Exhibit 99.1
YEAR 2001 / 1ST QUARTER
RESULTS OF OPERATIONS
OF GLOBAL SOURCES LTD.
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE ACCOMPANYING FINANCIAL
STATEMENTS. THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT
REFLECT OUR PLANS, ESTIMATES AND BELIEFS. OUR ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED IN THESE FORWARD-LOOKING STATEMENTS. FACTORS
THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED
TO, THOSE DISCUSSED BELOW.
BACKGROUND
We are a leading enabler of global merchandise trade. Our business
began in 1971 in Hong Kong when we launched ASIAN SOURCES, a magazine to serve
global buyers importing products in volume from Asia. Realizing the importance
of e-commerce, we commercially released the first version of GLOBAL SOURCES
TRANSACT, our proprietary trade management software to facilitate international
transactions in 1991. We then became one of the first business-to-business
online marketplaces by launching ASIAN SOURCES ONLINE in 1995. At that time, we
began repositioning our trade magazines to play a supportive, educational and
promotional role to accelerate the shift of our customers to our e-commerce
services. In 1999, we expanded our scope to include global suppliers and changed
the name of our online marketplace to GLOBAL SOURCES ONLINE.
Our online marketplace services allow international buyers to identify
suppliers and products, and enable suppliers to market their products to a large
number of buyers. Our primary online service is creating and maintaining
Marketing Websites that present suppliers' product and company information in a
consistent, easily searchable manner on GLOBAL SOURCES ONLINE. We also offer
cataloguing services for buyers and suppliers. Private Buyer Catalogs enable
buyers to maintain customized information from current and potential suppliers.
Private Supplier Catalogs are password-protected online environments where
suppliers can develop and maintain their own product and company data.
Complementing these services are GLOBAL SOURCES TRANSACT software that
facilitates and automates international trade transactions, and various trade
magazines and CD-ROMs.
We were originally incorporated under the laws of Hong Kong in 1970. We
completed a share exchange with a publicly traded company based in Bermuda, and
our shareholders became the majority shareholders of the Bermuda Corporation. As
a result of the share exchange, we are now incorporated under the laws of
Bermuda and have changed our name to Global Sources Ltd.
OVERVIEW
We derive revenue from three principal activities.
ONLINE MARKETPLACE SERVICES--Our principal online marketplace services
are Marketing Websites, where suppliers present their products and capabilities
on GLOBAL SOURCES ONLINE. We also derive revenue from banner advertising and
placement fees. We ratably recognize the fees we receive to display a supplier's
goods or company data over the contractual term, which is generally six to 12
months.
TRANSACTION SOFTWARE AND SERVICES--Currently, customers typically pay a
one-time fee for a perpetual license to use our GLOBAL SOURCES TRANSACT
software. License fees are based on the number of sites and users for the
software product and also include post-contract customer support services for
one year. We recognize license fees upon delivery of the software and when no
significant obligations remain. Post contract customer support revenue is
deferred and recognized ratably over the maintenance period. We are in the
process of creating web-enabled versions of TRANSACT, for which we may charge
customers differently.
COMPLEMENTARY MEDIA SERVICES--Suppliers pay for advertising in our
trade magazines to promote their products and companies. Generally, we publish
our trade magazines monthly. We recognize revenue ratably over the period in
which the advertisement is displayed, generally not exceeding one year. We also
derive revenue from buyers that subscribe to our trade publications.
Revenue from other sources primarily relates to organizing business
seminars and exhibitions. We recognize revenue at the conclusion of these
events.
Our sales costs consist of the commissions we pay to our independent
sales representatives, as well as support fees for processing sales contracts
and incentive payments. These representatives obtain content for our Marketing
Websites and trade magazines, sell our software and receive a commission as a
percentage of the revenue generated.
RESULTS OF OPERATIONS
The following table sets forth our results of operations:
THREE MONTHS ENDED
MARCH 31,
---------------------------
2000 2001
-------- --------
(UNAUDITED) (UNAUDITED)
REVENUES:
Online marketplace services $ 11,130 $ 14,789
Transaction software and services 107 75
Complementary media services 12,978 8,606
Other 1,119 1,563
-------- --------
25,334 25,033
OPERATING EXPENSES:
Sales 8,648 9,270
Circulation 3,060 3,053
General and administrative 8,489 9,970
Online services development 897 3,131
Non-cash compensation expense 8,933 586
Other non-cash expenses 93 869
-------- --------
TOTAL OPERATING EXPENSES 30,120 26,879
-------- --------
LOSS FROM OPERATIONS (4,786) (1,846)
======== ========
-------- --------
NET LOSS $ (4,617) $ (2,086)
======== ========
INCOME/(LOSS) FROM OPERATIONS
Online marketplace services $ (1,308) $ 1,616
Transaction software and services (222) (3,408)
Complementary media services (3,059) (589)
Other (197) 535
-------- --------
CONSOLIDATED $ (4,786) $ (1,846)
======== ========
The following table represents our revenue by geographical areas:
THREE MONTHS ENDED
MARCH 31,
---------------------------
2000 2001
-------- --------
Asia $ 23,709 $ 23,370
United States 1,149 1,319
Europe 294 171
Other 182 173
-------- --------
Total revenue $ 25,334 $ 25,033
======== ========
CONSOLIDATED RESULTS
REVENUE. Our online marketplace services revenue grew from $11.1
million during the three months ended March 31, 2000 to $14.8 million during the
three months ended March 31, 2001, an increase of 33%. This increase was
attributable to our increased sales efforts and the continuing acceptance by our
clients of our online marketplace services as a way of conducting export trade.
Our complementary media services revenue declined from $12.9 million during the
three months ended March 31, 2000 to $8.6 million during the three months ended
March 31, 2001, a decrease of 33%. This decrease was attributable to our ongoing
emphasis on online marketplace services. Total revenue marginally declined from
$25.3 million during the three months ended March 31, 2000 to $25.0 million
during the three months ended March 31, 2001, a decrease of 1%, due mainly to
slow down in US economy.
SALES. Sales costs consists of the commissions paid and incentives
provided to our independent sales representatives and sales support costs. Sales
costs increased from $8.6 million during the three months ended March 31, 2000
to $9.3 million during the three months ended March 31, 2001, an increase of 8%
due mainly to sales support costs incurred for development of new services and
new markets.
CIRCULATION. Circulation costs consist of the costs relating to our
trade magazine publishing business, specifically printing, paper, bulk
circulation, subscription promotions and customer services costs. Circulation
costs remained at the same level of $3.0 million during the three months ended
March 31, 2000 as well as the three months ended March 31, 2001.
GENERAL AND ADMINISTRATIVE. General and administrative costs consist
mainly of corporate staff compensation, information and technology support
services, content management services, marketing costs, office rental,
depreciation, communication and travel costs. General and administrative costs
increased from $8.5 million during the three months ended March 31, 2000 to
$10.0 million during the three months ended March 31, 2001, an increase of 18%,
due mainly to an increase in marketing expenses, fees paid for professional
services and the retrenchment costs associated with a planned reduction in
headcount.
DEVELOPMENT COSTS. Development costs consist mainly of payroll costs,
office rental and depreciation relating to the development of GLOBAL SOURCES
ONLINE, Private Buyer Catalogs, Private Supplier Catalogs and online Transaction
Services. Development costs to fund the expansion of our online marketplace
services and transaction services, increased from $0.9 million during the three
months ended March 31, 2000 to $3.1 million during the three months ended March
31, 2001, an increase of 244%. This increase resulted from our efforts to
continue to enhance our online marketplace services and transaction services.
NON-CASH COMPENSATION EXPENSES. In the third quarter 2000, the
Company's equity compensation plan (ECP) committee granted awards under ECP II
and ECP III to staff and team members. Again in January 2001, the committee
granted awards under ECP IV and ECP V to staff and team members. The total
non-cash compensation expense, resulting from the four ECP plans, recorded by
the company during the three months ended March 31, 2001 was $0.6 million.
OTHER NON-CASH EXPENSES. Other non-cash expenses consist of
amortization of intangibles and software development costs.
Other non-cash expenses during the three months ended March 31, 2001,
was $0.9 million, consisting $0.8 million amortization of software development
cost and $0.1 million for amortization of intangibles compared to $0.1 million
for the three months ended March 31, 2000 for amortization of intangibles.
INCOME FROM OPERATIONS. Income from operations for online marketplace
services grew to $1.6 million during three months ended March 31, 2001 from a
loss of $1.3 million during three months ended March 31, 2000, an increase of
223%. The increase is mainly attributable to growth in online marketplace
services revenue. The total loss from operations during three months ended March
31, 2001 was $1.8 million as compared to a loss of $4.8 million during the
corresponding period of 2000. The reduction in loss was mainly due to decrease
in non-cash compensation expenses partially off-set by increase in online
services development costs and amortization of software development costs.
INCOME TAXES. We reported a tax provision of $0.4 million during the
three months ended March 31, 2001 and $0.3 million during the three months ended
March 31, 2000.
The company and certain of its subsidiaries operate in the Cayman
Islands and other jurisdictions where there are no taxes imposed on companies.
Certain of the Company's subsidiaries operate in Hong Kong and Singapore and are
subject to income taxes in their respective jurisdictions. Also, the Company is
subject to withholding taxes for revenues earned in certain other countries.
NET INCOME. Net loss was $2.1 million during the three months ended
March 31, 2001, as compared to net loss of $4.6 million during the three months
ended March 31, 2000. This net loss in the first quarter of 2001 was due mainly
to amortization of software development cost of $0.8 million and increase in
online services development costs and general and administrative costs.
The loss in the first quarter of year 2000 was mainly due to the
non-cash compensation expense of $9.0 million.
LIQUIDITY AND CAPITAL RESOURCES
We finance our activities using cash generated from our operations,
supplemented by borrowings from a short-term bank loan, as necessary.
Net cash used for operating activities was a marginal amount during the
first three months of 2001 and $2.9 million during the first three months of
year 2000. The primary source of cash from operating activities was net loss as
adjusted by non-cash expenses and changes in working capital.
Net cash used for investing activities was $0.6 million during the
first 3 months of year 2001 which was used principally for capital expenditures
for computers, software and furniture and fixtures. Net cash used for investing
activities in the first three months of year 2000 was $11.2 million, of which
$1.2 million was used for the purchase of computers and software development and
$10.0 million for investment in an unaffiliated electronic commerce company.
Net cash generated from financing activities was $0.2 million in the
first three months of year 2001, which resulted from share application money
received from a director. Net cash generated from financing activities was $13.3
million in the first three months of year 2000, resulting from the short term
borrowings.
On March 13, 2001, we renewed the credit facility with Bank of Bermuda
(Isle of Man) Limited for a further twelve month period under the same terms and
conditions. The credit facility has a term of one year and provides a borrowing
facility of up to $25.0 million, with minimum borrowings of $1.0 million. The
lender may request that we secure our borrowings under the credit facility. The
credit facility bears interest, payable quarterly in arrears, at the London
Inter-Bank Market Rate plus 0.5%. The credit facility can be used for
investments, working capital and general corporate purposes. Our principal
shareholder, Hung Lay Si Co. Ltd., has guaranteed all of the obligations under
the credit facility. As of March 31, 2001, we had drawn $4.0 million under the
credit facility as compared to $13.3 million drawn as of March 31, 2000.
Advance payments received from customers were $16.1 million as of March
31, 2001 and $15.9 million as at December 31, 2000, improving our liquidity. We
anticipate that cash on hand, cash generated from operations and short-term bank
borrowings will be adequate to satisfy our working capital, capital expenditure
requirements and cash commitments based on our current levels of operation.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We operate internationally and foreign exchange rate fluctuations may
have a material impact on our results of operations. Historically, currency
fluctuations have been minimal on a year to year basis in the currencies of the
countries where we have operations. As a result, foreign exchange gain or losses
in revenues and accounts receivable have been offset by corresponding foreign
exchange losses or gains arising from expenses. However, during the Asian
economic crisis of 1997 to 1998, both advertising sales and the value of Asian
currencies declined, which caused a significant decline in revenues that was not
fully offset by lower expense levels in Asian operations.
This decline in revenues occurred due to contracts being denominated
and priced in foreign currencies prior to devaluations in Asian currencies. The
conversion of these contract proceeds in U.S. dollars resulted in losses and
reflects the foreign exchange risk assumed by us between contract signing and
the conversion of cash into U.S. dollars. We believe this risk is mitigated
because historically a majority (ranging between 55% to 65%) of our revenues are
denominated in U.S. dollars or are received in the Hong Kong currency which is
currently pegged to the U.S. dollar. To the extent significant currency
fluctuations occur in the New Taiwan dollar or other Asian currencies, or if the
Hong Kong dollar is no longer pegged to the U.S. dollar, our profits would be
affected.
As of March 31, 2001, we have not engaged in foreign currency hedging
activities.