, profits tax in
Hong Kong was generally assessed at the rate of 16.5% on the
taxable income arising in or derived from Hong Kong. Upon payments
of dividends by Hong Kong companies to their shareholders, there
was no Hong Kong dividend withholding tax.
China
Effective from January 1, 2008, the PRC's statutory income tax
rate in 2013 and 2014 is 25%. The Company's PRC subsidiaries are
subject to income tax at 25% except for the following:
Suzhou Long Mei is qualified as a "Software and Integrated
Circuit Enterprise" and was granted a full exemption of income tax
for two years and a 50% reduction in income tax for the succeeding
three years ("2+3 tax holiday") starting from its first
profit-making year. Suzhou Long Mei started its 2+3 tax holidays in
2010. As a result, Suzhou Long is subject to income tax at 12.5%
from 2012 to 2014.
Guangzhou Longtian was qualified as a "Software Enterprise" and
was granted a 2+3 tax holiday starting from its first profit-making
year in 2012. As such, Guangzhou Longtian is income tax exempted
for 2012 and 2013 and is subject to income tax at 12.5% from 2014
to 2016.
Further, pursuant to the prevailing income tax law and its
relevant regulations, qualified research and development
("R&D") expenses are subject to an additional 50% super
deduction. Moreover, dividends paid by PRC tax residents to non-PRC
tax residents shareholders, for earnings derived since January 1,
2008 are subject to a 10% PRC dividend withholding tax, unless tax
treaty reliefs are available.
Corporate Income Tax
Loss before income taxes consists of:
For the years ended
December 31,
----------------------
2014 2013
---------- ----------
US$ US$
British Virgin Islands 101 (38)
Cayman Island (504) (224)
Hong Kong (21) (178)
PRC (7,003) (8,911)
---------- ----------
Total (7,427) (9,351)
========== ==========
The current and deferred components of the income tax expense
appearing in the consolidated statements of comprehensive income
are as follows:
For the years ended
December 31,
----------------------
2014 2013
---------- ----------
US$ US$
Current tax (expense) benefit (12) 3
Deferred tax expense (3) (200)
---------- ----------
Income tax expense (15) (197)
========== ==========
The reconciliation of income tax expense computed by applying
the PRC statutory income tax rate to income before income tax and
the actual income tax benefit is presented below.
For the years ended
December 31,
----------------------
2014 2013
---------- ----------
US$ US$
Income before income tax (7,427) (9,351)
Income tax expenses computed
at the PRC statutory tax rate
of 25% 1,857 2,338
Effect of different tax rates
in different jurisdictions (21) (78)
Effect of tax holidays 162 (68)
Non-deductible expenses
Share-based compensation (107) (165)
Others (290) (95)
Income not subject to tax 11 29
Effect of different tax rates 205 -
in differed tax items
Changes in valuation allowance (1,844) (2,106)
Investment basis difference in
PRC Domestic Entities (16) 4
Other 28 (56)
---------- ----------
Actual income tax benefit (15) (197)
========== ==========
The aggregate amount and per share effect of tax holidays or
preferential tax rate are as follows:
For the years ended
December 31,
----------------------
2014 2013
---------- ----------
US$ US$
The aggregate amount 162 (68)
========== ==========
The aggregate effect on basic
and diluted earnings per share:
Basic and diluted Nil Nil
========== ==========
Deferred Tax
The Group's significant components of deferred tax assets and
liabilities are as follows:
As at As at
December December
31, 2014 31, 2013
---------- ----------
US$ US$
Deferred tax assets, current
portion:
Accrued expense 1,071 702
Excessive advertising expense
deductible in the future 287 147
Bad debt provision 164 126
Less: Valuation allowance (1,522) (975)
---------- ----------
Total - -
========== ==========
Deferred tax assets, non-current
portion:
Capitalized software development
cost 12 18
Intangible assets and property
and equipment 72 62
Net operating loss 3,049 1,756
Less: Valuation allowance (3,133) (1,836)
---------- ----------
Total - -
========== ==========
Deferred tax liabilities,
non-current portion:
Customer relationships - 8
Intangible assets and property
and equipment 60 67
Investment basis in PRC Domestic
Entities 41 23
---------- ----------
Total 101 98
========== ==========
In assessing the realizability of deferred tax assets, the
Company has considered whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The
Company records a valuation allowance to reduce deferred tax assets
to a net amount that management believes is more-likely-than-not
realizable based on the weight of all available evidence.
As of December 31, 2014, the Company had net operating losses of
approximately US$12,365 from various subsidiaries, which can be
carried forward to offset future net profit for income tax
purposes. The net operating loss carryforward as at December 31,
2014 will expire in years 2015 to 2019 if not utilized.
Unrecognized Tax Benefits
For the years ended December 31, 2013 and 2014, the Company
recorded unrecognized tax benefits of approximately US$2 and US$2,
respectively, which is mainly related to non-deductible expenses.
The management does not expect the amount of unrecognized tax
benefits will change significantly in the next 12 months. US$2 if
ultimately recognized will impact the effective tax rate.
The unrecognized tax benefits are analyzed as follows:
As at December 31
--------------------
2014 2013
--------- ---------
US$ US$
Balance-beginning 2 30
Addition related to tax positions
in current year - -
Settlement for tax positions of
prior years - (27)
Foreign currency adjustment - (1)
--------- ---------
Balance-ending 2 2
========= =========
During the years ended December 31, 2013 and 2014, the Company
did not recognize any interest and penalties related to
unrecognized tax benefits. There was no accrued interest and
penalties related to unrecognized tax benefits as of December 31,
2013 and 2014.
The Company's PRC subsidiaries' tax years 2009 through 2014
remain open to examination by the PRC tax authorities and the
Company's Hong Kong subsidiary's tax years 2005 through 2013 remain
open to examination by the Hong Kong Inland Revenue Department.
13.SHARE-BASED PAYMENTS
Options granted to Consultants
(a) Granted by a shareholder
On July 11, 2008, Mr. Weijia Pan, a principal shareholder of the
Company, entered into an stock option agreement with the
consultant, Hanson Westhouse Limited ("Hanson Westhouse"), under
which, Hanson Westhouse paid Great British Pound ("GBP" or "GBP") 1
to Mr. Weijia Pan in exchange for a fully vested options to
purchase from Mr. Weijia Pan 489,845 ordinary shares with an
exercise price of US$0.6533 per share. These options are
exercisable at any time during the period of two years commencing
from the date of the completion of the Company's listing of its
ordinary shares on a stock exchange in the United States or in Hong
Kong.
As of December 31, 2014, the options granted by Mr. Weijia Pan
to Hanson Westhouse to purchase an aggregate of 489,845 shares with
exercise prices of US$0.6533 per share were still outstanding which
will expire two years after the completion of an initial public
offering in the United States or in Hong Kong. As of December 31,
2014, the aggregate intrinsic value of options granted to Hanson
Westhouse was nil.
(b) Granted by the Company
The following table summarized the consultant share options
granted by the Company for the years ended December 31, 2014:
Weighted Weighted
Average Average
per Share Remaining Aggregated
Number Exercise Contractual Intrinsic
Granted by the Company of option Price Term Value
US$ (Years) US$'000
Outstanding, January
1, 2014 226,000 2.04 8.47
==========
Granted - -
Forfeited -
Exercised -
----------
Outstanding, December
31, 2014 226,000 2.04 7.47 -
==========
Vested and expected to
vest at December 31,
2014 226,000 2.04 7.47 -
==========
Exercisable at December
31, 2014 -
==========
As of December 31, 2014, the Company has options outstanding
granted to consultants to purchase an aggregate of 226,000 shares
with exercise prices of GBP1.3 per share which will expire in 7.47
years. The aggregate intrinsic value is calculated as the
difference between the exercise price of the underlying awards and
the estimated fair value of the underlying stock at each reporting
date, for those awards that have an exercise price below the fair
value of the Company's ordinary shares. As of December 31, 2014,
the aggregate intrinsic value of options granted to consultant on
June 18, 2012 was nil. The total grant date fair value of the
options granted to consultants during the year ended December 31,
2014 was US$253.
The 140,000 stock options granted to two external consultants
were subject to the requirements of ASC 815 and was reclassified
from equity to liability as it meets the definition of derivative
on performance completion date.
Employee options
In order to attract and retain the best available personnel,
provide additional incentives to employees and directors and
promote the success of the Company's business, the Company adopted
a 2010 equity incentive plan in 2009 (the "2010 Plan"). Under the
2010 Plan, the Company may grant options to its employees and
directors to purchase an aggregate of no more than 5,000,000
ordinary shares of the Company, subject to different vesting
requirements. The 2010 Plan was approved by the Board of Directors
and shareholders of the Company on July 23, 2009.
The 2010 Plan will be administered by the Compensation Committee
as set forth in the Option Plans (the "Plan Administrator"). The
officers of the Company have been authorized and directed by the
Plan Administrator to execute Option Agreements with those persons
selected by the Plan Administrator and issue ordinary shares of the
Company upon exercise of any options so granted pursuant to the
terms of an Option Agreement. All options granted under the 2010
Plans have a term of ten years from the option grant date.
(a) Options Granted to Employees
The following table summarized the Company's employee share
option activity under the Option Plans for the years ended December
31, 2014:
Weighted Weighted
Average Average
per Share Remaining Aggregated
Number Exercise Contractual Intrinsic
Granted by the Company of option(*) Price Term Value
US$ (Years) US$'000
Outstanding, January
1, 2014 4,882,437 1.55 7.54 -
=============
Granted -
Forfeited (430,934) (1.80)
Exercised -
-------------
Outstanding, December
31, 2014* 4,451,503 1.53 6.47 -
=============
Vested and expected to
vest at December 31,
2014* 4,451,503 1.53 6.47 -
=============
Exercisable at December
31, 2014 -
=============
*Options to purchase 331,311and 318,159 shares granted to the
Group's former employees in the logistics and M2C businesses before
their disposal on September 9, 2010 were outstanding as of December
31, 2013 and 2014, respectively. Since the change in the status of
these individuals from employees to non-employees of the Group
arose from the disposal of the Group's logistics and M2C businesses
through a spin-off transaction with its shareholders, no
compensation expense will recognize in the future because these
individuals will not be performing any services for the Group
The aggregate intrinsic value is calculated as the difference
between the exercise price of the underlying awards and the
estimated fair value of the underlying stock at each reporting
date, for those awards that have an exercise price below the
estimated fair value of the Company's shares.
As of December 31, 2014, there was US$527 of unrecognized
share-based compensation cost related to options granted to
employee by the Company, which are expected to be recognized over a
weighted-average vesting period of 1.52 years. To the extent the
actual forfeiture rate is different from the Company's estimate;
actual share-based compensation related to these awards may be
different from the expectation.
(b) Founder's Options
On April 29, 2010, Mr. Weijia Pan, a principal shareholder of
the Company, entered into stock option agreements ("Option
Agreements") with selected employees (the "Grantees") to purchase
ordinary shares in the Company held by him at a fixed exercise
ranging between US$0.005 to US$0.3 per share.
On September 8, 2010, Mr. Weijia Pan entered into stock option
agreements with selected employees to purchase ordinary shares in
the Company held by him at a fixed exercise price of US$1.75 per
share.
The options granted by Mr. Weijia Pan vest upon the successful
completion of the Company's initial public offering in any
jurisdiction and continuous employment of the grantee with the
Company for a period of 3 years after the completion of the
offering. The awards were granted on April 29, 2010 and September
8, 2010, respectively, and have been accounted for as equity awards
of the Company since the options were granted by a principal
shareholder for service provided to the Company. The options are
measured at the grant date fair value and a corresponding credit
will be recorded in additional paid-in capital when vested.
The following table summarized the employee share options
granted by the principal shareholder:
Weighted
Weighted-Average Average
per Share Remaining Aggregated
Granted by Principal Number of Exercise Contractual Intrinsic
shareholder option(*) Price Term Value
US$ (Years) US$'000
Outstanding, January
1, 2014 1,969,749 0.24 6.35 545
==========
Granted -
Forfeited (50,063) (0.04)
Exercised
----------
Outstanding, December
31, 2014 * 1,919,686 0.25 5.35 1,176
==========
Vested and expected to
vest at December 31,
2014 * 1,919,686 0.25 5.35 1,176
==========
Exercisable at December
31, 2014 - - -
==========
* Options to purchase 220,500 and 220,500 shares granted to the
Group's former employees in the logistics and M2C businesses before
their disposal on September 9, 2010 were outstanding as of December
31, 2013 and 2014 respectively. Since the change in the status of
these individuals from employees to non-employees of the Group
arose from the disposal of the Group's logistics and M2C businesses
through a spin-off transaction with its shareholders, no
compensation expense will recognize in the future because these
individuals will not be performing any services for the Group.
The aggregate intrinsic value is calculated as the difference
between the exercise price of the underlying awards and the
estimated fair value of the underlying stock at each reporting
date, for those awards that have an exercise price below the
estimated fair value of the Company's shares.
As of December 31, 2014, there was US$105 of unrecognized
share-based compensation cost related to options granted to
employee by the Founder, which are expected to be recognized over a
weighted-average vesting period of 1.20 years. To the extent the
actual forfeiture rate is different from the Company's estimate;
actual share-based compensation related to these awards may be
different from the expectation.
(c) Modification of employee options
On June 22, 2014, the Company modified the vesting date of
2,306,132 options and 1,732,296 options granted to employees from
June 22, 2014 and July 22, 2014 to June 22, 2015, respectively.
Since the vesting condition was probable of achievement both before
and after the modification,the modification of the vesting
condition attached to the options was treated as a Type of
probable-to-probable modification in accordance with ASC 718 on
June 22, 2014. The incremental compensation cost of US$11
associated with the modification was recognized for the year ended
December 31, 2014.
(d) Restricted share units
Pursuant to letter of appointment of independent non-executive
director, the Company issued to an independent director 15,385
fully vested RSUs at nil subscription price on the Admission. In
addition, on the first anniversary of the Company's admission to
trading on the AIM Market of the London Stock Exchange in June
2012(the "Admission"), the Company will grant a number of fully
vested RSUs with an aggregate fair value equivalent to GBP20,000
calculated based on the closing price per share on the last trading
day before June 22, 2013, provided his appointment as an
independent director of the Company has not been terminated or
expired at the time of grant. On September 26, 2013, the Company
issued 50,000 vested RSUs with par value US$0.0002 each to the
independent director.
The RSUs are classified as liability awards which are measured
based on the settlement date fair value. As of December 31, 2014,
the RSUs granted to employee by the Company are all vested.
(e).Compensation cost
Total compensation cost relating to options and RUSs granted to
employees and directors recognized for the years ended December 31,
2013 and 2014 are as follows:
The years ended
December 31,
------------------
2014 2013
-------- --------
US$ US$
Cost of revenues 19 42
Selling and marketing expenses 265 329
General and administrative expenses 195 390
-------- --------
Total 479 761
======== ========
14.RELATED PARTY TRANSACTIONS
(a)Related parties
Name of related parties Relationship with the Group
Global Market Logistics Co., Ltd. Entity control by the controlling shareholder
(b)The Group had the following related party transaction for the
years presented:
The years ended
December 31,
------------------
2014 2013
-------- --------
US$ US$
Acquisition of the logistic assets
from:
Global Market Logistics Co., Ltd. 562 -
======== ========
On October 15, 2014, the Group entered into an asset transfer
agreement with Global Market Logistic Co., Ltd. to purchase its
logistic customer relationships at a cash consideration of US$562.
As the carrying amount of the logistic customer relationship was
nil in the book of Global Market Logistic Co., Ltd., the difference
between the consideration and the carrying amount of US$562 was
accounted for as a deemed distribution to the controlling
shareholder.
15. BOARD REMUNERATION
During the years ended December 31, 2013 and 2014, the Company's
Board of Directors earned remuneration for their activities as
directors. In addition, Mr. Weijia Pan's remuneration reflects his
role as Chief Executive Officer of the Company. Amounts are as
follows:
2014 2013
US$ US$
Mr. Weijia Pan 76 65
Mr. Weiquan Hu 76 83
Mr. Wing Keong Siew 20 20
Mr. Ching Wang 2 -
Mr. Gareth Richard Bullock 33 31
----- -----
207 199
===== =====
At December 31, 2014 the following options granted under 2010
Plan were outstanding:
As of Granted Exercised As of
Exercise January during during December
price 1, 2014 the year the year 31, 2014
Mr. Weiquan Hu US$0.65 60,000 - - 60,000
US$0.3 86,250 - - 86,250
US$0.0075 86,250 - - 86,250
US$1.75 190,000 - - 190,000
GBP1.3 80,000 - - 80,000
-------- --------- --------- ---------
502,500 - - 502,500
======== ========= ========= =========
Mr. Wing Keong Siew US$1.75 60,000 - - 60,000
US$1.75 60,000 - - 60,000
-------- --------- --------- ---------
120,000 - - 120,000
======== ========= ========= =========
Mr. Gareth Richard Bullock GBP1.3 50,000 - - 50,000
16. EMPLOYEE DEFINED CONTRIBUTION PLAN
Full time employees of the Group in PRC participate in a
government mandated defined contribution plan, pursuant to which
certain pension benefits, medical care, employee housing fund and
other welfare benefits are provided to employees. Chinese labor
regulations require that the PRC subsidiaries of the Group make
contributions to the government for these benefits based on certain
percentages of the employees' salaries. The Group has no legal
obligation for the benefits beyond the contributions made. Such
employee benefits, which were expensed as incurred, amounted to
approximately US$1,871 and US$1,505 for the years ended December
31, 2013 and 2014, respectively.
Obligations for contributions to defined contribution retirement
plans for full-time employees in Hong Kong, including contributions
payable under the Hong Kong Mandatory Provident Fund Schemes
Ordinance, are recognized as expenses in the statements of
operations as incurred. Such employee benefits amounted to
approximately US$148 and US$92 for the years ended December 31,
2013 and 2014, respectively.
17. COMMITMENTS AND CONTINGENCIES
(a)Operating lease commitments
Future minimum payments under non-cancelable operating leases
with initial terms in excess of one year consist of the following
at December 31, 2014:
US$
2015 839
2016 282
2017 228
2018 192
2019 and thereafter 831
------
2,372
======
Payments under operating leases are expensed on a straight-line
basis over the periods of their respective leases. The Company's
lease arrangements have no renewal options, rent escalation
clauses, restrictions or contingent rents and are all conducted
with third parties. For the years ended December 31, 2013 and 2014,
rental expenses for all operating leases amounted to approximately
US$1,715 and US$1,845, respectively.
(b)Variable interest entity structure
In the opinion of management, (i) the ownership structure of the
Company and its VIE is in compliance with existing PRC laws and
regulations; (ii) the contractual arrangements with the VIE and its
shareholder are valid and binding, and will not result in any
violation of PRC laws or regulations currently in effect; and (iii)
the Group's business operations are in compliance with existing PRC
laws and regulations in all material respects.
However, there are substantial uncertainties regarding the
interpretation and application of current and future PRC laws and
regulations. Accordingly, the Company cannot be assured that PRC
regulatory authorities will not ultimately take a contrary view to
its opinion. If the current ownership structure of the Group and
its contractual arrangements with VIEs are found to be in violation
of any existing or future PRC laws and regulations, the Group may
be required to restructure its ownership structure and operations
in the PRC to comply with the changing and new PRC laws and
regulations. In the opinion of management, the likelihood of loss
in respect of the Group's current ownership structure or the
contractual arrangements with VIEs is remote based on current facts
and circumstances.
(c)Income taxes
As of December 31, 2014, the Group has recognized approximately
US$2 accrual for unrecognized tax benefits (note 12). The final
outcome of the tax uncertainty is dependent upon various matters
including tax examinations, interpretation of tax laws or
expiration of statutes of limitation. However, due to the
uncertainties associated with the status of examinations, including
the protocols of finalizing audits by the relevant tax authorities,
there is a high degree of uncertainty regarding the future cash
outflows associated with these tax uncertainties.
18. SEGMENT REPORTING
In accordance with ASC 280-10 "Segment Reporting: Overall", the
Group's chief operating decision maker ("CODM") has been identified
as the Chief Executive Officer, who reviews consolidated results of
the Group when making decisions about allocating resources and
assessing performance of the Group. The chief operating decision
maker uses net income (loss) to evaluate the performance of each
reportable segment. Accordingly, for the years ended December 31,
2013 and 2014, the Group operated and managed its business as M2B
e-commerce segment and M2C e-commerce segment.
Business disclosures:
As for the years ended December 31, 2013 and 2014, the Group
consisted of two segments, namely M2B e-commerce segment and M2C
e-commerce segment.
The accounting policies used in its segment reporting are the
same as those used in the preparation of the Group's consolidated
financial statements. The Company does not allocate any assets to
its M2B e-commerce segment and M2C China e-commerce services
segment as management does not use this information to measure the
performance of the reportable segments.
The Group's segment information as of and for year ended
December 31, 2013 is as follows:
M2B M2C China Unallocated Total
--------- ---------- ------------ ---------
US$ US$ US$ US$
Revenues 24,916 793 - 25,709
Cost of revenues (3,329) (601) - (3,930)
Fulfillment - (931) - (931)
Selling and marketing
expenses (20,509) (2,384) - (22,893)
General and administrative
expenses (6,314) (1,082) (363) (7,759)
Other income 21 - - 21
Foreign exchange loss
(gain) 59 - 5 64
Changes in fair value
of derivative financial
liabilities 65 - - 65
Interest income 302 1 - 303
Income tax expense (197) - - (197)
Net loss (4,986) (4,204) (358) (9,548)
Total assets 36,919 4,803 86 41,808
Total liabilities 22,278 1,435 138 23,851
Capital expenditure 5,876 1,148 - 7,024
Depreciation and amortization
expense 823 89 - 920
The Group's segment information as of and for year ended
December 31, 2014 is as follows:
M2B M2C China Unallocated Total
---------- ---------- ------------ ----------
US$ US$ US$ US$
Revenues 26,008 3,263 - 29,271
Cost of revenues (3,382) (3,343) - (6,725)
Fulfillment - (3,235) - (3,235)
Selling and marketing
expenses (12,597) (3,381) - (15,978)
General and administrative
expenses (7,677) (3,105) (370) (11,152)
Other income 35 - - 35
Foreign exchange loss
(gain) (109) 54 114 59
Changes in fair value
of derivative financial
liabilities 13 - - 13
Interest income 199 86 - 285
Income tax expense (15) - - (15)
Net income (loss) 2,475 (9,661) (256) (7,442)
Total assets 28,990 8,455 99 37,544
Total liabilities 21,348 1,383 136 22,867
Capital expenditure 1,846 472 - 2,318
Depreciation and amortization
expense 1,164 302 - 1,466
Geographic disclosures:
The Group primarily generates its M2B and M2C revenues from
customers in Mainland China and Hong Kong in the PRC. All of the
Group's long-lived assets are located in Mainland China and Hong
Kong. Revenues from customers based on their geographical location
for the year ended December 31, 2013 and 2014 are as follows:
For the years ended
December 31,
--------------------------------
2014 2013
--------------- ---------------
US$ US$
Mainland China 24,877 20,605
Hong Kong 4,394 5,104
--------------- ---------------
Total 29,271 25,709
=============== ===============
19. EARNINGS PER SHARE
Basic and diluted earnings per share for each of the periods
presented are calculated as follows:
For the years ended
December 31,
--------------------------------
2014 2013
--------------- ---------------
US$ US$
(Amounts in thousands except
for the number of shares
and per share data)
Net loss attributable to ordinary
shareholders used in calculating
net income per ordinary share
- basic and diluted (7,925) (9,548)
=============== ===============
Denominator:
Weighted average number of ordinary
shares outstanding used in calculating
basic earnings per share: 93,667,371 97,801,236
Dilutive option - -
Weighted average number of ordinary
shares outstanding used in calculating
diluted earnings per share: 93,667,371 97,801,236
Basic and diluted earnings per
share:
Basic earnings per share (0.09) (0.10)
=============== ===============
Diluted earnings per share (0.09) (0.10)
=============== ===============
For the years ended December 31, 2013 and 2014, the share
options granted by the Company are excluded from the computation of
diluted earnings per share as their effects would have been
anti-dilutive.
20.FAIR VALUE MEASUREMENT
The Group applies ASC 820 "Fair Value Measurements and
Disclosures" in measuring fair value. ASC 820-10 defines fair
value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements.
ASC 820-10 establishes a three-tier fair value hierarchy, which
prioritizes the inputs used in measuring fair value as follows:
Level 1 - Observable inputs that reflect quoted prices
(unadjusted) for identical assets or liabilities in active
markets.
Level 2 - Include other inputs that are directly or indirectly
observable in the marketplace.
Level 3 - Unobservable inputs which are supported by little or
no market activity.
ASC 820-10 describes three main approaches to measuring the fair
value of assets and liabilities:
(1) market approach; (2) income approach and (3) cost approach.
The market approach uses prices and other relevant information
generated from market transactions involving identical or
comparable assets or liabilities. The income approach uses
valuation techniques to convert future amounts to a single present
value amount. The measurement is based on the value indicated by
current market expectations about those future amounts. The cost
approach is based on the amount that would currently be required to
replace an asset.
In accordance with ASC 820-10, the Group measures the fair value
of the derivative financial liabilities using a market approach
uses prices and other relevant information generated from market
transactions involving identical or comparable assets or
liabilities. As of December 31, 2013 and 2014, the Group, with the
assistance of an independent valuation firms estimated the fair
value of the share-based compensation liability using the binomial
option pricing model with the following assumptions:
December December
31, 2013 31, 2014
---------- ----------
Expected share option life 8.47 7.47
Estimated forfeiture rate - -
Fair value of ordinary shares 0.52 0.86
Suboptimal exercise factor 2 2
Risk-free interest rates 2.62% 1.48%
Expected volatility 55.70% 52.40%
Expected dividend yield - -
The volatility assumption was estimated based on the price
volatility of ordinary shares of comparable companies. The
suboptimal exercise factor was estimated based on the vesting and
contractual terms of the awards and management's expectation of
exercise behavior of the grantees. The risk free rate was based on
the US Treasury Bonds and other market information at the
measurement dates.
Liabilities measured at fair value on a recurring basis as of
December 31, 2013 are summarized below:
Quoted Prices
in Active
Markets for Significant
Identical Other Observable Unobservable
Assets (Level Inputs (Level Inputs (Level
1) 2) 3)
US$ US$ US$
Share-based compensation
liability - - 20
============== ================= ==============
Liabilities measured at fair value on a recurring basis as of
December 31, 2014 are summarized below:
Quoted Prices
in Active
Markets for Significant
Identical Other Observable Unobservable
Assets (Level Inputs (Level Inputs (Level
1) 2) 3)
US$ US$ US$
Share-based compensation
liability - - 7
============== ================= ==============
The following table presents a reconciliation of share-based
compensation liability measured at fair value on a recurring basis
using significant unobservable inputs for the year ended December
31, 2014:
Share-based
compensation
liability
--------------
US$
Balance as of December 31, 2013 20
Addition -
Realized gains (13)
--------------
Balance as of December 31, 2014 7
==============
Realized gains of US$13 for the year ended December 31, 2014
were recorded in "changes in fair value of derivative financial
liabilities" in the consolidated statements of comprehensive
income.
No assets and liabilities were measured at fair value on a
non-recurring basis as of December 31, 2013 and 2014.
21. SUBSEQUENT EVENT
In accordance with ASC topic 855 ("ASC 855"), Subsequent Events,
the Group evaluated subsequent events through June 1, 2015, which
was the date that the consolidated financial statements were
issued. There were no significant subsequent events occurred
between January 1, 2015 and June 1, 2015.
The following information does not form part of the Company's
audited financial statements.
NON-GAAP FINANCIAL DATA
The Company defines adjusted financial data, a non-GAAP
financial measure, as financial data excluding write-off of aborted
U.S. initial public offering expenses, share-based compensation
expenses and changes in fair value of derivative financial
liabilities. The Company reviews adjusted financial data together
with financial data to obtain a better understanding of the
operating performance. The Company presents this non-GAAP financial
measure to provide useful information to investors and other
interested persons because by having access to such information
they will have the same data which the Company uses to assess the
operating performance, and because such information allows them to
understand and evaluate the consolidated results of operations in
the same manner as the management and to make period over period
comparison of the financial results. However, the use of adjusted
net income has material limitations as an analytical tool. One of
the limitations of using non-GAAP adjusted net income is that it
does not include all items that impact the net income for the
period. In addition, because adjusted net income may not be
calculated in the same manner by all companies, it may not be
comparable to other similar titled measures used by other
companies. In light of the foregoing limitations, you should not
consider adjusted net income in isolation from or as an alternative
to net income prepared in accordance with U.S. GAAP. The Company
encourages investors and other interested persons to review our
financial information in its entirety and not rely on a single
financial measure.
(a).Non-GAAP Operating income and Non-GAAP Net income
Year ended
December 31
----------------------------------------
2014 2013
------------------ ------------------
US$ US$
Operating loss (7,819) (9,804)
Add back:
Share-based compensation expenses 479 761
Non-GAAP operating loss (7,340) (9,043)
================== ==================
Net loss (7,442) (9,548)
Add back:
Share-based compensation expenses 479 761
Changes in fair value of derivative
financial liabilities (13) (65)
Non-GAAP net loss (6,976) (8,852)
================== ==================
(b) Non-GAAP basic and diluted earnings per share
Year ended
December 31
--------------------------------------------
2014 2013
--------------------- ---------------------
US$ US$
Non-GAAP net loss (6,976) (8,852)
Non-GAAP undistributed earnings (6,976) (8,852)
Non-GAAP net loss attributable
to ordinary shareholders used in
calculating net income per ordinary
share - basic and diluted (6,976) (8,852)
===================== =====================
Weighted average number of ordinary
shares in computing:
Earnings per share - basic 93,667,371 97,801,236
Earnings per share - diluted 93,667,371 97,801,236
Non-GAAP Earnings per share:
Non-GAAP Earnings per share - basic (0.07) (0.09)
===================== =====================
Non-GAAP Earnings per share - diluted (0.07) (0.09)
===================== =====================
TOTAL SHARE-BASED COMPENSATION EXPENSES
Total share-based compensation expensesrelating to options and
RUSs granted to employees, directors and external consultant
recognized for the years ended December 31, 2014 and 2013 are as
follows:
The years ended
December 31,
------------------
2014 2013
-------- --------
US$ US$
Cost of revenues 19 42
Selling and marketing expenses 265 329
General and administrative
expenses 195 390
-------- --------
Total 479 761
======== ========
Global Market Group Limited ("the Company") recognizes
share-based compensation cost ratably for each vesting tranche from
the service inception date to the end of the requisite service
period. However, as the share options granted by the Company and
Mr. Weijia (David Ling) Pan are subject to a performance vesting
condition of the Company's initial public offering, no compensation
cost has been recognized until after the completion of the
admission of the Company's shares to the AIM Market ("Admission")
in June 2012
This information is provided by RNS
The company news service from the London Stock Exchange
END
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