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Exhibit 1
YEAR 2001 / 2ND 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.
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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.
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.
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RESULTS OF OPERATIONS
The following table sets forth our results of operations:
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
2000 2001 2000 2001
-------- -------- -------- --------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
REVENUES:
Online marketplace services ..... $ 13,999 $ 14,411 $ 25,129 $ 29,200
Transaction software and services 133 95 240 170
Complementary media services .... 10,783 9,137 23,761 17,743
Other ........................... 836 789 1,955 2,352
-------- -------- -------- --------
25,751 24,432 51,085 49,465
OPERATING EXPENSES:
Sales .......................... 9,550 8,691 18,198 17,961
Circulation .................... 3,131 3,069 6,191 6,122
General and administrative ..... 7,766 8,330 16,255 18,300
Online services development .... 1,126 2,181 2,023 5,312
Non-cash compensation expense .. 1,400 885 10,333 1,471
Other non-cash expenses ........ 1,446 869 1,539 1,738
-------- -------- -------- --------
TOTAL OPERATING EXPENSES .......... 24,419 24,025 54,539 50,904
-------- -------- -------- --------
INCOME/(LOSS) FROM OPERATIONS ..... 1,332 407 (3,454) (1,439)
======== ======== ======== ========
NET INCOME/(LOSS) ................. $ 1,252 $ 73 $ (3,365) $ (2,013)
======== ======== ======== ========
INCOME/(LOSS) FROM OPERATIONS:
Online marketplace services ..... $ 1,810 $ 3,513 $ 502 $ 5,129
Transaction software and services (65) (2,190) (287) (5,598)
Complementary media services .... (449) (728) (3,508) (1,317)
Other ........................... 36 (188) (161) 347
-------- -------- -------- --------
CONSOLIDATED ...................... $ 1,332 $ 407 $ (3,454) $ (1,439)
======== ======== ======== ========
</Table>
The following table represents our revenue by geographical areas:
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- ---------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 2001 2000 2001
------- ------- ------- -------
Asia ................... $23,950 $22,434 $47,659 $45,804
United States .......... 1,337 1,488 2,486 2,806
Europe ................. 286 293 580 464
Others ................. 178 217 360 391
------- ------- ------- -------
TOTAL REVENUE ...... $25,751 $24,432 $51,085 $49,465
======= ======= ======= =======
</Table>
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CONSOLIDATED RESULTS
REVENUE. Our online marketplace services revenue grew from $14.0
million during the three months ended June 30, 2000 to $14.4 million during the
three months ended June 30, 2001, an increase of 3%. This increase was
attributable to our increased sales efforts and the continuing acceptance by our
clients of our online marketplace services as a way to enable export trade. Our
complementary media services revenue declined from $10.8 million during the
three months ended June 30, 2000 to $9.1 million during the three months ended
June 30, 2001, a decrease of 16%. This decrease was attributable to our ongoing
emphasis on online marketplace services. Total revenue declined by 5% from $25.8
million during the three months ended June 30, 2000 to $24.4 million during the
three months ended June 30, 2001, due mainly to the effect of the slow down in
U.S. economy.
During the six months ended June 30, 2001, our online marketplace
services revenue increased by $4.1 million or 16% to $29.2 million as compared
with $25.1 million in the corresponding period last year, as a result of our
increased sales efforts and the continuing acceptance by our clients of Global
Sources online marketplace services as a way of conducting export trade.
Revenues in our complementary media services declined by $6.1 million or 26% to
17.7 million during the six months ended June 30, 2001 as compared with $23.8
million during the corresponding period last year, as a result of our on-going
emphasis on online marketplace services. Total revenues for the six months ended
June 30, 2001 were $49.5 million compared with $51.1 million for the six months
ended June 30, 2000, a decline of $1.6 million or 3% mainly due to the effect of
the slow down in U.S. economy.
SALES. Sales costs consist of the commissions paid and incentives
provided to our independent sales representatives and sales support costs. Sales
costs declined from $9.6 million during the three months ended June 30, 2000 to
$8.7 million during the three months ended June 30, 2001, a decline of 9% due
mainly to decline in revenue.
Sales costs declined from $18.2 million during the six months ended
June 30, 2000 to $18.0 million during the six months ended June 30, 2001, a
decline of 1% due to decline in revenue offset partially by the increase in
sales support costs in the first quarter of 2001.
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 $3.1 million during the three months ended
June 30, 2000 as well as the three months ended June 30, 2001.
Circulation costs marginally declined from $6.2 million during the six
months ended June 30, 2000 to $6.1 million during the six months ended June 30,
2001 a decline of 2% due to reduction in subscription promotions cost.
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 $7.8 million during the three months ended June 30, 2000 to $8.3
million during the three months ended June 30, 2001, an increase of 6%, due
mainly to an increase in information and technology support costs, content
management services costs and marketing promotion costs for exhibitions
activity.
General and administrative costs increased from $16.3 million during
the six months ended June 30, 2000 to $18.3 million during the six months ended
June 30, 2001, are increase of 12% due to increase in marketing expenses,
content management services costs, fees paid for professional services and the
retrenchment costs associated with a planned reduction in headcount.
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DEVELOPMENT COSTS. Development costs consist mainly of payroll costs,
office rental and depreciation relating to the development of GLOBAL SOURCES
ONLINE, Private Buyer Catalogs and Private Supplier Catalogs. Development costs
to fund the expansion of our online marketplace services increased from $1.1
million during the three months ended June 30, 2000 to $2.2 million during the
three months ended June 30, 2001, an increase of 100%. This increase resulted
from our efforts to continue to enhance our online marketplace services.
Development costs to fund the expansion of our online marketplace
services increased from $2.0 million during the six months ended June 30, 2000
to $5.3 million during the six months ended June 30, 2001, an increase of 165%.
This increase resulted from our efforts to continue to enhance our online
marketplace 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 the committee granted awards under
ECP IV and ECP V in January 2001 and under ECP VI in May 2001 to staff and team
members. The total non-cash compensation expense, resulting from the five ECP
plans, recorded by the company during the three months and six months ended June
30, 2001 were $0.9 million and $1.5 million respectively.
OTHER NON-CASH EXPENSES. Other non-cash expenses consist of
amortization of intangibles, software development costs and for the year 2000
periods, include the listing expenses incurred in connection with our share
exchange.
Other non-cash expenses during the three months ended June 30, 2001,
were $0.9 million, consisting $0.8 million amortization of software development
cost and $0.1 million for amortization of intangibles compared to $1.4 million
for the three months ended June 30, 2000 consisting of $1.3 million for listing
expenses and $0.1 million for amortization of intangibles.
Other non-cash expenses during the six months ended June 30, 2001 were
$1.7 million consisting of $1.5 million amortization of software development
cost and $0.2 million for amortization of intangibles compared to $1.5 million
for the six months ended June 30, 2000 consisting of $1.3 million for listing
expenses and $0.2 million for amortization of intangibles.
INCOME FROM OPERATIONS. Income from operations for online marketplace
services grew to $3.5 million during three months ended June 30, 2001 from $1.8
million during three months ended June 30, 2000, an increase of 94%. The
increase is mainly attributable to growth in online marketplace services
revenue. The total income from operations during three months ended June 30,
2001 was $0.4 million as compared to $1.3 million during the corresponding
period of 2000. The reduction was mainly due to decline in total revenue and
increase in online services development costs and amortization of software
development costs.
Income from operations for online marketplace services grew to $5.1
million during six months ended June 30, 2001 from $0.5 million during the six
months ended June 30, 2000, an increase of 920%. The increase is mainly
attributable to growth in online marketplace services revenue and the reduction
in non-cash compensation expenses compared to the first half of last year,
off-set partially by increase in online services development costs and general
administrative costs. Loss from operations during six months ended June 30, 2001
was $1.4 million compared $3.5 million during the corresponding period of 2000.
The reduction in loss was mainly due to reduction in non-cash compensation
expenses, off-set partially by increase in online services development costs,
general administrative costs and amortization of software development cost.
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WRITE-DOWN OF INVESTMENT. During the second quarter of year 2001, we
wrote down $0.3 million on investment in an unaffiliated electronic commerce
company based on the current financial position of the investee company and
other information which became available in second quarter.
INCOME TAXES. We reported a tax provision of $0.3 million during the
three months ended June 30, 2001 as well as for the three months ended June 30,
2000.
We reported a tax provision of $0.6 million during the six months ended
June 30, 2001 and $0.5 million during the six months ended June 30, 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 income was $0.1 million during the three months ended
June 30, 2001, as compared to net income of $1.3 million during the three months
ended June 30, 2000. This reduction was due mainly to reduction in revenue,
amortization of software development cost of $0.8 million, increase in online
services development costs and $0.3 million write-down of investment in an
unaffiliated electronic commerce company.
Net loss was $2.0 million during the six months ended June 30, 2001,
compared to a net loss of $3.4 million during the six months ended June 30,
2000. The reduction in loss was due mainly to reduction in non-cash compensation
expenses, off-set partially by increase in online services development costs,
general administrative expenses, amortization of software development costs and
write-down of investment in an unaffiliated electronic commerce company.
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 generated from operating activities was $3.7 million during
the first six months of 2001 and $2.4 million during the first six 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 $1.9 million during the
first six 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 six months of year 2000 was $18.7 million,
of which $5.9 million was used for the purchase of computers and software
development and $13.0 million for investment in unaffiliated electronic commerce
companies.
Net cash used for financing activities was $1.8 million in the first
six months of year 2001, which resulted from $2.0 million repayment of
short-term loan, off-set partially by share application money received from a
director. Net cash generated from financing activities was $13.3 million in the
first six months of year 2000, resulting from the short term borrowings.
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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 June 30, 2001, we had drawn $2.0
million under the credit facility as compared to $13.3 million drawn as of
June 30, 2000.
Advance payments received from customers were $16.0 million as of June
30, 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 to 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 June 30, 2001, we have not engaged in foreign currency hedging
activities.