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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Global Market | LSE:GMC | London | Ordinary Share | KYG3927E1145 | ORD USD0.0002 (DI) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 50.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
TIDMGMC
RNS Number : 8892R
Global Market Group Ltd
17 September 2014
Hot Features
Premium
17 September 2014
Global Market Group Limited
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2014
Global Market Group Limited ("Global Market", "the Company" or
"GMC") (AIM: GMC), a leading manufacturer-to-business ("M2B") 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 2014.
Financial and operational highlights
Gross Group Revenue: US$13.5 million (+3.3%)
Non-GAAP Net Income (M2B): US$0.8 million (2013 H1: -US$4.0 million)
RMB80 million Strategic Investment into FeiFei by Guangzhou Daily
group (RMB40 million in cash and RMB40 million in advertising resources),
and RMB40 million investment by Global Market Group
FeiFei showed early rapid growth by quarter-on-quarter (2014Q2/2014Q1)
Marketing Director of AlibabaTmall Joined as FeiFei's Operation
General Manager
Registered Buyers as at 30 June 2014:1,269,735 (30 June 2013:1,069,620)
Online Product Offerings (M2B) as at 30 June 2014: 4.2 million
(30 June 2013: 1.6 million)
Google PageRank upgraded to 7 (2013H1: PageRank 6)
Paying Subscribers as at 30 June 2014: 4,164 (30 June 2013: 6,078)
Targeted final quarter launch of Small Order Transaction on www.globalmarket.com
Commenting on the results, Mr. David Ling, Chairman and Chief Executive
Officer, said:
"Global Market is still working through its previously announced
two-year strategic adjustment period with an approach that provided
clearly positive signs during the six months to 30 June. The core
M2B business returned to profitability, with online product offerings
rising strongly while the development of the new online retail
operation FeiFei showed rapid early growth, contributing to Group
revenues. The Company is now well placed to exploit the continuing
changes in China's manufacturing economy, and key elements of the
Company's reshaped development strategy are now firmly in place
for the realisation of sustainable positive cash flowsand increased
profitability for the M2B operations during the second half of
2014."
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 Tel: +86 (20) 8600 2299
David Ling, Chairman and CEO
Weiquan (Cheandy) Hu, CFO
Grant Thornton UK LLP Tel: +44 (0)20 7383 5100
Philip Secrett/ Maureen Tai/
Melanie Frean
Westhouse Securities Limited Tel:+44 (0)20 7601 6114
Martin Davison
Chairman's statement
As Global Market continues to work through its two-year strategic
adjustment period, it is pleasing to announce that Group revenues
for the first six months of 2014 increased to US$13.5 million (HY2013:
US$13.0 million), contributing to narrowed losses of US$4.8 million
(HY2013: -US$5.3 million) and bringing clear underlying signs that
the Company is on target for the realisation of sustainable positive
cash flowsand increased profitability for the M2B operations during
the second half of 2014.
The core M2B business, which provides the online M2B portal www.globalmarket.com
to link high-quality manufacturers in China with buyers from all
over the world, achieved a return to profit during the first six
months of 2014, with Non-GAAP Net Income reaching US$0.8 million.
This represents a marked improvement over M2B losses of US$4.4
million during the same period last year. At the same time, planned
early stage investment in FeiFei, the Group's direct retail portal
developed to meet the booming demand of China's huge consumer base,
generated gross revenues of US$2.3 million, underscoring its strong
potential. Investment in early-stage operating costs for FeiFei
led directly to the Group's continuing but narrowed loss for the
half year.
Operational review
Over the past two years, the key challenge for Global Market, addressed
by the strategic readjustment programme now in place, has been
to encourage increased transactional activities between the growing
number of international buyers who register to use www.globalmarket.com
for free and the high quality manufacturers who pay to use the
platform. Alongside this drive within the core M2B business, the
Group has also opened a new revenue stream through the development
of FeiFei, which is now advancing as a key contributor to financial
performance. It is also planning during the second half of the
year to introduce small order transactional services for its M2B
users, significantly boosting the existing informational and networking
capabilities of the www.globalmarket.com platform.
M2B
It is now almost two years since Global Market first announced
plans for its Free GMC Scheme with the long-term objective of first
attracting new manufacturers as complimentary users of www.globalmarket.com
ahead of converting them into paying subscribers with the aim of
achieving critical mass in the online marketplace. As the Company
reported more recently, in June 2014, the first objective of vetting
more than 30,000 targeted manufacturers for quality standards was
achieved before the end of 2013, clearing them to use the online
portal to reach buyers from around the world. As a result, the
number of products offered on www.globalmarket.com by high-quality
Chinese manufacturers increased from around 3.2 million at the
end of 2013 to nearly 4.2 million by the end of June 2014, up 162%
from 1.6 million a year earlier. At the same time the number of
international buyers registered to use the portal for free increased
in tandem, rising by 200,000, or 17%,to reach 1.27 million by the
end of the half year.
These benchmark gains have been achieved against the backdrop of
a slowdown in the Chinese manufacturing economy referred to in
previous announcements by the Company. That slowdown played a part
in restraining the Company's progress during the half-year, but
it is now encouraging that the Chinese Ministry of Commerce reported
during August that while renewed export growth remains dependent
on fragile demand growth among import economies, there are clear
signs of a more upbeat mood within the manufacturing sector.
The Company has reported to shareholders previously that the underlying
objectives of the Free GMC Scheme are not only to bring in manufacturers
which can then be converted into paying subscribers, but also to
persuade more subscribers to buy the Package Services which provides
valuable add-ons for a higher price. Although by the end of June
2014 the number of paying subscribers using www.globalmarket.com
had slipped to 4,164 (30 June 2013: 6,078), the Company believes
that this fall reflects a short-term adjustment as it continues
working through its two-year strategic adjustment period to consolidate
and realise the effects of the Free GMC Scheme. Following the completion
of vetting of 30,000 manufacturers for the Scheme, the Company
immediately reduced its sales force to achieve cost savings and
at the same time diverted much of its remaining sales resource
into the conversion of Standard Service customers into Package
Service customers. As a result, new subscriptions slowed. At the
same time, it is notable that most of the Group's newly-signed
customers during the half-year were premium package service customers,
bringing the total number of package service customers as of 30
June 2014 to 1,579 (30 June 2013: 3,304).
One early sign that this strategy is bearing fruit can be seen
in the increased Average Revenue Per Subscriber or ARPU, which
encouragingly rose to RMB65,000 (approx. US$10,539) by the end
of the first half of 2014, representing a 22.6% increase year on
year, and achieved alongside significant cuts in sales and marketing
and other overheads. The ARPU increase and cuts helped contribute
to a return to profit of US$0.83 million for the core M2B business.
As a further step towards building www.globalmarket.com as a cross-border
M2B wholesale marketplace, which is also a global sourcing centre,
the Company during the half year began to develop its new "small
order transaction" service to allow the consolidation of small
buyer orders so that they can be accepted by manufacturers with
minimum order quantity (MOQ) requirements. This new service is
now targeted for a soft launch during the final quarter of 2014,
focusing initially on lighting products, and underpinned by the
provision of consolidated international logistics services, mainly
by sea. It will provide Chinese manufacturers with an opportunity
to expand their sales channels at a lower cost, while at the other
end of the transaction chain, small international buyers who traditionally
source products through local importers or wholesale distributors
will be able to deal directly with high quality Chinese manufacturers
at better prices, and with more control over product quality and
service commitment.
The Company believes this small order transaction service will
eventually develop into a key functional attribute of the M2B business
as the growth of cross-border E-commerce accelerates. The Company's
objective is to use the fully-developed transactional function
to help build www.globalmarket.com into one of the largest online
premium wholesale marketplace between manufacturers and small to
medium buyers.
Also helping to underpin further growth, the portal www.globalmarket.com
attained Google PageRank 7since the end of 2013, positioning it
as one of the most popular websites in the M2B sector.
FeiFei
Alongside the key drive to increase ARPU from paying subscribers
within its core M2B business, the Company continued during the
first half of the year with the rapid development of FeiFei, which
uses the portal www.feifei.com to meet the growing demand of China's
emerging online retail market.
The FeiFei retail portal is a logical extension of Global Market's
core M2B business, using resources already developed for www.globalmarket.com
in order to reach retail consumers buying home products, especially
lighting products. It is envisaged that in addition to providing
manufacturers with access to China's still booming retail market,
FeiFei will also attract new manufacturing customers to the Group's
M2B business.
Alongside with the strategic investment of RMB80 million by Guangzhou
Daily Newspaper Business Co., Limited ("Guangzhou Daily"),Global
Market had invested US$6.4 million as of 30 June 2014 in the development
of FeiFei to establish a well-managed supply chain incorporating
a range of integrated services including online product display,
IT system development, product quality testing, warehousing, fulfilment,
promotional marketing, and after-sales services.Initial costs for
sales and marketing, logistics and operational overheads however
resulted in a Non-GAAP loss for FeiFei of US$5.4 million, resulting
in the overall Group loss for the half year. The Group has no plan
to invest more cash into FeiFei over the next 12 months. At the
same time, FeiFei will maintain a spending limit of US$0.6 million
per month. While it is anticipated that FeiFei will as a consequence
become self-funding, the Company currently anticipates that it
may need to raise further backing for its expansion over the course
of the next 12 months if it can identify appropriate strategic
partners and/or investors.
The financial results for the first half of 2014 provide a promising
indication of FeiFei's strong potential. Still within its early
stages of operation, and still focused on Global Market's home
province of Guangdong, around 400 selected manufacturers are now
using FeiFei as a direct retail sales channel, helping to establish
FeiFei early on as a healthy and sustainable M2C business model.
FeiFei generated six-month revenues to 30 June of US$2.3 million,
representing 17% of the Group total. Quarterly revenue rose from
around US$0.26 million (Q4 2013) to around US$0.63 million in the
first quarter of 2014 and subsequently, to around US$1.29 million
in the second quarter of 2014.
At the same time, to position itself for further rapid development,
the FeiFei team has focused sharply on increasing efficiencies
and lowering operational costs. Implemented measures already include
warehouse upgrades and - shortly after the end of the half year,
during July 2014 - the completion of a new agreement with IT Logistics,
one of China's leading fulfillment operators and a subsidiary of
Hong Kong-listed Digital China (HK:00861). The Group is confident
that these developments will rapidly lead to lower storage, shipping
and fulfillment costs and to higher operational efficiencies and
financial returns. During the half year, FeiFei also agreed new
strategic partnerships to establish itself as a supply channel
to two well-established online and offline retailers in China,
Qihu360 and SF Heike, at the same time gaining access to a trial
marketing database of more than 400 million consumers beyond Guangdong.
These moves bolster the Company's key relationship with Guangzhou
Daily, which is one of China's largest media businesses. It is
anticipated that these relationships will help fuel further growth
driven in part by Guangzhou Daily's extensive advertising power
and marketing capabilities.
The Group has also made new senior appointments in 2014 to strengthen
the FeiFei management team under the leadership of Simon Chuen,
who became Chairman of FeiFei last year having worked previously
as president of the Home Depot China and executive vice president
of B&Q China. These new appointments include Eva Lin, who was former
marketing director of AlibabaTmall, joined as FeiFei's Operation
General Manager.
In summary, while the FeiFei programme is still in the first of
three planned phases of development, it has progressed in line
with expectations during the six months to 30 June. Progress has
included the successful selection of around 400 manufacturers for
trial operation and the identification of scope for continuing
improvement in the business model and management of the supply
chain, comprehensively encompassing elements that include online
product display, IT systems, product safety testing, fulfilment,
shipping, consumer marketing and after-sales service. In the coming
year, the Group's goal is to establish FeiFei as a healthy and
sustainable M2C business model by embarking on Phase II of the
development programme which will involve an official FeiFei launch
and the ability of customers to access products from several thousand
manufacturers. Subsequently Phase III will see a strong sales and
marketing push to extend customer choice to a wider manufacturer
base.
Financial review
Revenues for the Group for the six months ended 30 June 2014 increased
by 3.4% to US$13.5 million (H12013: US$13.0 million). This increase
was primarily due to the development of FeiFei, which following
its soft launch in November 2013 and subsequent early development
described above contributed a promising US$2.3 million to Group
revenues.
Although revenues from the core M2B business slipped 17% over the
same period to US$11.2 million, ARPU increased strongly in line
with the Group's key strategic objectives, while gross margins
increased to 90.5%, up from 85.4% in the same period of 2013. These
underlying measures reflect the Company's drive during the two-year
strategic adjustment period to enhance and maximise activity among
manufacturers and buyers ahead of chasing immediate revenue gains.
With a key objective of upgrading customers who have the most scope
to increase their own sales, early signs of the potential for eventual
long term gains are showing in the return to profit of US$0.82
million for the M2B operation during the first half, following
the losses of US$3.95 million recorded over the course of 2013.
As at the end of the half year, the Group had accrued deferred
revenues of US$15.3 million for the M2B business, up 46% year on
year. Deferred revenues represent earnings that are due to the
Company from clients who signed contracts during the financial
year but which are not fully recognised until the end of contract
periods of 12 months, 24 months or more. These deferred revenues
will be recognised in future financial statements, providing a
strong foundation for earnings growth.
Group sales and marketing expenses decreased by 29.94% to US$8.80
million (2013H1: US$12.56 million). This was in large part due
to the completion of the vetting of 30,000 manufacturers to join
the Free GMC Scheme as well as to increased automation efficiencies,
which together resulted in a decrease in the M2B sales and marketing
headcount. Salaries and welfare costs fell by 31% in line with
marketing and promotional costs dropping 34%, in part reflecting
the advertising investment by Guangzhou Daily.
General and administrative (G&A) expenses increased 20.53% to US$4.52
million during the year (2013H1: US$3.75 million). This increase
mostly resulted from spending on FeiFei, where salary and welfare
costs rose by 30.66% to US$0.43 million, accounting for 55.84%
of the overall increase. At the same time, 44.16% of the higher
G&A costs resulted from an increase in depreciation and amortisation
expenses arising from the acquisition of fixed assets and intangible
assets, including investment in equipment for FeiFei, an office
in Suzhou and office buildings in Guangzhou.
The cash balance slipped by US$3.8 million over the course of the
first six months, to stand at US$13.7m as at 30 June. This mainly
reflected investment in the Free GMC Scheme, which contributed
to a negative M2B cash flow of US$10.5 million, and net costs amounting
to US$5.4 million in FeiFei. Cash was also invested in the share
buyback of 4,503,000 shares at a cost of around $2.1m in January
2014.
On 26 March 2014, the Company entered into an agreement with Guangzhou
Daily, pursuant to which Guangzhou Daily acquired an initial 10.5%
equity interest of Guangzhou Long Fei Software Technology Co.,
Ltd., the subsidiary of the Company which operates FeiFei, by investing
RMB40 million (approximately US$6.5 million) in cash and RMB40
million in advertising resources.
Outlook
Global Market is still working through its previously announced
two-year strategic adjustment period with an approach that provided
clearly positive signs during the six months to 30 June. The core
M2B business returned to profitability, with online product offerings
rising strongly, while the development of the new online retail
operation FeiFei showed early growth, contributing to Group revenues
and attracting a large initial user base. The Company is now well
placed to exploit the continuing changes in China's manufacturing
economy, and key elements of the Group's reshaped development strategy
are now firmly in place for the realisation of a sustainable positive
cash flows, and increased profitability for the M2B operations
during the second half of 2014. Further out, during 2015, the Company
also anticipates further solid progress as it implements its planned
small order transaction service and growth plans for FeiFei. Building
on the solid foundation of the GMC brand and the reputations of
our high-quality manufacturing members, the Company is strongly
set to meet the challenges of the future and realise the outstanding
opportunities.
David Ling
Chairman and CEO
17 September 2014
GLOBAL MARKET GROUP LIMITED
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands of U.S. Dollars ("US$") except for number
of shares and per share data)
As of As of As of
December
June 30, June 30, 31,
2014 2013 2013
US$ US$ US$
Notes (Unaudited) (Unaudited) (Audited)
------- ------------- ------------- -----------
ASSETS
Current assets:
Cash and cash equivalents 13,687 16,213 17,519
Inventories 266 176 188
Accounts receivable 3 331 1,073 362
Prepayments and other current
assets 4 4,702 3,140 4,743
Deferred tax assets, current - 184 -
Total current assets 18,986 20,786 22,812
------------- ------------- -----------
Non-current assets:
Property and equipment,
net 5 4,674 3,240 4,415
Goodwill 6 6,512 6,508 6,510
Other intangible assets,
net 6 4,738 3,060 4,408
Deferred tax assets, non-current - 62 -
Other non-current assets 7 4,669 3,951 3,663
Total non-current assets 20,593 16,821 18,996
------------- ------------- -----------
TOTAL ASSETS 39,579 37,607 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$") except for number
of shares and per share data)
As of As of As of
December
June 30, June 30, 31,
2014 2013 2013
US$ US$ US$
Notes (Unaudited) (Unaudited) (Audited)
------ ------------ ------------ ----------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Accounts payable 463 13 398
Deferred revenue 15,332 10,480 16,018
Accrued expenses and other
liabilities 8 6,238 5,716 7,307
Income tax payable 28 3 28
------------ ------------ ----------
Total current liabilities 22,061 16,212 23,751
------------ ------------ ----------
Non-current liabilities:
Deferred tax liabilities,
non-current 94 113 98
Unrecognised tax benefits 2 2 2
------------ ------------ ----------
Total non-current liabilities 96 115 100
------------ ------------ ----------
Total liabilities 22,157 16,327 23,851
============ ============ ==========
Contingencies and commitments
Contingently redeemable convertible
preferred shares
Contingently redeemable non-controlling
interest 11 6,653 - -
------------ ------------ ----------
Total preferred shares 6,653 - -
------------ ------------ ----------
Shareholders' Equity:
Ordinary shares (par value
of US$0.0002 per share; 250,000,000
shares authorized as of 2013
and the first half year of
2014; 97,824,935 and 93,321,935shares
issued and outstanding as
at 2013 and the first half
year of 2014, respectively.) 9 19 20 20
Additional paid-in capital 44,945 44,320 44,593
Accumulated deficit (34,196) (22,909) (26,714)
Accumulated other comprehensive
loss 9 1 (151) 58
------------ ------------ ----------
Total shareholders' equity (deficiency) 10,769 21,280 17,957
------------ ------------ ----------
Total liabilities, contingently
redeemable convertible preferred
shares and shareholders'
equity 39,579 37,607 41,808
============ ============ ==========
The accompanying notes are an integral part of the consolidated
financial statements.
GLOBAL MARKET GROUP LIMITED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Amounts in thousands of U.S. Dollars ("US$") except for number
of shares and per share data)
Six months ended Year ended
December
June 30 31
--------------------------- ------------
2014 2013 2013
US$ US$ US$
Notes (Unaudited) (Unaudited) (Audited)
------ ------------ ------------ ------------
Revenues 15 13,455 13,019 25,709
Cost of revenues (3,369) (1,903) (3,930)
------------ ------------ ------------
Gross profit 10,086 11,116 21,779
Operating expenses:
Selling and marketing expenses (8,805) (12,558) (22,893)
General and administrative
expenses (4,522) (3,749) (7,759)
Fulfilment (1,631) (131) (931)
Share-based compensation expenses* 13 (354) (519) -
------------ ------------ ------------
Operating income (loss) (5,226) (5,841) (9,804)
Other income 60 5 21
Foreign exchange loss (13) (58) 64
Changes in fair value of derivative
financial liabilities 17 (17) 56 65
Interest income 49 37 303
------------ ------------ ------------
Income (loss) before income
tax 12 (5,147) (5,801) (9,351)
Income tax benefit/(expense) 12 4 58 (197)
------------ ------------ ------------
Net income (loss) (5,143) (5,743) (9,548)
Less:
Accretion of contingently
redeemable non controlling
interest 11 (157) - -
Net income (loss) attributable
to Global Market Group Limited
ordinary shareholders (5,300) (5,743) (9,548)
============ ============ ============
Other comprehensive income,
net of tax
Foreign currency translation
adjustment (57) (5) 204
------------ ------------ ------------
Other comprehensive income,
net of tax (57) (5) 204
------------ ------------ ------------
Comprehensive income (loss)
attributable to Global Market
Group Limited's ordinary shareholders (5,357) (5,748) (9,344)
============ ============ ============
Earnings (loss) per share:
Earnings (loss) per share
- basic 16 (0.06) (0.06) (0.10)
Earnings (loss) per share
- diluted 16 (0.06) (0.06) (0.10)
Weighted average number of
ordinary shares in computing:
Earnings per share - basic 16 93,321,935 97,774,935 97,824,935
Earnings per share - diluted 16 93,321,935 98,123,790 97,824,935
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:
Year ended
Six months ended December
June 30 31
---------------------------- ----------------
2014 2013 2013
US$ US$ US$
(Unaudited) (Unaudited) (Audited)
------------- ------------- ----------------
Cost of revenues 16 23 42
Selling and marketing expenses 158 276 329
General and administrative expenses 180 220 390
------------- ------------- ----------------
TOTAL 354 519 761
============= ============= ================
Global Market Group Limited ("the Company")recognises 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 theCompany's initial public offering, no compensation cost has been recognised until after the completion of the admission of the Company's shares to the AIM Market ("Admission") in June 2012.
Non-GAAP Financial Data
The Company defines adjusted financial data, a non-GAAP financial measure, as financial data excluding write-off of 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 (loss) and Non-GAAP Net income (loss)
Six months ended Year ended
December
June 30 31
------------------- -----------
2014 2013 2013
US$ US$ US$
--------- -------- -----------
Operating income (loss) (5,226) (5,841) (9,804)
Add back:
Share-based compensation expenses 354 519 761
Non-GAAP operating income (loss) (4,872) (5,322) (9,043)
========= ======== ===========
Net income (loss) (5,143) (5,743) (9,548)
Add back:
Share-based compensation expenses 354 519 761
Changes in fair value of derivative
financial liabilities 17 (56) (65)
Non-GAAP net income(loss) (4,772) (5,280) (8,852)
========= ======== ===========
(b) Non-GAAP basic and diluted earnings (loss)per share
Six months ended Year ended
December
June 30 31
------------------------ -----------
2014 2013 2013
US$ US$ US$
----------- ----------- -----------
Non-GAAP net income(loss) (4,772) (5,280) (8,852)
Less: Accretion of contingently
redeemable non-controlling interest (157) - -
----------- ----------- -----------
Non-GAAP undistributed earnings
(loss) (4,929) (5,280) (8,852)
Non-GAAP undistributed earnings
allocated to participating preferred
shares - - -
----------- ----------- -----------
Non-GAAP net income (loss) attributable
to ordinary shareholders used in
calculating net income per ordinary
share - basic and diluted (4,929) (5,280) (8,852)
=========== =========== ===========
Weighted average number of ordinary
shares in computing:
Earnings per share - basic 93,321,935 97,774,935 97,824,935
Earnings per share - diluted 93,321,935 98,123,790 97,824,935
Non-GAAP Earnings (loss) per share:
Non-GAAP Earnings (loss) per share
- basic (0.05) (0.05) (0.09)
=========== =========== ===========
Non-GAAP Earnings (loss) per share
- diluted (0.05) (0.05) (0.09)
=========== =========== ===========
GLOBAL MARKET GROUP LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in thousands of U.S. Dollars ("US$") except for number
of shares and per share data)
Six months ended Year ended
December
June 30 31
-------------------------- -----------
2014 2013 2013
US$ US$ US$
(Unaudited) (Unaudited) (Audited)
------------ ------------ -----------
Cash flows from operating activities
Net income(loss) (5,143) (5,743) (9,548)
Adjustments to reconcile income from
continuing operations to net cash
generated from operating activities:
Share-based compensation expenses 369 463 696
Depreciation of property and equipment 353 149 421
Amortisation of other intangible
assets 462 197 491
Allowance for doubtful accounts - 153 -
Loss on disposal of property and
equipment - 13 14
Write-off of initial public offering
expense - - -
Deferred income tax expense (benefit) (4) (30) 200
Unrealised foreign exchange loss
(gain) (57) (5) 204
Changes in operating assets and liabilities:
Increase in accounts receivable 31 617 1,466
Decrease in inventories (78) (176) (188)
(Increase)decrease in prepayments
and other current assets (521) 167 (226)
Increase in other non-current assets - - 7
Increase in accounts payable 65 13 398
(Increase)decrease in deferred revenue (686) (7) 5,531
Increase in income tax payable - - 24
Increase (decrease) in accrued expenses
and other liabilities (1,086) 1,076 2,708
Decrease in Unrecognised tax benefits - (28) (28)
------------ ------------ -----------
Net cash generated from(used in)
operating activities (6,295) (3,141) 2,170
============ ============ ===========
Cash flows from investing activities
Acquisition of property and equipment (611) (1,583) (3,048)
Proceeds from disposal of property
and equipment - - -
Acquisition of intangible assets (791) (1,567) (3,183)
(Increase) decrease in loans to employees (444) 19 (895)
------------ ------------ -----------
Net cash used in investing activities (1,846) (3,131) (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$") except for number
of shares and per share data)
Six months ended Year ended
December
June 30 31
-------------------------- -----------
2014 2013 2013
US$ US$ US$
(Unaudited) (Unaudited) (Audited)
------------ ------------ -----------
Cash flows from financing activities
Proceeds from issuance of contingently
redeemable non-controlling interest 6,496 - -
Repurchase of ordinary shares (2,183) - -
Net cash generated from financing
activities 4,313 - -
============ ============ ===========
Exchange rate effect on cash and
cash equivalent (4) 5 (5)
------------ ------------ -----------
Net decrease in cash and cash equivalents (3,832) (6,267) (4,961)
------------ ------------ -----------
Cash and cash equivalents, beginning
of the period 17,519 22,480 22,480
------------ ------------ -----------
Cash and cash equivalents, end of
the period 13,687 16,213 17,519
============ ============ ===========
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$") except for number of
shares and per share data)
Total Global Market Group Limited's Equity
-----------------------------------------------------------------------------------------
Accumulated
other comprehensive
Ordinary shares income/(loss)
---------------------- ----------- ------------ --------------------- ---------------
Additional Total
Number paid-in Accumulated shareholders'
of shares Amounts capital deficit equity
------------ -------- ----------- ------------ --------------------- ---------------
Balance as of
1 January 2014 97,824,935 20 44,593 (26,714) 58 17,957
Net income - - - (5,143) - (5,143)
Other comprehensive
income - - - - (57) (57)
Share-based compensation - - 352 - - 352
Repurchase of
ordinary shares (4,503,000) (1) - (2,182) - (2,183)
Accretion of contingently
redeemable
non-controlling
interest - - - (157) - (157)
Balance as of
30 June 2014 93,321,935 19 44,945 (34,196) 1 10,769
============ ======== =========== ============ ===================== ===============
Balance as of
1 January 2013 97,774,935 20 43,813 (17,166) (146) 26,521
Net income - - - (5,743) - (5,743)
Other comprehensive
income: - - - - (5) (5)
Share-based compensation - - 507 - - 507
Balance as of
30 June 2013 97,774,935 20 44,320 (22,909) (151) 21,280
============ ======== =========== ============ ===================== ===============
The accompanying notes are an integral part of the consolidated financial
statements.
GLOBAL MARKET GROUP LIMITED
NOTES TO THE CONSOLIDATED STATEMENTS
(Amounts in thousands of U.S. Dollars ("US$") 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 13 May, 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 ("M2B") 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 organisation using the aforementioned VIE arrangements.
Details of the Company's subsidiaries and variable interest entity as at 30 June, 2014 are set out as follows:
Percentage
Date of Place of of ownership
Company Establishment establishment by the Company Principal activities
-------------------------- --------------- --------------- ---------------- ---------------------
Continuing Operations:
Global Market Group June 14, Hong Kong 100% Investment
(Asia) Limited holding and
("Global Market M2B e-commerce
Asia") services
2000
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 September PRC 100% M2B e-commerce
Market Information 7, services
Technology Co.,
Ltd ("Shenzhen
Global Market")
2009
Suzhou Long Mei April 9, PRC 100% M2B e-commerce
Information Technology 2010 services
Co., Ltd. ("Suzhou
Long Mei")
Guangzhou Long July 27, PRC 100% M2B e-commerce
Tian Software Technology 2011 services
Co., Ltd ("Guangzhou
Long Tian)
Guangzhou Shen June 23, PRC Nil Internet Content
Long Computer Technology 2003 Provision ("ICP")
Co., Ltd. ("Guangzhou services
Shen Long")
Guangzhou Long November PRC 89.5% M2C e-commerce
Fei Software Technology 28, 2012 services
Co., Ltd. ("Guangzhou
Long Fei")
Guangzhou Long March 28, PRC 100% M2B e-commerce
Yuan Software Technology 2013 services
Co., Ltd. ("Guangzhou
Long Yuan")
Feifei Group Limited June 10,2013 BVI 100% M2C e-commerce
("Feifei Group") services
Feifei International June19,2013 BVI 100% M2C e-commerce
Limited ("Feifei services
International")
Guangzhou Feifei November PRC 100% M2C e-commerce
Information Technology 29, services
Co., Ltd ("Guangzhou
Feifei")
2013
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 realisable 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%
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 Capitalised 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 amortised, 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 30 June, 2014, 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 31 December.
Other Intangible Assets, net
Other intangible assets consisting of computer software, website, acquired customer relationship and Capitalised software development costs are carried at cost less accumulated amortisation and impairment, if any.
Acquired customer relationships are related to the ability to sell existing services to existing customers and have been recognised initially at fair value at the date of acquisition using a valuation technique based on expected income.
Capitalised software development costs represent Capitalised 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. Capitalisation of computer software costs ceases when the product is available for general release to customers and is amortised over the useful life on a straight line basis.
Intangible assets with a finite useful life are carried at cost less accumulated amortisation. Intangible assets with a finite useful life are generally amortised 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
Capitalised 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 recognises 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 17). 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 recognised 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 utilises 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 utilise 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. The Group 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 recognised 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 recognised 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 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 recognised 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 recognised 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 recognised 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 recognised 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$17 for six months ended 30 June, 2014.
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.
Cost of Revenues
Cost of revenue 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.
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 30 June, 2013 and 2014 are approximately US$711 and US$844 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 Capitalised 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 recognised. Commission expenses were approximately US$1,108 and US$934 for the six months ended 30 June, 2013 and 2014, respectively.
Fulfilment
Fulfilment costs represent packaging material costs and those costs incurred in outbound shipping, operating and staffing the Group's fulfilment 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. Fulfilment costs also contain third party transaction fees, such as credit card processing and debit card processing fees. Shipping costs amounted to US$1and US$675 for the six months ended 30 June, 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$1,228 and US$1,873 for the six months ended 30 June, 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 realised. The effect on deferred taxes of a change in tax rates is recognised 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 recognised and the amount previously taken or expected to be taken in a tax return. Interest and penalties recognised 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 recognises 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 realised upon settlement. The Group's estimated liability for Unrecognised 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 realised 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 recognised 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 recognised 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 recognised when liquidity event is consummated. The Company recognises 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 recognised 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 recognised 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 31 December, 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 recognised 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 recognised 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.
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 25 June, 2013, the Group operated and managed its business as a single reportable segment, namely M2B e-commerce segment. On 25 June, 2013, the M2C China e-commerce services segment set up. As of and for the six months ended 30 June 2014, 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 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.
3.ACCOUNTS RECEIVABLE
As at As at
June 30, June 30, As at
December
2014 2013 31, 2013
------------ ------------ -----------
US$ US$ US$
(Unaudited) (Unaudited) (Audited)
Accounts receivable 331 1,073 362
Less: Allowance for doubtful
accounts - - -
------------ ------------ -----------
Accounts receivable, net 331 1,073 362
============ ============ ===========
Movement in allowance for doubtful accounts:
As at As at As at
December
June 30, June 30, 31,
2014 2013 2013
------------ ------------ ----------
US$ US$ US$
(Unaudited) (Unaudited) (Audited)
Balance at beginning of the
year - - -
Additional provision charged
to expenses - 139 -
Write-offs - (139) -
------------ ------------ ----------
Balance at end of the year - - -
============ ============ ==========
4.PREPAYMENTS AND OTHER CURRENT ASSETS
As at As at As at
June30, June30, December31,
2014 2013 2013
------------ ------------ ------------
US$ US$ US$
(Unaudited) (Unaudited) (Audited)
Prepaid expenses 1,938 1,531 2,184
Deposits for office leases 250 144 240
Capitalised commission costs 1,689 1,020 1,507
Prepayments to suppliers - 66 99
Deposits for inventories 79 22 -
Others 746 357 713
Total 4,702 3,140 4,743
============ ============ ============
5.PROPERTY AND EQUIPMENT, NET
As at As at As at
December
June 30, June 30, 31,
2014 2013 2013
------------ ------------ ----------
US$ US$ US$
(Unaudited) (Unaudited) (Audited)
Electronic and office equipment 3,745 3,217 3,546
Leasehold improvement 728 633 724
Construction in progress 1,851 444 1,443
------------ ------------ ----------
Property and equipment,
cost 6,324 4,294 5,713
Less: Accumulated depreciation (1,650) (1,054) (1,298)
------------ ------------ ----------
Property and equipment,
net 4,674 3,240 4,415
============ ============ ==========
Depreciation expenses amounted to approximately US$149 and US$352 for the six months ended 30 June 2013 and 2014, respectively.
6.GOODWILL AND OTHER INTANGIBLE ASSETS, NET
The changes in carrying amount of goodwill for the year ended December31, 2013 and six months ended 30 June,2014 are as follows:
US$
Balance as at December 31, 2012 6,512
Foreign currency translation adjustment (2)
------
Balance as at December 31, 2013 6,510
Foreign currency translation adjustment 2
------
Balance as at 30June 2014 6,512
======
Other intangible assets consist of the following:
As at As at As at
December
June 30, June 30, 31,
2014 2013 2013
------------ ------------ ----------
US$ US$ US$
(Unaudited) (Unaudited) (Audited)
Computer software 2,366 938 2,216
Website 634 749 640
Acquired customers relationships 613 612 613
Capitalised software development
costs 2,915 1,792 2,268
Less: Accumulated amortisation (1,790) (1,031) (1,329)
Total 4,738 3,060 4,408
============ ============ ==========
Amortisation expense amounting to approximately US$197 and US$461 for the six months ended 30 June 2013 and 2014, respectively, were recorded in general and administrative expenses on the unaudited interim condensed consolidated statements of operations. Amortisation expense amounting to approximately US$9 and US$7for the six months ended 30 June 2013 and 2014, respectively, were recorded in cost of revenues on the unaudited interim condensed consolidated statements of operations.
The estimated annual amortisation expense of intangible assets for each of the following five fiscal years are as follows:
US$
(Unaudited)
------------
Six months ended June 30
2014 514
Years ended December 31,
2015 809
2016 804
2017 780
2018 523
------------
Total 3,430
============
7.OTHER NON-CURRENT ASSETS
As at As at As at
December
June 30, June 30, 31,
2014 2013 2013
------------ ------------ ----------
US$ US$ US$
(Unaudited) (Unaudited) (Audited)
Deposits 62 172 163
Loans to employees 4,607 3,779 3,500
Total 4,669 3,951 3,663
============ ============ ==========
8.ACCRUED EXPENSES AND OTHER LIABILITIES
As at As at As at
December
June 30, June 30, 31,
2014 2013 2013
------------ ------------ ----------
US$ US$ US$
(Unaudited) (Unaudited) (Audited)
Salary and welfare payable 2,079 2,003 3,642
Accrued operating expenses 3,602 3,195 3,092
Professional fees 8 14 115
Other taxes payable 420 347 414
Others 129 157 44
Total 6,238 5,716 7,307
============ ============ ==========
9.SHARE CAPITAL
Ordinary shares
On 26 September, 2013, the Company issued 50,000 ordinary shares of US$0.0002 each to the Company's Independent Non-Executive Director in accordance with his letter of appointment dated 6 June, 2012.
The Company completed a share buyback of an aggregate 4,503,000 ordinary shares from NIFSMBC-V2006S1 Investment Limited Partnership and NIFSMBC-V2006S3 Investment Limited Partnership, two pre-IPO shareholders, at an average price of 29.1 pence per share on 28 January 2014.
The Company did not pay or declare any dividends on ordinary shares for the six months ended 30 June, 2013 and 2014.
Accumulated other comprehensive loss
Changes in accumulated other comprehensive loss by component, net of tax, for the six months end 30 June, 2013 and 2014respectively are as follows:
Foreign currency
translation Total
US$ US$
Balance as at December 31, 2012 (146) (146)
Other comprehensive income (5) (5)
----------------- --------
Balance as at June 30, 2013 (151) (151)
Other comprehensive income 209 209
----------------- --------
Balance as at December 31, 2013 58 58
Other comprehensive income (57) (57)
----------------- --------
Balance as at June 30, 2014 1 1
================= ========
10.TREASURY SHARES
Share buyback
The Company completed a share buyback of an aggregate 4,503,000 ordinary shares of the Company from NIFSMBC-V2006S1 Investment Limited Partnership and NIFSMBC-V2006S3 Investment Limited Partnership (together, the "Vendors"), two pre-IPO shareholders at an average price of 29.1 pence per share on 28 January 2014.These shares are held as treasury shares. As a result of this buyback, the Vendors no longer have any interest in the Company's ordinary shares. The Company has a total of 97,824,935 ordinary shares in issue on 30 June, 2013, with 4,503,000 shares held in treasury. Total voting rights in the Company have been reduced to 93,321,935.
Accounting for the treasury shares
About accounting operation for the treasury shares, there are three methods to present.
Method 1 - Show the cost of acquired stock separately as a deduction from the total of capital stock, additional paid-in capital, and retained earnings;
Method 2 - Deduct the par value of treasury stock in proportion from paid-in capital according to the amount of treasury stock, and an excess of repurchase price over par or stated value may be allocated between additional paid-in capital and retained earnings.
Method 3 - Deduct the par value of treasury stock in proportion from paid-in capital according to the amount of treasury stock, and an excess of repurchase price over par or stated value may be charged entirely to retained earnings
The SEC guidance does not specify which method is required The specific facts and circumstances of the applicable redemption feature and the level of subjectivity and assumptions necessary should be evaluated by repurchaser of shares to apply the method that best presents the economics of treasury stock. Method 3 is chosen by the company to present the treasury stock.
11. CONTINGENTLY REDEEMABLE NON-CONTROLLING INTEREST
Issuance of redeemable convertible preferred shares
On 26 March, 2014, the Company entered into an agreement with Guangzhou Daily Newspaper Business Co., Limited ("Guangzhou Daily"), under which Guangzhou Daily acquired an initial 10.5% equity interest of Guangzhou Long Fei Software Technology Co., Ltd. ("Guangzhou Long Fei"), one of the subsidiaries of the Company, for a cash consideration of RMB40 million (approximately US$6.5 million).
Redemption
This 10.5% equity interest of Guangzhou Long Fei would be redeemed by Guangzhou Daily if one of the following circumstances occurs:
(i) Guangzhou Long Fei could not achieve a success listing in any stock exchange before 31 December, 2021;
(ii) Guangzhou Feifei Information Technology Co., Ltd, the controlling shareholder of Guangzhou Long Fei, as well as its affiliated companies(except for Guangzhou Long Fei),engages in competitive M2C China business against the business of www.feifei.com in Chinese market through cooperating with or entrusting others.
(iii) Guangzhou Feifei Information Technology Co., Ltd and its affiliated companies fail to transfer all the intellectual property assets specified in the investment agreement to Guangzhou Long Fei.
The redemption price is equal to the original issuance price per share with its simple interest at the rate of ten percent (10%) per annum, starting from the issuance date until the date all redemption price is received by Guangzhou Daily.
The Agreement includes an upward and downward price adjustment mechanism linked to Guangzhou Longfei's sales in the period from 1 April 2014 to 31 March 2015 (the "Performance Period"). On the basis of the cash consideration alone, the investment by Guangzhou Daily has been undertaken at a pre-money valuation of Guangzhou Longfei of RMB300million. On completion this will equate to Guangzhou Daily having a 10.5% interest in the enlarged share capital of Guangzhou Longfei. Should sales in the Performance Period be below RMB 100 million the valuation will be adjusted downwards by a ratio of 2 RMB for every 1 RMB of sales, to a minimum valuation of RMB 200 million which would equate to 14.3% of Guangzhou Longfei's equity. Should Guangzhou Longfei's sales exceed RMB 200 million, an upward adjustment of the valuation will be made applying the same ratio up to RMB 400 million which would equate to Guangzhou Daily's interest in Guangzhou Longfei being 8.3%.
Accounting for contingently redeemable non-controlling interest
Generally, an embedded feature (whether or not bifurcated) that permits or requires an non-controlling interest(NCI) holder to deliver subsidiary shares in exchange for cash or other assets from the buyer results in the NCI being considered redeemable equity if the NCI is not presented as a liability. In these cases, financial statements prepared in accordance with the SEC's Regulation S-X need to consider the SEC staff's guidance on redeemable equity securities (included in Codification at ASC 480-10-S99-3A) when classifying and measuring redeemable NCI. The SEC guidance may result in the NCI being presented as "mezzanine"or temporary equity (between liabilities and permanent equity) on the balance sheet. While private companies usually don't have to follow this guidance, it's generally believed that its application is preferable.
For all entities, NCI is initially accounted for and subsequently measured in accordance with ASC 810. For financial statements prepared in accordance with the SEC's Regulation S-X, if the NCI is considered redeemable under ASC 480-10-S99-3A, it is presented as mezzanine equity and subsequently measured in accordance with the SEC guidance.
Pursuant to ASC 480-10-S99-3A, for a security that is not redeemable currently, but probable of becoming redeemable in the future, the SEC guidance permits the following two methods of adjusting the carrying amount of the redeemable security.
Method 1 - Accrete the carrying amount of the redeemable security to the redemption amount over time, to the date it is probable it will become redeemable, using an appropriate method (e.g., the interest method).
Method 2 - Adjust the carrying amount of the redeemable security to what would be the redemption amount assuming the security was redeemable at the balance sheet date.
The SEC guidance does not specify which method is required. Issuers should evaluate the specific facts and circumstances of the applicable redemption feature and the level of subjectivity and assumptions necessary and apply the method that best presents the economics of the redeemable NCI. The method 1 is selected by the company to adjust the carrying amount of the redeemable security.
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.
Hong Kong
For the six months ended 30 June2013 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 1 January, 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:
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 their respective 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 "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 1 January, 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
------------------------------ ------------
2014 2013 2013
US$ US$ US$
(Unaudited) (Unaudited) (Audited)
------------ ------------ ------------
British Virgin Islands 35 38
Cayman Island (195) (151) (224)
Hong Kong 209 37 (178)
PRC (5,196) (5,687) (8,911)
Total (5,147) (5,801) (9,351)
============ ============ ============
13.SHARE-BASED PAYMENTS
Options granted to Consultants
(a) Granted by a shareholder
On 11 July, 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 30 June, 2014, the options granted by Mr. Weijia Pan to Hanson Westhouse to purchase an aggregate of 489,845 shares with exercise prices of US$0.6533 per share were still outstanding which will expire two years after the completion of an initial public offering in the United States or in Hong Kong. As of 30 June, 2014, the aggregate intrinsic value of options granted to Hanson Westhouse was nil.
(b) Granted by the Company
On 18 June, 2012, the Company granted 86,000 stock options to two external consultants at an exercise price of GBP1.3 per share with a contractual life of ten years. These options will vest upon the Admission and continuous service of the grantees for a period of 1 to 4 years after the Admission.
On 18 June, 2012, the Company granted 140,000 stock options to two external consultants at an exercise price of GBP1.3 per share with a contractual life of ten years. Pursuant to the share option agreements, 30%, 40% and 30% of these options will vest and become exercisable upon the first, second and third anniversary of the Admission, respectively.
The following table summarised the consultant share options granted by the Company for the years ended 30 June, 2014:
Weighted Weighted
Average per Average Remaining Aggregated
Number of Share Exercise Contractual Intrinsic
Granted by the Company option Price Term Value
US$ (Years) US$'000
Outstanding, January
1, 2014 226,000 2.04 8.47 -
=========
Granted -
Forfeited -
Exercised -
---------
Outstanding, Jun 30,
2014 226,000 2.04 7.97 -
=========
Vested and expected to
vest at June 30, 2014 226,000 2.04 7.97 -
=========
Exercisable at June 30,
2014 -
=========
As of 30 June, 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 7.97 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 30 June, 2014, the aggregate intrinsic value of options granted to consultant on 18 June, 2012 was nil. The total grant date fair value of the options granted to consultants during the year ended 30 June, 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.
The Company calculated the estimated fair value of the above noted options using the binomial option pricing model with the following assumptions:
June 18, June 30, June 30,
2012 2013 2014
--------- --------- ---------
Expected share option life 10 8.97 7.97
Estimated forfeiture rate - - -
Fair value of ordinary shares 2.04 0.61 0.60
Suboptimal exercise factor 2 2 2
Risk-free interest rates 1.66% 2.29% 2.41%
Expected volatility 60.29% 59.30% 55.86%
Expected dividend yield - - -
The volatility assumption was estimated based on the price volatility of ordinary shares of comparable companies. The sub optimal early 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. The fair values of stock options were US$2.04, US$0.61 and US$0.60 per share on 18 June, 2012, 30 June, 2013 and 2014, respectively.
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 23 July, 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. During year ended 31 December, 2010, the Company granted 4,242,127 options to employees and non-employee directors of the Company at exercise prices ranging from US$0.65 to US$1.8. The options vest upon the successful completion of the Company initial public offering in any jurisdiction and continuous employment of the grantees with the Company for a period of 3 to 4 years after the completion of the offering. The options have been accounted for as equity awards and measured at their grant date fair values.
On 18 June, 2012, the Company granted 50,000 stock options to an independent director at an exercise price of GBP1.3 per share with a contractual life of ten years. These options will vest upon the Admission and continuous service of the grantees for a period of 1 to 2 years after the Admission. The options have been accounted for as equity awards and measured at their grant date fair values.
(a) Options Granted to Employees
The following table summarised the Company's employee share option activity under the Option Plans for the years ended 30 June, 2014:
Weighted
Weighted Average
Average per Remaining Aggregated
Number of Share Exercise Contractual Intrinsic
Granted by the Company option(*) Price Term Value
US$ (Years) US$'000
Outstanding, January
1, 2014 4,882,437 1.55 7.54 -
==========
Granted - -
Forfeited (209,323) (1.55)
Exercised - -
----------
Outstanding, Jun 30,
2014* 4,673,114 1.55 7.04 -
==========
Vested and expected to
vest at Jun 30, 2014* 4,673,114 1.55 7.04 -
==========
Exercisable at June 30,
2014 - - - -
==========
*Options to purchase 329,874 and 312,041 shares granted to the Group's former employees in the logistics and M2C businesses before their disposal on 9 September, 2010 were outstanding as of 30 June, 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 recognise 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.
The Company calculated the estimated fair value of the options on the respective measurement dates using the binomial option pricing model with the following assumptions:
June 18, 2013
--------------
Suboptimal exercise factor 2
Risk-free interest rates 2.29%
Expected volatility 59.96%
Expected dividend yield -
Weight average expected life 9.47
Estimated forfeiture rate -
Fair value of ordinary shares 1.98
The total grant date fair value of the options granted to employees during the year ended 30 June, 2014 was US$323.
As of 30 June, 2014, there was US$721 of unrecognised share-based compensation cost related to options granted to employee by the Company, which are expected to be recognised over a weighted-average vesting period of 1.62 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 29 April, 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 8 September, 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$1.75 per share.
The options granted by Mr. Weijia Pan vest upon the successful completion of the Company's initial public offering in any jurisdiction and continuous employment of the grantee with the Company for a period of 3 years after the completion of the offering. The awards were granted on 29 April, 2010 and 8 September, 2010, respectively, and have been accounted for as equity awards of the Company since the options were granted by a principal shareholder for service provided to the Company. The options are measured at the grant date fair value and a corresponding credit will be recorded in additional paid-in capital when vested.
The following table summarised the employee share options granted by the principal shareholder:
Weighted
Weighted-Average Average
per Share Remaining Aggregated
Granted by Principal Number of Exercise Contractual Intrinsic
shareholder option(*) Price Term Value
US$ (Years) US$'000
Outstanding, January
1, 2014 1,969,749 0.24 6.35 545
======================
Granted - -
Forfeited - -
Exercised - -
----------------------
Outstanding, Jun 30,
2014 * 1,969,749 0.24 5.85 1,497
======================
Vested and expected to
vest at June 30, 2014
* 1,969,749 0.24 5.85 1,497
======================
Exercisable at June 30,
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 9 September, 2010 were outstanding as of 30 June, 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 recognise 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.
The Company calculated the estimated fair value of the options on the respective measurement dates using the binomial option pricing model with the following assumptions:
April 29,
September
2010 8, 2010
----------------- -----------------
Suboptimal exercise factor
-middle and high management level 2 2
Suboptimal exercise factor
-employee level 1.5 1.5
Risk-free interest rates 3.81% 2.70%
Expected volatility 64.55% 73.57%
Expected dividend yield - -
Weighted average fair value of share option
presented to give retroactive effect of
share division 0.75 1.35
As of 30 June, 2014, there was US$162 of unrecognised share-based compensation cost related to options granted to employee by the Founder, which are expected to be recognised over a weighted-average vesting period of 1.22 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 22 June, 2014, the Company modified the vesting date of 2,620,818 options and 500,559 options granted to employees from 22 June, 2014 and 22 July, 2014 to 22 June, 2015. 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 I probable-to-probable modification in accordance with ASC 718 on 22 June, 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 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 22 June, 2013, provided his appointment as an independent director of the Company has not been terminated or expired at the time of grant. On 26 September, 2013, the Company issued 50,000 vested RSUs with par value US$0.0002 each to the independent director.
The RSUs are classified as liability awards which are measured based on the settlement date fair value. As of 30 June, 2014, the RSUs granted to employee by the Company are all vested.
(e).Compensation cost
Total compensation cost relating to options and RUSs granted to employees and directors recognised for the years ended 30 June, 2013 and 2014 are as follows:
For the six months Year
ended ended December
June 30 31,
-------------------------- ----------------
2014 2013 2013
US$ US$ US$
(Unaudited) (Unaudited) (Audited)
------------ ------------ ----------------
Cost of revenues 16 23 42
Selling and marketing expenses 158 276 329
General and administrative
expenses 180 220 390
------------ ------------ ----------------
TOTAL 354 519 761
============ ============ ================
14.RELATED PARTY TRANSACTIONS
There were no related party transactions for the six months ended 30 June, 2013 and 2014.
15.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. Accordingly, for the year ended 31 December, 2013, the Group operated and managed its business as M2B e-commerce segment and M2C e-commerce segment. For the year ended 31 December, 2012, the Group operated and managed its business as a single reportable segment, namely M2B e-commerce segment and therefore, additional segment information has not been presented
(a) Business disclosures
Prior to 25 June, 2013, the Group operated and managed its business as a single reportable segment, namely M2B e-commerce segment. On 25 June, 2013, the M2C China e-commerce services segment was set up. As of and for the half 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 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 six months ended 30 June, 2014 is as follows:
GLOBAL MARKET GROUP LIMITED
SEGMENT REPORT OF COMPREHENSIVE INCOME
(Amounts in thousands of U.S. Dollars ("US$") except for number of shares and per share data)
M2B M2c China Unallocated Total
------------ ------------ -------------- -----------
US$ US$ US$ US$
Revenues 11,178 2,277 - 13,455
Cost of revenues (1,057) (2,312) - (3,369)
------------ ------------ -------------- -----------
Gross profit 10,121 (35) - 10,086
Operating expenses:
Selling and marketing expenses (6,457) (2,348) - (8,805)
General and administrative expenses (2,931) (1,401) (190) (4,522)
Fulfilment - (1,631) - (1,631)
Share-based compensation expenses (328) (26) - (354)
------------ ------------ -------------- -----------
Operating income 405 (5,441) (190) (5,226)
Other income 60 - - 60
Foreign exchange loss (gain) (7) (1) (5) (13)
Changes in fair value of derivative
financial liabilities (17) - - (17)
Interest income 39 10 - 49
------------ ------------ -------------- -----------
Income before income tax 480 (5,432) (195) (5,147)
Income tax benefit 4 - - 4
------------ ------------ -------------- -----------
Net income 484 (5,432) (195) (5,143)
Total assets 27,354 12,132 94 39,579
Total Liabilities 20,272 1,762 123 22,157
Capital expenditure 1,383 19 - 1,402
Depreciation and amortisation expense 684 131 - 815
(b) Geographic disclosures of M2B segment
The Group primarily generates its M2B 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 six months ended June 30, 2013 and 2014 are as follows:
For the six months end Year ended
December
June 30 31
-------------------------- -----------
2014 2013 2013
US$ US$ US$
(Unaudited) (Unaudited) (Audited)
------------ ------------ -----------
Mainland China 11,181 10,207 20,605
Hong Kong 2,274 2,811 5,104
Total 13,455 13,018 25,709
============ ============ ===========
16.EARNINGS PER SHARE
(a) GAAP basic and diluted earnings (loss) per share
Basic and diluted earnings (loss) per share for each of the periods presented are calculated as follows:
For the six months Year ended
ended
December
June 30 31
-------------------------- -----------
2014 2013 2013
US$ US$ US$
(Unaudited) (Unaudited) (Audited)
------------ ------------ -----------
(Amounts in thousands except
for the number of shares and
per share data)
Numerator:
Net income (loss) from continuing
operations (5,143) (5,743) (9,548)
Less: Accretion of contingently
redeemable non-controlling
interest (157) - -
------------ ------------ -----------
Undistributed earnings (loss) (5,300) (5,743) (9,548)
Undistributed earnings allocated
to participating preferred
shares - - -
------------ ------------ -----------
Net income (loss) attributable
to ordinary shareholders used
in calculating net income
per ordinary share - basic
and diluted (5,300) (5,743) (9,548)
============ ============ ===========
Denominator:
Weighted average number of
ordinary shares outstanding
used in calculating basic
earnings per share: 93,321,935 97,774,935 97,824,935
Dilutive option: - 348,855 -
Weighted average number of
ordinary shares outstanding
used in calculating diluted
earnings per share: 93,321,935 98,123,790 97,824,935
Basic and diluted earnings
(loss)per share:
Basic earnings (loss) per
share: (0.06) (0.06) (0.10)
============ ============ ===========
Diluted earnings (loss) per
share (0.06) (0.06) (0.10)
============ ============ ===========
(b)Non-GAAP basic and diluted earnings (loss) per share
Non-GAAP basic earnings(loss) per share for each of the periods presented are calculated as follows:
For the six months Year ended
ended
December
June30 31
--------------------------- -----------
2014 2013 2013
US$ US$ US$
(Unaudited) (Unaudited) (Audited)
------------- ------------ -----------
(Amounts in thousands except for
the number of shares and per share
data)
Numerator:
Net income (loss) from continuing
operations (5,143) (5,743) (9,548)
Add back:
Share-based compensation expenses 354 519 761
Changes in fair value of derivative
financial liabilities 17 (56) (65)
------------- ------------ -----------
Non-GAAP net income (loss) (4,772) (5,280) (8,852)
------------- ------------ -----------
Less: Accretion of contingently
redeemable non-controlling
interest (157) - -
------------- ------------ -----------
Undistributed earnings (loss) (4,929) (5,280) (8,852)
Undistributed earnings allocated
to participating preferred
shares - - -
------------- ------------ -----------
Net income (loss) attributable
to ordinary shareholders used
in calculating net income
per ordinary share - basic
and diluted (4,929) (5,280) (8,852)
============= ============ ===========
Denominator:
Weighted average number of
ordinary shares outstanding
used in calculating basic
earnings per share: 93,321,935 97,774,935 97,824,935
Dilutive option: - 348,855 -
Weighted average number of
ordinary shares outstanding
used in calculating diluted
earnings per share: 93,321,935 98,123,790 97,824,935
Basic and diluted earnings
(loss)per share:
Basic earnings (loss) per
share: (0.05) (0.05) (0.09)
============= ============ ===========
Diluted earnings (loss) per
share (0.05) (0.05) (0.09)
============= ============ ===========
For the year ended 31 December, 2011, the basic earnings per ordinary share was calculated using the two-class method because the Preferred Shares were participating securities. Since each Preferred Share has the same participating right as each ordinary share, the allocation of undistributed earnings was based on the proportionate number of ordinary shares and preferred shares outstanding.
Upon the Admission on 22 June, 2012, each Series A and Series B Preferred Share of a nominal or par value of US$0.0002 of the Company were automatically converted into ordinary shares. Thus, there was no outstanding participating security as of 30 June, 2014and two-class method was not applied to calculate the basic earnings per share for the six months ended 30 June, 2014.
Preferred Shares with conversion rights to convert up to 40,315,380 ordinary shares were outstanding during the six months ended 30, 2013 and 2014, but were not included in the computation of diluted earnings per share because the effects would be anti-dilutive.
17.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.
Liabilities measured at fair value on a recurring basis as of 30 June, 2014 are summarised below:
Quoted Prices
in Active Markets Significant
for Identical Other Observable Unobservable
Assets (Level Inputs(Level Inputs (Level
1) 2) 3)
US$ US$ US$
Share-based compensation
liability - - 37
================== ================= ==============
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 six months ended 30 June, 2014:
Share-based compensation
liability
-------------------------
US$
Balance as of December 31, 2012 85
Addition -
Unrealised gains (65)
-------------------------
Balance as of December 31, 2013 20
=========================
Addition -
Unrealised gains 17
-------------------------
Balance as of June 30, 2014 37
=========================
Unrealised gains of US$17 for the six months ended 30 June, 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 30 June, 2013 and 2014.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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