GLOBAL MARKET GROUP LTD 
By 19September 2013
Global Market Group Limited
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
Global Market Group Limited ("Global Market", "the Company" or "GMC") (AIM: GMC), a leading business-to-business ("B2B") e-commerce service provider dedicated to connecting manufacturers in China with buyers all over the world, announces its unaudited interim results for the six months ended 30 June 2013.
Financial and operational highlights
l Group Revenue: | US$13.0 million (-36.0%) |
l Gross Margin | 85.4% (-3.3%) |
l Non-GAAP Net Loss: | US$5.3 million (-198.5%) |
l Non-GAAP Diluted Loss per Share: | US$cents5.4 (-212.5%) |
l Paying Subscribers as at 30 June 2013: | 6,078 |
l Package Services Customers in the past 12 months ended 30 June 2013: | 3,304 |
l Registered Buyers as at 30 June 2013: | 1,069,620 |
Commenting on the results, Mr David Ling, Chairman and Chief Executive Officer, said:
"The trading weakness of the past six months represents a severe disappointment, but the Board remains optimistic that its previously announced sales and marketing efforts, now underpinned by the new strategic initiatives currently underway, have positioned the Company well to rebuild sales and profitability into the future. Although continued investment in the Free GMC Scheme and M2C China initiative will have a short-term impact on the financial performance of the Company, the Directors are confident it will also drive a long-term step-increase in revenues, profitability and sustainable growth."
A copy of the unaudited interim financial statement is available on the Company's website: www.globalmarket.com.
For further information, please visit www.globalmarket.com or contact:
Global Market Group Limited David Ling, Chairman and CEO Weiquan (Cheandy) Hu, CFO | Tel: +86 (20) 8600 2299 |
Grant Thornton UK LLP Philip Secrett/ Maureen Tai/ Melanie Frean | Tel: +44 (0)20 7383 5100 |
Westhouse Securities Limited Richard Baty/ Paul Gillam | Tel:+44 (0)20 7601 6100 |
Chairman's statement
The Company announced in a market update on 4 September 2013 that continued uncertainty over levels of growth in China's manufacturing export sector took a heavy toll on its financial results for the six months to the end of June 2013. Adjustments to the Company's marketing strategy mentioned in previous announcements resulted in a slowdown in the rate of capture of new customers, further impacted by misplaced customer expectations over the Free GMC Scheme. This combination of factors meant that revenue for the period fell to US$13.0 million (HY2012: US$20.3 million).As the Company also continued to spend on previously-announced strategic initiatives intended to counter the economic uncertainties, the combined effect of lower revenue and increased investment resulted in a first half Non-GAAP loss of US$5.3 million, which includes investment of approximately US$4 million in new initiatives. The Company nonetheless remains confident that with the implementation of the strategic reshaping, the Company believes it is now better positioned to deliver stronger performance in the second half of 2013.
The full extent of this setback had not been entirely foreseen, and it mirrored similar unexpected revenue declines experienced during the half year by other major service providers in China's B2B e-commerce sector. Aware of the prevailing economic uncertainties, the Board was nonetheless already well underway with previously-announced marketing initiatives that have gathered pace during the year and believes that the Company is now better positioned to deliver stronger performance as these initiatives come to fruition during the second half of this year and beyond.
There are already some signs that the adjusted strategy is delivering anticipated results. Whilstthe increase in the number of "signed up" customers showed a slowdown from previous levels, Average Revenue Per User ("ARPU") on new contracts increased significantly from around RMB45,000 in 2012 to around RMB52,000 in the first quarter of 2013 and around RMB54,000 in the second quarter of 2013. The increase in ARPU was achieved primarily through an improvement in the Group's product suite that has enhanced the offer of value added services above the basic package.
The Company has previously announced that ARPU would become an important indicator, and in light of this strategy, maintains its expectation of a steady return to healthy trading results. The structure of the GMC subscription model for paying users of www.globalmarket.com, with the option to choose between purchasing Basic Listing Services, Basic Package Services, or Upgraded Package Services, provides scope for the Company to capture new subscribers and then move them to upgraded higher-value services as they come to realise the wider benefits available. This approach is now additionally underpinned by the Free GMC Scheme first announced last November which aims to offer an extremely basic complimentary presence on the Global Market B2B web-portal, www.globalmarket.com with the opportunity to convert those users to paid subscriptions in the future.
As of 30 June 2013, the Company had a record 6,078 paying subscribers in its customer base, including 3,304 package service customers who joined or renewed in the past 12 months. Unfortunately, the rate of new captures failed to match earlier levels, leading to a drop in revenues for the period. To address that challenge, the Company's Free GMC Scheme, announced last November, is now well under way. The objective of this strategic initiative, backed by significant investment in sales, marketing and dedicated staffing, is to bring additional high-quality Chinese manufacturers on to thewww.globalmarket.comB2B platform initially on a complimentary basis offering only very basic services, and then to upgrade them to subscriptions on one of the paid platforms. The Company's target, stated in previous announcements, is to have vetted 30,000 high-quality Chinese manufacturers by the end of 2013, and as of 31 August 2013 that number had risen to 21,000. Meanwhile, www.globalmarket.comnow has more than one million users from the international buying community, where there remains huge untapped growth potential. Although growth has slowed from earlier levels, Chinese exports rose to almost US$191 billion during August 2013, and Global Market continues to address this huge opportunity not only with an extensive presence at international trade shows and marketing events, but also through the continuing upgrade of online efficiencies - detailed below - that are bringing steady increases in both the number and quality of buyer enquiries.
Operational review
As at the end of June 2013, Global Market had built its customer base to just over 6,000 paid-up subscribers for the tiered-range of online offerings available through www.globalmarket.com. While this represents a relatively small increase above the 5,408 subscribers paying at the end of 2012, the number includes a proportion of customers paying an increased annual fee of RMB79,800 (approx. US$12,932) for "Upgraded Package Services" that offer enhancements not available to subscribers paying RMB39,800 (approx. US$6,441) for the Basic Package. While the option of the Basic Package is being kept available by the Company, the main focus for the GMC sales team is now firmly on attracting more customers to Upgraded Package Services, with higher ARPU.Against the backdrop of continued economic uncertainty, there was during the half year an inevitable movement by customers between the packages on offer. It is well documented that Chinese manufacturers have suffered from both falling demand and rising costs and one impact of this has been a suspension of marketing spend by some of our target clients. At the same time, as an indication of progress towards longer term growth, thenumber of products offered on www.globalmarket.com by high-quality Chinese manufacturers had risen 285% over the January 2013 level by the end of August 2013.
Key features of the Company's strategic marketing initiatives during the Period can be summarized as follows:
Free GMC Scheme
The Free GMC Scheme focuses on the product verticals of household products, textiles, furniture, consumer electronics, and machinery. Recruitment of customers into the Free GMC Scheme will primarily be driven through the development of close relationships with international trade organisations, and through an extensive presence at global exhibitions and international trade fairs. One early issue raised by the introduction of the scheme has been that some customers in industry sectors that are not included have been holding back in the expectation they may eventually be allowed access to the scheme. The Company's sales team has been working hard to correct this misplaced expectation where necessary.
The Company has budgeted to invest approximately US$5.5 million in the Free GMC Scheme over the course of 2013, of which US$3 million was committed during the first half of 2013. Most of that investment is attributable to marketing costs and staff expenses. The Company is now positioned to begin exploiting the potential for customer conversions from the Free GMC Scheme to paid membership over the remainder of 2013, with a planned acceleration of that drive during 2014 and hopeful realisation of revenue benefits from 2015.
As at 31 August 2013, the Company had vetted 21,000 manufacturers for admission to the Free GMC Scheme. The Directors are confident the Company remains on course to achieve a manufacturer base of over 30,000 vetted high quality Chinese manufacturers by the end of this calendar year, in line with previously announced objectives. The Company believes that achieving this target will move it significantly towards its longer-term aim of acquiring "mega-data mega-market" status, with numbers of online manufacturers and sophisticated online efficiencies marrying to attract ever-growing international buying interest. As described below, the Company is already seeing significant increases in both online traffic volumes and unique visitor numbers.
M2C China
M2C China is being established to provide Chinese consumers with a direct ordering channel to its existing GMC export manufacturing subscribers through a new web portal www.feifei.com. It is anticipated that the initiative will also provide an additional marketing tool to attract potential new customers not only from China's manufacturing sector but also from among leading internationalbrands. With those objectives in mind, the Company sees its investment in M2C China as a way to generate a new revenue stream and accelerate long-term organic growth as a natural extension of its core business activities, using its existing customer relationships to tap into China's rapidly-growing consumer demand base.
The Company's increased investment during the six months to June 2013 funded initial testing of the planned M2C China service first announced in February 2013. Investment during the first half supported new systems development, staff salaries, and marketing expenses for initial testing for the scheme. GMC is now positioned for a soft launch during early October 2013, focused on home products offered todomestic consumers and intends to build more widely from there through an online marketing programme over the following year.
Financial review
Revenue for the six months ended 30 June 2013 declined by 36% to US$13.0 million (H1 2012: US$20.3 million). The fall primarily mirrored similar declines experienced during the half year by other major service providers in China's B2B e-commerce sector as a result of continuing uncertainty over levels of manufacturing export growth. The results also reflect first-half investment and focus by the Company in the previously-announced strategic initiatives mentioned above and intended to counter those economic uncertainties by developing a stronger platform to deliver stepped growth and to establish a dominant market position. With the implementation of the strategic reshaping, the Company believes it is now better positioned to deliver stronger performance in the second half of 2013.
Sales and marketing expenses related to the B2B e-commerce sector increased by 15.90% to US$11.82 million (H1 2012: US$10.20 million), including heavy early investment in the creation of anticipated future revenues. Recruitment to develop the Free GMC Scheme sales and marketing team increased salary expenses by 5.60%, while marketing and promotional activities for the scheme also pushed up sales and marketing expenses by 10.30%. With the progress of the Free GMC Scheme and with the increased number of potential paid customers, the sales and marketing expenses are expected to decrease in the future.
Investment in sales and marketing for the M2C China initiative amounted to US$0.74 million (H1 2012; Nil) and added 7.24% to sales and marketing costs.
General and administrative expenses related to the B2B e-commerce sector increased by 43.68% to US$3.45 million during the half year (H1 2012: US$2.40 million), reflecting the settlement of professional fees related to the Group's admission to trading on AIM, ongoing AIM related expenses (which accounted for nearly 10% of the increase), and directors' compensation. Additionally, with the aim of improving the web-speed of www.globalmarket.comand gradually launching an Office Assistance System to improve work efficiency, investment in website speed-up and optimisation increased by about 30%, general and administrative expenses for the M2C initiative amounted to US$0.3 million (H1 2012: Nil) representing 12.6% of the increase in investment spending.
Non-GAAP net loss was US$5.3 million, after accounting for an investment of around US$4 million in the Free GMC Scheme and M2C China initiatives.
Cash reserves as at 30 June 2013 amounted to US$16.2 million (31 December 2012: US$22.5 million), after taking account of a US$1.8 million investment in the Company's new East China headquarters at Suzhou, in Jiangsu Province close to Shanghai. Taking into account revenues anticipated for the second half of 2013, cash flow for B2B operations including the Free GMC Scheme is expected to be positive for the six months to 31 December 2013. Planned spending on the Free GMC and M2C China initiative during the half year is around US$6.5 million.
Outlook
The trading weakness of the past six months represents a severe disappointment, but the Board remains optimistic that its previous sales and marketing efforts, now underpinned by the new strategic initiatives currently underway, have positioned the Company well to rebuild sales and profitability into the future. A key objective, enhanced by the Company's drive to increase ARPU, remains the targeted achievement of "mega-data mega-market" status which will create critical mass and lead to further long-term gains. Behind the disappointments of these interim results, the Company has continued to work with commitment and clear focus, backed by increased investment. Alongside the Free GMC and M2C initiatives and the sales and marketing drives, which both had a short term impact on the bottom line, the Company has also invested heavily to improve online efficiencies and services, and Search Engine Optimisation upgrades. Visible effects are already seen in the increase by 67% in unique visitor numbers and traffic increases of 232%, demonstrating an encouraging increase in activity between manufacturers and buyers. The Company views these achievements as important steps towards the future capture of paying customers, and looks forward to meeting its target of vetting 30,000 manufactures from the Chinese high-quality manufacturing community by the end of this year. Although continued investment in the Free GMC Scheme and M2C China initiative will have a short-term impact on the financial performance of the Company, the Directors are confident it will also drive a long-term step-increase in revenues, profitability and sustainable growth.
David Ling
Chairman and CEO
19 September 2013
GLOBAL MARKET GROUP LIMITED CONSOLIDATED BALANCE SHEETS | |||||||
(Amounts in thousands of U.S. Dollars ("US$") except for number of shares and per share data) | |||||||
As of | As of | As of | |||||
June 30, | June30, | December31, | |||||
2013 | 2012 | 2012 | |||||
US$ | US$ | US$ | |||||
Notes | (Unaudited) | (Unaudited) | (Audited) | ||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | 16,213 | 23,656 | 22,480 | ||||
Inventories | 176 | - | - | ||||
Accounts receivable | 3 | 1,073 | 2,944 | 1,828 | |||
Prepayments and other current assets | 4 | 3,140 | 2,929 | 4,516 | |||
Deferred tax assets, current | 184 | 70 | 181 | ||||
Total current assets | 20,786 | 29,599 | 29,005 | ||||
Non-current assets: | |||||||
Property and equipment, net | 5 | 3,240 | 651 | 1,027 | |||
Goodwill | 6 | 6,508 | 6,506 | 6,512 | |||
Other intangible assets, net | 6 | 3,060 | 883 | 1,692 | |||
Deferred tax assets, non-current | 62 | - | 31 | ||||
Deposit for land use right | - | 791 | 794 | ||||
Other non-current assets | 7 | 3,951 | 2,509 | 2,775 | |||
Total non-current assets | 16,821 | 11,340 | 12,831 | ||||
TOTAL ASSETS | 37,607 | 40,939 | 41,836 | ||||
As of | As of | As of | |||||
June30, | June 30, | December 31, | |||||
2013 | 2012 | 2012 | |||||
US$ | US$ | US$ | |||||
Notes | (Unaudited) | (Unaudited) | (Audited) | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | 13 | - | - | ||||
Deferred revenue | 10,480 | 9,295 | 10,487 | ||||
Accrued expenses and other liabilities | 8 | 5,716 | 4,077 | 4,683 | |||
Income tax payable | 3 | 92 | 3 | ||||
Total current liabilities | 16,212 | 13,464 | 15,173 | ||||
Non-current liabilities: | |||||||
Deferred tax liabilities, non-current | 113 | 129 | 112 | ||||
Unrecognized tax benefits | 2 | - | 30 | ||||
Total non-current liabilities | 115 | 129 | 142 | ||||
Total liabilities | 16,327 | 13,593 | 15,315 | ||||
Shareholders' Equity: | |||||||
Ordinary shares (par value of US$0.0002 per share; 250,000,000 shares authorized as of 2012 and the first haft year of 2013; 97,774,935 shares issued and outstanding as at2012 and the first haft year of 2013.) | 9 | 20 | 20 | 20 | |||
Additional paid-in capital | 44,320 | 43,511 | 43,813 | ||||
Accumulated deficit | (22,909) | (16,020) | (17,166) | ||||
Accumulated other comprehensive loss | 9 | (151) | (165) | (146) | |||
Total shareholders' equity (deficiency) | 21,280 | 27,346 | 25,521 | ||||
Totalliabilities, contingently redeemable convertible preferred shares and shareholders' equity | 37,607 | 40,939 | 41,836 | ||||
The accompanying notes are an integral part of the consolidated financial statements. | |||||||
GLOBAL MARKET GROUP LIMITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME | |||||||
(Amounts in thousands of U.S. Dollars ("US$") except for number of shares and per share data) | |||||||
Six months ended | Year ended | ||||||
June30 | December31 | ||||||
2013 | 2012 | 2012 | |||||
US$ | US$ | US$ | |||||
Notes | (Unaudited) | (Unaudited) | (Audited) | ||||
Revenues | 13 | 13,019 | 20,344 | 39,112 | |||
Cost of revenues | (1,903) | (2,307) | (5,137) | ||||
Gross profit | 11,116 | 18,037 | 33,975 | ||||
Operating expenses: | |||||||
Selling and marketing expenses | (12,558) | (10,198) | (25,241) | ||||
General and administrative expenses | (3,749) | (2,399) | (7,085) | ||||
Fulfillment | (131) | - | - | ||||
Share-based compensation expenses* | 11 | (519) | (2,253) | - | |||
Write-off of initial public offering expenses | - | (741) | (707) | ||||
Operating income (loss) | (5,841) | 2,446 | 942 | ||||
Other income | 5 | 8 | 25 | ||||
Foreign exchange loss | (58) | (14) | (8) | ||||
Changes in fair value of derivative financial liabilities | 15 | 56 | - | 70 | |||
Interest income | 37 | 7 | 184 | ||||
Income (loss) before income tax | 10 | (5,801) | 2,447 | 1,213 | |||
Income tax benefit/(expense) | 10 | 58 | (79) | 10 | |||
Net income (loss) | (5,743) | 2,368 | 1,223 | ||||
Less: | |||||||
Cumulative dividends of Series A contingently redeemable convertible preferred shares | - | (157) | (157) | ||||
Cumulative dividends of Series B contingently redeemable convertible preferred shares | - | (785) | (785) | ||||
Net income (loss) attributable to Global Market Group Limited ordinary shareholders | (5,743) | 1,426 | 281 | ||||
Other comprehensive income, net of tax | |||||||
Foreign currency translation adjustment | (5) | 12 | 31 | ||||
Other comprehensive income, net of tax | (5) | 12 | 31 | ||||
Comprehensive income (loss) attributable to Global Market Group Limited's ordinary shareholders | (5,748) | 1,438 | 312 | ||||
Earnings (loss) per share: | |||||||
Earnings (loss) per share - basic | 14 | (0.06) | 0.02 | Nil | |||
Earnings (loss) per share - diluted | 14 | (0.06) | 0.02 | Nil | |||
Weighted average number of ordinary shares in computing: | |||||||
Earnings per share - basic | 14 | 97,774,935 | 52,779,810 | 75,462,284 | |||
Earningsper share - diluted | 14 | 98,123,790 | 53,637,987 | 76,078,720 | |||
The accompanying notes are an integral part of the consolidated financial statements. | |||||||
* Share-based compensation expenses included under various categories of expenses is approximately as follows: | |||
Six months ended June30 | Yearended December31 | ||
2013 | 2012 | 2012 | |
US$ | US$ | US$ | |
(Unaudited) | (Unaudited) | (Audited) | |
Cost of revenues | 23 | 135 | 122 |
Selling and marketing expenses | 276 | 1,301 | 1,469 |
General and administrative expenses | 220 | 817 | 1,174 |
TOTAL | 519 | 2,253 | 2,765 |
Global Market Group Limited ("the Company")recognizes share-based compensation cost ratably for each vesting tranche from the service inceptiondate to the end of the requisite service period. However, as the share options granted by the Company andMr. Weijia (David Ling) Pan are subject to a performance vesting condition of theCompany's initialpublic offering, no compensation cost has been recognized until after the completion of theadmission of the Company's shares to the AIM Market ("Admission") in June 2012.
A cumulative catch-up adjustment to effect the portion of the requisite service period from the date thatoption was granted to the date on which the offering was completed hasbeen posted to the financialstatements on the date that the offering was completed, the amount of the catch-up adjustment expense is$2,196 (includingcost of revenues: $134, selling and marketing expenses: $1,287 and general and administrative expenses: $775).
Non-GAAPFinancialData
The Company definesadjustedfinancial data, anon-GAAPfinancialmeasure,asfinancial dataexcluding write-offofinitial publicofferingexpenses, share-based compensationexpenses and changes in fair value of derivative financial liabilities. The Company reviewsadjustedfinancial datatogetherwithfinancial datatoobtainabetterunderstandingofthe operatingperformance.TheCompanypresentsthisnon-GAAPfinancialmeasureto provideusefulinformationtoinvestorsandotherinterestedpersonsbecausebyhavingaccesstosuch informationtheywillhavethesamedatawhich the Companyuses toassess theoperatingperformanceandbecausesuchinformationallowsthemtounderstandandevaluatetheconsolidatedresultsofoperationsinthesamemannerasthe managementandtomakeperiodoverperiodcomparisonofthefinancial results. However,theuseofadjustednetincomehasmateriallimitationsasananalytical tool. Oneofthelimitationsofusingnon-GAAPadjustednetincomeisthatitdoesnotincludeallitems that impact thenetincomefortheperiod.Inaddition, becauseadjustednetincomemaynotbecalculatedinthe same manner by all companies, it may not be comparable to other similar titled measures used by other companies. In light of the foregoing limitations, you should not consider adjusted net income in isolation from or as an alternative to net income prepared in accordance with U.S. GAAP. The Company encourages investors and other interested persons to review our financial information in its entirety and not rely on a single financial measure.
(a) Non-GAAP Operating income (loss) and Non-GAAP Net income (loss)
Six months ended | Year ended | ||||
June30 | December31 | ||||
2013 | 2012 | 2012 | |||
US$ | US$ | US$ | |||
Operating income (loss) | (5,841) | 2,446 | 942 | ||
Add back: | |||||
Write-off of initial public offering expenses | - | 741 | 707 | ||
Share-based compensation expenses | 519 | 2,253 | 2,765 | ||
Non-GAAP operating income (loss) | (5,322) | 5,440 | 4,414 | ||
Net income (loss) | (5,743) | 2,368 | 1,223 | ||
Add back: | |||||
Write-off of initial public offering expenses | - | 741 | 707 | ||
Share-based compensation expenses | 519 | 2,253 | 2,765 | ||
Changes in fair value of derivative financial liabilities | (56) | - | (70) | ||
Non-GAAP net income(loss) | (5,280) | 5,362 | 4,625 | ||
(b) Non-GAAP basic and diluted earnings (loss)per share
Six months ended | Year ended | ||||
June30 | December31 | ||||
2013 | 2012 | 2012 | |||
US$ | US$ | US$ | |||
Non-GAAP net income(loss) | (5,280) | 5,362 | 4,625 | ||
Less: Cumulative dividends of Series A and Series B Preferred Shares | - | (942) | (942) | ||
Non-GAAP undistributed earnings (loss) | (5,280) | 4,420 | 3,683 | ||
Non-GAAP undistributed earnings allocated to participating preferred shares | - | (1,846) | - | ||
Non-GAAP net income (loss) attributable to ordinary shareholders used in calculating net income per ordinary share - basic and diluted | (5,280) | 2,574 | 3,683 | ||
Weighted average number of ordinary shares in computing: | |||||
Earningsper share - basic | 97,774,935 | 52,779,810 | 75,462,284 | ||
Earnings per share - diluted | 98,123,790 | 53,637,987 | 76,078,720 | ||
Non-GAAP Earnings (loss) per share: | |||||
Non-GAAP Earnings (loss) per share - basic | (0.05) | 0.05 | 0.05 | ||
Non-GAAP Earnings (loss) per share - diluted | (0.05) | 0.05 | 0.05 | ||
GLOBAL MARKET GROUP LIMITED CONSOLIDATED STATEMENT OF CASH FLOWS | |||||
(Amounts in thousands of U.S. Dollars ("US$") except for number of shares and per share data) | |||||
Six months ended | Year ended | ||||
June30 | December31 | ||||
2013 | 2012 | 2012 | |||
US$ | US$ | US$ | |||
(Unaudited) | (Unaudited) | (Audited) | |||
Cash flows from operating activities | |||||
Net income(loss) | (5,743) | 2,368 | 1,223 | ||
Adjustments to reconcile income from continuing operations to net cash generated from operating activities: | |||||
Share-based compensation expenses | 463 | 2,253 | 2,695 | ||
Depreciation of property and equipment | 149 | 137 | 313 | ||
Amortization of other intangible assets | 197 | 121 | 223 | ||
Allowance for doubtful accounts | 153 | - | 611 | ||
Losson disposal of property and equipment | 13 | - | 1 | ||
Write-off of initial public offering expense | - | 741 | 707 | ||
Deferred income tax expense (benefit) | (30) | 4 | (155) | ||
Unrealized foreign exchange loss (gain) | (5) | 14 | 30 | ||
Changes in operating assets and liabilities: | |||||
(Increase) decrease in accounts receivable | 617 | (1,959) | (1,439) | ||
Increasein inventories | (176) | - | - | ||
(Increase) decreasein prepayments and other current assets | 167 | 587 | (1,096) | ||
Increase in other non-current assets | - | - | (42) | ||
Increase in accounts payable | 13 | - | - | ||
Decrease in deferred revenue | (7) | (1,567) | (375) | ||
Increase in income tax payable | - | 75 | 131 | ||
Increase in accrued expenses and other liabilities | 1,076 | 310 | 814 | ||
Increase (decrease) in unrecognized tax benefits | (28) | - | 30 | ||
Net cash generatedfrom(used in) operating activities | (3,141) | 3,084 | 3,671 | ||
Cash flows from investing activities | |||||
Acquisition of property and equipment | (1,583) | (97) | (648) | ||
Proceeds from disposal of property and equipment | - | - | 1 | ||
Acquisition of intangible assets | (1,567) | (352) | (1,266) | ||
(Increase) decrease in loans to employees | 19 | (341) | (626) | ||
Net cash used in investing activities | (3,131) | (790) | (2,539) | ||
The accompanying notes are an integral part of the consolidated financial statements. | |||||
Six months ended | Year ended | ||||
June30 | December31 | ||||
2013 | 2012 | 2012 | |||
US$ | US$ | US$ | |||
(Unaudited) | (Unaudited) | (Audited) | |||
Cash flows from financing activities | |||||
Payment of initial public offering expenses | - | (3,083) | (3,086) | ||
Proceeds from Admission | - | 15,029 | 15,021 | ||
Net cash generated from financing activities | - | 11,946 | 11,935 | ||
Exchange rate effect on cash and cash equivalent | 5 | (18) | (21) | ||
Net increase/(decrease) in cash and cash equivalents | (6,267) | 14,222 | 13,046 | ||
Cash and cash equivalents, beginning of the period | 22,480 | 9,434 | 9,434 | ||
Cash and cash equivalents, end of the period | 16,213 | 23,656 | 22,480 | ||
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 | |||||||||||
Ordinary shares | Additional paid-in capital | Accumulated deficit | Accumulated othercomprehensiveincome/(loss) | Total shareholders' equity | |||||||
Number of shares | Amounts | ||||||||||
Balance as of 1January2013 | 97,774,935 | 20 | 43,813 | (17,166) | (146) | 26,521 | |||||
Net income | - | - | - | (5,743) | - | (5,743) | |||||
Other comprehensive income | - | - | - | - | (5) | (5) | |||||
Share-based compensation | - | - | 507 | - | - | 507 | |||||
Balance as of 30June2013 | 97,774,935 | 20 | 44,320 | (22,909) | (151) | 21,280 | |||||
Balance as of 1January2012 | 50,000,000 | 10 | 148 | (17,446) | (177) | (17,465) | |||||
Net income | - | - | - | 2,368 | - | 2,368 | |||||
Other comprehensive income: | - | - | - | - | 12 | 12 | |||||
Cumulative dividend of Series A contingently redeemable convertible preferred shares | - | - | - | (157) | - | (157) | |||||
Cumulative dividend of Series B contingently redeemable convertible preferred shares | - | - | - | (785) | - | (785) | |||||
Share-based compensation | - | - | 2,224 | - | - | 2,224 | |||||
Conversion of contingently redeemable convertible preferred shares into ordinary shares | 40,315,380 | 8 | 28,612 | - | - | 28,620 | |||||
Issuance of ordinary shares | 7,459,555 | 2 | 12,527 | - | - | 12,529 | |||||
Balance as of 30June2012 | 97,774,935 | 20 | 43,511 | (16,020) | (165) | 27,346 | |||||
The accompanying notes are an integral part of the consolidated financial statements. | |||||||||||
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 business-to-business ("B2B") 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") 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.
Details of the Company's subsidiaries and variable interest entity as at June 30, 2013 are set out as follows:
Date of | Percentage of ownership by the Company | |||
Continuing Operations: | ||||
Global Market Group (Asia) Limited ("Global Market Asia") | June 14, 2000 | Hong Kong | 100% | Investment holding and B2B e-commerce services |
Global Market Group (Guangzhou) Co., Ltd ("Global Market Guangzhou") | September 6, 2002 | PRC | 100% | B2B e-commerce services |
Shenzhen Long Mei Network Technology Co., Ltd ("Shenzhen Long Mei") | June 5, 2008 | PRC | 100% | B2B e-commerce services |
Shenzhen Global Market Information Technology Co., Ltd ("Shenzhen Global Market") | September 7, 2009 | PRC | 100% | B2B e-commerce services |
Suzhou Long Mei Information Technology Co., Ltd. ("Suzhou Long Mei") | April 9, 2010 | PRC | 100% | B2B e-commerce services |
Shenzhen Long Jing Software Technology Co., Ltd("Shenzhen Long Jing) | October28, 2011 | PRC | 100% | B2B e-commerce services |
Guangzhou Long Tian Software Technology Co., Ltd ("Guangzhou Long Tian) | July27, 2011 | PRC | 100% | B2B e-commerce services |
Guangzhou Shen Long Computer Technology Co., Ltd. ("Guangzhou Shen Long") | June 23, 2003 | PRC | Nil | Internet Content Provision ("ICP") services |
Guangzhou Long Fei Software Technology Co., Ltd. ("Guangzhou Long Fei") | November 28, 2012 | PRC | 100% | M2C e-commerce services |
Guangzhou Long Yuan Software Technology Co., Ltd. ("Guangzhou Long Yuan") | March 28, 2013 | PRC | 100% | B2B e-commerce services |
Feifei Group Limited ("Feifei Group") | June 10,2013 | BVI | 100% | M2C e-commerce services |
Feifei International Limited ("Feifei International") | June 19,2013 | BVI | 100% | M2C e-commerce services |
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, useful lives of property and equipment, impairment of property and equipment, intangible assets and goodwill, realization of deferred tax assets, share-based compensation, Series A and B contingently redeemable convertible preferred shares, 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 and Global Market Asia are determined to be the United States dollars ("US$") and Hong Kong dollars ("HK$"), respectively. The functional currency of the Company's PRC subsidiaries is the Chinese Renminbi ("RMB"). The Company uses the US$ 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.
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:
Category | Estimated Useful Life | Estimated Residual Value |
Electronic and office equipment | 3-5 years | 5% or 10% |
Leasehold improvement | shorter of lease term or 5 years | - |
Motor vehicles | 10-20 years or service life | - |
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. For the six months ended June 30, 2013, 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, net
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 and have been recognized initially at fair value at the date of acquisition using a valuation technique based on expected income.
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 15). 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 B2B e-commerce services and 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.
The Group provides B2B e-commerce services to connect manufacturers in China with international buyers through its online marketplaces. B2B 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.
B2B e-commerce services
The Group enters into B2B 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. The Group early adopted Accounting Standards Update ("ASU") No. 2009-13 ("ASU 2009-13"), "Multiple-Deliverable Revenue Arrangements" in assessing its multiple element arrangements for all periods presented. 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. 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-specific evidence 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 B2B service arrangement. Side arrangements or subsequent changes are not made to signed contracts. B2B 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 starting from September 2009, 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.
Cost of Revenues
Cost of revenue comprises direct costs incurred for the provision of services and an allocation of indirect overhead costs.
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 six months ended June 30, 2012 and 2013 are approximately US$891 and US$711, 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$2,146 and US$1,108 for the six months ended June 30, 2012 and 2013, 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$554 and US$1,228 for the six months ended June 30, 2012 and 2013, 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.
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.
Ordinary shares issuable upon the conversion of the contingently redeemable convertible preferred shares are included in the computation of diluted earnings per ordinary share on an "if-converted" basis when the impact is dilutive. The dilutive effect of outstanding share-based awards is reflected in the diluted earnings per share by application of the treasury stock method. Two-Class Method prescribed under ASC260-10 is used to calculate earnings per share data for preferred shares that are participating securities in the event the Group has reportable net income as at December 31, 2011.
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 February 2013, the Financial Accounting Standards Board ("FASB") issued ASU 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income". The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For public entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2012. The Company does not expect the adoption of ASU 2013-2 will have a significant effect on its consolidated financial statements.
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 income (loss) from continuing operations to evaluate the performance of each reportable segment. Prior to June 25, 2013, the Group operated and managed its business as a single reportable segment, namely B2B e-commerce segment. On June 25, 2013, the M2C China e-commerce services segment set up. As of and for the six months ended 30 June 2013, the Group consisted of two segments.
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 B2B 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.
3. ACCOUNTS RECEIVABLE
As at June30, 2013 | As at June30, 2012 | As at December31, 2012 | |
US$ | US$ | US$ | |
(Unaudited) | (Unaudited) | (Audited) | |
Accounts receivable | 1,073 | 2,944 | 1,828 |
Less: Allowance for doubtful accounts | - | - | - |
Accounts receivable, net | 1,073 | 2,944 | 1,828 |
Movement in allowance for doubtful accounts:
As at June30, 2013 | As at June30, 2012 | As at December31, 2012 | |
US$ | US$ | US$ | |
(Unaudited) | (Unaudited) | (Audited) | |
Balance at beginning of the year | - | - | - |
Additional provision charged to expenses | 139 | - | 596 |
Write-offs | (139) | - | (596) |
Balance at end of the year | - | - | - |
4.PREPAYMENTS AND OTHER CURRENT ASSETS
As at | As at | As at | |||
June30, | June30, | December31, | |||
2013 | 2012 | 2012 | |||
US$ | US$ | US$ | |||
(Unaudited) | (Unaudited) | (Audited) | |||
Prepaid expenses | 1,531 | 1,780 | 2,877 | ||
Deposits for office leases | 144 | 110 | 188 | ||
Capitalized commission costs | 1,020 | 975 | 924 | ||
Prepayments to suppliers | 66 | - | - | ||
Deposits for inventories | 22 | - | - | ||
Others | 357 | 64 | 527 | ||
Total | 3,140 | 2,929 | 4,516 |
5.PROPERTY AND EQUIPMENT, NET
As at | As at | As at | |||
June30, | June30, | December31, | |||
2013 | 2012 | 2012 | |||
US$ | US$ | US$ | |||
(Unaudited) | (Unaudited) | (Audited) | |||
Electronic and office equipment | 1,393 | 978 | 1,402 | ||
Leasehold improvement | 1,077 | 481 | 605 | ||
Buildings | 1,824 | - | - | ||
Property and equipment, cost | 4,294 | 1,459 | 2,007 | ||
Less: Accumulated depreciation | (1,054) | (808) | (980) | ||
Property and equipment, net | 3,240 | 651 | 1,027 |
Depreciation expenses amounted to approximately US$137 and US$149 for the six monthsended 30June2012and 2013, respectively.
6.GOODWILL AND OTHER INTANGIBLE ASSETS, NET
The changes in carrying amount of goodwill for the year endedDecember31, 2012 and six months endedJune30,2013 are as follows:
US$ | |
Balance as at December 31, 2011 | 6,495 |
Foreign currency translation adjustment | 17 |
Balance as atDecember 31, 2012 | 6,512 |
Foreign currency translation adjustment | (4) |
Balance as at 30June2013 | 6,508 |
Other intangible assets consist of the following:
As at | As at | As at | |||
June30, | June30, | December 31, | |||
2013 | 2012 | 2012 | |||
US$ | US$ | US$ | |||
(Unaudited) | (Unaudited) | (Audited) | |||
Computer software | 938 | 530 | 692 | ||
Website | 749 | - | 272 | ||
Acquired customers relationships | 612 | 612 | 613 | ||
Capitalized software development costs | 1,792 | 444 | 947 | ||
Less: Accumulated amortization | (1,031) | (703) | (832) | ||
Total | 3,060 | 883 | 1,692 |
Amortization expense amounting to approximately US$87 and US$197for the six months ended 30June 2012 and 2013, respectively, were recorded in general and administrative expenses on the unaudited interim condensed consolidated statements of operations. Amortization expense amounting to approximately US$34 and US$9for the six months ended 30June 2012 and 2013, respectively, were recorded in cost of revenues on the unaudited interim condensed consolidated statements of operations.
The estimated annual amortization expense of intangible assets for each of the following five fiscal years are as follows:
US$ | |
(Unaudited) | |
Six months ended June30 | |
2013 | 255 |
Years ended December31, | |
2014 | 636 |
2015 | 569 |
2016 | 565 |
2017 | 435 |
Total | 2,460 |
7.OTHER NON-CURRENT ASSETS
As at | As at | As at | |||
June30, | June30, | December 31, | |||
2013 | 2012 | 2012 | |||
US$ | US$ | US$ | |||
(Unaudited) | (Unaudited) | (Audited) | |||
Deposits | 172 | 129 | 170 | ||
Loans to employees | 3,779 | 2,380 | 2,605 | ||
Total | 3,951 | 2,509 | 2,775 |
8.ACCRUED EXPENSES AND OTHER LIABILITIES
As at | As at | As at | |||
June30, | June30, | December 31, | |||
2013 | 2012 | 2012 | |||
US$ | US$ | US$ | |||
(Unaudited) | (Unaudited) | (Audited) | |||
Salary and welfare payable | 2,003 | 2,251 | 2,501 | ||
Accrued operating expenses | 3,195 | 970 | 1,586 | ||
Professional fees | 14 | 8 | 164 | ||
Other taxes payable | 347 | 15 | 269 | ||
Unrecognized tax benefits | - | 14 | - | ||
Accrued Admission related costs | - | 787 | - | ||
Others | 157 | 32 | 163 | ||
Total | 5,716 | 4,077 | 4,683 |
9.SHARE CAPITAL
Ordinary shares
On May 31, 2012, the Company effected a 5 for 1 reverse stock split on its existing issued and authorized but unissued ordinary shares and its existing issued and authorized but unissued Series A and Series B Preferred Shares.The par of the ordinary shares and the Preferred Shares became US$0.0002 and US$0.0002per share, respectively. All ordinary shares, Preferred Shares and per share data are presented to give retroactive effect of this reverse stock split.
Upon the Admission inJune 2012, 40,315,380 ordinary shares were issuedfrom the conversion of Series A and Series B Preferred Shares. In addition, the Company issued 7,459,555 ordinary shares for the Admission in June 2012.
Accumulated other comprehensive loss
Changes in accumulated other comprehensive loss by component, net of tax, for the six months end June 30, 2012 and 2013respectively are as follows:
Foreign currency translation | Total | ||||
US$ | US$ | ||||
Balance as at December 31, 2011 | (177) | (177) | |||
Other comprehensive income | 12 | 12 | |||
Balance as at June 30, 2012 | (165) | (165) | |||
Other comprehensive income | 19 | 19 | |||
Balance as at December 31, 2012 | (146) | (146) | |||
Other comprehensive income | (5) | (5) | |||
Balance as at June 30, 2013 | (151) | (151) |
10.INCOME TAXES
Cayman Islands
Under the current laws of the Cayman Islands, the Company is not subject to tax on income or capital gains.
Hong Kong
For the six months ended 30June2012 and 2013, 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 2012 and 2013 is 25%. The Company's PRC subsidiaries are subject to income tax at 25% except for the following:
Shenzhen Long Mei and Suzhou Long Mei are each qualified as a "Software and Integrated Circuit Enterprise" and were each 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 theirrespective first profit-making years. Shenzhen Long Mei and Suzhou Long Mei started their 2+3 tax holidays in 2008 and 2010, respectively. As a result, Shenzhen Long Mei was subject to income tax at 12.5% for 2011 and 2012, and Suzhou Long Mei was exempted from income tax for 2011 and is subject to income tax at 12.5% from 2012 to 2014.
Guangzhou Longtian was qualified as a "SoftwareEnterprise" and was granted a 2+3 tax holiday starting from its first profit-making year in 2012. As such, Guangzhou Longtian is incometax 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
Income (loss) from continuing operations before income taxes consists of:
For the six months ended | Year ended | ||||||||||||||||||||||||||||||||||
June30 | December 31 | ||||||||||||||||||||||||||||||||||
2013 | 2012 | 2012 | |||||||||||||||||||||||||||||||||
US$ | US$ | US$ | |||||||||||||||||||||||||||||||||
(Unaudited) | (Unaudited) | (Audited) Share
© Publicnow - 2013
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