UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C.  20549







FORM
      20-F




(Mark
      One)


[    ]         Registration
      Statement Pursuant To Section 12(b) or (g) of the Securities Exchange Act of
      1934




OR


[
                X
                ]
            Annual
                Report Pursuant To Section 13 or 15 (d) of the Securities Exchange
                Act of
                1934


For
                the fiscal year ended December 31,
                2006.




OR


[    ]         Transition
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934




OR


[    ]         Shell
      Company Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
      of
      1934 Date
      of
      event requiring this shell company report........................For the transition
      period


from
      ....................................... to
      ............................................







Commission
      file number 000-30678


GLOBAL
      SOURCES LTD.


(Exact
      Name of Registrant as Specified in its Charter)




Global
      Sources Ltd.


(Translation
      of Registrant’s Name into English)




Bermuda


(Jurisdiction
      of incorporation or organization)




Canon’s
      Court


22
      Victoria Street


Hamilton,
      HM 12 Bermuda


(Address
      of principal executive offices)




Securities
      registered or to be registered pursuant to Section 12(b) of the
      Act:




**Title
                of Each Class**
            **Name
                of Each Exchange on Which Registered**Common
                Shares, $0.01 Par Value
            NASDAQ
                National Market





Securities
      registered or to be registered pursuant to Section 12(g) of the
      Act:  NONE




Securities
      for which there is a reporting obligation pursuant to Section 15(d) of the
      Act:  NONE




Indicate
      the number of outstanding shares of each of the issuer’s classes of capital or
      common stock as of the close of the period covered by the annual
      report:




42,337,568
      common shares, $0.01 par value, outstanding as of April 30, 2007.




Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities act




Yes 
                _____
            
            No x





If
      this
      report is an annual or transition report, indicate by check mark if the
      registrant is not required to file reports pursuant to Section 13 or 15(d)
      of
      the Securities Exchange Act of 1934




Yes  x
              
              No
   
 Note-Checking
        the box above will not relieve any registrant required to file reports pursuant
        to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their
        obligations under those Sections.




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.


Yes  x
                
                No


Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer.  See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
      Act. (Check one):




Large
                  accelerated filer ____
              
              Accelerated
                  filer x
              
              Non-accelerated
                  filer  _____


Indicate
      by check mark which financial statement item the registrant has elected to
      follow.




Item
                17  ____
            Item
                18   x





If
      this
      is an annual report, indicate by check mark whether the registrant is a shell
      company (as defined in Rule 12b-2 of the Exchange Act)


Yes 
                  _____
              
              No x
 (APPLICABLE
        ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE
        YEARS)




Indicate
      by check mark whether the registrant has filed all documents and reports
      required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange
      Act
      of 1934 subsequent to the distribution of securities under a plan confirmed
      by a
      court.


Yes 
                  _____
              
              No


**TABLE
      OF CONTENTS**









**GENERAL
      INFORMATION**




**Page**PART
                IITEM
                1.
            IDENTITY
                OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
            2ITEM
                2.
            OFFER
                STATISTICS AND EXPECTED TIMETABLE
            2ITEM
                3.
            KEY
                INFORMATION
            2ITEM
                4.
            INFORMATION
                ON THE COMPANY
            18ITEM
                4A.
            UNRESOLVED
                STAFF COMMENTS
            31ITEM
                5.
            OPERATING
                AND FINANCIAL REVIEW AND PROSPECTS
            31ITEM
                6.
            DIRECTORS,
                SENIOR MANAGEMENT AND EMPLOYEES
            48ITEM
                7.
            MAJOR
                SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
            57ITEM
                8.
            FINANCIAL
                INFORMATION
            58ITEM
                9.
            THE
                OFFER AND LISTING
            93ITEM
                10.
            ADDITIONAL
                INFORMATION
            93ITEM
                11.
            QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
            104ITEM
                12.
            DESCRIPTION
                OF SECURITIES OTHER THAN EQUITY SECURITIES
            105PART
                IIITEM
                13.
            DEFAULTS,
                DIVIDEND ARREARAGES AND DELINQUENCIES
            105ITEM
                14.
            MATERIAL
                MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
                PROCEEDS
            105ITEM
                15.
            CONTROLS
                AND PROCEDURES
            105ITEM
                15T.
            CONTROLS
                AND PROCEDURES
            105ITEM
                16A.
            AUDIT
                COMMITTEE FINANCIAL EXPERT
            106ITEM
                16B.
            CODE
                OF ETHICS
            106ITEM
                16C.
            PRINCIPAL
                ACCOUNTANT FEES AND SERVICES
            107ITEM
                16D.
            EXEMPTIONS
                FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
            107ITEM
                16E.
            PURCHASES
                OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
                PURCHASERS
            107PART
                IIIITEM
                17.
            FINANCIAL
                STATEMENTS
            107ITEM
                18.
            FINANCIAL
                STATEMENTS
            108ITEM
                19.
            EXHIBITS
            108





1


**FORWARD-LOOKING
      STATEMENTS**




Except
      for any historical information contained herein, the matters discussed in this
      Annual Report on Form 20-F contain certain “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act of 1995
      with
      respect to our financial condition, results of operations and
      business.  These statements relate to analyses and other information
      which are based on forecasts of future results and estimates of amounts not
      yet
      determinable.  These statements also relate to our future prospects,
      developments and business strategies.  These forward-looking
      statements are identified by their use of terms and phrases such as
“anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,”
“predict,” “will” and similar terms and phrases, including references to
      assumptions.  These forward-looking statements involve risks and
      uncertainties, including current trend information, projections for deliveries,
      backlog and other trend projections, that may cause our actual future activities
      and results of operations to be materially different from those suggested or
      described in this Annual Report on Form 20-F.




These
      risks include:




·
            customer
                satisfaction and quality issues;




·
            competition;




·
            our
                ability to achieve and execute internal business
                plans;




·
            worldwide
                political instability and economic downturns and inflation, including
                any
                weakness in the economic and political conditions of countries in
                the
                Asia-Pacific region, including China;
                and




·
            other
                factors described herein under “Risk
                Factors.”




If
      one or
      more of these risks or uncertainties materialize, or if underlying assumptions
      prove incorrect, our actual results may vary materially from those expected,
      estimated or projected.  Given these uncertainties, users of the
      information included in this Annual Report on Form 20-F, including investors
      and
      prospective investors, are cautioned not to place undue reliance on such
      forward-looking statements.  We do not intend to update the
      forward-looking statements included in this Annual Report on Form
      20-F.




In
      this
      Annual Report on Form 20-F, except as specified otherwise or unless the context
      requires otherwise, “we,” “our,” “us,” the “Company,” and “Global Sources” refer
      to Global Sources Ltd. and its subsidiaries.  All references to
“fiscal” in connection with a year shall mean the year ended December
      31.




All
      financial information contained herein is expressed in United States dollars,
      unless otherwise stated.




**PART
      I**




**ITEM
      1.** **IDENTITY
      OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS** **–
      (Not applicable)**




**ITEM
      2.** **OFFER
      STATISTICS AND EXPECTED TIMETABLE** **–
      (Not applicable)**




**ITEM
      3.** **KEY
      INFORMATION**




**Selected
      Financial Data**




The
      following historical financial information should be read in conjunction with
      the section entitled “Operating and Financial Review and Prospects” and our
      audited consolidated financial statements and related notes, which are included
      elsewhere in this document.  The consolidated statements of income
      data for each of the three years ended December 31, 2004, 2005 and 2006 and
      selected consolidated balance sheet data as of December 31, 2005 and 2006
      are derived from, and qualified by reference to, our audited consolidated
      financial statements included elsewhere in this document.  The
      consolidated statements of income data for each of the years ended
      December 31, 2002 and 2003 and selected consolidated balance sheet data as
      of December 31, 2002, 2003 and 2004 are derived from our audited financial
      statements not included in this document.






2




**Year
                  Ended December 31,****2002**
            
            
            **2003**
            
            
            **2004**
            
            
            **2005**
            
            
            **2006**(In
                Thousands, Except Per Share Data)**Income
                Statement Data:**Revenue:Online
                and other media
                services
            
            $
            84,400
            
            
            $
            87,685
            
            
            $
            92,325
            
            
            $
            97,062
            
            
            $
            113,097Exhibitions
            
            
            2,455
            
            
            
            3,327
            
            
            
            13,010
            
            
            
            14,300
            
            
            
            42,122Miscellaneous
            
            
            631
            
            
            
            657
            
            
            
            511
            
            
            
            832
            
            
            
            1,262Total
                revenue
            
            
            87,486
            
            
            
            91,669
            
            
            
            105,846
            
            
            
            112,194
            
            
            
            156,481Operating
                expenses:Sales
                (Note
                1)
            
            
            29,282
            
            
            
            30,436
            
            
            
            30,582
            
            
            
            34,415
            
            
            
            50,380Event
                production
            
            
            933
            
            
            
            930
            
            
            
            3,774
            
            
            
            3,920
            
            
            
            18,414Community
                (Note
                1)
            
            
            13,337
            
            
            
            13,251
            
            
            
            17,983
            
            
            
            20,726
            
            
            
            24,885General
                and administrative (Note
                1)
            
            
            29,446
            
            
            
            28,549
            
            
            
            31,395
            
            
            
            34,666
            
            
            
            38,945Online
                services development (Note1)
            
            
            5,902
            
            
            
            5,269
            
            
            
            4,564
            
            
            
            4,235
            
            
            
            4,499Amortization
                of software
                costs
            
            
            3,740
            
            
            
            4,453
            
            
            
            1,480
            
            
            
            1,335
            
            
            
            1,250Total
                operating
                expenses
            
            
            82,640
            
            
            
            82,888
            
            
            
            89,778
            
            
            
            99,297
            
            
            
            138,373Income
                from
                operations
            
            $
            4,846
            
            
            $
            8,781
            
            
            $
            16,068
            
            
            $
            12,897
            
            
            $
            18,108Interest
                and dividend
                income
            
            
            439
            
            
            
            122
            
            
            
            219
            
            
            
            1,624
            
            
            
            5,571Gain
                (loss) on sale of available-for-sale
              Securities
            
            
            —
            
            
            
            (40
            )
            
            
            1,120
            
            
            
            977
            
            
            
            309Gain
                on sale of shares to minority shareholder and interest income
                thereon
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            7,906Loss
                on investment,
                net
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (743
            )Foreign
                exchange gains (losses), net
            
            
            50
            
            
            
            —
            
            
            
            240
            
            
            
            (80
            )
            
            
            (714
            )Income
                before income
                taxes
            
            
            5,335
            
            
            
            8,863
            
            
            
            17,647
            
            
            
            15,418
            
            
            
            30,437Income
                tax
                expense
            
            
            (720
            )
            
            
            (668
            )
            
            
            (651
            )
            
            
            (759
            )
            
            
            (899
            )Net
                income before minority
                interest
            
            $
            4,615
            
            
            $
            8,195
            
            
            $
            16,996
            
            
            $
            14,659
            
            
            $
            29,538Minority
                interest
            
            
            (308
            )
            
            
            (861
            )
            
            
            (1,227
            )
            
            
            (1,281
            )
            
            
            (1,909
            )Net
                income before cumulative effect of change in accounting
                principle
            
            $
            4,307
            
            
            $
            7,334
            
            
            $
            15,769
            
            
            $
            13,378
            
            
            $
            27,629Cumulative
                effect of change in accounting principle
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            251Net
                income
            
            $
            4,307
            
            
            $
            7,334
            
            
            $
            15,769
            
            
            $
            13,378
            
            
            $
            27,880Basic
                net income per common share before cumulative effect of change in
                accounting principle
            
            $
            0.11
            
            
            $
            0.19
            
            
            $
            0.41
            
            
            $
            0.32
            
            
            $
            0.65Cumulative
                effect of change in accounting principle
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            $
            0.01Basic
                net income per common
                share
            
            $
            0.11
            
            
            $
            0.19
            
            
            $
            0.41
            
            
            $
            0.32
            
            
            $
            0.66Diluted
                net income per common share before cumulative effect of change in
                accounting principle
            
            $
            0.11
            
            
            $
            0.19
            
            
            $
            0.41
            
            
            $
            0.32
            
            
            $
            0.65Cumulative
                effect of change in accounting principle
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            $
            0.01


3





Diluted
                net income per common
                share
            
            $
            0.11
            
            
            $
            0.19
            
            
            $
            0.41
            
            
            $
            0.32
            
            
            $
            0.66Cash
                dividends declared per
                share
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Shares
                used in basic net income per common share
              calculations(Note2)
            
            
            37,327
            
            
            
            37,407
            
            
            
            37,053
            
            
            
            39,736
            
            
            
            40,629Shares
                used in diluted net income per common share
              calculations(Note2)
            
            
            37,327
            
            
            
            37,418
            
            
            
            37,120
            
            
            
            39,803
            
            
            
            40,699Basic
                net income per non-vested restricted before cumulative effect of
                change in
                accounting principle
            
            $
            0.11
            
            
            $
            0.19
            
            
            $
            0.41
            
            
            $
            0.32
            
            
            $
            0.65Cumulative
                effect of change in accounting principle
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            $
            0.01Basic
                net income per non-vested restricted share
            
            $
            0.11
            
            
            $
            0.19
            
            
            $
            0.41
            
            
            $
            0.32
            
            
            $
            0.66Diluted
                net income per non-vested restricted share before cumulative effect
                of
                change in accounting principle
            
            $
            0.11
            
            
            $
            0.19
            
            
            $
            0.41
            
            
            $
            0.32
            
            
            $
            0.65Cumulative
                effect of change in accounting principle
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            $
            0.01Diluted
                net income per non-vested restricted share
            
            $
            0.11
            
            
            $
            0.19
            
            
            $
            0.41
            
            
            $
            0.32
            
            
            $
            0.66Cash
                dividends declared per
                share
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Shares
                used in basic net income per non vested restricted share calculations(Note2)
            
            
            1,195
            
            
            
            1,123
            
            
            
            1,484
            
            
            
            1,622
            
            
            
            1,627Shares
                used in diluted net income per non-vested restricted share calculations
                (Note2)
            
            
            1,195
            
            
            
            1,123
            
            
            
            1,484
            
            
            
            1,622
            
            
            
            1,627







**December
                  31,****2002**
            
            
            **2003**
            
            
            **2004**
            
            
            **2005**
            
            
            **2006**(In
                U.S. Dollars Thousands)**Balance
                Sheet Data:**Cash
                and cash
                equivalents
            
            $
            11,009
            
            
            $
            26,227
            
            
            $
            41,195
            
            
            $
            94,321
            
            
            $
            25,192Available-for-sales
                securities
            
            
            26,199
            
            
            
            35,140
            
            
            
            10,172
            
            
            
            23,982
            
            
            
            130,603Total
                assets
            
            
            62,650
            
            
            
            82,541
            
            
            
            92,525
            
            
            
            171,680
            
            
            
            220,889Net
                assets
            
            
            21,345
            
            
            
            31,664
            
            
            
            50,433
            
            
            
            105,432
            
            
            
            136,564Long-term
                debt, less current portion...............
            
            
            13,033
            
            
            
            12,384
            
            
            
            2,214
            
            
            
            1,091
            
            
            
            2,307Total
                shareholders’
                equity
            
            
            18,522
            
            
            
            27,980
            
            
            
            45,523
            
            
            
            99,241
            
            
            
            133,651


__________________


(1)




(Note
                1)
            Non-cash
                compensation expenses associated with the employee equity compensation
                plans and Directors Purchase Plan included under various categories
                of
                expenses are approximately as follows:  sales expenses: $1,790
                (2005:  $505, 2004:  $626, 2003: $323, 2002: $623),
                community: $145 (2005:  $103, 2004:  $93, 2003: $96,
                2002: $238), general and administrative: $1,950 (2005:  $1,025,
                2004:  $1,066, 2003: $691, 2002: $1,179), and online services
                development expenses: $181 (2005:  $315, 2004:  $332,
                2003: $309, 2002: $524)




(Note
                2)
            On
                March 6, 2006, we announced a one for ten bonus share issue on our
                outstanding common shares.  For a further discussion on the
                bonus shares, please see Note 27 of our consolidated financial
                statements appearing elsewhere in this annual
                report.  Fractional shares were rounded up resulting in an
                additional 1,531 common shares upon distribution of the bonus shares
                on
                April 17, 2006. On March 5, 2007, we once again announced a one for
                ten
                bonus shares issue on our outstanding common shares.  All common
                shares and per-share amounts have been retroactively adjusted to
                reflect
                the one for ten bonus share issue for all periods
                presented.  For a further discussion on the bonus shares, please
                see Note 30 of our consolidated financial statements appearing elsewhere
                in this annual report. Fractional shares were rounded up resulting
                in an
                additional 424 common shares upon distribution of the bonus shares
                on
                April 16, 2007.




**Risk
      Factors**




In
      addition to other information in this annual report, the following risk factors
      should be carefully considered in evaluating us and our business because such
      factors may have a significant impact on our business, operating results and
      financial condition.  As a result of the risk factors set forth below
      and elsewhere in this annual report, and the risks discussed in our other
      Securities and Exchange Commission filings, actual results could differ
      materially from those projected in any forward-looking statements.


*The
        China market is key to our current and future revenue growth and political
        instability or uncompetitive cost conditions in this market could reduce
        our
        revenue and seriously harm our business.*
  Our
        customers in China provided approximately 50% of our total revenues in fiscal
        2005, and approximately 53% of our total revenues in fiscal 2006, and we
        believe
        our operations in China will continue to grow for the next several
        years.  Our dependence on the China market and its revenues is
        significant, and adverse political, legal or economic changes or uncompetitive
        cost conditions in China may harm our business and cause our revenues to
        decline.




4





The
      Chinese government has instituted a policy of economic reform which has included
      encouraging foreign trade and investment, and greater economic
      decentralization.  However, the Chinese government may discontinue or
      change these policies, or these policies may not be
      successful.  Moreover, despite progress in developing its legal
      system, China does not have a comprehensive and highly developed system of
      laws,
      particularly as it relates to foreign investment activities and foreign
      trade.  Enforcement of existing and future laws, regulations and
      contracts is uncertain, and implementation and interpretation of these laws
      and
      regulations may be inconsistent.  As the Chinese legal system
      develops, new laws and regulations, changes to existing laws and regulations,
      and the interpretation or enforcement of laws and regulations may adversely
      affect business operations in China.  While Hong Kong has had a long
      history of promoting foreign investment, its incorporation into China means
      that
      the uncertainty related to China and its policies may now also affect Hong
      Kong
      .




China
      is
      the largest supplier of consumer products to the world.  Our actual
      and potential customers are mainly suppliers who are based in China. Should
      China manufacturers’ production costs go up substantially (for example, due to
      limited skilled labor availability) and such costs are passed on to the buyers,
      products from China may become less competitive on price. Also, the Chinese
      Renminbi (“RMB”) has appreciated versus the United States Dollar (“U.S. Dollar”)
      and is expected to continue appreciating against the U.S. Dollar. Depending
      on
      the business structure, the nature of costs and the currencies of expenses
      and
      revenues, some suppliers in China may be negatively impacted.  If
      products from China become less competitive on price, or some suppliers in
      China
      are negatively impacted by the appreciation of the RMB, as described above,
      it
      would likely have a negative impact on the demand in China for our various
      media
      and marketing services.




*The
      international markets, and in particular the Greater China region, in which
      we
      do business are subject to political, legal and economic instability, which
      may
      interfere with our ability to do business, increase our costs and decrease
      our
      revenues.*




The
      international markets in which we operate are subject to risks,
      including:




*·*
            *fluctuations
                in regional economic
                conditions;*




*·*
            *political
                instability;*




*·*
            *the
                threat of terrorist
                attacks;*




*·*
            *conflicting
                and/or changing legal and regulatory
                requirements;*




*·*
            *restrictions
                placed on the operations of companies with a foreign
                status;*




*·*
            *significant
                changes in tax rates and reporting
                requirements;*




*·*
            *governments
                could increase trade protection measures including tariffs, quotas,
                import
                duties or taxes, thereby significantly reducing demand for imported
                goods;*




*·*
            *the
                loss of revenues, property and equipment from expropriation,
                nationalization, war, insurrection, terrorism and other political
                risks;*




*·*
              *adverse
                  governmental actions, such as restrictions on transfers of
                  funds;*
  *·*
              *oil
                  embargoes or significant increases in oil prices;
                  and*
  *·*
              *fluctuations
                  in currency exchange rates.*
  In
        2006,
        we derived approximately 89% of our revenues from customers in the Greater
        China
        region.  We expect that a majority of our future revenues will
        continue to be generated from customers in this region.  At the time
        of the Asian economic crisis of 1997 and 1998, our revenues and operating
        results were adversely affected, and both our sales and revenues
        declined.  If there is future political, legal or economic instability
        in the Greater China region, our business may be harmed and our revenues
        may
        decrease.




5




Because
      we operate internationally, foreign exchange rate fluctuations may have a
      material impact on our results of operations.  To the extent
      significant currency fluctuations occur in Asian currencies, our revenues and
      profits may be affected, relative to the U.S. Dollar. At the time of the Asian
      economic crisis of 1997 and 1998, certain of our contracts were denominated
      and
      priced in foreign currencies.  The conversion of these contract
      proceeds into U.S. Dollars resulted in losses and is indicative of the foreign
      exchange risk assumed by us.




At
      present, the RMB has been appreciating versus the U.S. Dollar and is expected
      to
      continue appreciating. Although we bill in RMB and have expenses in RMB in
      China, the continuing appreciation of the RMB could have an adverse effect
      on
      our financial condition. If RMB continues to appreciate, our current and
      potential supplier customers may become less competitive with suppliers from
      other regions, leading to less demand for our advertising services.




Currently,
      we do not hedge our exposure to foreign currency fluctuations.




*General
      economic uncertainty, slowdowns, or recessions may reduce spending for
      business-to-business marketing services.*




The
      revenue growth and profitability of our business depends significantly on the
      overall demand for business-to-business media services and especially online
      marketplace services, trade publications and trade shows.  We believe
      that the demand for these services is subject to the potentially negative impact
      by a number of factors, including the overall weakening of the global
      economy.  Such situations and events may give rise to a number of
      trends that adversely affect our business and revenues.




*Future
      outbreaks of Avian influenza, Severe Acute Respiratory Syndrome (“SARS”) or
      other widespread public health problems could adversely affect our
      business.*




In
      the
      event of future outbreaks of Avian influenza, SARS or other widespread public
      health problems, some ways in which our business might be adversely affected
      could include the following:




*·*
            *quarantine
                or travel restrictions (whether required by government or public
                health
                authorities, or self-imposed) could result in the closure of some
                of our
                offices and other disruptions to our
                operations;*




*·*
            *sickness
                or death of our key officers and
                employees;*




*·*
            *a
                general slowdown in international trade and the global
                economy;*




*·*
            *our
                trade shows may have to be cancelled;
                and*




*·*
            *exhibitor
                and visitor participation at our trade shows, could be significantly
                curtailed or otherwise adversely
                affected.*




*We
        may not innovate at a successful pace, which could harm our operating
        results.*
  Our
        industry is rapidly adopting new technologies and standards to create and
        satisfy the demands of users and advertisers. It is critical that we continue
        to
        innovate by anticipating and adapting to these changes to ensure that our
        content-delivery platforms and services remain effective and interesting
        to our
        users, advertisers and partners. In addition, we may discover that we must
        make
        significant expenditures to achieve these goals. If we fail to accomplish
        these
        goals, we may lose users and the advertisers that seek to reach those users,
        which could harm our operating results.




6







*Our
      inability to sustain our historic pricing levels for our print, online and
      trade
      show services could adversely affect our operating results.*




The
      market for print, online and trade show services has fluctuated over the past
      few years. If we are unable to maintain historic pricing levels for advertising
      on our websites and in our trade journals and for booths at our trade shows,
      our
      revenues could be adversely affected.




*We
      depend upon Internet search engines and other online marketing channels (such
      as
“pay per click” marketing) to attract a significant portion of the users who
      visit our websites, and if we were listed less prominently in Internet search
      result listings, or if we are unable to rely on our other online marketing
      channels as a cost-effective means of driving visitors to our websites, our
      business and operating results could be harmed.*




We
      derive
      a significant portion of our website traffic from users who search for content
      through Internet search engines, such as Google, MSN and Yahoo! A critical
      factor in attracting users to our websites is whether we are prominently
      displayed in such Internet search results.




Search
      result listings are determined and displayed in accordance with a set of
      formulas or algorithms developed by the particular Internet search engine.
      The
      algorithms determine the order of the listing of results in response to the
      user's Internet search. From time to time, search engines revise these
      algorithms. In some instances, these modifications may cause our websites to
      be
      listed less prominently in unpaid search results, which will result in decreased
      traffic from search engine users to our websites. Our websites may also become
      listed less prominently in unpaid search results for other reasons, such as
      search engine technical difficulties, search engine technical changes and
      changes we make to our websites. In addition, search engines have deemed the
      practices of some companies to be inconsistent with search engine guidelines
      and
      have decided not to list their websites in search result listings at all. If
      we
      are listed less prominently or not at all in search result listings for any
      reason, the traffic to our websites will likely decline, which could harm our
      operating results. If we decide to attempt to replace this traffic, we may
      be
      required to increase our marketing expenditures, which also could harm our
      operating results.




We
      also
      rely on other cost-effective online marketing channels (such as “pay per click”
marketing) as an increasingly important means of driving visitors to our
      websites. However, the cost of such online marketing channels can change very
      frequently (often daily), and it is unclear whether such online marketing
      channels will remain cost-effective for us. If we are unable to rely on such
      online marketing channels as a cost-effective means of driving visitors to
      our
      websites, our business and operating results could be harmed; or if we continue
      to rely on such marketing channels despite their increased costs, our marketing
      expenditures will increase, which also could harm our operating
      results.




*If
      our current and potential customers are not willing to adopt and renew our
      services, we may not attract and retain a critical mass of
      customers.*




Our
      services will be attractive to suppliers only if buyers use our services to
      identify suppliers and purchase their products.  The content, products
      and suppliers currently available through our various media, or made available
      by suppliers, may not be sufficient to attract and retain buyers as users of
      our
      services.  If buyers and suppliers do not accept our media and
      services, or if we are unable to attract and retain a critical mass of buyers
      and suppliers for our media and services, our business will suffer and our
      revenues may decrease.




None
        of
        the buyers or suppliers that currently pay to use our services are under
        any
        long-term contractual obligation to continue using our services. Generally,
        their contracts with us are for no longer than 2 years. A significant percentage
        of our customers do not renew their contracts and we experience high customer
        turnover from year to year.  If we cannot replace non-renewing
        customers with new customers, our business could be adversely
        affected.
  *Because
        of low barrier to entry, we are unable to compete effectively, we will lose
        current customers and fail to attract new customers.*


7




Our
      industry is intensely competitive, evolving and subject to rapid
      change.  Barriers to entry are minimal, and competitors are able to
      launch new websites and other media at a low cost.  We constantly face
      threats from competition, including from non-traditional competitors and new
      forms of media. Competition is likely to result in price reductions, reduced
      margins and loss of market share, any one of which may harm our
      business.  We compete for our share of customers’ marketing and
      advertising budgets with other online marketplaces, trade publications and
      trade
      shows.  Competitors vary in size, geographic scope, industries served
      and breadth of the products and services offered.  We may encounter
      competition from companies which offer more comprehensive content, services,
      functionality and/or lower prices. The marketing and pricing decisions of our
      competitors strongly influence our business. Increased competition in the
      industry has caused significant downward pricing pressure. To the extent that
      potential and existing customers make decisions solely or primarily on price,
      we
      may be unable to retain existing customers or attract new customers, or we
      may
      be forced to reduce prices to keep existing customers or to attract new
      customers.




Many
      of
      our current and potential competitors may have greater financial, technical,
      marketing and/or other resources and experience and greater name recognition
      than we have.  In addition, many of our competitors may have
      established relationships with one another and with our current and potential
      suppliers and buyers and may have extensive knowledge of our
      industry.  Current and potential competitors have established or may
      establish cooperative relationships with third parties to increase the ability
      of their products to address customer needs.  Accordingly, our
      competitors may develop and rapidly acquire significant market
      share.




*We
      may not be successful in identifying, consummating and/or effectively
      integrating acquisitions, joint ventures and alliances to expand our
      business*




We
      are
      regularly evaluating potential strategic acquisitions, joint ventures and
      alliances and we believe that establishing such third-party relationships is
      a
      key component of our business strategy.  However, we may not be
      successful in identifying acquisitions, joint ventures and alliances, or we
      may
      not be able to negotiate satisfactory terms or consummate the transactions
      successfully. In these circumstances, our growth potential may be
      harmed.




If
      we do
      identify and consummate an acquisition, joint venture or alliance, there is
      still a risk that we may not be able to integrate any new businesses, products
      or technologies into our existing business and
      operations.  Alternatively, even if we are successful in integrating
      any new businesses, products or technologies into our existing business, we
      may
      not achieve expected results, or we may not realize other expected
      benefits.




*The
      costs associated with potential acquisitions or strategic partnerships could
      dilute your investment or adversely affect our operating
      results.*




In
      order
      to finance acquisitions, investments or strategic partnerships, we may use
      equity securities, debt, cash, or a combination of the foregoing. Any issuance
      of equity securities or securities convertible into equity may result in
      substantial dilution to our existing stockholders, reduce the market price
      of
      our common stock, or both. Any debt financing is likely to have financial and
      other covenants based on our performance or results, and there could be an
      adverse impact on us if we do not achieve**
      the  covenanted performance or results. In addition, the related
      increases in expenses could adversely affect our results of
      operations.


*We
        may not have sufficient access to capital to enter into acquisitions, joint
        ventures and alliances, or to expand our business, or to take advantage of
        organic or inorganic growth opportunities.*
  We
        may
        not have sufficient access to capital to enter into strategic acquisitions,
        joint ventures and alliances, or to expand our business, or to take advantage
        of
        organic or inorganic growth opportunities. In such circumstances, our growth
        potential may be harmed.
  *Our
        limited history in operating the China Sourcing Fair business as well as
        several
        factors outlined below could adversely affect our ability to operate our
        trade
        show business successfully and we can give no assurances that this business
        will
        be instrumental to our success.*
  Our
        first
        China Sourcing Fair was held in Shanghai in 2003, the first of our series
        of
        China Sourcing Fairs in Hong Kong  was launched in April 2006, the
        first of our series of China Sourcing Fairs in Dubai is scheduled for launch
        in
        June 2007, and a new series of China Sourcing Fairs in Shanghai focusing
        on
        serving China’s domestic market is scheduled for launch in December 2007. Our
        China Sourcing Fairs in Dubai and our domestic China Sourcing Fairs in Shanghai
        are new business initiatives for us and we are uncertain as to our ability
        to
        attract the quality and quantity of exhibitors and buyers that would enable
        us
        to be successful.


8






In
      addition, there are substantial and long-established competing trade shows
      in
      Hong Kong  and southern China. Because of these alternative venues, we
      may not be able to attract the desired quantity and quality of exhibitors and
      buyers. Accordingly, because of the uncertainty of a new business launch and
      the
      competition, we may not achieve our desired sales objectives. Furthermore,
      in an
      effort to rapidly grow our trade show business, additional personnel were hired
      and additional capital expended. In addition, we may be unable to effectively
      execute the operations, which would jeopardize our ability to be successful
      in
      the trade show business.




Our
      various trade show businesses also require us to make substantial non-refundable
      deposits and progress payments to secure venue dates far in advance of our
      conducting the trade show. In addition, the date and location can greatly impact
      the profitability. The market for desirable dates and locations is highly
      competitive. If we cannot secure desirable dates and locations for our trade
      shows, their profitability and future prospects would suffer, and our financial
      condition and results of operations would be materially and adversely
      affected.




In
      addition, while we expect that a significant portion of our future revenues
      will
      be derived from our trade show business (in particular, our China Sourcing
      Fair
      business), several other factors could negatively affect our financial
      performance in this business, including:




*·*
            *the
                spread of SARS, Avian influenza and other similar
                epidemics;*




*·*
            *political
                instability and the threat of terrorist
                attacks;*




*·*
            *conflicting
                and/or changing legal and regulatory
                requirements;*




*·*
            *natural
                catastrophes, labor strikes and transportation
                shutdowns;*




*·*
            *decrease
                in demand for booth space;*




*·*
            *particularly
                in China, we may not always be able to obtain the required trade
                show
                licenses, which may limit the number of trade shows we are able to
                hold;*




*·*
            *competing
                trade shows; and*




*·*
            *our
                or our sales representative companies’ inability to effectively expand our
                or their staff and
                infrastructure.*


In
        view
        of the various risks outlined above, we can give no assurances that our
        operation of the trade show business will be instrumental to our
        success.
  *Our
        limited experience in direct online sales business as well as other factors
        could adversely affect our ability to operate our business
        successfully.*
  Our
        direct online sales business, primarily referred to by us as “Global Sources
        Direct”, is a relatively new business, having started in 2006, both for us and
        for most of the suppliers we are targeting as potential customers. The lack
        of
        an established history and track record for this new sales channel, both
        on our
        part and in the industry, may make it difficult for us to successfully market
        this service to, and attract and maintain, a sufficient number of customers
        that
        we would need in order to grow the direct online sales business to a scale
        that
        would be profitable for us.
  Other
        factors that could adversely impair the success of our direct online sales
        business include the following:


9






*·*
            *Most
                of the goods sold are air-shipped. The costs of air shipments are
                dependent to a large degree on oil prices. A substantial increase
                in oil
                prices may therefore result in air shipment becoming a cost prohibitive
                means of delivery.*




*·*
            *We
                rely on a variety of logistic service providers for executing and
                fulfilling our services. However, there are only a limited number
                of
                appropriate logistic service providers. If any one or more of them
                cease
                to operate, our ability to carry on the direct online sales service
                could
                be severely curtailed or
                impaired.*




*·*
            *We
                utilize payment processes provided by third parties. Many of these
                payment
                processors are from jurisdictions other than those of our relevant
                subsidiaries which operate our direct online sales business. These
                payment
                processors may therefore be reluctant to offer their payment process
                services to us, may charge us high rates, or may stop providing their
                payment process services to
                us.*




*·*
            *We
                utilize credit card payment processes. Under the terms of our arrangements
                with the credit card payment processors, they are entitled to charge
                back
                amounts to us in the event of any fraudulent or disputed transaction.
                They
                may also decide to withhold or delay fund payments to us for an indefinite
                period, or even discontinue their arrangements with us, if the charge
                back
                rate is too high or frequent.*




*·*
            *We
                use various third parties’ online services (for example, for hosting and
                payment processing), and any disruptions to their services may adversely
                affect our own ability to complete transactions or may cause other
                disruptions to our own
                service.*




*·*
            *Online
                fraud and fraudulent orders are potential risks. We may not have
                detected
                or been aware of, or be able to detect in the future, such fraudulent
                circumstances, and if we act pursuant thereto (for example, by shipping
                products under a fraudulent order), we may subsequently be unable
                to
                collect payment, be required to refund payments, or be liable for
                the
                costs or losses related
                thereto.*




*·*
            *We
                rely on the quality of our suppliers’ products being acceptable to buyers,
                and therefore conduct (or engage third parties to conduct) inspections
                of
                those products. It is possible, however, that we will pay a supplier
                for
                its product before the buyer receives delivery of the product. Hence,
                if
                despite our (or the third parties’) inspection efforts, or if we (or the
                third parties) fail to conduct inspections properly or at all and,
                any
                defects or inferior quality of the products are not spotted, the
                buyer may
                return such products. In such cases, we may have difficulty recovering
                our
                funds from the supplier and incur a
                loss.*




*·*
            *We
                have a growing number of competitors who may be able to source and/or
                sell
                more effectively than us.*




*The
        loss of one or more of our executive officers or key employees, either to
        a
        competitor or otherwise, could harm our business.*
  Our
        executive officers and key employees are critical to our
        business.  Our executive officers and key personnel may not remain
        with us and their loss may negatively impact our operations, and may reduce
        our
        revenues and cash flows.  In particular, the services of our chief
        executive officer, chief financial officer, chief operating officer and chief
        information officer are important to our operations.  If competitors
        hire our key personnel, it could allow them to compete more effectively by
        diverting customers from us and facilitating more rapid development of their
        competitive offerings.  We do not maintain key man insurance on any of
        our executive officers.
  *We
        may not be able to attract, hire and retain qualified personnel
        cost-effectively, which could impact the quality of our content and services
        and
        the effectiveness and efficiency of our management, resulting in increased
        costs
        and losses in revenues.*


10









Our
      success depends on our ability to attract, hire and retain at commercially
      reasonable rates qualified technical, sales support management, marketing,
      customer support, financial and accounting, legal and other managerial
      personnel. The competition for personnel in the industries in which we operate
      is intense. Our personnel may terminate their employment at any time for any
      reason. Loss of personnel may also result in increased costs for replacement
      hiring and training. If we fail to attract and hire new personnel or retain
      and
      motivate our current personnel, we may not be able to operate our businesses
      effectively or efficiently, serve our customers properly or maintain the quality
      of our content and services.




*We
      rely on independent sales representative companies for the sales and marketing
      of our products and services and the loss of any significant sales
      representative company or employees of a sales representative company would
      harm
      our business and revenues.*




We
      have
      agreements with various sales representative companies that employ sales
      representatives.  Seven sales representative companies in China are
      responsible for approximately 53% of our total revenues for the year ended
      December 31, 2006.  Generally, either we or the sales representative
      company may terminate the service agreement between them and us upon short
      notice.  It is possible that we may not retain some of our sales
      representative companies, or they may not retain some of their sales personnel
      (due to competition from other companies in hiring and retaining sales
      personnel) or be able to replace them with equally qualified
      personnel.  Furthermore, if a sales representative company terminates
      its agreement with us, some of our customers with a direct relationship with
      that sales representative company or its personnel may terminate their
      relationship with us.  Although these sales representative companies
      and their employees are independent from us, there can be no assurance that
      our
      reputation and our business will not be harmed by their acts or omissions.
      If
      sufficient numbers of employees are not recruited, properly trained, integrated,
      motivated, retained and managed by these sales representative companies, or
      if
      they perform poorly, or if our relationship with these sales representative
      companies fail or deteriorate, our business may be harmed.




*Our
      growth could strain our resources, and if we are unable to implement appropriate
      controls and procedures to manage our growth, we may not be able to achieve
      our
      business objectives.*




We
      plan
      to increase substantially the number of independent sales representative team
      members in China in order to pursue our business objectives.  Our
      success will depend in part upon the ability of our senior management to
      implement and manage this growth effectively.  To do this, additional
      new sales representative team members must be recruited and
      trained.  If our new sales representative team members perform poorly,
      or if their training and management is unsuccessful, or if our relationships
      with our existing sales representative team members fail, our business may
      be
      harmed.  To manage the expected growth of our operations, we will need
      to continue to improve our operational, financial and management controls and
      our reporting systems and procedures.  If we fail to manage our growth
      successfully, we will be unable to achieve our business objectives.


*We
        may be subject to legal liability for publishing or distributing content
        over
        the Internet or in our trade publications or at our trade
        shows.*
  We
        may be
        subject to legal claims relating to the content on *Global Sources
        Online* or our other websites, or the downloading and distribution of such
        content, as well as legal claims arising out of the products or companies
        featured in our trade publications and at our tradeshows.  Claims
        could involve matters such as libel and defamation, negligent mis-statements,
        patent, trademark, copyright and design infringement, fraud, invasion of
        privacy
        or other legal theories based on the nature, creation or distribution of
        our
        content (for example, the use of hypertext links to other websites operated
        by
        third parties).  Media companies have been sued in the past, sometimes
        successfully, based on the content published or made available by
        them.  Like many companies in our industry, we have received notices
        of claims based on content made available on our website.  In
        addition, some of the content provided on *Global Sources Online* is
        manually entered from data compiled by other parties, including governmental
        and
        commercial sources, and this data may have errors, or we may introduce errors
        when entering such data.  If our content is improperly used or if we
        supply incorrect information, our users or third parties may take legal action
        against us.  In addition, we may violate usage restrictions placed on
        text or data that is supplied to us by third parties.  Regardless of
        the merit of such claims or legal actions, they could divert management time
        and
        attention away from our business, result in significant costs to investigate
        and
        defend, and damage our reputation (which could result in client cancellations
        or
        overall decreased demand for our products and services), thereby harming
        our
        business, financial condition and operating results. In addition, if we are
        not
        successful in defending against such claims or legal actions, we may be liable
        to pay substantial damages. Our insurance may not cover claims or legal actions
        of this type, or may not provide sufficient coverage.


11


*Our
      intellectual property protection is limited, and others may infringe upon it,
      which may reduce our ability to compete and may divert our
      resources.*




Our
      success and ability to compete are dependent in part upon our proprietary
      technology, content and information databases, the goodwill associated with
      our
      trade marks, and other intellectual property rights.  We have relied
      on a combination of copyright, trade secret and trademark laws and
      non-disclosure and other contractual restrictions to protect
      ourselves.  However, our efforts to protect our intellectual property
      rights may not be adequate.  Although we have filed (and continue to
      file) applications for and have obtained registration of many of our key trade
      marks in various jurisdictions, we may not always be able to obtain successful
      registrations. Our competitors may independently develop similar technology
      or
      duplicate our software and services.  If others are able to develop or
      use technology and/or content we have developed, our competitive position may
      be
      negatively affected.




We
      have
      in the past co-developed, and may in the future co-develop, some of our
      intellectual property with independent third parties.  In these
      instances, we take all action that we believe is necessary and advisable to
      protect and to gain ownership of all co-developed intellectual
      property.  However, if such third parties were to introduce similar or
      competing online products and services that achieve market acceptance, the
      success of our online services and our business, financial condition, prospects
      and operating results may be harmed.




We
      cannot
      determine whether future patent, copyright, service mark or trademark
      applications, if any, will be granted.  No certainty exists as to
      whether our current intellectual property or any future intellectual property
      that we may develop will be challenged, invalidated or circumvented or will
      provide us with any competitive advantages.




Litigation
      may be necessary to enforce our intellectual property rights, protect trade
      secrets, determine the validity and scope of the proprietary rights of others,
      or defend against claims of infringement or invalidity.  Intellectual
      property laws provide limited protection.  Moreover, the laws of some
      foreign countries do not offer the same level of protection for intellectual
      property as the laws of the United States.  Such laws may not always
      be sufficient to prevent others from copying or otherwise obtaining and using
      our content, technologies, or trade marks. In addition, policing our
      intellectual property rights worldwide is a difficult task, and we may be unable
      to detect unauthorized use of our intellectual property or to identify
      infringers.  Litigation may result in substantial costs and diversion
      of resources, regardless of its outcome, which may limit our ability to develop
      new services and compete for customers.




*If
        third parties claim that we are infringing upon their intellectual property
        rights, our ability to use technologies and products may be limited, and
        we may
        incur substantial costs to resolve these claims.*
  Litigation
        regarding intellectual property rights is common in the Internet and software
        industries.  Defending against these claims could be expensive and
        divert our attention from operating our business.  We expect
        third-party infringement claims involving Internet technologies and software
        products and services to increase.  If we become liable to third
        parties for infringing their intellectual property rights, we could be required
        to pay substantial damage awards and be forced to develop non-infringing
        technology, obtain a license with costly royalties or cease using the products
        and services that contain the infringing technology or content.  We
        may be unable to develop non-infringing technology or content or to obtain
        a
        license on commercially reasonable terms, or at all. All of this could therefore
        have a material adverse effect on our business, results of operations and
        financial condition.
  We
        may
        not have, in all cases, conducted formal or comprehensive investigations
        or
        evaluations to confirm that our content and trade marks do not or will not
        infringe upon the intellectual property rights of third parties. As a result,
        we
        cannot be certain that we do not or will not infringe upon the intellectual
        property rights of third parties. If we are found to have infringed a third
        party’s intellectual property rights, the value of our brands and our business
        reputation could be impaired, and our business could
        suffer.


12









*Evolving
      regulation of the Internet and commercial e-mail may affect us
      adversely.*




As
      Internet commerce continues to evolve, increasing regulation by federal, state
      or foreign agencies becomes more likely.  We use e-mail as a
      significant means of communicating with our existing and potential customers
      and
      users. We also provide “@globalsources.com” e-mail addresses to our clients, for
      their use. The laws and regulations governing the use of e-mail for marketing
      purposes continue to evolve, and the growth and development of the market for
      commerce over the Internet may lead to the adoption of additional legislation
      and/or changes to existing laws. Existing, new or additional legal prohibitions
      on the transmission of unsolicited commercial e-mail (commonly known as “spam”),
      coupled with aggressive enforcement, could reduce our ability to promote our
      services in a cost-efficient manner and our ability to facilitate communications
      between suppliers and buyers and, as a result, adversely affect our
      business.




In
      addition to legal restrictions on the use of e-mail, Internet service providers,
      anti-spam organizations and others typically attempt to block the transmission
      of unsolicited e-mail. If an Internet or other service provider or software
      program identifies e-mail from us (or from our clients to whom we have provided
      “@globalsources.com” e-mail addresses) as “spam”, we could be placed on a
      restricted list that would block our e-mails to our actual or potential
      customers or users who maintain e-mail accounts with these Internet service
      or
      other providers or who use these software programs. If we are unable to
      communicate by e-mail with our actual or potential customers or users as a
      result of legislation, blockage or otherwise, our business, operating results
      and financial condition could be harmed.




In
      addition, taxation of products and services provided over the Internet or other
      charges imposed by government agencies or by private organizations for accessing
      the Internet may also be imposed.  Any regulation imposing greater
      fees for Internet use or restricting information exchange over the Internet
      could result in a decline in the use of the Internet and the viability of
      Internet-based services, which could harm our business and operating
      results.




The
      laws
      governing Internet transactions and market access over the Internet are evolving
      and remain largely unsettled.  The adoption or modification of laws or
      regulations relating to the Internet may harm our business by increasing our
      costs and administrative burdens.  It may take years to determine
      whether and how existing laws apply to the Internet.




*Changes
      in regulations could adversely affect our business and results of
      operations.*




It
      is
      possible that new laws and regulations or new interpretations of existing laws
      and regulations in the United States, the European Union, China and elsewhere
      will be adopted covering issues affecting our business, including:




*·*
              *privacy,
                  data security and use of personally identifiable
                  information;*
  *·*
              *copyrights,
                  trademarks and domain names;
                  and*
  *·*
              *marketing
                  practices, such as e-mail or direct
                  marketing.*
  Increased
        government regulation, or the application of existing laws to online activities,
        could:
  *·*
              *decrease
                  the growth rate of our
                  business;*
  *·*
              *reduce
                  our revenues;*
  *·*
              *increase
                  our operating expenses; or*
  *·*
              *expose
                  us to significant liabilities.*
  Furthermore,
        the relationship between regulations governing domain names and laws protecting
        trademarks and similar proprietary rights is still evolving. Therefore, we
        might
        be unable to prevent third parties from acquiring domain names that infringe
        or
        otherwise decrease the value of our trademarks and other proprietary rights.
        Any
        impairment in the value of these important assets could cause our stock price
        to
        decline. We cannot be sure what effect any future material non-compliance
        by us
        with these laws and regulations or any material changes in these laws and
        regulations could have on our business, operating results and financial
        condition.


13







*Changes
      in laws and standards relating to data collection and use practices and the
      privacy of Internet users and other individuals could impair our efforts to
      maintain and grow our audience and thereby decrease our advertising
      revenue.*




We
      collect information from our users who register for services or respond to
      surveys. Subject to each user's permission (or right to decline), we may use
      this information to inform our users of products and services that may be of
      interest to them. We may also share this information with our advertising
      clients for those who have granted us permission to share their information
      with
      third parties. Governments in various jurisdictions, including the United
      States, the European Union and Canada, have adopted or proposed limitations
      on
      the collection, distribution and use of personal information of Internet users.
      In addition, growing public concern about privacy, data security and the
      collection, distribution and use of personal information has led to
      self-regulation of these practices by the Internet advertising and direct
      marketing industry, and to increased governmental regulation. Because many
      of
      the proposed laws or regulations are in their early stages, we cannot yet
      determine the impact these regulations may have on our business over time.
      Although, to date, our efforts to comply with applicable laws and regulations
      have not hurt our business, additional or more burdensome laws or regulations,
      including consumer privacy and data security laws, could be enacted or applied
      to us or our customers. Such laws or regulations could impair our ability to
      collect user information that helps us to provide more targeted advertising
      to
      our users, thereby impairing our ability to maintain and grow our audience
      and
      maximize advertising revenue from our advertising clients.




*Our
      quarterly operating results may have seasonal fluctuations, and we may fail
      to
      meet analyst, investor and shareholder expectations.*




We
      have
      experienced seasonal quarter-to-quarter fluctuations.  Buyer’s usage
      of our media and services is typically relatively slower during the summer
      and
      year-end vacation and holiday periods.  Additionally, our online and
      trade publication advertising revenue is seasonal and tends to be highest in
      the
      fourth quarter of each calendar year.  Virtually all of our largest
      trade shows are expected to be held in April and October of each
      year.  The net result of the above seasonality is that second and
      fourth quarter revenues are likely to be substantially higher than the first
      and
      third quarter revenues.  In 2006, approximately 29% of our revenue was
      generated during the second quarter and approximately 33% during the fourth
      quarter. The first quarter accounted for approximately 19% of revenue in 2006
      and the third quarter accounted for approximately 19%  of
      revenue in 2006. In addition, certain expenses associated with future revenues
      are likely to be incurred in the preceding   quarters, which may
      cause profitability to be lower in those preceding quarters. Also, because
      event
      revenue is recognized when a particular event is held, we may also experience
      fluctuations in quarterly revenue based on the movement of annual trade show
      dates from one quarter to another.




*Our
        share prices may fluctuate in response to a number of events and
        factors.*
  Our
        share
        price may fluctuate in response to a number of events and factors such as
        quarterly variations in operating results; announcements of new services
        or
        pricing options by us or our competitors; changes in financial estimates
        and
        recommendations by securities analysts; failure to meet our financial guidance
        and/or the financial forecasts of analysts; the operating and share price
        performance of other companies that investors may deem comparable; news reports
        relating to trends in the Internet and information technology industry;
        announcements by us or our competitors of significant acquisitions, strategic
        partnerships, joint ventures or capital commitments; or changes in laws in
        the
        countries in which we operate.
  *There
        is a limited public market for our shares and the trading volume for our
        shares
        is low which may limit your ability to sell your shares or purchase more
        shares.*
  Our
        common shares have been traded in the public market for a limited time and
        this
        market may not be sustained.  As a result of the April 2000 share
        exchange, 1,189,949 of our common shares were listed on the Nasdaq National
        Market. As of April 30, 2007 we had approximately 975 shareholders, and
        approximately 13,154,160 shares that were tradable on the Nasdaq National
        Market.


14






However,
      because of the small number of shareholders and the small number of publicly
      tradable shares, we cannot be sure that an active trading market will develop
      or
      be sustained or that you will be able to sell or buy common shares when you
      want
      to.  As a result, it may be difficult to make purchases or sales of
      our common shares in the market at any particular time or in any significant
      quantity.  If our shareholders sell our common shares in the public
      market, the market price of our common shares may fall.  In addition,
      such sales may create the perception by the public of difficulties or problems
      with our products and services or management.  As a result, these
      sales may make it more difficult for us to sell equity or equity related
      securities in the future at a time or price that is appropriate.




*Future
      sales of our common shares could depress the price of the common
      shares.*




Future
      sales of common shares by us or our existing shareholders could adversely affect
      the prevailing market price of the common shares. As of April 30, 2007, we
      had
      42,337,568 common shares outstanding, out of which at least 26,447,775 common
      shares outstanding are beneficially owned by people who may be deemed
“affiliates”, as defined by Rule 405 of the Act, and are “restricted securities”
which can be resold in the public market only if registered with the Securities
      and Exchange Commission or pursuant to an exemption from
      registration.




We
      cannot
      predict what effect, if any, that future sales of such restricted shares or
      the
      availability of shares for future sale, will have on the market price of the
      common shares from time to time.  Sales of substantial amounts of
      common shares in the public market, or the perception that such sales could
      occur, could adversely affect prevailing market prices for the common shares
      and
      could impair our ability to raise additional capital through an offering of
      our
      equity securities.




*It
      may be difficult for a third party to acquire us, and this may depress our
      share
      price.*




Our
      bye-laws contain provisions that may have the effect of delaying, deferring
      or
      preventing a change in control or the displacement of our
      management.  These provisions may discourage proxy contests and make
      it more difficult for the shareholders to elect directors and take other
      corporate actions.  These provisions may also limit the price that
      investors might be willing to pay in the future for our common
      shares.  These provisions include:




*·*
            *providing
                for a staggered board of directors, so that it would take three successive
                annual general meetings to replace all
                directors;*




*·*
              *requiring
                  the approval of 100% of shareholders for shareholder action by
                  written
                  consent;*
  *·*
              *establishing
                  advance notice requirements for submitting nominations for election
                  to the
                  board of directors and for proposing matters that may be acted
                  upon by
                  shareholders at a general meeting;
                  and*
  *·*
              *restricting
                  business combinations with interested shareholders that have not
                  been
                  approved by at least two-thirds of the holders of our voting shares
                  (other
                  than the interested shareholder) or by a majority of the continuing
                  directors or if certain prescribed conditions are met assuming
                  that we
                  will receive fair market value in exchange for such business
                  combination.  In this context, a “business combination” includes
                  mergers, asset sales and other material transactions resulting
                  in a
                  benefit to the interested shareholder or the adoption of a plan
                  for our
                  liquidation or dissolution; a “continuing director” is a member of our
                  board of directors that is not an affiliate or associate of an
                  interested
                  shareholder and was a member of our board prior to such person
                  becoming an
                  interested shareholder; and an “interested shareholder” is any person
                  (other than us or any of our subsidiaries, any employee benefit
                  or other
                  similar plan or any of our shareholders who owned shares prior
                  to the
                  listing of our shares on the Nasdaq National Market) that owns
                  or has
                  announced its intention to own, or with respect to any of our affiliates
                  or associates, within the prior two years did own, at least 15%
                  of our
                  voting shares.*


15





*Merle
      A. Hinrichs, our Chairman and Chief Executive Officer, is also our controlling
      shareholder and he may take actions that conflict with your
      interest.*




As
      of
      April 30, 2007, Merle A. Hinrichs beneficially owned 61.3% of our common shares.
      Accordingly, Mr. Hinrichs controls the power to elect our directors, to appoint
      new management and to oppose actions requiring shareholder approval, such as
      adopting amendments to our articles of incorporation and approving mergers
      or
      sales of all or substantially all of our assets.  Such concentration
      of ownership may have the effect of delaying or preventing a change of control
      even if a change of control is in the best interest of all
      shareholders.  In addition, Mr. Hinrichs may still effectively control
      our company even if his share holdings are significantly
      reduced.  There may be instances in which the interest of our
      controlling shareholder may conflict with the interest of a holder of our
      securities.




*Current
      weakness of the telecommunications and Internet infrastructure in the
      Asia-Pacific region could harm our business.*




We
      are
      likely to continue to derive the majority of our Internet-based online
      marketplace revenues from the Asia-Pacific region.  The quality of
      some of the telecommunications and Internet infrastructure and telephone line
      availability in China and in some Asia-Pacific countries is
      unreliable.  This may contribute to lower than expected adoption of
      many of our services and may cause usage growth and revenues to fall below
      expectations.  In addition, access fees in some Asia-Pacific countries
      may contribute to low usage and may adversely affect our growth and revenues
      potential.




*The
      failure of our computer systems, network and communications hardware and
      software could materially and adversely affect our business and results of
      operation.*




Our
      business depends on the high availability, good performance and strong security
      of our computer systems, network, and associated hardware and
      software.  Any system interruptions, poor performance or security
      breaches impacting on *Global Sources Online* or any of our online sites
      may drive buyers and other registered users away and reduce the attractiveness
      of these sites to advertisers, and therefore adversely affect our business,
      financial condition and operating results.




We
      host
      our key customer-facing computer systems with major Internet Service Providers
      (ISPs) in  Hong Kong .  Interruptions to these ISPs’ and/or
      their partners’ hosting services could result from natural disasters as well as
      catastrophic hardware failures, software problems, extended power loss,
      telecommunications failure and similar events. While these ISPs may be able
      to
      provide disaster recovery facilities on request in such
      circumstances, nevertheless, if there is any failure, inability or delay on
      their part in providing such disaster recovery facilities as committed, serious
      and prolonged disruptions to our systems and services could
      result.




Although
        we support the integrity of our security with IDS (Intrusion Detection Systems),
        anti-virus and other tools as a precaution against hackings, denial-of-service
        and other cyber intrusions, such security systems and programs are not
        completely foolproof or error-free, and new updates to deal with the latest
        viruses or security threats may not yet be available or may not yet have
        been
        implemented. Hence, security breaches could still occur, and we cannot give
        any
        assurances that we will always be able to prevent individuals from gaining
        unauthorized access to our servers. Any such unauthorized access to our database
        servers, including abuse by our employees, could result in the theft of
        confidential customer or user information contained in our database servers.
        If
        such confidential information is compromised, we could lose customers or
        become
        subject to liability or litigation and our reputation could be harmed, any
        of
        which could materially and adversely affect our business and results of
        operations.
  *The
        failure of outside parties to meet committed service levels and information
        accuracy expectations may make our services less attractive to customers
        and
        harm our business.*
  We
        rely
        on outside parties for some information, licenses, product delivery,
        telecommunications and technology products and services.  We rely on
        relationships and/or contractual agreements with software developers and
        providers, systems integrators and other technology or telecommunications
        firms
        to support, enhance and develop our products and
        services.


16






Although
      we have contracts with technology providers to enhance, expand, manage and
      maintain our computer and communications equipment and software, these service
      providers may not provide acceptable services.  Services provided by
      third parties include hosting our *Global Sources Online* servers and
      database, maintaining our communications and managing the network and data
      centers which we rely on for the provision of our services.  These
      relationships may not continue or may not be available on the same commercial
      terms in the future, which could cause customer dissatisfaction and/or a delay
      in the launch of new software or services.




We
      license some components of our technology from third parties.  These
      licenses may not be available to us on the same commercial terms in the
      future.  The loss of these licenses could delay the release or
      enhancement of our services until equivalent technology could be licensed,
      developed or otherwise obtained.  Any such delay could have a material
      adverse effect on our business.  These factors may deter customers
      from using our services, damage our business reputation, cause us to lose
      current customers, and harm our ability to attract new customers.




We
      have
      no direct control over the accuracy, timeliness or effectiveness of the
      information, products and services or performances of these outside
      parties.  As a result of outside party actions, we may fail to provide
      accurate, complete and current information about customers and their products
      in
      a timely manner and to deliver information to buyers and/or other registered
      users in a satisfactory manner.




*If
      we
      release new services, catalog tools or software that contain defects, we may
      need to suspend further sales and services until we fix the defects, and our
      reputation could be harmed.*




Our
      services depend on software that is complex and that may contain unknown and
      undetected defects, errors or performance problems.  We may not
      discover defects, errors or performance problems that affect our new or current
      services or enhancements until after they are deployed.  These
      defects, errors or performance problems could force us to suspend sales and
      services or cause service interruptions which could damage our reputation or
      increase our service costs, cause us to lose revenues, delay market acceptance
      or divert our development resources, any of which could severely harm our
      business.




*Customer
      concerns regarding Internet security may deter use of our online products and
      services.*




Widely
      publicized security breaches involving the Internet or in online services
      generally, or our failure to prevent security breaches, may cause our current
      and potential customers not to use our products and services and adversely
      affect our revenues.  We may be required to incur additional costs to
      protect against security
      breaches or to alleviate problems caused by these breaches.  Our
      potential for growth depends on our customers’ confidence in the security of our
      products and services.




*Our
        inability to maintain effective Internet domain names could create confusion
        and
        direct traffic away from our online services.*
  If
        we are
        not able to prevent third parties from acquiring Internet domain names that
        are
        similar to the various Internet domain names that we own, third parties could
        create confusion that diverts traffic to other websites away from our online
        services, thereby adversely affecting our business.  The acquisition
        and maintenance of Internet domain names generally are regulated by governmental
        agencies.  The regulation of Internet domain names in the United
        States and in foreign countries is subject to change.  As a result, we
        may not be able to acquire or maintain relevant Internet domain
        names.  Furthermore, the relationship between regulations governing
        such addresses and laws protecting proprietary rights is unclear.
  *Our
        lengthy sales and implementation cycle could cause delays in revenue
        growth.*
  The
        period between our initial contact with a potential customer and the purchase
        of
        our products and services is often long and unpredictable and may have delays
        associated with the lengthy budgeting and approval processes of our
        customers.  This lengthy sales and implementation cycle may affect our
        ability to estimate our revenue in future quarters and could cause delays
        in
        revenue growth.


17






*Because
      we are governed by Bermuda law rather than the laws of the United States and
      our
      assets are outside the U.S., our shareholders may have more difficulty
      protecting their rights because of differences in the laws of the
      jurisdictions.*




We
      are
      organized under the laws of Bermuda.  In addition, certain of our
      directors and officers reside outside the United States and a substantial
      portion of our assets are located outside the United States.  As a
      result, it may be difficult for investors to effect service of process within
      the United States upon such persons or to realize against them judgments of
      courts of the United States predicated upon civil liabilities under the United
      States federal securities laws.  We have been advised by our legal
      counsel in Bermuda, Appleby, that there is doubt as to the enforcement in
      Bermuda, in original actions or in actions for enforcement of judgments of
      United States courts, of liabilities predicated upon U.S. federal securities
      laws, although Bermuda courts will enforce foreign judgments for liquidated
      amounts in civil matters subject to certain conditions and
      exceptions.




*We
      may not pay cash dividends in the foreseeable future.*




We
      may
      not pay cash dividends in the foreseeable future. This may reduce the demand
      for
      our shares.




**ITEM
                4.**
            **INFORMATION
                ON THE COMPANY**




**History
      and Development of the Company**




We
      are a
      leading facilitator of global merchandise trade. Our business began in 1971
      in
      Hong Kong when we launched *Asian Sources*, a trade magazine to serve
      global buyers importing products in volume from Asia. Today, we are one of
      Asia’s leading providers of trade information in print media, online media and
      face-to-face events, meeting the marketing and sourcing needs of our supplier
      and buyer communities.




While
      our
      core business facilitates exports from Asia (with a particular focus on Greater
      China, which includes mainland China, Hong Kong and Taiwan) to the world, we
      also facilitate trade from the world to Asia (with a particular focus on Greater
      China).  In 1985, we launched *Electronics News for China*for
      this purpose.  Today we have several publications, their associated
      websites plus events and conferences that provide information to electronic
      engineers and executives at manufacturing companies in Greater China and
      throughout Asia.




Realizing
      the importance of the Internet, we became one of the first providers of
      business-to-business online services by launching *Asian Sources Online*
      in 1995. In 1999, we changed the name of *Asian Sources Online* to
*Global Sources Online.*




We
        originally were incorporated under the laws of Hong Kong in 1970. In
        April 2000, 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 became incorporated
        under the laws of Bermuda and changed our name to Global
        Sources Ltd.
  Our
        capital expenditures during the year ended December 31, 2006 amounted to
        $4.9
        million, incurred mainly for computers, software, leasehold improvements,
        office
        furniture and software development. Our capital expenditures were financed
        using
        cash generated from our operations.  The net book value of capital
        assets disposed during the year ended December 31, 2006, amounted to
        $2,000.
  Our
        primary operating offices are located in Shenzhen, China; Hong Kong, China;
        and
        Singapore. Our registered office is located at Canon’s Court, 22 Victoria
        Street, Hamilton, HM 12, Bermuda, and our telephone number at that address
        is
        (441) 295-2244. Our website address is http://www.globalsources.com. Information
        contained on our website or available through our website is not incorporated
        by
        reference****into this document and should not be considered
        a part of this document.
  **Business
        Overview**
  We
        are a
        leading business-to-business (B2B) media company that provides information
        and
        integrated marketing services, with a particular focus on the Greater China
        market.  Our mission is to facilitate global trade between buyers and
        suppliers by providing  export marketing services and sourcing
        information. Although our range of media has grown, for more than 36 years
        we
        have been in the same primary business of helping buyers worldwide find products
        and suppliers in Asia (with a particular focus on Greater
        China).


18









Buyers
      rely on our media to stay current with available purchasing
      opportunities.  Suppliers use our media to find new buyers and markets
      for their products.  We believe we offer the most extensive range of
      media and export marketing services in the industries we serve. Suppliers using
      our four primary channels – online marketplaces, print magazines, trade shows
      and direct online sales – are supported by our advertising creative services,
      education programs and online content management applications.




We
      have a
      significant presence across a number of industry sectors including electronics,
      fashion accessories, hardware and gifts.  We are particularly strong
      in facilitating China’s two-way trade of electronics, China’s largest import and
      export sector. Our revenue from China in Year 2006 has grown by 236% as compared
      to our revenue from China in Year 2000.




We
      serve
      an independently certified community of over 560,000 active members (as of
      the
      end of 2006) in some 230 countries and territories. This buyer community has
      more than doubled in size from 209,000 at the end of 2000. During 2006, buyers
      sent more than 10 million sales leads, or requests for information (RFIs) to
      the
      150,000 suppliers listed on *Global Sources Online*, up from 2.4 million
      for the year 2000.




We
      are
      diversified in terms of products and services offered, industries served and
      our
      customer base. We have powerful and valuable assets including: the Global
      Sources brand; leading products and market positions; a long history and
      extensive presence in Greater China; and substantial online leadership and
      expertise. We believe that all of these provide a strong platform for success
      and that we are well-positioned to grow along with Greater China’s exports and
      imports in the industry segments within which we operate.




The
      following table sets forth our revenue by category for the last three fiscal
      years:




**Year
                  Ended December 31,****2004**
            
            
            **2005**
            
            
            **2006****Revenue:**Online
                and other media
                services
            
            $
            92,325
            
            
            $
            97,062
            
            
            $
            113,097Exhibitions
                - trade shows and seminars
            
            
            13,010
            
            
            
            14,300
            
            
            
            42,122Miscellaneous
            
            
            511
            
            
            
            832
            
            
            
            1,262**$**
            **105,846**
            
            
            **$**
            **112,194**
            
            
            **$**
            **156,481**








The
      following table represents our revenue by geographical area for the last three
      fiscal years:




**Year
                  Ended December 31,****2004**
            
            
            **2005**
            
            
            **2006****Revenue:**Asia
            
            $
            97,876
            
            
            $
            104,746
            
            
            $
            146,315United
                States
            
            
            6,573
            
            
            
            6,175
            
            
            
            7,610Europe
            
            
            597
            
            
            
            679
            
            
            
            1,571Others
            
            
            800
            
            
            
            594
            
            
            
            985Consolidated
            
            **$**
            **105,846**
            
            
            **$**
            **112,194**
            
            
            **$**
            **156,481**





We
      currently generate the majority of our revenue from suppliers in Asia, with
      China being our largest market at 58% of total revenue during fourth Quarter
      of
      2006.  Our revenue is derived from three primary sources:






19






*·*
            ***Online
                Services** - Our primary service is creating and hosting marketing
                websites that present suppliers’ product and company information in a
                consistent and easily searchable manner on Global Sources
                Online.  We also derive revenue from banner advertising
                fees.*




*·*
            ***Other
                Media Services** - We publish trade magazines, which consist
                primarily of advertisements from suppliers and our independent editorial
                reports and product surveys.  We publish our core trade
                magazines monthly, and a host of specialized magazines
                seasonally.  We also derive revenue from buyers that subscribe
                to our trade publications.*




*·*
            ***Exhibitions
                - Trade Shows and Seminars** - We launched a new line of trade
                shows called the China Sourcing Fairs.  They offer international
                buyers direct access to manufacturers in China and other Asian
                countries.  The first fair was held during the fourth quarter of
                2003.  Future fairs will be held mainly in the second quarter
                and fourth quarter of each financial
                year.*




**Industry
      Background**




*Global
      Trade and the Role of Greater China*




Over
      the
      past few decades, as communications and logistics technologies have improved
      and
      as more free trade agreements have been signed, international trade has grown
      at
      a pace far exceeding the growth of overall global production. Asia, including
      Greater China in particular, has been a significant contributor to the growth
      of
      global trade.




Greater
      China is the world’s largest merchandise exporter. China, especially, is rapidly
      expanding as both an exporter and an importer of goods and
      services.  Also, China has overtaken the United States as the world’s
      largest exporter of information and communications technology
      goods.




China
      has
      become a major manufacturer and exporter of a wide range of products, due to
      its
      significant labor cost advantages, large population, improving quality controls
      and increasing amounts of foreign investment. Being admitted to the World Trade
      Organization in 2001 was a very important turning point for China. Membership
      led to a dramatic shift in global trade, with more orders flowing to China
      and
      away from traditional supply markets.




With
      a
      population that is more than 15 times as large as Hong Kong, Taiwan and South
      Korea combined, and with comparably more manufacturing facilities, the potential
      scale of China as an exporter is very substantial. China’s exporters include
      state-owned enterprises, joint ventures and a rapidly growing number of
      entrepreneurial companies.




With
        thousands of manufacturers spread across vast regions, and given the large
        distances between them and their customers, it is difficult for buyers and
        suppliers to identify and communicate with one another. Accordingly, buyers’
search and evaluation costs, and suppliers’ advertising and marketing expenses
        can be substantial.
  *The
        Role of Media in Global Trade*
  In
        global
        trade, media play a key role in helping suppliers and buyers find, connect
        and
        transact with each other. To facilitate this, media companies provide three
        major offerings—online marketplaces, trade publications and trade shows. Many
        media companies, however, offer just one or two of these types of
        media.
  For
        media
        companies doing business in Asia, the fragmentation existing in many markets
        presents significant challenges. They need to find, qualify and visit tens
        of
        thousands of suppliers and then assist them to promote their products to
        the
        global marketplace. Building a sales force to contact these suppliers is
        a
        significant undertaking and typically requires substantial financial and
        manpower commitments and resources. In particular, there is a huge challenge
        to
        effectively and efficiently hire, train and manage a network of sales
        representatives across such an immense area, where multiple jurisdictions
        have
        varying legal requirements, languages, currencies and
        customs.


20




Buyers
      rely on media to stay current with all available purchasing opportunities.
      They
      use the media to identify and pursue new suppliers with which they can compare
      both pricing and product quality with their existing suppliers. They also seek
      to purchase new product lines appropriate to their distribution channels. Buyers
      choose media based on the quality and quantity of information relevant to their
      interests, and on the range and flexibility of the formats and delivery
      methods.




Most
      suppliers frequently introduce new products and actively seek new buyers and
      markets through the use of media. Their objective is to make sure their products
      are seen by as many potential buyers as possible, and sold to buyers that will
      provide them the best price and the right order size. Suppliers select media
      based on the number and quality of buyers reached, and on the reputation of
      the
      medium and its cost. Also, particularly in Greater China, creative services
      for
      advertising design and English language copywriting play a significant role
      in
      media selection.  Suppliers measure the return on their promotional
      investments by the quantity and quality of sales leads, or RFIs, that they
      receive, and where possible, by the actual orders generated.




Operators
      of online marketplaces generate most of their business from selling marketing
      services to suppliers, such as hosting and publishing a supplier’s website or
      catalog, and from advertising. Online marketplaces have the advantages of
      content depth and timeliness and provide a venue where suppliers can make
      detailed product and company information accessible to buyers.




Trade
      magazine publishers garner the vast majority of their revenue from the sale
      of
      advertising. Magazines offer buyers the convenience of portability while
      offering suppliers a proven medium that delivers a targeted audience. Magazine
      advertising formats are effective since they enable suppliers to do high-impact,
      display advertising that can strongly position their company and their products.
      Advertising in trade magazines contributes greatly to making buyers aware that
      a
      company is a potential supplier, and if the buyer is in an active sourcing
      mode,
      these advertisements often stimulate the buyer to make an inquiry, visit the
      supplier’s website and/or visit the supplier’s booth at a trade
      show.




Trade
      show organizers generate most of their business from selling booth space to
      suppliers. Trade shows play a unique role in the sales process since they allow
      sellers to make face-to-face presentations to buyers and to negotiate and take
      orders at the booth. In international trade, this is something that cannot
      be
      accomplished by online or print media.




Many
      suppliers want to reach their customers and prospects in multiple ways: online,
      in print and in person at trade shows. Suppliers need this full range of media
      to make sure they reach their entire target market, because of the benefits
      of
      different exposures to buyers, and because each of the media plays a different
      role in the sales cycle.




**Our
        Offerings**
  Our
        primary business relates to connecting buyers worldwide with suppliers in
        Asia
        (with a particular focus on Greater China) and other emerging markets. However,
        we also enable trade in the other direction with a range of media that
        facilitate selling to Asia (with a particular focus on Greater
        China).
  We
        provide a broad set of business-to-business (B2B) media products and services
        to
        stimulate and streamline the marketing and sourcing processes of global trade.
        In particular, we believe that we are the largest company offering such an
        integrated solution to suppliers and buyers engaged in international trade
        with
        Greater China.
  Buyers
        request information and purchase goods from suppliers who market themselves
        through our online services, trade magazines and trade shows. We provide
        information to help buyers evaluate numerous sourcing options so they can
        place
        orders with suppliers that offer them the best terms. We help suppliers market
        their products and their capabilities to our community of buyers worldwide.
        By
        receiving inquiries from a wide selection of buyers, suppliers have more
        opportunities to achieve the best possible terms, and to learn about the
        demand
        and specific requirements in different markets.
  With
        the
        combination of our online, print and trade show offerings, supported by our
        creative and production services, we offer suppliers a virtual one-stop shop
        for
        most of their export marketing communications needs. Moreover, we believe
        that
        we are uniquely capable of helping suppliers create and deliver integrated
        marketing programs that impact all stages of the buying process – from awareness
        and lead generation – right through to purchase orders.


21




*Media
      for Buyers Worldwide*




Online
      Services




Through
      *Global Sources Online,* our online marketplace, buyers are able to
      identify and make inquiries to suppliers. Our primary source of revenue is
      from
      suppliers who pay for marketing websites. Each marketing website is comprised
      of
      a home page, a company profile and a virtual showroom containing product profile
      pages on the supplier’s products. Each product profile page contains detailed
      product information, specifications and full color images. Many suppliers choose
      to supplement their marketing websites with additional online marketing
      services. For example, suppliers can sponsor a particular product or other
      search category and when a buyer searches that category, the supplier’s banner
      advertisement is displayed promoting its products or services, with a link
      to
      that supplier’s marketing website.




Buyers
      can reach a large potential supply base on *Global Sources Online* by
      searching among, and/or making inquiries to, approximately 150,000 suppliers
      who
      are categorized according to the products they can supply. In listing suppliers
      for a specific product, we give prominence to those who maintain marketing
      websites with us.




A
      key
      feature of *Global Sources Online* for buyers is the standard format for
      suppliers’ information, making it unnecessary for buyers to leave our website to
      visit numerous individual supplier websites, each with a different data
      structure and design. Another important feature is our “Product Alert” to
      buyers. Buyers register their profiles and are then notified by e-mail whenever
      there is new advertising or editorial content in the product categories they
      specified.




Trade
      Publications




We
      publish twelve monthly publications that are circulated to buyers worldwide.
      Our
      trade publications contain paid advertisements from suppliers, as well as our
      independent editorial features, which include market reports and product
      surveys. In addition to our paid subscription base, we distribute samples of
      our
      trade magazines free-of-charge to qualified buyers worldwide at a variety of
      trade shows and events.




Trade
        Shows
  We
        have
        eight *China Sourcing Fairs* scheduled for 2007 in Hong Kong. The shows
        bring buyers from around the world to meet face-to-face with suppliers. The
        first *China Sourcing Fair* was held in Shanghai in October 2003. Our
        series of *China Sourcing Fairs* in Hong Kong was first launched in 2006,
        comprising *Electronics & Components, Fashion Accessories* and
*Gifts & Home Products*, which were each held twice – once in the
        spring and once in the fall. We also held a *China Sourcing Fair: Underwear
& Swimwear* in Hong Kong for the first time in the spring of 2007 and it
        is scheduled to be held again in the fall of 2007.
  Direct
        Online Sales
  In
        2006,*we*launched *Global Sources Direct*. This new initiative
        enables suppliers to sell their products online – globally through multiple
        online channels, including eBay International sites and our *Global Sources
        Direct* website at: http://www.globalsourcesdirect.com. The service
        facilitates the sale of wholesale lots, or what some call LCL or ‘less than
        container load’ orders, and enables buyers to import without having to
        understand or deal with most of the intricacies involved.
  Advertising
        Creative Services
  We
        offer
        our customers advertising and marketing creative services, which assist them
        in
        communicating their unique selling propositions and in executing integrated
        marketing campaigns across our online services, trade magazines and trade
        shows.
        Account managers and copywriters in our customer service centers assist
        suppliers with creative services including digital photography of products,
        translation, copywriting, ad layout and quality control. Basic media and
        creative services are included in our media charges.


22






China
      Sourcing Reports




We
      currently have more than 100 different *China Sourcing Reports* for sale
      and published more than 50 of these reports in 2006. Each *China Sourcing
      Report* provides extremely detailed, product-specific information on
      suppliers and supply market conditions throughout Greater China that is based
      on
      our factory visits, face-to-face interviews, and detailed questionnaires.
      Revenue is derived from sales to buyers.




Private
      Supplier Catalogs




Our
      *Private Supplier Catalogs* enable suppliers to enter, manage, update and
      distribute their product and company data for a variety of online marketing
      and
      cataloging applications. We provide tools within the catalog to assist suppliers
      with creating, updating and posting content. Also the catalogs are maintained
      in
      a private, password-protected environment where the catalog user has the sole
      right of access and data entry. We currently derive little revenue from these
      services.




*Media
      for Engineers and Executives in Asia*




In
      addition to our primary media, which connect export suppliers in Asia with
      buyers worldwide, we are a leading provider of information to electronics
      engineers and executives within Asia. For this segment of our business, we
      have
      eight websites, eight magazines and host several conferences and events each
      year.




**Business
      and Growth Strategy**





***Mission***





Global
      Sources’ mission is to connect global buyers and suppliers by providing the
      right information, at the right time, in the right format.





Our
      key
      business objective is to be the preferred provider of content, services, and
      integrated marketing solutions that enable our customers to achieve a
      competitive advantage. It is also our goal to be the largest B2B media
      company serving the two-way supply chain between Greater China and the world
–
as well as within Greater China.




***Business
        Strategy***
 
 Our
        business strategy to achieve our objectives is to serve our markets with
        online,
        print and trade show media that address our customers’ needs at all stages of
        the buying process.
 
 ***Growth
        Strategy***
 
 The
        Global Sources growth strategy is built around the following four key
        foundations.
 
 **1.**
              **Market
                  Penetration**
 
 Global
        Sources is well-placed in its existing markets which offer significant
        opportunities for further growth.
 
 We
        have a
        large number of prospects within the 150,000 suppliers listed on
        globalsources.com. Our market penetration plans include continued growth
        of our
*China Sourcing Fairs*, cross selling to clients not using online, print
*or trade* shows, and achieving continued strong growth in Greater
        China*.*
 
 **a.**
              **Growing*****China Sourcing Fairs*****revenue**. We plan to grow revenue by increasing both the amount
                  of
                  space we rent and the average revenue per
                  booth.
 
 **b.**
              **Cross-selling
                  to clients not using online, print*****or*****shows**. Our
                  objective is to maximize our share of our customers’ marketing budgets. A
                  particular opportunity is the large number of new, trade show-only
                  customers we have added over the past few years who are primary
                  prospects
                  to use our print and online
                  services.


23








**c.**
            **Continued
                high growth in Greater China.** As Greater China is steadily
                enhancing its position as the world’s primary supply market for a wide
                range of consumer products, we expect revenue from Greater China
                to
                continue to grow faster than our overall
                revenue.





**2.**
            **New
                Product Development**





Our
      product development plans include increasingly specialized online marketplaces,
      magazines and trade shows – as well as entirely new media formats.





For
      example, we recently launched online marketplaces and magazines titled *Gifts
& Premiums* -- and *Home Products*. Another example is the spring
      2007 launch of a new monthly magazine titled *Security Products* to
      accompany a pre-existing online vertical. Also a new *China Sourcing Fair:
      Underwear & Swimwear* is scheduled to be held in spring and fall 2007 in
      Hong Kong. ”New media” initiatives include application websites for engineers,
      e-newsletters, and webcasts.





**3.**
            **Expansion
                into China’s Domestic B2B
                Market**





A
      primary
      objective is to become increasingly involved in serving China’s domestic B2B
      market, something we consider to be an attractive growth market and a
      synergistic complement to our existing businesses that serve China’s export and
      import sectors.





We
      intend
      to launch new online, print and/or trade show products in existing or related
      industry sectors. These initiatives are expected to also leverage our brands,
      content, skills and community, and to build on our existing successes with
      Chinese language media including *Chief Executive China*, the leading
      management magazine and website for China, and *EE Times-China*, the
      leading website and magazine for China’s electronics engineers.





We
      already have more than one million “readers” in China built up over decades of
      on-the-ground work. This demographically rich database is comprised primarily
      of
      audited magazine subscribers and registered online users. Our Chinese language
      websites now attract more than 12 million page views every month.




We
        may
        also extend some of our existing English-language verticals into the China
        domestic market. For example, we plan to launch two domestic *China Sourcing
        Fair*trade shows in Shanghai in December 2007, titled *Fashion
        Accessories* and *Baby & Children’s Products*.
 
 **4.**
              **Acquisitions
                  and/or Alliances**
 
 We
        intend
        to support our growth strategy through acquisitions and/or alliances designed
        to
        drive growth and accelerate achievement of strategic goals.
 
 We
        plan
        to seek complementary businesses, technologies or products that we believe
        would
        help us maintain and achieve market leading positions in particular niche
        markets.
 
 As
        of
        April 30, 2007, we own approximately 12.84% of HC International, Inc. (“HC
        International”), a B2B media company which is listed on the Growth Enterprise
        Market of The Stock Exchange of Hong Kong Limited and which is focused on
        China’s domestic market. We had an option deadline of June 20, 2007 to buy an
        additional approximate 34.38% of HC International (as of April 30, 2007).
        However, we have announced, via a press release dated June 17, 2007, that
        we
        will not be exercising this option.
 
 We
        have a
        joint venture with CMP Media and an alliance with Penton Media, and intend
        to
        continue seeking similar opportunities where we can create significant operating
        synergies with an overseas partner by applying our resources, expertise and
        experience in Greater China.
 
 We
        believe that success with our objectives and growth strategy should enable
        Global Sources to achieve its financial targets. Our objective is to deliver
        superior shareholder returns.


24






**Products
      & Services**




*Media
      for Buyers Worldwide*




Online
      Services




*Global
      Sources Online*, our primary online service, is comprised of the following
      industry sector marketplaces:




*Auto
                Parts & Accessories*
            *Garments
                & Textiles**Baby
                & Children’s Products*
            *Gifts
                & Premiums**Computer
                Products*
            *Hardware
                & DIY**Electronic
                Components*
            *Home
                Products**Electronics*
            *Machinery**Fashion
                Accessories*
            *Security
                Products**Telecom
                Products*


Trade
      Publications




We
      publish the following industry-specific trade magazines monthly:




*Global
                Sources Auto Parts & Accessories*
            *Global
                Sources Garments & Textiles**Global
                Sources Baby & Children’s Products*
            *Global
                Sources Gifts & Premiums**Global
                Sources Computer Products*
            *Global
                Sources Hardware & DIY**Global
                Sources Electronic Components*
            *Global
                Sources Home Products**Global
                Sources Electronics*
            *Global
                Sources Security Products**Global
                Sources Fashion Accessories*
            *Global
                Sources Telecom Products*








Trade
      Shows & Exhibitions




**Trade
                Show / Exhibition**
            **Description***China
                Sourcing Fair: Gifts & Home Products*
            ·Primary
                product categories include: gifts, premiums & toys; sporting goods;
                Christmas & holiday products; stationery; health & beauty
                products; kitchen & household appliances; DIY & home center;
                furniture & furnishings; garden & outdoor products; and lighting
                & electrical.
              ·Spring
                and
                fall 2007 events in Hong Kong.*China
                Sourcing Fair: Electronics & Components*
            ·Primary
                product categories include: personal & mobile electronics; computers
                & networking products; electronic components; security & safety
                products; telecom products & accessories; and home & office
                electronics.
              ·Spring
                and
                fall 2007 events in Hong Kong.*China
                Sourcing Fair: Fashion Accessories*
              
              
              
              
              
              *China
                Sourcing Fair: Underwear and Swimwear*
            ·Primary
                product categories include:  handbags, special purpose bags,
                footwear, hats and caps, umbrellas, belts, sunglasses, gloves, ties,
                socks, watches, luggage, swimwear, bridal products, lingerie and
                sleepwear.
              ·Spring
                and
                fall 2007 events in Hong Kong.
              
              ·Primary
                product categories include: underwear, swimwear and related accessories,
                sleepwear and fabrics, lace and trimmings.
              ·Spring
                and
                fall 2007 events in Hong Kong.









25




**Trade
                Show / Exhibition**
            **Description***China
                Sourcing Fair: Baby & Children’s Products*
            ·The
                first
                exhibition for the Chinese domestic market dedicated to baby and
                children's products. Target attendees are volume buyers for China's
                retail
                industry.
              ·December
                2007
                in Shanghai.*China
                Sourcing Fair: Fashion Accessories*
            ·A
                new and
                convenient sourcing channel for volume buyers of fashion accessories
                in
                China to find products and suppliers.
              ·December
                2007
                in Shanghai.*The
                12th Annual International IC - China Conference &
                Exhibition*
            ·China’s
                premiere showcase of integrated circuits (IC) application technologies
                and
                high-end components.
              ·Spring
                2007
                events in China’s key technology hubs Shenzhen, Beijing and
                Shanghai.*The
                6th Annual Embedded Systems Conference - Taiwan*
            ·Taiwan’s
                largest showcase of embedded systems design, skills training and
                technologies.
              ·August
                2007
                event in Taipei.*The
                14th EDA-&-Test - Taiwan Conference & Exhibition*
            ·Asia-Pacific’s
                largest, longest-running showcase of electronic design automation
                and test
                technologies.
              ·August
                2007 in
                Taipei.





*Media
      for Asian Engineers and Executives*




Magazines




**Magazine**
            **Description***EE
                Times - Asia*
            ·Editions
                published bi-weekly in simplified and traditional Chinese, Korean
                and
                English; provides engineering managers and design engineers in China,
                Taiwan, South Korea, Singapore and Malaysia with innovative design
                ideas
                and in-depth technology analysis.*Electronic
                Design - China*
            ·Published
                monthly in simplified Chinese; provides electronics design &
                development engineers and engineering managers in China with the
                latest in
                emerging technology and ‘how-to’ methodologies.*Electronics
                Supply & Manufacturing - China*
            ·Published
                monthly in simplified Chinese; provides corporate, engineering,
                procurement and manufacturing management in China with strategic
                business
                and technology information.*Global
                Sources Chief Executive China*
            ·Published
                monthly in simplified Chinese; serves China’s senior management with case
                studies and information on management techniques and
                strategies.









26




Websites




**Website**
            **Description***EE
                Times - Asia Online Network*
            ·Provides
                industry news, new product information and technical features covering
                new
                technology and its application to engineers in China, Taiwan, South
                Korea,
                India and countries in the Association of Southeast Asian Nations;
                websites in traditional and simplified Chinese, English and Korean;
                and
                several application specific websites for Chinese engineers.*Electronic
                Design – China Online*
            ·Provides
                China’s design engineers with access to detailed solutions, methodologies
                and white papers.*Electronic
                Supply & Manufacturing – China Online*
            ·Provides
                corporate, engineering, procurement and manufacturing management
                with
                access to new manufacturing strategies, technology and supplier
                news.*Chief
                Executive China Online*
            ·A
                resource
                focusing on excellent management practices for China’s business leaders in
                simplified Chinese.*Career
                Sources China Online*
            ·Provides
                resources and information regarding career
                opportunities.





**Customers**




We
      provide services to a broad range of international buyers and suppliers in
      various industry sectors.




*Suppliers*




During
      2006, 11,695 suppliers paid us for marketing or advertising services.
      Approximately 90% of these suppliers were located in Greater China. No
      individual supplier customer represented more than 1% of our revenue during
      2006.





*Buyers*




For
      our
      primary group of media, which connect export suppliers in Asia with buyers
      worldwide, we serve an independently certified community of more than 560,000
      active members in more than 230 countries and territories. This figure is based
      on procedures to ensure that only buyers who have received a magazine or who
      have made an inquiry through the *Global Sources Online* website within
      the 12 month period ended December 31, 2006 are extracted from the databases.
      This community is up from approximately 209,000 at the end of 2000.




We
      have
      developed our services primarily for retailers, distributors and manufacturers
      who import in volume for resale.  We serve a specialized group of
      senior executives with large import buying power.  We believe a
      significant portion of these executives are owners, partners, presidents, vice
      presidents, general managers or directors of their respective
      companies.




We
      derive
      a relatively small proportion of our total revenue from these buyers for
      subscriptions to our magazines and for *China Sourcing
      Reports*.






27






**Sales
      and Marketing**




Our  team
      member sales organization consists of approximately 1,406 independent
      representatives in approximately 67 cities worldwide, with 48 of these locations
      in Greater China.  We have a staff of 40 full-time employees that
      oversee and monitor the independent sales representative organizations that
      employ these representatives.  These organizations operate pursuant to
      service agreements with us that generally are terminable by either party on
      short notice.  These representatives focus on developing and
      maintaining relationships with suppliers that are current customers and they
      seek to increase the number of new suppliers using our
      services.  Substantially all of our contracts with suppliers are
      entered into directly between the supplier and us.  Online services
      and print advertising revenue is seasonal and tends to be highest in the fourth
      quarter of each calendar year.  Revenue for trade shows is highly
      seasonal as it is recognized in the month in which each show is
      held.  Our sales representatives collectively make an average of
      50,000 supplier visits per month.  The largest representative sales
      offices are located in Beijing, Guangzhou, Shanghai, Shenzhen, Hong Kong and
      Taipei.  Our six sales representative organizations in China accounted
      for approximately 53% of our total revenue in 2006.




Our
      marketing strategy leverages our database of approximately 130,000 suppliers
      currently listed on *Global Sources Online*. Sophisticated analyses of
      buyer and supplier profile data enable us to target our sales and marketing
      programs to new geographic areas and to specific product categories within
      industry sectors.




Our
      sales
      representative organizations are generally structured to offer an integrated
      marketing solution of our media to customers. Most of the sales representative
      organizations have the primary responsibility of selling our online and print
      media while other sales representative organizations are focused on selling
      trade show booth space. Our community development group is responsible for
      marketing our services to the global buyer community through online
      advertisements and promotions, search engine marketing, trade shows and direct
      mail campaigns.




**Content
      Development**




Our
      content development group, comprised of 466 team members as at December 31,
      2006, is responsible for compiling, editing, integrating and processing the
      content that appears in our online services and print media. Within content
      development, the advertisement operations and editorial groups compile materials
      from suppliers and freelance writers, respectively, and transform these
      materials into the advertising and editorial
      content. Research teams analyze customer content usage to direct content
      development and they work with sales representatives and marketing staff to
      develop appropriate content for new industry sectors. Our site team is
      responsible for evaluating and integrating content into our online services,
      as
      well as maintaining the overall integrity of such services. In addition, members
      of the content development group manage the pre-press production work and print
      production processes associated with the creation of our trade magazines. They
      also maintain the back-end supplier database, which is the foundation for our
      online supplier and product information.




**Strategic
      Relationships**




We
      own
      60.1% of a joint venture with CMP Media LLC, through UBM Asia B.V., a subsidiary
      of United News & Media plc. We entered into the joint venture in
      September 2000, to provide new technology content, media and online
      services for the Asian electronics market, focusing on new opportunities in
      the
      Greater China market.




In
      November 2001, we formed a strategic alliance with the WorldWide Retail
      Exchange, LLC (WWRE), to offer a supplier sourcing program for WWRE members
      and
      Asian suppliers. This evolved in 2005 to a new and expanded agreement with
      Agentrics LLC, which was recently formed by the merger of WWRE and
      GlobalNetXchange LLC. Agentrics LLC is an organization representing 50 global
      retailers with $1 trillion in annual sales, including some of the world’s
      largest retailers.




We
      formed
      a license-based partnership with a third party to operate a regional online
      marketing service in South Africa. This enables suppliers within South Africa
      to
      promote their products and services to buyers located primarily outside of
      South
      Africa.




In
      August
      2005, one of the Company’s subsidiaries, eMedia Asia Limited (“eMedia”), formed
      a strategic alliance with Penton Media Inc. (“Penton”) to launch *Electronic
      Design - China*, a simplified Chinese edition of Penton’s electronics
      magazine, *Electronic Design*. This new *Electronic Design –
China* publication aims to provide the latest technology and
      application
      methodologies to design engineers and engineering managers in China. The online
      website was launched in January 2006, and the first print monthly issue was
      launched in March 2006.  eMedia is also entitled to draw content from
      Penton’s electronics publications, including *Electronic Design, EE Product
      News* and *Microwaves & RF.* A description of the agreements
      between eMedia and Penton is set out in the “Material Contracts”
section.






28




HC
      International, Inc. (“HC International”) is a company listed on the Growth
      Enterprise Market of The Stock Exchange of Hong Kong Limited. On May 24, 2006,
      we entered into an agreement for the acquisition of a certain amount of shares
      of HC International. We have also entered into a call option deed for a certain
      amount of shares of HC International, and another call option deed for a certain
      amount of shares of an indirect subsidiary of HC International. We have
      announced, via a press release dated June 17, 2007, that we will not be
      exercising these options. Details of these arrangements are set out in the
      “Material Contracts” section. This was a strategic investment by us, with the
      intention of establishing a strategic relationship with HC
      International.




**Technology
      and Systems**




We
      use a
      combination of commercial software and internally developed systems to operate
      our websites and services.




We
      have
      invested $8.7 million for years 2005 and 2006 combined in online services
      development.




As
      of
      December 31, 2006, we had 148 team members engaged in technology development,
      maintenance, software customization and data center operations.




As
      of
      December 31, 2006, our online marketplace services are run on the Oracle DBMS
      release 9i.  The catalog application that supports *Global Sources
      Online*’s core functions uses a Java platform.




Our
      servers are hosted by Singapore Telecommunications (“SingTel”).  We
      have dual redundant 100Mbps link connection directly to SingTel’s IX backbone,
      while SingTel maintains a 2,015 Mbps link to the United States
      and direct links to most countries in Asia. In the interest of further improving
      our systems’ performance, we migrated this infrastructure to AT&T Global
      Network Services Hong Kong Ltd’s data center in Hong Kong in early
      2007.




We
      use
      StorageTek Enterprise tape back-up systems as well as servers located at our
      Singapore facility for back-up.  We have deployed EMC SAN Enterprise
      disk storage systems for mission critical data and load balancers and
      application accelerators for traffic workload balancing, redundancy and response
      time management respectively.




For
      the
      year ended December 31, 2006 our external network had approximately 99.99%
      uptime availability.




Our
      platform applications deploy standard industry database protocols.  We
      can, therefore, integrate our systems with products from third-party
      vendors.  Our offerings are also based on industry standard Web
      technologies and we are able to deploy with the aid of most common industry
      browser solutions.




Where
      appropriate, our systems use secure socket layer, (SSL), to encrypt sensitive
      communications between browsers and Web servers.  We also use
      Extensible Markup Language, (XML), as an open communication protocol for
      information delivery to various applications and/or partners.




**Competition**




For
      our
      online marketplaces, trade magazines and trade show services, the market is
      highly fragmented and potential competition and competitors vary by the range
      of
      services provided, geographic focus and the industry sector served. Some
      competitors only offer trade shows and other competitors only offer online
      services.






29




We
      may
      compete to some extent with a variety of organizations that have announced
      their
      intention to launch, or have already launched, products and services that
      compete to a certain degree with ours. These businesses include business media
      companies, trade show organizers, government trade promotion bodies, domestic
      retail marketplaces, international trade marketplaces, transaction software
      and
      services providers, and electronic sourcing application and/or service
      providers. We may be at a competitive disadvantage to companies that have
      greater financial resources, that have more advanced technology, that have
      greater experience or that offer lower cost solutions than ours. In addition,
      some buyers and suppliers may have developed in-house solutions for the online
      sourcing and marketing of goods and may be unwilling to use ours.




**Intellectual
      Property**




Our
      primary product and supplier content, in addition to our in-house produced
      editorial content, is held under common law copyright.  We actively
      protect this intellectual property by several means, including the use of
      digital watermark technology on the images on our website, which enables us
      to
      identify unauthorized use on other websites.




We
      have
      also developed several proprietary technology applications.  In the
      future, we may apply for patents for these technology applications, where
      appropriate.  However, we may not be successful in obtaining the
      patents for which we applied.  Even if we are issued a patent, it is
      possible that others may be able to challenge such a patent or that no
      competitive advantage will be gained from such patent.




Our
      intellectual property is very important to our business.  We rely on a
      combination of contractual provisions, employee and third-party nondisclosure
      agreements, and copyright, trademark, service mark, trade secret and patent
      laws
      to establish and protect the proprietary rights of our software and
      services.




We
      have
      registered trademarks for “Asian Sources”, “Global Sources”, “China Sourcing
      Fairs” and/or “Global Sources Direct” in Australia, the European Union, Germany,
      Hong Kong, India, Indonesia, Israel, Malaysia, Mexico, Japan, the Philippines,
      China, Singapore, South Africa, South Korea, Switzerland, Taiwan, Thailand,
      Turkey and the USA, and we have applications for these trademarks pending
      registration in various countries, including Egypt, the European Union, India,
      Indonesia, Malaysia, China, Taiwan, Thailand, the United Arab Emirates and
      the
      USA.




We
      have
      in the past, and may in the future, co-develop some of our intellectual property
      with independent third parties.  In these instances, we take all
      action that we believe is necessary or advisable to protect and to gain
      ownership of all co-developed intellectual property.  However, if such
      third parties were to introduce similar or competing online services that
      achieve market acceptance, the success of our online services and our business,
      financial condition, prospects and operating results may be harmed.




**Government
      Regulation**




Our
      services are subject to government regulation.




*Internet
      Regulation*




There
      are
      an increasing number of laws and regulations pertaining to the
      Internet.  In addition, a number of legislative and regulatory
      proposals are under consideration by federal, state and local and foreign
      governments and agencies.  Laws or regulations may be adopted with
      respect to the Internet relating to the liability for information retrieved
      from
      or transmitted over the Internet, online content regulation, the transmission
      of
      unsolicited commercial e-mails, user privacy, taxation and the quality of
      products and services.  Moreover, it may take years to determine
      whether and how existing laws, such as those governing issues relating to
      intellectual property ownership and infringement, privacy, libel, copyright,
      trademark, trade secret, design rights, taxation, and the regulation of, or
      any
      unanticipated application or interpretation of existing laws, may decrease
      the
      use of the Internet, which could in turn decrease the demand for our services,
      increase our cost of doing business or otherwise have a material adverse effect
      on our business, financial condition, prospects and operating
      results.




*Regulation
      of Communications Facilities*




To
      some
      extent, the rapid growth of the Internet in the United States has been due
      to
      the relative lack of government intervention in the marketplace for Internet
      access.  For example, several telecommunications carriers are seeking
      to have telecommunications over the Internet regulated in the same manner as
      are
      certain other telecommunications services.  Additionally, local
      telephone carriers have petitioned the Federal Communications Commission to
      regulate Internet service providers in a manner similar to long distance
      telephone carriers and to impose access fees on such providers.  Some
      Internet service providers are seeking to have broadband Internet access over
      cable systems regulated in much the same manner as telephone services, which
      could slow the deployment of broadband Internet access
      services.  Because of these proceedings or others, new laws or
      regulations could be enacted, which could burden the companies that provide
      the
      infrastructure on which the Internet is based, thereby slowing the rapid
      expansion of the medium and its availability to new users.







30




**Properties**




During
      2004, we entered into a contract for the purchase of approximately 9,000 square
      meters of office space in the Shenzhen International Chamber of Commerce Tower
      in Shenzhen, Guangdong province, China, at a purchase price of approximately
      $19.0 million.  Full payment of the purchase price was made during
      2004, the physical handover of the premises occurred on or around March 30,
      2005
      and we have received the title certificates. Our usage right in respect of
      this
      property is for a period of 50 years, expiring on 7 January 2052, after which
      the land could revert to the China government.  In addition, we
      generally lease our office space under cancelable and non-cancelable
      arrangements with terms of two to five years, generally with an option to renew
      upon expiry of the lease term.  We lease in the aggregate
      approximately 97,645 square feet of executive and administrative offices in
      China, Hong Kong , the Philippines, Singapore and Taiwan.  Our
      aggregate base rental and building management fee payments for the year ended
      December 31, 2006 were approximately $1.2 million.




During
      the first quarter of 2007, we entered into a letter of intent, followed by
      a
      purchase agreement, to purchase approximately 1,939.38 square meters of office
      space in a commercial building known as “Excellence Times Square” in Shenzhen,
      China, at a purchase price of approximately $7.0 million, out of which a
      down- payment
      of approximately $0.09 million has been made, with the total remaining balance
      of approximately $6.91 million paid in April 2007. Delivery of the office space
      to us was completed in April 2007.




**Legal
      Proceedings**




We
      are a
      party to litigation from time to time in the ordinary course of our
      business.  We do not expect the outcome of any pending litigation to
      have a material adverse effect on our business.




**ITEM
                4A.**
            **UNRESOLVED
                STAFF COMMENTS**




None.




**ITEM
      5.OPERATING AND FINANCIAL
      REVIEW AND
      PROSPECTS**




*The
      following discussion of our financial condition and results of operations should
      be read in conjunction with the “Selected Financial Data” and the accompanying
      financial statements and the notes to those statements appearing elsewhere
      in
      this annual report.  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 and elsewhere
      in this annual report, particularly under the caption “Risk
      Factors.”*




**Overview**




We
      are a
      leading business-to-business (B2B) media company and a primary facilitator
      of
      two-way trade with Greater China. The core business is facilitating trade from
      Greater China to the world, using a wide range of English-language media. The
      other key business segment facilitates trade from the world to Greater China
      using Chinese-language media. We provide sourcing information to volume buyers
      and integrated marketing services to suppliers. Our mission is to facilitate
      global trade between buyers and suppliers by providing the right information,
      at
      the right time, in the right format. Although our range of media has grown,
      for
      more than 35 years we have been in the same basic business of helping buyers
      worldwide find products and suppliers in Asia.






31




We
      believe we offer the most extensive range of media and export marketing services
      in the industries we serve through our three primary channels – online
      marketplaces, magazines and trade shows.




We
      were
      originally incorporated under the laws of Hong Kong in 1970.  In 1971,
      we launched *Asian Sources*, a trade magazine to serve global buyers
      importing products in volume from Asia. Realizing the importance of the
      Internet, we became one of the first providers of business to business online
      services by launching *Asian Sources Online* in 1995. In 1999, we changed
      the name of *Asian Sources Online*to *Global Sources
      Online.*





In
      April
      2000, 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 became incorporated under
      the
      laws of Bermuda and changed our name to Global Sources Ltd.





**Revenue**





We
      derive
      revenue from three principal sources.





*Online
      Service*s — Our primary service is creating and hosting marketing websites
      that present suppliers’ product and company information in a consistent and
      easily searchable manner on *Global Sources Online*. We also derive
      revenue from banner advertising fees.





*Other
      Media Service*s — We publish trade magazines, which consist primarily of
      product advertisements from suppliers and our independent editorial reports
      and
      product surveys.  Suppliers pay for advertising in our trade magazines
      to promote their products and companies. We also derive revenue from buyers
      that
      subscribe to our trade publications and sourcing research reports.




We
      recognize revenue from our Online and Other Media Services ratably over the
      period in which the marketing website is hosted and/or the advertisement is
      displayed. Our advertising contracts do not exceed one year.





*Exhibitions
      – trade shows and seminars -*Our China Sourcing Fairs offer international
      buyers direct access to manufacturers from China and elsewhere in Asia. The
      first China Sourcing Fair was held during the fourth quarter of 2003. We held
      two series of three China Sourcing Fairs each in the second quarter and fourth
      quarter of 2004 and two series of two China Sourcing Fairs each in the second
      quarter and fourth quarter of 2005. We held two series of three China Sourcing
      Fairs each in the second quarter and fourth quarter of 2006. Future China
      Sourcing Fairs are scheduled to be held mainly in the second quarter and fourth
      quarter of each financial year, including a new China Sourcing Fair in Dubai
      which is scheduled to be launched in June 2007. International IC China
      Conferences and Exhibitions were held in March 2006 in the current year and
      these same exhibitions were held in April 2005 last year. We derive revenue
      primarily from exhibit space rental, but also from advertising and sponsorship
      fees in show guides and other locations in and around our event venues. We
      also
      receive fees from attendees to attend our technical conferences held during
      the
      events. We recognize exhibitor services revenue at the conclusion of the related
      events. As a result, second quarter and fourth quarter revenue is expected
      to be
      higher than the first and third quarter revenue. Revenue from exhibitions are
      likely to grow as a percentage of total revenue in future years as we hold
      more
      China Sourcing Fairs.





**Critical
      Accounting Policies**




Our
      significant accounting policies are described in Note 2 to the consolidated
      financial statements included in Item 8 of this document.  The
      following is a discussion of our critical accounting policies:







32









*Revenue
      Recognition*




We
      derive
      our revenue primarily from receipt of advertising fees in our published trade
      magazines and websites, sale of trade magazines and reports, receipt of fees
      from licensing our trade and service marks, organizing exhibitions and business
      seminars and commission income from consignment sales.




Revenue
      from advertising in trade magazines and websites is recognized ratably over
      the
      period in which the advertisement is displayed.  Advertising contracts
      do not exceed one year.  Revenue from sales of trade magazines and
      reports is recognized upon delivery of the magazine /
      report.  Magazine subscriptions received in advance are deferred and
      recognized as revenue upon delivery of the magazine. Revenue from organizing
      exhibitions and business seminars is recognized at the conclusion of the event
      and the related direct event production costs are deferred and recognized as
      expenses upon conclusion of the event. When multiple deliverables are contracted
      under a single arrangement, we allocate the total consideration to each unit
      of
      accounting on a pro-rata method based on its relative percentage of the total
      fair value of all units of accounting included in the arrangement.




We
      received license fees and currently receive royalties from licensing our trade
      and service marks.  Revenue from license fees was recognized ratably
      over the term of the license.  Royalties from license arrangements are
      earned ratably over the period in which the advertisement is displayed by the
      licensee.




We
      derive
      commission income on the re-sale of our customers’ products on a consignment
      basis.  The commission income which is the sales proceeds, net of the
      cost of the purchased products payable to the consigner is recognized upon
      conclusion of the sale to the buyer.




The
      correct measurement of timing and the duration of the contracts with our
      customers are essential to the recognition of our revenue.  Any delays
      in recognizing the revenue could cause our operating results to vary significantly
      from period to period.  In addition our revenue recognition determines
      the timing of certain expenses such as commissions, circulation expenses, and
      direct event production costs.




*Capitalization
      of Development Costs of Software for Internal Use*




We
      adopted Statement of Position 98-1, “Accounting for the Costs of Computer
      Software Developed or Obtained for Internal Use.”  Costs incurred in
      the preliminary project stage with respect to the development of software for
      internal use are expensed as incurred; costs incurred during the application
      development stage are capitalized and are amortized over the estimated useful
      life of three years upon the commissioning of service of the
      software.  Training and maintenance costs are expensed as
      incurred.




To
      account for the development costs related to the products to be sold, leased
      or
      otherwise marketed, we adopted SFAS No. 86, “Accounting for the Costs of
      Computer Software to Be Sold, Leased, or Otherwise
      Marketed.”  Development costs incurred subsequent to the establishment
      of the technological feasibility of the product are capitalized.  The
      capitalization ends when the product is available for general release to
      customers.




Our
      policies on capitalized software development costs determine the timing and
      our
      recognition of certain development costs.  In addition, these policies
      determine whether the costs are capitalized or recorded as
      expenses.




*Estimation
      of Allowance for Doubtful Debts*




The
      preparation of financial statements requires management to make estimates and
      assumptions that affect the reported amounts of assets and liabilities in our
      financial statements.




We
      estimate the collectibility of our accounts receivable based on our analysis
      of
      the accounts receivable, historical bad debts, customer creditworthiness and
      current economic trends.  We continuously monitor collections from our
      customers and maintain adequate allowance for doubtful
      accounts.  While credit losses have historically been within our
      expectations and the allowances we established, if the bad debts significantly
      exceed our provisions, our operating results and liquidity would be adversely
      affected.






33




*Impairment
      of Long-Lived Assets*




Property
      and equipment are amortized over their estimated useful lives.  Useful
      lives are based on our estimates of the period that the assets will generate
      revenue and can be productively employed.




We
      periodically review the carrying values of our long-lived assets and recognize
      an impairment loss whenever events or changes in circumstances indicate the
      carrying amount of the assets may not be fully recoverable.  The
      recoverability of an asset is measured by a comparison of the carrying amount
      of
      an asset to the estimated undiscounted future cash flows expected to be
      generated by the asset.  If the carrying amount of an asset exceeds
      its estimated future cash flows, an impairment loss, measured based on the
      difference between the carrying amount of the asset and its fair value, is
      recognized.




While
      we
      believe our estimation of the useful lives and future cash flows are reasonable,
      different assumptions regarding such useful lives and cash flows could
      materially affect our valuations.




*Exhibition
      events promotion costs*




The
      event
      specific promotion costs for our exhibition events are recognized as an expense
      during the event months in the year in which the expenses are
      incurred.




Proper
      identification of the promotion expenses to the particular events is essential
      to recognize the costs correctly to the respective events and in the respective
      interim periods.






**Results
      of Operations**




The
      following table sets forth our results of operations as a percentage of total
      revenue:




**Year
                  Ended December 31,****2004**
            
            
            **2005**
            
            
            **2006****Income
                statement data:****Revenue:**Online
                and other media
                services
            
            
            87
            %
            
            
            86
            %
            
            
            72
            %Exhibitions
            
            
            12
            
            
            
            13
            
            
            
            27Miscellaneous
            
            
            1
            
            
            
            1
            
            
            
            1Total
                revenue
            
            
            100
            
            
            
            100
            
            
            
            100**Operating
                expenses:**Sales
            
            
            29
            
            
            
            31
            
            
            
            32Event
                production
            
            
            4
            
            
            
            3
            
            
            
            11Community
            
            
            17
            
            
            
            18
            
            
            
            16General
                and
                administrative
            
            
            30
            
            
            
            31
            
            
            
            25Online
                services
                development
            
            
            4
            
            
            
            4
            
            
            
            3Amortization
                of software
                costs
            
            
            1
            
            
            
            1
            
            
            
            1Total
                operating
                expenses
            
            
            85
            %
            
            
            88
            %
            
            
            88Income
                from
                operations
            
            
            15
            %
            
            
            12
            %
            
            
            12
            %Net
                income
            
            
            15
            %
            
            
            12
            %
            
            
            18
            %





The
      following table represents our revenue by geographical areas as a percentage
      of
      total revenue:




**Year
                  Ended December 31,****2004**
            
            
            **2005**
            
            
            **2006**Asia
            
            
            92
            %
            
            
            93
            %
            
            
            93
            %United
                States
            
            
            6
            
            
            
            6
            
            
            
            5Europe
            
            
            1
            
            
            
            1
            
            
            
            1Others
            
            
            1
            
            
            
            0
            
            
            
            1Total
                revenue
            
            
            100
            %
            
            
            100
            %
            
            
            100
            %






34





**Fiscal
      Year 2006 Compared to Fiscal Year 2005**





**Revenue**





Total
      revenue grew to $156.5 million during the year ended December 31, 2006 from
      $112.2 million during year ended December 31, 2005, a growth of 39% driven
      primarily by the growth in our China Sourcing Fairs exhibitions revenue. Our
      Online and Other Media Services revenue grew by $16 million or 16% to $113.1
      million during the year ended December 31, 2006, as compared with $97.1 million
      during the year ended December 31, 2005 due to a 29% growth in our China market
      and the growth in our Hong Kong, South Korea and USA markets, off-set by a
      decline in some of our other markets during the year ended December 31, 2006.
      China represented 53% of Online and Other Media Services revenue during the
      year
      ended December 31, 2006 compared to 48% during the year ended December 31,
      2005.
      Our Exhibitions revenue grew from $14.3 million during the year ended December
      31, 2005 to $42.1 million during the year ended December 31, 2006, a growth
      of
      194%, due mainly to growth in revenue of our China Sourcing Fairs during the
      year 2006.




We
      have
      made substantial progress in developing our customer base in China, our largest
      market. Total revenue from China grew by 50% during the year ended December
      31,
      2006 compared to year ended December 31, 2005 due to growth in our China
      Sourcing Fairs revenue and Online and Other Media Services revenue.
      China accounted for 53% of total revenue during the year ended December 31,
      2006
      compared to 50% of total revenue during the year ended December 31, 2005. We
      expect revenue from China as a percentage of total revenue to continue to grow
      and China overall revenue to continue to grow.




**Operating
      expenses**







*Sales*





We
      utilize independent sales representatives employed by independent sales
      representative organizations in various countries and territories to promote
      our
      products and services. Under these arrangements, the sales representative
      organizations are entitled to commissions as well as marketing fees. Commission
      expense is recorded when the associated revenue is recognized or when the
      associated accounts receivable are paid, whichever is earlier, and is included
      in sales expenses.





Sales
      costs consist of the commissions and marketing fees paid and incentives provided
      to our independent sales representative organizations, as well as sales support
      fees for processing sales contracts. These representative organizations sell
      online services, advertisements in our trade magazines and exhibitor services
      and earn a commission as a percentage of revenue generated.





Sales
      costs increased from $34.4 million during the year ended December 31, 2005
      to
      $50.4 million during the year ended December 31, 2006, due to increase in sales
      commissions as a result of increase in revenue and increases in sales marketing
      costs and sales promotions for exhibitions.





*Event
      Production*





Event
      production costs consist of the costs incurred for hosting the exhibition or
      trade show and seminar events. The event production costs include venue rental
      charges, booth construction costs, travel costs incurred for the event hosting
      and other event organizing costs. The event production costs are deferred and
      recognized as an expense when the related event occurs.






35





Event
      production costs increased from $3.9 million during the year ended December
      31,
      2005 to $18.4 million during the year ended December 31, 2006, as our China
      Sourcing Fairs events held in year 2006 in Hong Kong were much larger events
      compared to our last year’s China Sourcing Fairs events held in Shanghai,
      resulting in a substantial increase in venue rental, booth construction and
      other event organizing costs. In addition, the exhibition venue in Hong Kong
      was
      more expensive compared to venues in Shanghai.





*Community*





Community
      costs consist of the costs incurred for servicing our buyer community and for
      marketing our products and services to the global buyer community. Community
      costs also include costs relating to our trade magazine publishing business
      and
      marketing inserts business, specifically printing, paper, bulk circulation,
      magazine subscription promotions, promotions for our on-line services, customer
      services costs and the event specific promotions costs incurred for promoting
      the China Sourcing Fairs events and the technical conferences, exhibitions
      and
      seminars to the buyer community. The event specific promotion costs incurred
      for
      events are expensed during the event months in the year in which the expenses
      are incurred.





Community
      costs increased from $20.7 million during the year ended December 31, 2005
      to
      $24.9 million during the year ended December 31, 2006, an increase of 20% due
      mainly to increase in paper costs, printing charges and promotion costs for
      our
      exhibition events. We also incurred promotions for our online services and
      magazine subscriptions and these are expensed as incurred. As a result of
      increase in these activities we recorded an increase in payroll costs and travel
      costs.








*General
      and Administrative*





General
      and administrative costs consist mainly of corporate staff compensation,
      information technology support services, content management services, marketing
      costs, office rental, depreciation, communication and travel costs.





General
      and administrative costs increased by 12% from $34.7 million during the year
      ended December 31, 2005 to $38.9 million during the year ended December 31,
      2006, due mainly to increases in fees paid to consultants, content management
      services costs, marketing costs, information technology support services costs,
      depreciation on office furniture, depreciation on new office premises that
      we
      purchased during the year 2005 and depreciation on leasehold improvements there
      on and payroll costs.





*Online
      Services Development*





Online
      services development costs consist mainly of payroll, office rental and
      depreciation costs relating to the updating and maintenance of *Global
      Sources Online*.





Online
      services development costs to fund the updating and maintenance of our online
      services increased from $4.2 million during the year ended December 31, 2005
      to
      $4.5 million during the year ended December 31, 2006 due mainly to increases
      in
      depreciation costs and internet communications costs.





*Non-Cash
      Compensation Expense*





We
      have
      issued share awards under several equity compensation plans (ECP) to both
      employees and team members. We also recognize non-cash compensation expenses
      relating to the shares purchased by our directors under Directors Purchase
      Plan.





Effective
      January 1, 2006, the Company adopted the provisions of SFAS No. 123(R),
“Share-Based Payment” using the modified prospective application transition
      method, which requires application of SFAS No. 123(R) for new awards granted
      after the adoption of SFAS No. 123(R) and for any portion of awards granted
      prior to the date of adoption but have not vested as of the date of adoption
      of
      SFAS No. 123(R).




Prior
      to
      the adoption of SFAS No. 123(R), the Company accounted for stock-based
      compensation using the intrinsic value method prescribed in APB No. 25,
“Accounting for Stock Issued to Employees” and related
      interpretations.  Accordingly, compensation cost of stock options was
      measured as the excess, if any, of the fair value of the Company’s stock at the
      date of the grant over the option exercise price and is charged to operations
      over the vesting period. Under the SFAS No. 123(R), the compensation cost
      associated with the stock options is measured at fair value on the grant date
      and portion of the award that is ultimately expected to vest is recognized
      as
      expense over the requisite service periods.






36




The
      Company’s employee stock compensation plans are share grants without any
      exercise price or exercise period.  Therefore, the fair value of the
      share grants at the date of grant approximates the intrinsic
      value.  As a result, the impact of fair value based accounting under
      SFAS No. 123(R) is not significantly different from the intrinsic value method
      under APB No. 25.




Prior
      to
      the adoption of SFAS No. 123(R), the Company accounted for equity instruments
      issued to non-employees in accordance with the provisions of SFAS No. 123 and
      EITF Issue No. 96-18, “Accounting for Equity Instruments that are Issued to
      Other Than Employees for Acquiring, or in Conjunction with Selling Goods and
      Services.”  All transactions in which services are received for the
      issuance of equity instruments are accounted for based on the fair value of
      the
      consideration received or the fair value of the equity instrument issued,
      whichever is more reliably measurable.  The measurement date of the
      fair value of the equity instrument issued is the earlier of the date on which
      the counterparty’s performance is complete or the date on which it is probable
      that performance will occur. The equity instruments issued to non-employeesare within the scope
      of
      SFAS No. 123(R), except that such equity instruments should continue to be
      measured using the measurement guidance of EITF Issue No. 96-18. Thus there
      are
      no significant changes required in the accounting treatment of equity
      instruments issued to non-employees upon the adoption of SFAS No.
      123(R).





The
      Company recognizes the compensation costs associated with share awards with
      graded vesting to employees on a straight-line basis over the requisite service
      period for the entire award.




The
      Company recognizes the compensation costs associated with share awards to
      non-employees on an accelerated attribution basis over the requisite service
      period.





Under
      SFAS No. 123(R) the Company is required to adjust its compensation cost for
      pre-vesting forfeitures i.e. an award that is forfeited prior to vesting. As
      the
      share grants to the employees include service conditions, the fair value of
      the
      awards is not adjusted subsequent to the grant date. At each reporting date,
      the
      Company would estimate the quantity of share grants expected to vest and record
      the compensation cost for the share grants that are expected to
      vest.





Prior
      to
      the adoption of SFAS No. 123(R), the Company accounted for the shares purchased
      by the directors under Directors Purchase Plan using the intrinsic value method
      prescribed in APB No. 25, “Accounting for Stock Issued to Employees” and related
      interpretations.  Accordingly, compensation cost relating to the
      shares purchased by the directors was measured as the difference between the
      quoted market price of the stock at the grant date and the price paid by the
      directors (exercise price) on the measurement date. Upon adoption of SFAS No.
      123(R), the Company has utilized the Black-Scholes option-pricing model
      (“Black-Scholes model”) for determination of the grant date fair value and the
      recording of compensation cost associated with the shares purchased by the
      Directors under the plan.





The
      total
      non-cash compensation expense, resulting from the ECP and the Directors Purchase
      Plan, recorded by us and included in the respective categories of expenses
      increased from $1.9 million during the year ended December 31, 2005 to $4.1
      million during the year ended December 31, 2006. The increase was a result
      of
      the re-measurement of equity compensation expense based on our prevailing share
      price and new share awards during the first half of year 2006.





The
      corresponding amounts for the non-cash compensation expenses are credited to
      shareholders’ equity.





As
      of
      December 31, 2006 there was $6,956 of unrecognized non-cash compensation cost
      associated with the awards under the above ECP plans, which is expected to
      be
      recognized over the next six years.





*Amortization
      of Software Cost*





Amortization
      of software cost was $1.3 million during the year ended December 31, 2006 and
      during the year ended December 31, 2005.






37




*Income
      From Operations*





The
      total
      income from operations during the year ended December 31, 2006 was $18.1 million
      compared to $12.9 million during the year ended December 31, 2005. The growth
      in
      total income from operations was mainly due to increase in revenue and a decline
      in amortization of software costs off-set partially by increases in sales costs,
      event production costs, community costs, general and administrative costs,
      online services development costs. Income from operations for online and other
      media services grew from $13.5 million during the year ended December 31, 2005
      to $21.9 million during the year ended December 31, 2006, a growth of
      62%.  The growth resulted mainly from growth in online and other media
      services revenue and decline in amortization of software costs, off-set
      partially by increases in sales costs, community costs, general and
      administrative costs and online services development costs.





*Interest
      and Dividend Income and**Gain on Sale of Available-for-sale
      Securities*





We
      recorded a gain of $0.3 million arising from sale of available-for-sale
      securities and interest and dividend income of $4.8 million arising mainly
      from
      available-for-sale securities during the year ended December 31, 2006 compared
      to a gain of $1.0 million and interest and dividend income of $1.3 million
      during the year ended December 31, 2005.








*Gain
      on Sale of Shares to Minority Shareholder and Interest Income
      Thereon.*





During
      the year ended December 31, 2006, we recorded a gain on sale of shares to
      minority shareholder and related interest income amounting to $6.0 million
      and
      $1.9 million respectively as the loan and interest contingencies were resolved
      in the current year. (Please see “Liquidity and Capital Resources”
section.)








*Income
      Taxes*





We
      and
      certain other subsidiaries of the group operate in the Cayman Islands and other
      jurisdictions where there are no taxes imposed on companies. Certain of our
      subsidiaries operate in Hong Kong SAR, Singapore and China and are subject
      to
      income taxes in their respective jurisdictions.





We
      reported a tax provision of $0.9 million during the year ended December 31,
      2006
      and $0.8 million during the year ended December 31, 2005.





*Cumulative
      Effect of Change in Accounting Principle*





During
      the year ended December 31, 2006, we have recorded a credit to expenses of
      $0.3
      million resulted from the cumulative effect of change in accounting principle
      upon adoption of SFAS No.123(R) effective from January 1, 2006. For a further
      discussion on change in accounting principle, please see Note 2(x) of our
      consolidated financial statements appearing elsewhere in this annual
      report.





*Net
      Income*





Net
      income was $27.9 million during the year ended December 31, 2006, compared
      to a
      net income of $13.4 million during the year ended December 31, 2005. The growth
      in net income was mainly due to growth in revenue, increase in interest and
      dividend income, gain on sale of shares to minority shareholder and interest
      income thereon and decline in amortization of software costs, off-set partially
      by increases in sales costs, event production costs, community costs, general
      and administrative costs, online services development costs, foreign exchange
      losses, tax provision, share of profits attributable to a minority shareholder,
      a decline in gain on sale of available-for-sale securities and loss on
      investment.








38




**Fiscal
      Year 2005 Compared to Fiscal Year 2004**




**Revenue**




Total
      revenue grew to $112.2 million during the year ended December 31, 2005 from
      $105.8 million during year ended December 31, 2004, a growth of 6%. Our online
      and other media services revenue grew by $4.8 million or 5% to $97.1 million
      during the year ended December 31, 2005, as compared with $92.3 million during
      the year ended December 31, 2004 due to a 13% growth in our China market and
      the
      growth in our Hong Kong and Taiwan markets off-set by drop in some of our other
      markets during the year ended December 31, 2005. China represented 48% of Online
      and other media services revenue during the year ended December 31, 2005
      compared to 45% during the year ended December 31, 2004. Our exhibitions revenue
      grew from $13.0 million during the year ended December 31, 2004 to $14.3 million
      during the year ended December 31, 2005, a growth of 10%, due mainly to growth
      in revenue of our International IC China Conferences and Exhibitions for the
      year 2005.




We
      have
      made substantial progress in developing our customer base in China, our largest
      market. Total revenue from China grew by 12% during the year ended December
      31,
      2005 compared to the year ended December 31, 2004. China accounted for 50%
      of
      total revenue during the year ended December 31, 2005 compared to 47% of total
      revenue during the year ended December 31, 2004. We expect China as a percent
      of
      total revenue to continue to grow and China revenue overall to continue to
      grow.







**Operating
      expenses**




*Sales*




Sales
      costs consist of the commissions and marketing fees paid and incentives provided
      to our independent sales representative organizations, as well as sales support
      fees for processing sales contracts. These representative organizations sell
      online services, advertisements in our trade magazines and exhibitor services
      and earn a commission as a percentage of revenue generated.




Sales
      costs increased from $30.6 million for the year ended December 31, 2004 to
      $34.4
      million for the year ended December 31, 2005, due to an increase in sales
      commissions as a result of increase in revenue and increase in sales marketing
      costs and sales promotions for exhibitions.




*Event
      Production*




Event
      production costs consist of the costs incurred for hosting the exhibition or
      trade show and seminar events. The event production costs include venue rental
      charges, booth construction costs, travel costs incurred for the event hosting
      and other event organizing costs. The event production costs are deferred and
      recognized as an expense when the related event occurs.




Event
      production costs increased from $3.8 million during the year ended December
      31,
      2004 to $3.9 million during the year ended December 31, 2005, an increase of
      3%
      due to increase in venue rental charges.




*Community*




Community
      costs consist of the costs incurred for servicing our buyer community and for
      marketing our products and services to the global buyer community. Community
      costs also include costs relating to our trade magazine publishing business
      and
      marketing inserts business, specifically printing, paper, bulk circulation,
      magazine subscription promotions, promotions for our on-line services, customer
      services costs, payroll costs relating to staff working on these activities
      and
      the event specific promotions costs incurred for promoting the China Sourcing
      Fairs events and the technical conferences, exhibitions and seminars to the
      buyer community. The event specific promotion costs incurred for the events
      are
      expensed during the event months in the year in which the expenses are
      incurred.




Community
      costs increased from $18.0 million during the year ended December 31, 2004
      to
      $20.7 million during the year ended December 31, 2005, an increase of 15% due
      mainly to increase in bulk mailing costs, printing charges, paper costs, fees
      paid to consultants and promotion costs for our exhibition events. In addition,
      we increased our participation in third party trade shows to promote our
      products and services to buyer community. We also incurred promotions for our
      online services and these are expensed as incurred. As a result of the increase
      in these activities, we recorded an increase in payroll costs.






39




*General
      and Administrative*




General
      and administrative costs consist mainly of corporate staff compensation,
      information technology support services, content management services, marketing
      costs, office rental, depreciation, communication and travel costs.




General
      and administrative costs increased by 11% from $31.4 million during the year
      ended December 31, 2004 to $34.7 million during the year ended December 31,
      2005, due mainly to increases in information technology support services costs,
      content management services costs, marketing costs, depreciation and building
      management fees on new office premises that we purchased, administration support
      costs for our exhibitions and trade shows activity, travel costs and payroll
      costs.




*Online
      Services Development*




Online
      services development costs consist mainly of payroll, office rental and
      depreciation costs relating to the updating and maintenance of *Global
      Sources Online*.




Online
      services development costs to fund the updating and maintenance of our online
      services declined from $4.6 million during the year ended December 31, 2004
      to
      $4.2 million during the year ended December 31, 2005, a decline of 9%. This
      decline resulted mainly from a decline in depreciation costs and equipment
      and
      software maintenance costs.




*Non-Cash
      Compensation Expense*




We
      have
      issued share awards under several equity compensation plans (ECP) to both
      employees and team members. We also recognize non-cash compensation expenses
      relating to the shares purchased by our directors under Directors Purchase
      Plan.




The
      total
      non-cash compensation expense, resulting from the ECP and the Directors Purchase
      Plan, recorded by us and included under the respective categories of expenses
      declined by 10% from $2.1 million during the year ended December 31, 2004 to
      $1.9 million during the year ended December 31, 2005. The decline was a result
      of the re-measurement of equity compensation expense based on our prevailing
      share price and forfeiture of the unvested awards to the resigned
      staff.




The
      corresponding amounts for the non-cash compensation expenses are credited to
      shareholders’ equity.




*Amortization
      of Software Costs*




Amortization
      of software cost during the year ended December 31, 2005 was $1.3 million
      compared to $1.5 million during the year ended December 31, 2004.




*Income
      From Operations*




The
      total
      income from operations during the year ended December 31, 2005 was $12.9 million
      compared to $16.1 million during the year ended December 31, 2004. The decline
      was mainly due to increases in sales costs, event production costs, community
      costs and general and administrative costs, off-set partially by growth in
      revenue and declines in online services development costs and amortization
      of
      software costs. Income from operations for online and other media services
      declined from $17.7 million during the year ended December 31, 2004 to $13.5
      million during the year ended December 31, 2005, a decline of
      24%.  The decline resulted mainly from increases in sales costs,
      community costs and general and administrative costs, off-set partially by
      growth in online and other media services revenue and declines in online
      services development costs and amortization of software costs.






40




*Interest
      and Dividend Income and Gain (loss) on Sale of Available-for-sale
      Securities*




We
      recorded a gain of $1.0 million arising from the sale of available-for-sale
      securities and interest and dividend income of $1.3 million arising from
      available-for-sale securities during the year ended December 31, 2005 compared
      to $1.1 million gain and interest and dividend income of $0.09 million during
      the year ended December 31, 2004.




*Income
      Taxes*




We
      and
      certain of our subsidiaries operate in the Cayman Islands and other
      jurisdictions where there are no taxes imposed on companies. Certain of our
      subsidiaries operate in Hong Kong , Singapore and China and are subject to
      income taxes in their respective jurisdictions.




We
      reported a tax provision of $0.8 million during the year ended December 31,
      2005
      and $0.7 million during the year ended December 31, 2004.




*Net
      Income*




Net
      income was $13.4 million during the year ended December 31, 2005, compared
      to a
      net income of $15.8 million during the year ended December 31, 2004. The decline
      was mainly due to increases in sales costs, event production costs, community
      costs, general and administrative costs, foreign exchange losses, tax provision,
      share of profits attributable to a minority shareholder and decline in gain
      on
      sale of available-for-sale securities, off-set partially by increases in
      revenue, interest and dividend income and declines in online services
      development costs and amortization of software costs.




**Liquidity
      and Capital Resources**





We
      financed our activities for the year ended December 31, 2006 using cash
      generated from our operations.





Net
      cash
      generated from operating activities was $35.7 million during the year ended
      December 31, 2006, compared to $35.6 million cash generated from operating
      activities during the year ended December 31, 2005. The primary source of cash
      from operating activities was collections from our customers received through
      our independent sales representative organizations.





Advance
      payments received from customers were $63.8 million as of December 31, 2006,
      compared to $53.0 million as of December 31, 2005, improving our liquidity.
      A
      majority of our customers in China pay us in advance for our Online and other
      media services business. Our Exhibitions business collections generally are
      all
      advance payments. We expect the growth in our revenues from China to continue
      and we plan to launch more Exhibition events in the future. As a result, we
      expect that the advance payments received from customers to continue to increase
      in the future as our revenue increases.





Receivables
      from sales representatives increased from $5.7 million as of December 31, 2005
      to $13.2 million as of December 31, 2006 due to the growth in our China business
      and our exhibitions business. Though receivables from sales representatives
      may
      decline in near future as the collections are transferred to our bank account,
      we expect the receivables from sales representatives to slightly increase in
      the
      long term due to expected growth in our China business and our Exhibitions
      business.





We
      continuously monitor collections from our customers and maintain an adequate
      allowance for doubtful accounts. While credit losses have historically been
      within our expectations and the allowances established, if the bad debts
      significantly exceed our provisions, additional allowances may be required
      in
      future.





Net
      cash
      used in investing activities was $105.2 million during the year ended December
      31, 2006, resulting from the net purchases of available-for-sale securities
      of
      $103.2 million and $4.9 million cash used for capital expenditures mainly for
      computers, software, office furniture, leasehold improvements and software
      development off-set partially by $2.7 million net proceeds from sale of shares
      to minority shareholder, interest received thereon and repurchase of share
      dividends from minority shareholder and $0.2 million proceeds from matured
      bonds. Net cash used in investing activities during the year ended December
      31,
      2005 was $20.9 million, resulting from net purchase of available-for-sale
      securities of $13.8 million and $7.3 million cash used for capital expenditures
      mainly on office premises, for computers, softwares, leasehold improvements,
      office furniture and software development off-set partially by $0.2 million
      proceeds from matured bonds.






41





Capital
      expenditures during the three months period ended March 31, 2007 amounted to
      $0.6 million and were incurred mainly for computers, software, office furniture,
      leasehold improvements and software development.  Our capital
      expenditures were financed using cash generated from our
      operations.  The net book value of capital assets disposed during the
      year ended December 31, 2006 and the three months ended March 31, 2007 amounted
      to $0.002 million and $0.004 million, respectively.




We
      invest
      our excess cash in available-for–sale securities to generate income from
      interest received as well as capital gains, while the funds are held to support
      our business. The majority of the available-for-sale securities have maturities
      of less than six months.





Generally,
      we hold the securities with specified maturity dates such as Treasury Bills
      until their maturity but the securities managed by high quality institutions
      that do not have fixed maturity dates are generally sold at the end of each
      quarter and proceeds reinvested in similar securities at the beginning of the
      following quarter. As a result, during the year ended December 31, 2006 we
      bought available-for-sale securities of $532.0 million and sold
      available-for-sale securities of $428.8 million so as to realize the gain of
      $0.3 million. The net purchase of available-for-sales securities of $103.2
      million was mainly from the cash on hand at the beginning of the year and the
      cash we generated from our operations during the year.





We
      do not
      engage in buying and selling of securities with the objective of generating
      profits on short-term differences in price.





Net
      cash
      generated from financing activities was $0.4 million during the year ended
      December 31, 2006, which represents the amount received from directors for
      the
      shares subscribed by them in the Directors Purchase Plan. Net cash generated
      from financing activities was $38.4 million during the year ended December
      31,
      2005, resulting from $38.3 million proceeds from the issue of common shares,
      net
      of share issue expenses and $0.1 million received from directors for the shares
      subscribed by them in the Directors Purchase Plan.





On
      March
      23, 2005 we issued 3,000,000 common shares of par value $0.01 at US$13.50 per
      share. The total proceeds received from this issue was approximately $38.3
      million, net of the offering expenses of $2.2 million. Out of the total
      proceeds, $0.03 million was included in the common share capital and the balance
      approximately $38.27 million was included in additional paid in
      capital.




We
      are
      using the net proceeds from the sale of the common shares of approximately
      $38.3
      million after deducting placement agency fees and expenses, for working capital,
      general corporate purposes and strategic acquisitions.





We
      hold a
      Documentary Credit facility with the Hongkong and Shanghai Banking Corporation
      Limited, for providing documentary credits to our suppliers. This facility
      has a
      maximum limit of approximately $0.6 million. As of December 31, 2006, the
      unutilized amount under this facility was approximately $0.5 million. Hongkong
      and Shanghai Banking Corporation Limited has also provided a guarantee on our
      behalf to our suppliers. As of December 31, 2006, such guarantee amounted to
      $0.003 million.





We
      recorded a full valuation allowance for the deferred tax assets of $6.0 million
      as at December 31, 2006 as it was more likely than not that they would not
      be
      realized. These deferred tax assets resulted primarily from the net operating
      losses in some of our subsidiaries.





During
      the first quarter of 2004, we entered into a number of license agreements for
      our exhibition events amounting to $29.7 million in payments over five years.
      The agreements are cancelable under Force Majeure conditions, and with the
      consent of the other party but may be subject to a payment penalty. As of
      December 31, 2006, we paid $13.9 million under these agreements. The amounts
      paid will be expensed when the related events are held.






42





We
      also
      entered into several agreements for the event specific promotion of our
      exhibition events amounting to $4.0 million, in payments over five years. As
      of
      December 31, 2006, we paid $2.7 million under these agreements.





In
      August
      2005, one of our subsidiaries, eMedia Asia Limited (“eMedia”) entered into an
      agreement with Penton Media Inc, (“Penton”) to publish and distribute, in
      certain Asian territories, local language editions of Penton’s “Electronic
      Design” publication, relating to the electronic design industry. The first such
      edition to be launched is a simplified Chinese edition in mainland China
      entitled “Electronic Design-China”, the online website of which was launched in
      January 2006, and the first monthly issue of which was launched in March 2006.
      Under the agreement eMedia pays Penton forty per cent of the net after-tax
      profits of the business and also an annual content license fee for usage of
      Penton’s editorial material.





On
      March
      6, 2006, we announced a one for ten bonus share issue on our outstanding common
      shares. Shareholders of record on March 15, 2006 received one additional common
      share for every ten common shares held, of face value of $0.01 each. The bonus
      share issue was distributed on April 17, 2006. In addition, we have reclassified
      $0.035 million and $0.035 million from additional paid in capital to common
      share capital as of December 31, 2005 and 2006, respectively in connection
      with
      the bonus share issue.




HC
      International, Inc. (“HC International”) is a company listed on the Growth
      Enterprise Market of The Stock Exchange of Hong Kong Limited. On May 24, 2006,
      Trade Media Holdings Limited (“TMH”), a wholly-owned subsidiary of the Company,
      IDG Technology Venture Investment, Inc. (“IDGVC”) and International Data Group,
      Inc. (“IDG”) entered into a conditional sale and purchase agreement (the “Sale
      and Purchase Agreement”) pursuant to which IDGVC conditionally agreed to
      transfer 47,858,000 shares of HC International (representing 9.81% of the issued
      share capital of HC International as of April 30, 2007), being part of its
      shareholding interests in HC International, to TMH at a consideration of
      approximately US$9.9 million or approximately US$0.2063 per share of HC
      International (the “HC Share(s)”), which is subject to adjustment to
      approximately US$13.9 million or approximately US$0.2896 per HC Share (the
“HC
      Share Transfer”), if and when HC International achieves a certain benchmark with
      reference to the HC International group’s performance during the Option Period
      (as defined below) (“Performance Benchmark”) or upon completion of the sale and
      purchase of the Option HC Shares (as defined below). IDG, being the sole
      shareholder of IDGVC, agreed to guarantee the due and punctual discharge by
      IDGVC of its obligations under the Sale and Purchase Agreement.




On
      June
      21, 2006, TMH completed the HC Share Transfer.  We have announced, via
      a press release dated March 19, 2007, that the Performance Benchmark referred
      to
      above has not been met, and that accordingly TMH will not be required to make
      the price adjustment referred to above under the condition relating to the
      Performance Benchmark.




As
      of
      April 30, 2007, we own, together with 5,916,000 HC Shares owned by us prior
      to
      the Sale and Purchase Agreement (representing approximately 1.21% of the issued
      share capital of HC International) and 8,878,000 HC Shares purchased by TMH
      after the completion of the Sale and Purchase Agreement (representing
      approximately 1.82% of the issued share capital of HC International), a total
      of
      62,652,000 HC Shares (representing an approximate 13% total equity interest
      in
      HC International).




On
      August
      1, 2006, HC International appointed the Company’s Chief Operating Officer, John
      Craig Pepples, as a non-executive director on the board of directors of HC
      International. Subsequently, Beijing Huicong International Information Co.,
      Ltd.
      (“Beijing Huicong”), an 82% indirect subsidiary of HC International, also
      appointed him as a non-executive director on the board of directors of Beijing
      Huicong.




TMH
      also
      entered into a call options deed (the “HC Options Deed”) with IDGVC, Guo
      Fansheng (“Guo”) and others which include certain members of the senior
      management of HC International (the “Option Grantors”), pursuant to which each
      of the aforesaid Option Grantors agreed to grant to TMH, (i) a right (the “HC
      Options”) exercisable during the 12-month period from June 21, 2006, the date of
      the completion of the Sale and Purchase Agreement (the “Option Period”), to
      purchase all, but not in part only, of the 167,722,814 HC Shares owned by the
      respective parties (representing approximately 34.38% of the entire issued
      share
      capital of HC International as of April 30, 2007) and any HC Shares that may
      be
      issued by HC International to certain directors of HC International if the
      options granted in accordance with the share option schemes of HC International
      (amounting to an aggregate of 4,185,320 Option HC Shares) are exercised, which
      together represent a maximum of approximately 35.24% of the entire issued share
      capital of HC International as of April 30, 2007 (the “Option HC Share(s)”) at
      an exercise price of approximately US$0.2896 per Option HC Share; and (ii)
      an
      undertaking to accept any offer for the Option HC Shares at a price not less
      than approximately US$0.2896 per Option HC Share, during the Option
      Period.






43




Huicong
      Construction Co., Ltd. (“Huicong Construction”), in which Guo has an 80% equity
      interest, entered into a call option deed (the “Beijing Huicong Option Deed” and
      together with the HC Options Deed, the “Option Deeds”) with TMH, pursuant to
      which Huicong Construction agreed, subject to completion of the Sale and
      Purchase Agreement, to grant to TMH a right (the “Beijing Huicong Option” and
      together with the HC Options, the “Options”) exercisable during the Option
      Period, to purchase (or to nominate a subsidiary of
      TMH to
      purchase) from Huicong Construction its entire 18% equity interest (“Beijing
      Huicong Equity Interest”) in Beijing Huicong, at an aggregate exercise price of
      approximately US$31.9 million.




The
      HC
      Options and the Beijing Huicong Option are inter-conditional. The sale and
      purchase of the Beijing Huicong Equity Interest is subject to confirmation
      from
      the Securities and Futures Commission of Hong Kong (“SFC”). If the SFC’s
      confirmation is not forthcoming, the sale and purchase of the Beijing Huicong
      Equity Interest will not be completed but TMH may proceed with the completion
      of
      the sale and purchase of the Option HC Shares.




Pursuant
      to the terms of the Beijing Huicong Option Deed and subject to the completion
      of
      the sale and purchase of the Beijing Huicong Equity Interest, Huicong
      Construction will also be required to transfer or assign its licenses and
      related contracts in relation to the provision of internet information and
      content services in China to a TMH-nominated company, but pending such transfer
      or assignment, Huicong Construction has agreed to continue to provide services
      in relation to the internet content provider license to Beijing Huicong in
      the
      same manner and on the same terms as currently agreed.




The
      exercise and completion of the HC Options by TMH, if materialized, will result
      in a change in control of HC International (as the aggregate percentage
      shareholding of TMH and the Company in HC International will increase to over
      30%) and will trigger an obligation on the part of TMH to make a general offer
      in compliance with Rule 26 of the Hong Kong Code on Takeovers and Mergers to
      acquire all the issued HC Shares (other than those already owned by TMH or
      parties acting in concert with it).





We
      have
      recorded $14.5 million (approximately 13% equity interest in HC International
      at
      fair value based on the closing share price of HCI, as of December 31, 2006,
      of
      $0.23148 per share) as available-for-sale securities in our financial statements
      as of December 31, 2006. The unrealized market gain of $2.3 million has been
      credited to accumulated other comprehensive income, shown under shareholders’
equity.





As
      a part
      of this transaction, we also acquired the following as mentioned in the above
      paragraphs:





(i)
            The
                HC Options & the Beijing Huicong
                Option.





(ii)
            The
                option to acquire the licences and related contracts in relation
                to the
                provision of internet information and content services held by Huicong
                Construction





In
      addition, as of December 31, 2006, we had a contingent payable, subject to
      HC
      International achieving a certain benchmark with reference to the HC
      International group’s performance during the option period as stated in the
      above paragraphs.





The
      options were recorded as a current asset in the Company’s balance sheet and the
      contingent payable was recorded as a liability as at acquisition
      date.





As
      the
      option was out of money and the likelihood of the payment of the contingent
      liability is remote due to the reported losses of the HCI subsequent to the
      date
      of transaction, we have recorded full impairment charge relating to the option
      assets and have written off the contingent payable in our financial statements
      as of December 31, 2006, the net of which was $0.7 million.





On
      June
      17, 2007, we announced via a press release that:






44





(i)
            TMH
                will not exercise its option to increase its equity stake in HC
                International, at an exercise price of $0.2896 per share. This option
                expired after June 20, 2007.





(ii)
            TMH
                will not exercise the Beijing Huicong Option under the Beijing Huicong
                Option Deed entered into with the Huicong Construction to purchase
                from
                Huicong Construction its 18% equity interest in Beijing Huicong,
                at an
                exercise price of approximately $31.9
                million.




As
      of the
      date of the above announcement, we still own approximately a 13% equity interest
      in HC International and our Chief Operating Officer, John Craig Pepples, remains
      a non-executive director on the board of directors of HC International and
      Beijing Huicong.





In
      2000,
      our wholly-owned subsidiary, Trade Media Holdings Limited (“TMH”), entered into
      an agreement with United Business Media B.V. (which subsequently changed its
      name to United Professional Media B.V.) (“UPM”), to set-up a Barbados
      corporation (eMedia Asia Ltd.) to provide new technology content, media and
      e-commerce services to the electronics technology market in Asia.





TMH
      holds
      a 60.1% controlling equity interest in eMedia Asia Ltd., and we consolidate
      the
      results of eMedia Asia Ltd.’s operations.





The
      remaining 39.9% equity interest in eMedia Asia Ltd. was held by UPM, and as
      part
      of obtaining its 39.9% equity interest, UPM committed to pay $6.0 million and
      interest thereon to TMH upon the payment of specified future dividends of eMedia
      Asia Ltd. (“Loan”). The Loan was secured by a charge in favor of TMH over 199
      common shares of eMedia Asia Ltd. held by UPM (“Charge”).





Pursuant
      to an internal restructuring within UPM’s group, UPM’s 39.9% interest in eMedia
      Asia Ltd. and associated obligations (including those under the Loan and Charge)
      were novated and assigned first to UPM’s related company United Information
      Group B.V. (“UIG”) in September 2003, and then subsequently by UIG to another
      related company UBM Asia B.V. (“UBM Asia”) in October 2003.





Under
      the laws of Barbados, a company is not allowed to pay cash dividends as long
      as
      it has retained losses. No dividends have been declared by eMedia Asia Limited,
      and accordingly the Loan was not paid in prior years. Due to the contingent
      nature of the Loan payment, the Company did not record in its prior years’
balance sheet the Loan receivable of $6.0 million due from UPM/UIG/UBM Asia
      and
      no interest income was accrued as of December 31, 2005.





eMedia
      Asia Ltd. had excess reserves of cash because it is not allowed to pay cash
      dividends. In October 2006, approval of the board of directors and the
      shareholders of eMedia Asia Ltd. were obtained for distribution of the excess
      cash in eMedia Asia Ltd. to shareholders of eMedia Asia Ltd., by way of a
      one-for-one issue of new shares (as share dividends) and then a purchase back
      by
      eMedia Asia Limited of those share dividends and a consequent reduction of
      its
      share capital.





Pursuant
      thereto, eMedia Asia Ltd. completed the issuance of 1,000 shares to its
      shareholders as share dividends, the subsequent purchase of those 1,000 shares
      (at a price of $13,000 per share) and distribution of the total amount of $13.0
      million to its shareholders by way of a share purchase dividend, and the
      reduction of its share capital through the cancellation of those 1,000 purchased
      shares.





UBM
      Asia
      also fully re-paid the Loan principal of $6.0 million and the $1.9 million
      interest thereon to TMH. The Loan and Charge were consequently discharged.
      We
      recorded the $1.9 million interest received and the $6.0 million principal
      received as a gain on sale of shares to minority shareholder and interest income
      thereon during the quarter ended December 31, 2006 as the contingency was
      resolved and the full payment has been received.





We
      have
      no bank debt as of December 31, 2006.


45








**The
      following table summarizes our contractual obligations as of December 31,
      2006:**




**Payments
                due by period (in U.S. Dollars Thousands**)**Total**
            
            
            **Less
                  than**
                **1
                  year**
            
            
            **1-3**
                **years**
            
            
            **3-5
                  years**
            
            
            **More
                  than**
                **5
                  years****Contractual
                Obligations**Operating
                leases
            
            $
            967
            
            
            $
            500
            
            
            $
            467
            
            
            
            -
            
            
            
            -Liabilities
                for incentive and bonus plans
            
            
            307
            
            
            
            205
            
            
            
            102
            
            
            
            -
            
            
            
            -Purchase
                obligations
            
            
            4,443
            
            
            
            3,998
            
            
            
            445
            
            
            
            -
            
            
            
            -Total
            
            $
            5,717
            
            
            $
            4,703
            
            
            $
            1,014
            
            
            
            -
            
            
            
            -





On
      March
      5, 2007, we announced a one for ten bonus share issue on our outstanding common
      shares. Shareholders of record on March 16, 2007 will receive one additional
      common share for every ten common shares held, of face value of $0.01 each.
      The
      bonus share issue was distributed on  April 16, 2007. All common
      shares and per-share amounts in the consolidated financial statements have
      been
      retroactively adjusted to reflect the one for ten bonus share issue for all
      periods presented. In addition, we have reclassified $0.038 million and $0.038
      million from additional paid in capital to common share capital as of December
      31, 2005 and December 31, 2006 respectively, in connection with the bonus share
      issue.





In
      March
      2007, one of our subsidiaries entered into a number of venue license agreements
      for its exhibition events amounting to $44.4 million in payments over five
      and a
      half years. The agreements are cancelable under Force Majeure conditions, or
      upon notice and payment of cancellation charges to the other party.





During
      the first quarter of 2007, we entered into a letter of intent, followed by
      a
      purchase agreement, to purchase approximately 1,939.38 square meters of office
      space in a commercial building known as “Excellence Times Square” in Shenzhen,
      China, at a purchase price of approximately $7.0 million, out of which a total
      down-payment of approximately $0.09 million was made, with the total remaining
      balance of approximately $6.91 million paid in April 2007. Delivery of the
      office space to us was completed in April 2007.





We
      anticipate that our cash and securities on hand and expected positive cash-flows
      from our operations will be adequate to satisfy our working capital, capital
      expenditure requirements and cash commitments based on the current levels of
      our
      operations.








**Recent
      Accounting Pronouncements**





In
      March
      2006, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue
      No. 06-3, How Taxes Collected from Customers and Remitted to Governmental
      Authorities Should Be Presented in the Income Statement (That Is, Gross versus
      Net Presentation). EITF 06-3 provides guidance on presentation of any tax
      assessed by a governmental authority that is directly imposed on a
      revenue-producing transaction between a seller and a customer. As per EITF
      06-3,
      the presentation of taxes on either a gross (included in revenues and costs)
      or
      a net (excluded from revenues) basis is an accounting policy decision that
      should be disclosed. In addition, for any such taxes that are reported on a
      gross basis, a company should disclose the amounts of taxes in interim and
      annual financial statements for each period for which income statement is
      presented if these amounts are significant. The EITF 06-3 guidance is applicable
      to financial reports for interim and annual reporting periods beginning after
      December 15, 2006.  We adopted EITF 06-3 guidance with effect from
      January 1, 2007. We are presenting the taxes on gross basis, i.e. included
      in
      revenues and costs.





In
      June
      2006, the Financial Accounting Standards Board ("FASB") issued FASB
      Interpretation ("FIN") No. 48, Accounting for Uncertainty in Income Taxes -
      an
      Interpretation of FASB Statement No. 109.  This Interpretation clarifies
      the accounting for uncertainty in income taxes recognized in an enterprise's
      financial statements in accordance with FASB Statement No. 109, *Accounting
      for Income Taxes*.  This Interpretation prescribes a recognition
      threshold and measurement of a tax position taken or expected to be taken in
      a
      tax return, and provides guidance on derecognition, classification, interest
      and
      penalties, accounting in interim


46


periods,
      disclosure and transition.  This Interpretation is effective for fiscal
      years beginning after December 15, 2006.   We adopted FIN No. 48
      with effect from January 1, 2007 and the adoption this interpretation does
      not
      have any material impact on our consolidated financial statements. We will
      provide full disclosure pursuant to FIN No. 48 in our 2007 annual financial
      statements.





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157, “Fair Value Measurements” (“SFAS No. 157”). This Standard defines fair
      value, establishes a framework for measuring fair value in accordance with
      generally accepted accounting principles and expands disclosures about fair
      value measurements. SFAS No. 157 is effective for fiscal years beginning after
      November 15, 2007. As required under SFAS No. 157, the statement shall be
      applied prospectively as of the beginning of the fiscal year in which this
      Statement is initially applied, except that the Statement shall be applied
      retrospectively to certain financial instruments as of the beginning of the
      fiscal year in which this Statement is initially applied (a limited form of
      retrospective application). We are currently evaluating whether the adoption
      of
      SFAS No. 157 has any impact on its consolidated financial
      statements.





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities – including an amendment of FASB
      Statement No. 115.” SFAS No. 159 permits entities to choose to measure many
      financial instruments and certain other items at fair value. Unrealized gains
      and losses on items for which the fair value option has been elected will be
      recognized in earnings at each subsequent reporting date. SFAS No. 159 is
      effective for fiscal year beginning after November 15, 2007. We are currently
      evaluating whether the adoption of SFAS No. 159 has any impact on its
      consolidated financial statements.





In
      September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
      Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements
      when Quantifying Misstatements in Current Year Financial Statements, (“SAB 108”)
      which provides guidance on how uncorrected errors in previous years should
      be
      considered when quantifying errors in current-year financial statements. SAB
      108
      is effective for fiscal years ending after November 15, 2006. In the current
      year, we have corrected unadjusted differences (which are not material to each
      of the individual years in which they occurred) pertaining to the years 2000
      to
      2005 in the non-cash compensation expenses relating to share awards under its
      Employee Equity Compensation Plans. These differences arose from the incorrect
      application of attribution method and in the classification of share awards
      between employees and non-employees. Accordingly, we have recorded the prior
      years’ cumulative non-cash compensation expenses of $1.9 million against our
      opening retained earnings and the corresponding credit is taken to additional
      paid in capital in accordance with SAB 108. There is no income tax impact
      resulting from this adjustment.





**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
      gains or losses in revenue 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 revenue that was not fully offset by lower expense
      levels in Asian operations.





This
      decline in revenue 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. The following table summarizes our
      foreign currency Accounts Receivable and provides the information in U.S. Dollar
      equivalent:







As
                of December 31, 2006 (in U.S. Dollars Thousands)
            
            
            As
                of December 31, 2005 (in U.S. Dollars Thousands)Expected
                maturity dates
            
            
            
            
            
            
            
            
            Expected
                maturity datesCurrency
            
            2007
            
            
            Thereafter
            
            
            Total
            
            
            Fair
                value
            
            
            2006
            
            
            Thereafter
            
            
            Total
            
            
            Fair
                valueHKD
            
            
            1,741
            
            
            
            -
            
            
            
            1,741
            
            
            
            1,741
            
            
            
            1,340
            
            
            
            -
            
            
            
            1,340
            
            
            
            1,340CNY
            
            
            2,447
            
            
            
            -
            
            
            
            2,447
            
            
            
            2,447
            
            
            
            1,926
            
            
            
            -
            
            
            
            1,926
            
            
            
            1,926TWD
            
            
            1,034
            
            
            
            -
            
            
            
            1,034
            
            
            
            1,034
            
            
            
            1,117
            
            
            
            -
            
            
            
            1,117
            
            
            
            1,117JPY
            
            
            167
            
            
            
            -
            
            
            
            167
            
            
            
            167
            
            
            
            212
            
            
            
            -
            
            
            
            212
            
            
            
            2125,389
            
            
            
            -
            
            
            
            5,389
            
            
            
            5,389
            
            
            
            4,595
            
            
            
            -
            
            
            
            4,595
            
            
            
            4,595









47





We
      believe this risk is mitigated because historically a majority (ranging between
      98% to 99%) of our revenue is denominated in U.S. dollars or is received in
      the
      Hong Kong currency which is currently pegged to the U.S. dollar, the Chinese
      currency, which historically remained relatively stable but slightly
      strengthened recently against the U.S. Dollar and the New Taiwan Dollar which
      is
      relatively stable against U.S.Dollar.  Correspondingly, a majority
      (approximately 60% to 80%) of our expenses are denominated in Asian currencies.
      To the extent significant currency fluctuations occur in the New Taiwan dollar,
      the Chinese Renminbi or other Asian currencies, or if the Hong Kong dollar
      is no
      longer pegged to the U.S. dollar, our revenue and expenses fluctuate in tandem
      thus reducing the net impact on our profits.





During
      the year ended December 31, 2006 and the year ended December 31, 2005, we have
      not engaged in foreign currency hedging activities.





In
      the
      year ended December 31, 2006 and the year ended December 31, 2005, we derived
      more than 90% of our revenue from customers in the Asia-Pacific
      region.  We expect that a majority of our future revenue will continue
      to be generated from customers in this region. Future political or economic
      instability in the Asia-Pacific region could negatively impact our
      business.




**ITEM
                6.**
            **DIRECTORS,
                SENIOR MANAGEMENT AND
                EMPLOYEES**




The
      following table sets forth information regarding the persons who are our
      executive officers and directors.




**Name**
            **Age**
            **Position**Merle
                A.
                Hinrichs
            65
            Director,
                Chairman and Chief Executive OfficerEddie
                Heng Teng
                Hua
            56
            Director
                and Chief Financial OfficerJ.
                Craig
                Pepples
            46
            Chief
                Operating OfficerBill
                Georgiou
            62
            Chief
                Information OfficerSarah
                Benecke
            50
            DirectorRoderick
                Chalmers
            59
            DirectorDavid
                F.
                Jones
            42
            DirectorJeffrey
                J.
                Steiner
            70
            DirectorJames
                Watkins
            61
            Director







*Mr.
      Hinrichs* has been a director since April 2000 and is currently our
      Chairman and Chief Executive Officer.  A co-founder of the business,
      he was the principal executive officer of our predecessor company, Trade Media
      Holdings Limited, a Cayman Islands corporation wholly owned by us (“Trade
      Media”), from 1971 through 1993 and resumed that position in September
      1999.  From 1994 to August 1999, Mr. Hinrichs was chairman of the ASM
      Group, which included Trade Media.  Mr. Hinrichs is a director of
      Trade Media and has also been the Chairman of the Board of Trade
      Media.  Mr. Hinrichs graduated from the University of Nebraska and
      Thunderbird, the American Graduate School of International Management
      (“Thunderbird”).  Mr. Hinrichs is a co-founder and former chairman of
      the Society of Hong Kong Publishers.  He is a member of the board of
      trustees of Thunderbird and is a board member of the Economic Strategy
      Institute.  His term as director expires in 2009.




*Mr.
      Heng*has been the Chief Financial Officer (previously entitled vice
      president of finance) since 1994 and has been a director since
      April 2000.  He joined us in August 1993 as deputy to the vice
      president of finance.  He received an MBA from Shiller International
      University in London in 1993, is a Singapore Certified Public Accountant, a
      member of the Institute of Certified Public Accountants, Singapore, and a Fellow
      Member of The Association of Chartered Certified Accountants in the United
      Kingdom.  Prior to joining us, he was the regional financial
      controller of Hitachi Data Systems, a joint venture between Hitachi and General
      Motors.  His term as director expires in 2007.


*Mr.
        Pepples*has been our Chief Operating Officer since June 1999 and is
        responsible for our worldwide operations, including interactive media, corporate
        marketing, community development, information services, human resources and
        finance.  Mr. Pepples joined Trade Media in October 1986 in an
        editorial capacity, managed Trade Media’s sales in China from 1989 to 1992, and
        served as country manager for China from 1992 to June 1999.  Mr.
        Pepples graduated with a B.A. in Linguistics from Yale University.


48





*Mr.
      Georgiou* was appointed our Chief Information Officer in
      January 2001.  Mr. Georgiou has had over 20 years’ experience in
      information technology, most recently as a consultant with 3Com Technologies
      during 2000 and as IT Director with Park N’Shop (HK) Ltd., a subsidiary company
      of A.S. Watson, from 1999 to 2000.  He received his B.Ec. (Honours
      degree) and M.B.A. from the University of Adelaide.




*Ms.
      Benecke*has been a director since April 2000, and, since 1993, has
      been a director of Trade Media.  Ms. Benecke was our principal
      executive officer from January 1994 through August 1999.  She
      joined us in May 1980 and served in numerous positions, including publisher
      from
      1988 to December 1992 and chief operating officer in 1993.  Since
      September 1999, Ms. Benecke has been a consultant to Publishers Representatives,
      Ltd. (Hong Kong), a subsidiary of our company.  Ms. Benecke is also a
      director of Hintak Ltd. (Hong Kong).  Since 2003, her consulting work
      has been focused on the launch, development and expansion of the “China Sourcing
      Fairs” in Shanghai, Hong Kong and Dubai.She graduated
      with a B.A. from the University of New South Wales, Australia.  Her
      term as director expires in 2007.




*Mr.
      Chalmers*has been a director since October 2000.  He has been the
      Chairman of the Board of Directors of the Bank of Valletta plc, Malta since
      2004. He was chairman, Asia-Pacific, of PricewaterhouseCoopers LLP (“PwC”) and a
      member of PwC’s Global Management Board from 1998 until his retirement in July
      2000.  He is a 30-year veteran with PwC’s merger partner Coopers &
Lybrand with specialist experience in the securities industry.  He has
      at various times been a non-executive director of the Hong Kong SAR Securities
      and Futures Commission, a member of the Takeovers and Mergers Panel, and
      chairman of the Working Group on Financial Disclosure.  He is a
      director of Gasan Group Limited (Malta), Middlesea Valletta Life Assurance
      Co
      Limited (Malta) and of Middlesea Insurance plc (Malta). His term as director
      expires in 2009.




*Mr.
      Jones*has
      been a director
      since April 2000.Mr. Jones joined CHAMP Private Equity,
      a leading Australian buyout firm, in 2002 and is currently an executive
      director. He has spent the last thirteen years in the private equity industry,
      and was previously in management consulting, investment banking and general
      management. In 1999, he founded and until 2002 led the development of UBS
      Capital’s Australian and New Zealand business. Prior to that, he spent four
      years with Macquarie Direct Investment, a venture capital firm in Sydney,
      Australia, and one year at BancBoston Capital in Boston, Massachusetts. Mr.
      Jones began his career as a consultant with McKinsey & Company in Australia
      and New Zealand. He left McKinsey to take the role of general manager of
      Butterfields Cheese Factors, of the King Island Dairies group. He is Chairman
      of
      the Australian Venture Capital Association Limited and a director of Australian
      Discount Retail and the Beacon Foundation.  Previously he was a
      director of Austar United Communications Limited, a publicly-held company that
      trades on the Australian Stock Exchange, New Price Retail Pty Ltd, Penrice
      Soda
      Products Pty Ltd and Sheridan Australia Pty Limited. Mr. Jones holds a Bachelor
      of Engineering (First Class Hons.) from the University of Melbourne and a Master
      of Business Administration from Harvard Business School. His term as director
      expires in 2008.





*Mr.
      Steiner*has been a director since November 1999.  Mr. Steiner
      also has been a director of The Fairchild Corporation (“Fairchild”) since
      1985.  He has been the chairman of the board and chief executive
      officer of Fairchild since December 1985.  Mr. Steiner was president
      of Fairchild from July 1991 to September 1998.  His term as director
      expires in 2009.




In
      2003,
      Mr. Jeffrey Steiner was convicted in France on a charge of unjustified use
      (in
      1990) of the corporate funds of Elf Acquitaine, which is a criminal offense
      in
      France.  Mr. Steiner was given a suspended sentence of one year and
      ordered to pay a fine of €500,000 by the French court.  The French
      Court has since ordered that €259,000 of the €500,000 fine assessed against Mr
      Steiner be withdrawn from a part of the surety (caution) previously deposited
      by
      Fairchild in the Court.




In
      November 2004, Mr. Jeffrey Steiner was named in Noto v. Steiner, et al.,
      and Barbonel v. Steiner, et al., in the Court of Chancery of the State of
      Delaware in and for New Castle County, Delaware.  The plaintiffs in
      these actions alleged, among other things, that Fairchild executive officers,
      including Mr. Steiner, received excessive pay and perquisites in violation
      of
      fiduciary duties to Fairchild.  On November 23, 2005, the Court of
      Chancery approved a Derivative Settlement, which approval became final on
      December 23, 2005.






49




*Mr.
      Watkins* was appointed as a casual director on February 28, 2005, and was
      re-elected as a director at the Annual General Meeting on May 9,
      2005.  Mr. Watkins was a director and group general counsel of the
      Jardine Matheson Group in Hong Kong from 1997 until 2003.  He was
      Group Legal Director of Schroeders plc in 1996 to 1997 and of Trafalgar House
      plc from 1994 to 1996.  He was previously a partner and solicitor in
      the London and Hong Kong offices of Linklaters from 1975 to 1994.  He
      currently is a non-executive Director of Mandarin Oriental International Ltd.,
      Jardine Cycle & Carriage Ltd., MCL Land Ltd., Advanced Semiconductor
      Manufacturing Corporation Ltd. and Asia Satellite Telecommunications Holdings
      Ltd. and is a member of the Audit Committees of Jardine Cycle & Carriage
      Ltd., MCL Land Ltd. and Asia Satellite Telecommunications Holdings Ltd. and
      the
      Chairman of the Audit Committee of Advanced Semiconductor Manufacturing
      Corporation Ltd. and of the remuneration committee of Asia Satellite
      Telecommunications Holdings Ltd. Mr Watkins has a law degree from the University
      of Leeds (First Class Hons.).  His term as director expires in
      2008.




**Compensation**




For
      the
      year ended December 31, 2006, we and our subsidiaries provided our nine
      directors and executive officers as a group aggregate remuneration, pension
      contributions, allowances and other benefits of approximately $3,515,895
      including the non-cash compensation of $1,057,098 associated with the share
      award and ECP plans.  Of that amount, $105,000 was paid under a
      performance based, long-term discretionary bonus plan which we implemented
      in
      1989 for members of our senior management.  Under the plan, members of
      senior management may, at our discretion, receive a long-term discretionary
      bonus payment.  The awards, which are payable in either five or ten
      years time, are paid to a member of senior management if his or her performance
      is satisfactory to us.  There are three current members of senior
      management and two former members of senior management who may receive payments
      on maturity.




In
      2006,
      we and our subsidiaries incurred $26,438 in costs to provide pension, retirement
      or similar benefits to our respective officers and directors pursuant to our
      retirement plan and pension plan.




In
      addition to the above, during the year ended December 31, 2006, we recorded
      non-cash compensation expenses of $65,384 associated with the Directors Purchase
      Plan.




**Employment
      Agreements**




We
      have
      employment agreements with Merle A. Hinrichs under which he serves as our
      chairman and chief executive officer.  The agreements contain
      covenants restricting Mr. Hinrichs’ ability to compete with us during his
      term of employment and preventing him from disclosing any confidential
      information during the term of his employment agreement and for a period of
      three years after the termination of his employment agreement.  In
      addition, we retain the rights to all trademarks and copyrights acquired and
      any
      inventions or discoveries made or discovered by Mr. Hinrichs in the course
      of his employment.  Upon a change of control, if Mr. Hinrichs is
      placed in a position of lesser stature than that of a senior executive officer,
      a significant change in the nature or scope of his duties is effected,
      Mr. Hinrichs ceases to be a member of the board or there is a breach of
      those sections of his employment agreements relating to compensation,
      reimbursement, title and duties or termination, each of us and such subsidiary
      shall pay Mr. Hinrichs a lump sum cash payment equal to five times the sum
      of his base salary prior to the change of control and the bonus paid to him
      in
      the year preceding the change of control.  The agreements may be
      terminated by either party by giving six months notice.




We
      have
      employment agreements with each of our executive officers.  Each
      employment agreement contains a non-competition provision, preventing the
      employee from undertaking or becoming involved in any business activity or
      venture during the term of employment without notice to us and our
      approval.  The em ployee
      must keep all of our proprietary and private information confidential during
      the
      term of employment and for a period of three years after the termination of
      the
      agreement.  We can assign the employee to work for another company if
      the employee’s duties remain similar.  In addition, we retain the
      rights to all trademarks and copyrights acquired and any inventions or
      discoveries made or discovered by the employee during the employee’s term of
      employment.  Each employment agreement contains a six months’ notice
      provision for termination, and does not have a set term of
      employment.  Bonus provisions are determined on an individual
      basis.






50




**Board
      Practices**




Our
      board
      of directors consists of seven members divided into three classes, the terms
      of
      which expire at the general meeting of shareholders to be held in each year
      indicated above.  Each director holds office until his or her term
      expires and his or her successor has been elected and qualified.  At
      each general meeting of shareholders, directors nominated to a class with a
      term
      that expires in that year will be elected for a three-year
      term.  Executive officers serve at the discretion of the board of
      directors.  Officers are elected at the annual meeting of the
      directors held immediately after the annual general meeting of
      shareholders.  Our executive officers have, on average, 19 years
      of service with us. Directors receive a cash fee of $10,000 per year, plus
      an
      additional $2,500 for each board meeting attended.




**Committees
      of the Board of Directors**




We
      have
      established an audit committee and an executive committee of our board of
      directors.  The audit committee recommends the appointment of
      auditors, oversees accounting and audit functions and other key financial
      matters of our company.  The audit committee meets four times a
      year.  David Jones, Roderick Chalmers and James Watkins are the
      members of the audit committee and the board of directors determined that Mr.
      Chalmers is an audit committee financial expert as defined under appropriate
      SEC
      guidelines.  The executive committee acts for the entire board of
      directors between board meetings.  Merle Hinrichs and Eddie Heng are
      the members of the executive committee.




We
      have a
      separately - designated standing compensation committee, consisting of the
      independent directors. The primary function of the compensation committee is
      to
      approve compensation packages for each of the Company’s executive officers. The
      compensation committee held one meeting in the fiscal year ended December 31,
      2006.




We
      have
      an executive sessions committee, consisting of the independent directors. The
      executive sessions committee held one meeting in the fiscal year ended December
      31, 2006.




**Code
      of Ethics**




We
      have
      adopted a Code of Ethics (“Code of Ethics”) that applies to our chief executive
      officer, chief financial officer, chief accounting officer or controller and
      persons performing similar functions.  Any amendments or waivers to
      our Code of Ethics that apply to the chief executive officer or senior financial
      officers will be promptly disclosed on our website as required by law or by
      the
      Securities and Exchange Commission or by the Nasdaq National
      Market.




**Employees**




As
      of
      December 31, 2006, we had 721 employees worldwide, the majority of whom work
      in
      management, technical or administrative positions.  We consider our
      employee relationships to be satisfactory.  Our employees are not
      represented by labor unions and we are not aware of any attempts to organize
      our
      employees.




The
      following summarizes the approximate number of employees and independent
      contractors by function:




**Function**
              
              **Employees**
              
              
              **Independent**
                **Contractors**
              
              
              **Total**Content
                  Development
              
              
              226
              
              
              
              240
              
              
              
              466Corporate
                  Human Resources & Administration
              
              
              43
              
              
              
              38
              
              
              
              81Corporate
                  Marketing
              
              
              35
              
              
              
              4
              
              
              
              39Community
                  Development
              
              
              114
              
              
              
              19
              
              
              
              133Sales
              
              
              36
              
              
              
              1,406
              
              
              
              1,442Information
                  System
                  Department
              
              
              128
              
              
              
              20
              
              
              
              148Corporate
                  Accounts
              
              
              79
              
              
              
              55
              
              
              
              134Office
                  of the CEO, COO,
                  CIO
              
              
              10
              
              
              
              0
              
              
              
              10Legal
                  and Group
                  Secretarial
              
              
              6
              
              
              
              2
              
              
              
              8Conference
                  & Trade Show
                  Services
              
              
              44
              
              
              
              58
              
              
              
              102**Total**
              
              ****
              **721**
              
              
              ****
              **1,842**
              
              
              ****
              **2,563**
  51
   **Share
      Ownership**




Information
      on the ownership of our Common Shares is given under Item 7, Major
      Shareholders and Related Party Transactions.




**Equity
      Compensation Plans**




We
      established The Global Sources Employee Equity Compensation Trust (the “Trust”)
      on December 30, 1999.  The Trust is administered by Appleby Trust
      (Bermuda) Ltd (previously known as “Harrington Trust Limited”) (“Appleby
      Trust”), as trustee.  The purpose of the Trust is to administer monies
      and other assets contributed to the trustee for the establishment of equity
      compensation and other benefit plans, including the Equity Compensation Plans
      Numbers I to VII described below.  The number of shares that may be
      sold pursuant to these plans is limited to the number of our shares held by
      the
      Trust.  Following our takeover of Trade Media on April 14, 2000,
      the Trade Media shares were exchanged for our common shares.  These
      Trade Media shares currently represent our common shares.  As
      of  April 30, 2007, the Trust holds 2,141,865 of our common
      shares.    Trust has informed us that it does not intend to
      acquire any additional shares.  In exercising its powers, including
      the voting of securities held in the Trust, the trustee may be directed by
      a
      plan committee, selected by the board of directors of one of our wholly owned
      subsidiaries.




Pursuant
      to a Declaration of Trust dated November 28, 2006 by Appleby Trust, “The Global
      Sources Equity Compensation Trust 2007” (“2007 Trust”) was established. The 2007
      Trust is administered by Appleby Trust as trustee. The purpose of the 2007
      Trust
      is to administer shares contributed by us to the 2007 Trust from time to time
      in
      connection with providing equity compensation benefits under The Global Sources
      Equity Compensation (2007) Master Plan described below. As of April 30, 2007,
      no
      shares have been contributed by us to the 2007 Trust yet. In exercising its
      powers under the Trust, the Trustee may be directed by a plan committee to
      be
      constituted and appointed by us.  The plan committee (“ECP 2007 Plan
      Committee”) was constituted and appointed by the Board of Directors on February
      15, 2007.




*Global
      Sources Equity Compensation Plans Numbers I, II and III*




In
      March 2000, we adopted the Global Sources Equity Compensation Plans (ECP)
      Numbers I, II and III.  Employees, directors, consultants, advisors
      and independent contractors of ours, our subsidiaries or affiliates are eligible
      to receive option grants under ECP I.  Employees, directors and
      consultants of ours, our subsidiaries or affiliates are eligible to receive
      grants under ECP II and III.  Options granted under ECP I and II will
      be exercisable, and coupons granted under ECP III will be redeemable, for our
      shares held by the Trust.




ECPs
      I,
      II and III are administered by the trustee subject to the directions of the
      plan
      committee of one of our wholly-owned subsidiaries.  The plan committee
      determines who will receive, and the terms of, the options under ECP I and
      II.  The exercise price of these options may be below the fair market
      value of our shares.  Under ECP I, payment for shares being
      purchased upon exercise of an option may be made in the manner determined by
      us
      at the time of grant.  Under ECP II optionees may pay for common
      shares purchased upon exercise of options by check to the
      Trust.  Under ECP II, the number of common shares that optionees may
      purchase is based on the number of years they have been employed by, or have
      been working with us, our subsidiaries or affiliates.




Under
        ECP
        III, outstanding coupons are redeemable for a defined amount of compensation
        payable in our common shares, which will be transferred from the Trust to
        the
        coupon holders.  The number of shares will be determined by dividing
        the amount of compensation awarded by an amount determined by the plan
        committee.  Under each of ECPs I and III, the maximum number of shares
        that may be issued to any individual in any calendar year may not exceed
        25% of
        the total shares available under such plan.


52







On
      each
      of the first three annual anniversaries of the listing of our common shares
      on a
      securities exchange, the trustee will release one-third of the common shares
      purchased by an optionee, under ECP II, and one-third of the shares granted
      to
      each coupon holder, under ECP III, if such optionee or holder, as the case
      may
      be, is still employed with us on these dates.  Under ECP II, the
      consideration paid for any common shares purchased by an optionee fired for
      cause or who becomes an employee of one of our competitors, but not yet released
      by the trustee, will be returned to the optionee by the Trust and the right
      to
      receive these shares will be forfeited and revert back to the
      trustee.  Under ECP III, common shares allotted by, but not yet
      released by the trustee, to an employee who is subsequently fired for cause
      or
      who becomes an employee of one of our competitors, are forfeited and revert
      back
      to the trustee for future use.  Options are not transferable under
      ECPs I and II and coupons are not transferable under ECP III.




Under
      ECPs I and II, all options held by an optionee terminate on the date of that
      optionee’s termination for cause or resignation.  Death, disability or
      retirement does not affect an optionee’s right to exercise an
      option.




All
      outstanding options are adjusted to preserve the optionee’s benefits under ECPs
      I and II and all outstanding common shares are adjusted to preserve the
      interests of the holders of these common shares under ECP III if there is a
      change in the number of our outstanding common shares or an exchange for
      securities of a successor entity as a result of
      our:  (i) reorganization; (ii) recapitalization;
      (iii) stock dividend; or (iv) stock split.




If
      a
      person or group of persons acting together becomes the beneficial owner of
      at
      least 50% of our issued and outstanding common shares, by tender offer or
      otherwise, all unexercised options under ECPs I and II become immediately
      exercisable and all optionees will be entitled to sell to the trustee all
      unexercised options at a price equal to the greater of fair market value or
      the
      tender offer price.




If
      ECPs
      I, II and III terminate, all optionees will be entitled to sell to the trustee
      all unexercised options at a price equal to the difference between the fair
      market value of the common shares and the aggregate exercise price of the
      options under ECPs I and II and securities and any cash held by the trustee
      shall be distributed in equal shares to people who received coupons under ECP
      III, upon our:  (i) dissolution or liquidation;
      (ii) reorganization, merger or consolidation; or (iii) sale of our
      business.  If none of these events occurs, ECPs I, II and III
      terminate in February 2010.




The
      non-cash compensation expense associated with the awards under ECP II and ECP
      III of approximately $2,904,000 and $2,357,000, respectively, were recognized
      ratably over the three year vesting term of the respective awards.




*Global
      Sources Equity Compensation Plans Numbers IV and V*




Eligible
      employees, directors, consultants, advisors and independent contractors under
      ECP IV are awarded a defined amount of compensation payable in Global Sources
      Ltd. common shares the number of which are determined by the plan committee
      periodically.




Entitlement
      of the employees, directors, consultants, advisors and independent contractors
      to these common shares is subject to employment and vesting terms.




Eligible
      employees, directors, consultants, advisors and independent contractors under
      ECP V were awarded a one-time grant of shares the number of which were
      determined by the plan committee.




Entitlement
      of the employees, directors, consultants, advisors and independent contractors
      to these common shares is subject to employment and vesting terms.




The
      Equity Compensation Plan committee approved the awards of common shares under
      ECP IV and ECP V on January 23, 2001.  The Equity Compensation
      Plan Committee approved additional awards of common shares under ECP IV on
      various dates during the year 2001 and under ECP V on various dates during
      the
      years 2001 and 2002 and on January 2, 2004, , on January 2, 2005, on
      December 31, 2005, on January 17, 2007 and on May 2, 2007.




The
      non-cash compensation expenses associated with the above awards under ECP IV
      and
      ECP V of approximately $3,030,000 and $2,748,000 respectively, are recognized
      over the five year vesting term of the respective awards.






53




*Global
      Sources Equity Compensation Plan VI*




Eligible
      employees, directors, consultants, advisors and independent contractors under
      ECP VI are awarded a one-time grant of our common shares the number of which
      are
      determined by the plan committee.




Entitlement
      of the employees, directors, consultants, advisors and independent contractors
      to these common shares is subject to non-compete and vesting terms.




The
      Equity Compensation Plan committee approved the ECP VI on March 13, 2001
      and made awards of common shares under the plan on various dates during the
      years 2001 and 2002, on July 28, 2004 and on April l, 2005.




The
      non-cash compensation expenses associated with the awards in accordance with
      ECP
      VI totaling approximately $1,399,000 are recognized over the five year vesting
      term of the respective awards.




*Global
      Sources Equity Compensation Plan VII*




Eligible
      employees, directors, consultants, advisors and independent contractors under
      ECP VII are awarded a grant of a defined number of our common shares, the number
      of which are determined by the plan committee periodically.




Entitlement
      of the employees, directors, consultants, advisors and independent contractors
      to these common shares is subject to employment and vesting terms.




The
      Equity Compensation Plan committee approved the awards of common shares under
      ECP VII in January 2002 and made further awards on March 31, 2003, on
      June 19, 2003, on January 2, 2004 (as revised on May 7, 2004), on January 3,
      2005, on February 13, 2006 and on May 19, 2006.  The non-cash
      compensation expenses associated with the above awards under ECP VII of
      approximately $13,026,000 are recognized over the six year vesting term of
      the
      respective awards.




*The
      Global Sources Equity Compensation (2007) Master Plan*




A
      new
      equity compensation plan, known as “The Global Sources Equity Compensation
      (2007) Master Plan” (“ECP 2007 Master Plan”) was approved by our shareholders on
      May 8, 2006. The ECP 2007 Master Plan commenced with effect on January 1, 2007
      and, unless terminated earlier by our Board of Directors, will expire on
      December 31, 2012. Our, our subsidiaries’, and our and our subsidiary’s
      independent contractor’s employees, directors and consultants (“Team Members”),
      are eligible to be awarded grants of our common shares under the ECP 2007 Master
      Plan. The grantees and the number of shares to be awarded, and the vesting
      rules
      and other terms and conditions, are to be as determined by the ECP 2007 Plan
      Committee, who are authorized under the ECP 2007 Master Plan to issue
      supplementary or subsidiary documents to set out and evidence such vesting
      rules
      and other terms and conditions. The total number of shares to be issued under
      the ECP 2007 Master Plan is subject to a  limit of 3,000,000 common
      shares.




On
      November 7, 2006, we filed a Form S-8 Registration Statement under the
      Securities Act of 1933, with the U.S. Securities and Exchange Commission, for
      up
      to 3,000,000 common shares to be issued under the ECP 2007 Master
      Plan.




On
      March
      6, 2007, the Plan Committee approved and issued “The Global Sources Share Grant
      Award Plan” as a supplementary or subsidiary document to the ECP 2007 Master
      Plan. Under the plan, the ECP 2007 Plan Committee is to determine who amongst
      eligible Team Members will be granted awards of shares and the number of shares
      to be awarded to them, and to determine the vesting schedule for such awards.
      The plan commenced with effect on March 6, 2007, and will terminate upon the
      expiration or termination of the ECP 2007 Master Plan, or upon the liquidation
      of the Company, or upon termination by the ECP 2007 Plan Committee, whichever
      is
      the earliest to occur. The ECP 2007 Plan Committee approved awards of common
      shares under the plan on March 29, 2007 and April 16, 2007. The non-cash
      compensation expenses associated with the award of approximately $3,837,000
      are
      recognized over the six year vesting term of the award.






54




On
      March
      6, 2007, the Plan Committee approved and issued “The Global Sources Retention
      Share Grant Plan” as a supplementary or subsidiary document to the ECP 2007
      Master Plan. Persons eligible to receive grants under the plan are persons
      who
      have been Team Members for at least five years, who retire “in good standing”
(as determined by the ECP 2007 Plan Committee), and who would otherwise have
      their unvested  shares (under any applicable equity compensation
      plans) forfeited upon retirement.  The ECP 2007 Plan Committee is to
      determine who amongst eligible persons will be granted awards of common shares.
      The number of common shares to be awarded to such grantees are calculated
      according to a formula defined in the plan, and will vest in equal installments
      over a period of five years after retirement, subject to certain non-compete
      terms and the grantees remaining “in good standing”. The plan commenced with
      effect on March 6, 2007, and will terminate upon the expiration or termination
      of the ECP 2007 Master Plan, or upon the liquidation of the Company, or upon
      termination by the ECP 2007 Plan Committee, whichever is the earliest to occur.
      As of April 30, 2007, no awards have been made under the plan.




**Directors
      Purchase Plan**




A
      2000
      Non-Employee Directors Share Option Plan was approved on October 26, 2000 by
      the
      shareholders of the Company.  Each eligible Director was entitled to
      an option to purchase up to 20,000 common shares at a price established at
      year-end.




Each
      option was exercisable before the end of each February following the year-end
      at
      which the option price was established.  The non-employee Directors
      have the right to decline all or part of the award, which is
      non-transferable.




For
      grants attributable to the year 2001, the option price was 15% less than the
      average closing price of the shares for the last 5 trading days of the previous
      calendar year.  The award vested over 4 years, with one-quarter of the
      shares vesting each year.  Full payment was required upon exercising
      the option.  Upon resignation of an eligible Director, all unvested
      shares would be forfeited and the option price received for the forfeited
      unvested shares would be refunded.  Only one Director accepted the
      offer on February 10, 2001 for the 26,620 shares granted under the
      option.  $164,200 out of the proceeds received for this plan was
      included in additional paid-in capital.  On February 28, 2002, 2003,
      2004 and 2005, the Company issued to the Director the 7,321,7,321,7,321 and
      6,655 common shares, respectively, that vested on those dates.




At
      the
      Board of Directors’ meeting on November 1to 2, 2001, the Board of Directors
      approved amendments to the terms of the plan for prospective grants, to require
      only 15% of the exercise price to be paid upon the exercise date, and to provide
      that the resignation of a Director would no longer result in a forfeiture of
      the
      subscribed shares.  The plan entitled the Directors to a grant of
      options at a price established at the prior year-end.  The ownership
      of the awards would transfer after 4 years.  Optionees must pay 15% of
      the option price, which was the average closing price of the shares for the
      last
      5 trading days of the year 2001, at the time of exercising the
      option.  The balance of 85% must be paid on or before the end of the
      holding period.  The resignation of a Director following his or her
      exercise of the grant of options and payment of the option price would not
      cause
      a forfeiture of the subscribed shares.  All the eligible non-employee
      Directors accepted the offer before February 28, 2002  and $49,896 was
      received towards the 15% of the option price.




During
      the year 2006, the Company received before the end of the holding period, the
      balance 85% amounting to $282,774 from the Directors and the shares were issued
      to the Directors on February 28, 2006. Out of the total proceeds, $800 being
      the
      par value of the shares issued, was included in share capital and the balance
      of
      $331,870 was included in additional paid in capital.




At
      the
      Board of Directors’ meeting on February 27, 2002, the Board of Directors
      approved amendments to the terms of the plan for prospective grants, to require
      only 10% of the exercise price to be paid upon the exercise date.  The
      plan entitled the Directors to a grant of options at a price established at
      the
      prior year-end.  The ownership of the awards would transfer after 4
      years.  Optionees must pay 10% of the option price, which was the
      average closing price of the shares for the last 5 trading days of the year
      2002, at the time of exercising the option.  The balance of 90% must
      be paid on or before the end of the holding period.  The resignation
      of a Director following his or her exercise of the grant of options and payment
      of the option price would not cause a forfeiture of the subscribed
      shares.  Three eligible directors accepted the offer before February
      28, 2003.  The $29,700 received towards the 10% of the option price
      was included in the additional paid-in capital in 2003.






55




On
      May 8,
      2003, the shareholders of the Company approved amendments to the 2000
      Non-Employee Directors Share Option Plan, to allow both employee and
      non-employee Directors to participate prospectively in the plan.  The
      plan was renamed as the Directors Purchase Plan by the Board of Directors at
      their meeting on August 14, 2003.




Directors
      purchasing the shares under the plan must pay 10% of the purchase price, which
      is the average closing price of the shares for the last 5 trading days of the
      year 2003, on or before February 28, 2004.  The balance of 90% must be
      paid by February 28, 2008 and the shares would be issued
      thereafter.  The resignation of a Director following his or her
      purchase of the shares and payment of the 10% initial installment would not
      cause a forfeiture of the subscribed shares.  Six Directors opted to
      purchase 29,282 shares each and one director opted to purchase part of the29,282
      shares.  The amount of $92,069 received towards the 10% of the
      purchase price was included in the additional paid-in capital in
      2004.




As
      per
      the terms of the Directors Purchase Plan, Directors purchasing the shares under
      the plan in the year 2005 must pay 10% of the purchase price, which was the
      average closing price of the shares for the last 5 trading days of the year
      2004, on or before February 28, 2005.  The balance of 90% must be paid
      by February 28, 2009 and the shares would be issued thereafter.  The
      resignation of a Director following his or her purchase of the shares and
      payment of the 10% initial installment would not cause a forfeiture of the
      subscribed shares.  Five directors opted to purchase 26,620 shares
      each.  The amount of $118,156 received towards the 10% of the purchase
      price was included in the additional paid-in capital in 2005.At the Board of
      Directors’ meeting on 4 and 5 November 2005, the Board of Directors adopted a
      definitive form of the Directors Purchase Plan, known as the “Directors Purchase
      Plan (as of 5 November 2005)”, which consolidated and clarified matters in
      earlier forms of the Directors Purchase Plan and previous shareholders’ and
      Board of Directors’ approvals and resolutions pertaining thereto.




As
      per
      the terms of the Directors Purchase Plan (as of 5 November 2005), Directors
      purchasing the shares under the plan in the year 2006, must pay 10% of the
      purchase price which was the average closing price of the shares for the last
      5
      trading days of the year 2005, on or before February 28, 2006.  The
      balance of 90% must be paid by February 28, 2010 and the shares will be issued
      thereafter.  Failing to pay the 90% balance of the purchase price
      before the end of the holding period will result in the 10% deposit being
      forfeited and any and all rights under the purchase right and to the issuance
      of
      shares will automatically lapse and expire, and the shares will not be
      issued.  The resignation of a Director following his or her purchase
      of the shares and payment of the 10% initial installment will not cause a
      forfeiture of the unissued shares, provided that the balance of the purchase
      price is paid in full on or before the due date thereof.  Four
      directors opted to purchase 24,200 shares each.  The amount of $76,768
      received towards the 10% of the purchase price will be included in the
      additional paid-in capital.




On
      November 7, 2006, we filed a Form S-8 Registration Statement under the
      Securities Act of 1933, with the U.S. Securities and Exchange Commission, for up
      to 530,000 common shares to be issued under the Directors Purchase Plan (as
      of
      November 5, 2005).




As
      per
      the terms of the Directors Purchase Plan (as of November 5, 2005), Directors
      purchasing the shares under the plan in the year 2007 must pay 10% of the
      purchase price which was the average closing price of the shares for the last
      5
      trading days of the year 2006, on or before February 28, 2007.  The
      balance of 90% must be paid by February 28, 2011 and the shares will be issued
      thereafter.  Failing to pay the 90% balance of the purchase price
      before the end of the holding period will result in the 10% deposit being
      forfeited and any and all rights under the purchase right and to the issuance
      of
      shares will automatically lapse and expire, and the shares will not be
      issued.  The resignation of a Director following his or her purchase
      of the shares and payment of the 10% initial installment will not cause a
      forfeiture of the unissued shares, provided that the balance of the purchase
      price is paid in full on or before the due date thereof.  Four
      directors opted to purchase 22,000 shares each and one director opted to
      purchase part of the 22,000 shares.  The amount of $154,782 received
      towards the 10% of the purchase price will be included in the additional paid-in
      capital in 2007.






56




**ITEM
                7.**
            **MAJOR
                SHAREHOLDERS AND RELATED PARTY
                TRANSACTIONS**




**Major
      Shareholders**




The
      following table sets forth information about those persons who hold more than
      5%
      of our common shares and the share ownership of our directors and officers
      as a
      group.  The information is based upon our knowledge of the share
      ownership of such persons on April 30, 2007.




Prior
      to
      November 27, 2003, the Quan Gung 1986 Trust (through Hung Lay Si Co. Ltd.,
      its wholly owned subsidiary) beneficially owned approximately 61% of our common
      shares.  Hung Lay Si Co. Ltd. is a company organized under the
      laws of the Cayman Islands.  The Quan Gung 1986 Trust was formed under
      the laws of the Island of Jersey.  Counsel to the trustee has informed
      us that, by virtue of the terms of the Trust and the laws of the Island of
      Jersey, the trustee cannot make disclosure of the names of the beneficiaries
      and
      settlor of the Trust in breach of the obligations placed on it and in accordance
      with its duties of confidentiality.




On
      November 27, 2003, Merle A. Hinrichs acquired 20,010,051 of our common shares,
      after adjustment to reflect the share split resulting from our four bonus share
      distributions of one share for every ten shares held as of March 1, 2004,
      as of March 4, 2005, as of March 15, 2006 and as of March 16, 2007, representing
      47.3% of the outstanding common shares, from Hung Lay Si Co. Ltd.  As
      a result, Mr. Hinrichs owns approximately 61.3% of our outstanding common shares
      as of April 30, 2007.  As consideration for the purchase of the common
      shares, Mr. Hinrichs agreed to pay Hung Lay Si Co. Ltd. the purchase price
      of
      $109,337,056 payable on November 27, 2013.  Mr. Hinrichs has granted
      to Hung Lay Si Co. Ltd. a security interest in all 18,190,955 common shares
      he
      purchased pending payment of the consideration.  A copy of the
      purchase agreement and security agreement was filed by Mr. Hinrichs with the
      SEC
      on Schedule 13D on December 8, 2003, and jointly by the Trust and Hung Lay
      Si
      Co. Ltd. on Schedule 13D/A on the same day, and reference is made to those
      filings for the complete terms of the transaction.  The agreements
      provide that in the event of cash dividends declared and paid by us, Mr.
      Hinrichs will pay to Hung Lay Si Co. Ltd. 50% of the dividends for any of the
      common shares purchased by Mr. Hinrichs that remain subject to Hung Lay Si
      Co.
      Ltd.’s security interest in the shares.  If Mr. Hinrichs wishes to
      transfer or sell any shares subject to those agreements to someone other than
      Hung Lay Si Co. Ltd., Hung Lay Si Co. Ltd. has a right of first refusal to
      offer
      to purchase those shares.  If Hung Lay Si Co. Ltd. waives its right to
      purchase the shares, upon consummation of a sale to the other person, at least
      80% of the proceeds of the sale will be applied to the payment of the purchase
      price.  Hung Lay Si Co. Ltd. may also be deemed, under Securities and
      Exchange Commission rules, to be a beneficial owner of the shares in which
      it
      has a right of first refusal and a security interest.




**Common
                  Shares Beneficially Owned****Name
                  of Beneficial Owner**
            
            **Shares**
            
            
            **Percentage**Merle
                A.
                Hinrichs
            
            
            25,955,612
            
            
            
            61.3
            %Hung
                Lay Si Co.
                Ltd
            
            
            3,467,367
            
            
            
            8.2
            %Appleby
                Trust (Bermuda) Ltd. (previously know as “Harrington Trust
                Limited”)
            
            
            2,143,379
            
            
            
            5.1
            %Jeffrey
                J. Steiner
                (1)
            
            
            492,163
            
            
            
            1.2
            %Eddie
                Heng Teng
                Hua
            
            
            *
            
            
            
            *J.
                Craig
                Pepples
            
            
            *
            
            
            
            *Bill
                Georgiou
            
            
            *
            
            
            
            *Sarah
                Benecke
            
            
            *
            
            
            
            *David
                F.
                Jones
            
            
            *
            
            
            
            *Roderick
                Chalmers
            
            
            *
            
            
            
            *James
                Watkins
            
            
            *
            
            
            
            *All
                officers and directors as a group (9 persons)
            
            
            26,764,039
            
            
            
            63.2
            %


________________________




*           Indicates
      beneficial ownership of less than 1%.




(1)
            Mr. Jeffrey J.
                Steiner may be deemed to beneficially own the same common shares
                owned
                directly or beneficially by The Steiner Group
                LLC.  Mr. Steiner disclaims beneficial ownership of
                shares




57


owned
                by The Steiner Group LLC, the Jeffrey Steiner Family Trust and shares
                owned by him as custodian for his children.  The Steiner Group
                LLC is a Delaware limited liability
                company.




At
      April
      30, 2007, we believe that 10,222,412 of our shares or 24.15%, were beneficially
      owned by U.S. holders and there were 742 shareholders of record in the U.S.
      (excluding any U.S. holders who may be holding our shares through brokerage
      firms).




Mr.
      Merle
      A. Hinrichs, our Chairman and Chief Executive Officer, beneficially owns
      approximately 61.3% of our common shares and is deemed our controlling
      shareholder




Our
      major
      shareholders do not have different voting rights.  We do not know of
      any arrangement which may at a subsequent date result in a change in control
      of
      our company.




**Related
      Party Transactions**




We
      have
      extended loans to some of our employees for the sole purpose of financing the
      purchase or lease of a residence.  The loans for the purchase of a
      residence are secured by that residence, bear interest at a rate of LIBOR plus
      2
      to 3%, generally have a term of ten years and become due and payable immediately
      upon the termination of the employee’s employment.  The loans for the
      lease of a residence are unsecured, interest free and are repayable in equal
      monthly installments over the period of the lease, which is typically less
      than
      or equal to 12 months.  The maximum loan amounts are limited to the
      lower of the aggregate of two years’ gross compensation of the borrower or
      $500,000.  The loans were made upon terms and subject to conditions
      that are more favorable to the borrowers than those that would customarily
      be
      applied by commercial lending institutions in the borrower’s country of
      employment.  Since the beginning of 2000, the largest aggregate amount
      of indebtedness of Mr. Pepples to us, outstanding at any time during such
      period, was approximately $32,233. Mr. Pepples has repaid his loan in full
      in November 2002.  Mr. Pepples’ loan was interest free and
      unsecured.  Except for the aforementioned loan, there were no other
      loans due from our directors and executive officers as at December 31, 2004,
      2005 and 2006.  We do not expect to extend loans to our directors or
      executive officers to the extent such loans would be prohibited by the
      Sarbanes-Oxley Act of 2002.




We
      lease
      approximately 82,122 square feet of our office facilities from companies
      controlled by a wholly-owned subsidiary of Hung Lay Si Co. Ltd. under cancelable
      and non-cancelable operating leases and incur building maintenance services
      fees
      to our former affiliated companies.  We incurred rental, building
      services expenses and reimbursement of membership fees for use of club
      memberships of $888,574 during the year ended December 31,
      2006.  We also receive investment consultancy services from
      wholly-owned subsidiaries of Hung Lay Si Co. Ltd.  The expenses
      incurred for these services during the year ended December 31, 2006 was
      $50,000.




We
      believe these transactions are commercially reasonable in the jurisdictions
      where we operate and for our employees where they reside or work.







**ITEM
      8. FINANCIAL INFORMATION**




**GLOBAL
      SOURCES LTD. AND SUBSIDIARIES**









**Index
      to Consolidated Financial Statements**




**December
      31, 2006**




**Page**Report
                  of Independent Registered Public Accountants
              59Consolidated
                  Balance Sheets
              60Consolidated
                  Statements of Income
              61Consolidated
                  Statements of Cash Flows
              63Consolidated
                  Statements of Shareholders’ Equity
              64Notes
                  to Consolidated Financial Statements
              65
                  - 92


58







**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS**




To
      the
      Board of Directors and Shareholders of




Global
      Sources Ltd.




We
      have
      audited the accompanying consolidated balance sheets of Global Sources Ltd.
      (a
      company incorporated under the laws of Bermuda) and its subsidiaries as of
      December 31, 2006 and 2005, and the related consolidated statements of income,
      shareholders’ equity and cash flows for each of the three years in the period
      ended December 31, 2006.  These financial statements are the
      responsibility of the Company’s management. Our
      responsibility is to express an opinion on these financial statements based
      on
      our audits.




We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. We were not engaged to perform
      an
      audit of the Company’s internal control over financial reporting.  An
      audit includes consideration of internal control over financial reporting as
      a
      basis for designing audit procedures that are appropriate in the circumstances,
      but not for the purpose of expressing an opinion on the effectiveness of the
      Company’s internal control over financial reporting.  Accordingly, we
      express no such opinion.  An audit also includes examining, on a test
      basis, evidence supporting the amounts and disclosures in the financial
      statements, assessing the accounting principles used and significant estimates
      made by management, and evaluating the overall financial statement presentation.
       We believe that our audits provide a reasonable basis for our
      opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of Global Sources
      Ltd. and its subsidiaries as of December 31, 2006 and 2005, and the consolidated
      results of their operations and cash flows for each of the three years in the
      period ended December 31, 2006, in conformity with U.S. generally accepted
      accounting principles.




As
      discussed in Notes 2(v) and 2(x) to the consolidated financial statements,
      the
      Company adopted Statement of Financial Accounting Standards No. 123(R) (revised
      2004), Share-Based Payment, effective January 1, 2006, which requires the
      Company to recognize expense related to the fair value of share-based
      compensation awards. Also, as described in Note 2(z) to the consolidated
      financial statements, the Company adopted Securities and Exchange Commission
      Staff Accounting Bulletin (“SAB”) No. 108, Considering the Effects of Prior Year
      Misstatements when Quantifying Misstatements in the Current Year Financial
      Statements, effective September 30, 2006. In accordance with the transition
      provisions of SAB No. 108, the Company recorded a cumulative decrease to
      retained earnings as of January 1, 2006 for correction of prior period errors
      in
      recording equity-based compensation charges.




/s/  ERNST
      & YOUNG




Singapore


April
      17,
      2007





















59


**GLOBAL
      SOURCES LTD. AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**




**(In
      U.S. Dollars Thousands, Except Number of Shares and Per Share
      Data)**




**At
                  December 31**
            
            
            **At
                  December 31****2005**
            
            
            **2006****ASSETS****Current
                Assets:**Cash
                and cash
                equivalents
            
            $
            94,321
            
            
            $
            25,192Available-for-sale
                securities
            
            
            23,982
            
            
            
            130,603Accounts
                receivable,
                net
            
            
            5,545
            
            
            
            6,468Receivables
                from sales
                representatives
            
            
            5,659
            
            
            
            13,238Inventory
                of
                paper
            
            
            866
            
            
            
            889Prepaid
                expenses and other
                current
                assets
            
            
            10,585
            
            
            
            14,174**Total
                Current
                Assets**
            
            ****
            **140,958**
            
            
            ****
            **190,564**Property
                and equipment,
                net
            
            
            28,178
            
            
            
            28,374Long
                term
                investments
            
            
            100
            
            
            
            100Bonds
                held to maturity, at amortized
                cost
            
            
            463
            
            
            
            289Other
                assets
            
            
            1,981
            
            
            
            1,562**Total
                Assets**
            
            **$**
            **171,680**
            
            
            **$**
            **220,889****LIABILITIES
                AND SHAREHOLDERS’ EQUITY****Current
                Liabilities:**Accounts
                payable
            
            $
            5,484
            
            
            $
            6,804Deferred
                income and customers’
                prepayments
            
            
            52,624
            
            
            
            62,036Accrued
                liabilities
            
            
            6,644
            
            
            
            12,427Income
                taxes
                payable
            
            
            405
            
            
            
            751**Total
                Current
                Liabilities**
            
            ****
            **65,157**
            
            
            ****
            **82,018**Liabilities
                for incentive and bonus
                plans
            
            
            307
            
            
            
            102Deferred
                income and customers’ prepayments – long term
            
            
            348
            
            
            
            1,802Deferred
                tax
                liability..
            
            
            436
            
            
            
            403**Total
                Liabilities**
            
            ****
            **66,248**
            
            
            ****
            **84,325**Minority
                interest
            
            
            6,191
            
            
            
            2,913**Shareholders’
                Equity:**Common
                shares, US$0.01 par value;
                75,000,000 shares authorized;
              42,271,144
                (2005: 42,174,344)
                shares issued and outstanding
            
            
            422
            
            
            
            423Additional
                paid in
                capital
            
            
            127,708
            
            
            
            125,832Retained
                (deficit)
                earnings
            
            
            (21,199
            )
            
            
            4,830Less:  Unearned
                compensation
            
            
            (7,900
            )
            
            
            -Accumulated
                other comprehensive
                income
            
            
            210
            
            
            
            2,566**Total
                Shareholders’
                Equity**
            
            ****
            **99,241**
            
            
            ****
            **133,651****Total
                Liabilities and
                Shareholders’
                Equity**
            
            **$**
            **171,680**
            
            
            **$**
            **220,889**





The
      accompanying notes are an integral part of these financial
      statements.




60


**GLOBAL
      SOURCES LTD. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF INCOME**




**(In
      U.S. Dollars Thousands, Except Number of Shares and Per Share
      Data)**




**Year
                  Ended December 31,****2004**
            
            
            **2005**
            
            
            **2006****Revenue:**Online
                and other media
                services
            
            $
            92,325
            
            
            $
            97,062
            
            
            $
            113,097Exhibitions
            
            
            13,010
            
            
            
            14,300
            
            
            
            42,122Miscellaneous
            
            
            511
            
            
            
            832
            
            
            
            1,262****
            **105,846**
            
            
            ****
            **112,194**
            
            
            ****
            **156,481****Operating
                Expenses:**Sales
            
            
            30,582
            
            
            
            34,415
            
            
            
            50,380Event
                production
            
            
            3,774
            
            
            
            3,920
            
            
            
            18,414Community
            
            
            17,983
            
            
            
            20,726
            
            
            
            24,885General
                and
                administrative
            
            
            31,395
            
            
            
            34,666
            
            
            
            38,945Online
                services
                development
            
            
            4,564
            
            
            
            4,235
            
            
            
            4,499Amortization
                of software
                costs                                                                    .
            
            
            1,480
            
            
            
            1,335
            
            
            
            1,250**Total
                Operating
                Expenses**
            
            ****
            **89,778**
            
            
            ****
            **99,297**
            
            
            ****
            **138,373****Income
                from
                Operations**
            
            ****
            **16,068**
            
            
            ****
            **12,897**
            
            
            ****
            **18,108**Interest
                and dividend
                income
            
            
            219
            
            
            
            1,624
            
            
            
            5,571Gain
                on sale of
                available-for-sale securities
            
            
            1,120
            
            
            
            977
            
            
            
            309Gain
                on sale of shares to
                minority shareholder and interest
              income
                thereon
            
            
            -
            
            
            
            -
            
            
            
            7,906Loss
                on investment,
                net
            
            
            -
            
            
            
            -
            
            
            
            (743
            )Foreign
                exchange gains (losses),
                net
            
            
            240
            
            
            
            (80
            )
            
            
            (714
            )**Income
                before Income
                Taxes**
            
            ****
            **17,647**
            
            
            ****
            **15,418**
            
            
            ****
            **30,437****Income
                Tax
                Expense**
            
            ****
            **(651**
            **)**
            
            ****
            **(759**
            **)**
            
            ****
            **(899**
            **)****Net
                Income before Minority
                Interest**
            
            **$**
            **16,996**
            
            
            **$**
            **14,659**
            
            
            **$**
            **29,538**Minority
                interest
            
            
            (1,227
            )
            
            
            (1,281
            )
            
            
            (1,909
            )**Net
                Income before cumulative effect of change in**
              **accounting
                principle**
            
            **$**
            **15,769**
            
            
            **$**
            **13,378**
            
            
            **$**
            **27,629**Cumulative
                effect of change in
                accounting principle
            
            
            -
            
            
            
            -
            
            
            
            251**Net
                Income**
            
            **$**
            **15,769**
            
            
            **$**
            **13,378**
            
            
            **$**
            **27,880****Basic
                net income per common share before cumulative effect of change in
                accounting principle**
            
            **$**
            **0.41**
            
            
            **$**
            **0.32**
            
            
            **$**
            **0.65****Cumulative
                effect of change in accounting principle**
            
            **$**
            **-**
            
            
            **$**
            **-**
            
            
            **$**
            **0.01****Basic
                net income per common share**
            
            **$**
            **0.41**
            
            
            **$**
            **0.32**
            
            
            **$**
            **0.66****Diluted
                net income per common share before cumulative effect of change in
                accounting principle**
            
            **$**
            **0.41**
            
            
            **$**
            **0.32**
            
            
            **$**
            **0.65****Cumulative
                effect of change in accounting principle**
            
            **$**
            **-**
            
            
            **$**
            **-**
            
            
            **$**
            **0.01****Diluted
                net income per common share**
            
            **$**
            **0.41**
            
            
            **$**
            **0.32**
            
            
            **$**
            **0.66****Common
                shares used in basic net income per common share calculations (Note
                2(u))**
            
            ****
            **37,069,610**
            
            
            ****
            **39,735,854**
            
            
            ****
            **40,628,354****Common
                shares used in diluted net income per common share calculations (Note
                2(u))**
            
            ****
            **37,137,970**
            
            
            ****
            **39,802,129**
            
            
            ****
            **40,698,957****Basic
                net income per non-vested restricted share before cumulative effect
                of
                change in accounting principle**
            
            **$**
            **0.41**
            
            
            **$**
            **0.32**
            
            
            **$**
            **0.65****Cumulative
                effect of change in accounting principle**
            
            **$**
            **-**
            
            
            **$**
            **-**
            
            
            **$**
            **0.01****Basic
                net income per non-vested restricted share**
            
            **$**
            **0.41**
            
            
            **$**
            **0.32**
            
            
            **$**
            **0.66****Diluted
                net income per non-vested restricted share before cumulative effect
                of
                change in accounting principle**
            
            **$**
            **0.41**
            
            
            **$**
            **0.32**
            
            
            **$**
            **0.65**


61


**GLOBAL
      SOURCES LTD. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF INCOME**




**(In
      U.S. Dollars Thousands, Except Number of Shares and Per Share
      Data)**





**Cumulative
                effect of change in accounting principle**
            
            **$**
            **-**
            
            
            **$**
            **-**
            
            
            **$**
            **0.01****Diluted
                net income per non-vested restricted share**
            
            **$**
            **0.41**
            
            
            **$**
            **0.32**
            
            
            **$**
            **0.66****Non-vested
                restricted shares used in basic net income per non-vested restricted
                share
                calculations (Note 2(u))**
            
            ****
            **1,466,898**
            
            
            ****
            **1,621,926**
            
            
            ****
            **1,627,408****Non-vested
                restricted shares used in diluted net income per non-vested restricted
                share calculations (Note 2(u))**
            
            ****
            **1,466,898**
            
            
            ****
            **1,621,926**
            
            
            ****
            **1,627,408**





Note:  a. Non-cash
      compensation expenses associated with the employee equity compensation plans
      and
      Directors Purchase Plan included under various categories of expenses are
      approximately as follows:  sales expenses: $1,790
      (2005:  $505, 2004:  $626), community: $145
      (2005:  $103, 2004:  $93), general and administrative:,
      $1,950 (2005:  $1,025, 2004:  $1,066), and online services
      development expenses: $181 (2005:  $315,
      2004:  $332).




The
      accompanying notes are an integral part of these financial
      statements.




62




**GLOBAL
      SOURCES LTD. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH
      FLOWS**




**(In
      U.S. Dollars Thousands)**




**Year
                  Ended December 31,****2004**
            
            
            **2005**
            
            
            **2006****Cash
                flows from operating activities:**Net
                income
            
            $
            15,769
            
            
            $
            13,378
            
            
            $
            27,880Adjustments to reconcile net income to net cash provided by
              operating activities:Depreciation
                and
                amortization
            
            
            4,052
            
            
            
            3,975
            
            
            
            4,678Profit
                on sale of
                equipment
            
            
            (1
            )
            
            
            (12
            )
            
            
            (30
            )Accretion
                of U.S. Treasury
                strips zero %
                coupon
            
            
            (57
            )
            
            
            (37
            )
            
            
            (26
            )Unrealized
                dividend income on available-for-sale securities
            
            
            (7
            )
            
            
            (134
            )
            
            
            -Unrealized
                interest income on available-for-sale securities
            
            
            -
            
            
            
            -
            
            
            
            (1,036
            )Bad
                debts (written back)
                expense
            
            
            (716
            )
            
            
            18
            
            
            
            216Non-cash
                compensation
                expense
            
            
            2,117
            
            
            
            1,948
            
            
            
            4,066Gain
                on sale of shares to
                minority shareholder and interest income thereon
            
            
            -
            
            
            
            -
            
            
            
            (7,906
            )Cumulative
                effect of change in
                accounting
                principle
            
            
            -
            
            
            
            -
            
            
            
            (251
            )Income
                attributable to minority
                shareholder
            
            
            1,227
            
            
            
            1,281
            
            
            
            1,909Equipment
                written
                off
            
            
            26
            
            
            
            86
            
            
            
            222,410
            
            
            
            20,503
            
            
            
            29,502**Changes
                in assets and liabilities:**Accounts
                receivables
            
            
            76
            
            
            
            (416
            )
            
            
            (1,139
            )Receivables
                from sales
                representatives
            
            
            476
            
            
            
            (2,252
            )
            
            
            (7,579
            )Inventory
                of
                paper
            
            
            (47
            )
            
            
            (116
            )
            
            
            (23
            )Prepaid
                expenses and other
                current
                assets
            
            
            (1,036
            )
            
            
            (7,525
            )
            
            
            (3,589
            )Long
                term
                assets
            
            
            (2,024
            )
            
            
            1,279
            
            
            
            419Accounts
                payable
            
            
            366
            
            
            
            686
            
            
            
            1,320Accrued
                liabilities and
                liabilities for incentive and bonus plans
            
            
            (97
            )
            
            
            563
            
            
            
            5,578Deferred
                income and customer
                prepayments
            
            
            2,741
            
            
            
            22,777
            
            
            
            10,866Tax
                liability
            
            
            (391
            )
            
            
            130
            
            
            
            313**Net
                cash provided by operating
                activities**
            
            ****
            **22,474**
            
            
            ****
            **35,629**
            
            
            ****
            **35,668****Cash
                flows from investing activities:**Purchase
                of property and
                equipment
            
            
            (21,111
            )
            
            
            (7,338
            )
            
            
            (4,876
            )Proceeds
                from sales of
                equipment
            
            
            2
            
            
            
            13
            
            
            
            30Proceeds
                from matured
                bonds
            
            
            383
            
            
            
            240
            
            
            
            200Purchase of available-for-sale
                securities
            
            
            (131,444
            )
            
            
            (363,544
            )
            
            
            (531,979
            )Proceeds
                from sale of
                available-for-sale
                securities
            
            
            155,976
            
            
            
            349,705
            
            
            
            428,750Net
                proceeds from sale of
                shares to minority shareholder, interest received thereon and repurchase
                of share dividends from minority shareholder
            
            
            -
            
            
            
            -
            
            
            
            2,719**Net
                cash generated from (used
                in) investing activities**
            
            ****
            **3,806**
            
            
            ****
            **(20,924**
            **)**
            
            ****
            **(105,156**
            **)****Cash
                flows from financing activities:**Repayment
                of amount due to a
                shareholder
            
            
            (11,404
            )
            
            
            -
            
            
            
            -Proceeds from issue of common shares, net of share issue
                expenses
            
            
            -
            
            
            
            38,303
            
            
            
            -Amount
                received towards
                directors purchase
                plan
            
            
            92
            
            
            
            118
            
            
            
            359**Net
                cash (used in) generated
                from financing activities**
            
            ****
            **(11,312**
            **)**
            
            ****
            **38,421**
            
            
            ****
            **359**Net increase (decrease) in cash and cash
                equivalents
            
            
            14,968
            
            
            
            53,126
            
            
            
            (69,129
            )Cash
                and cash equivalents, beginning of the
                year
            
            
            26,227
            
            
            
            41,195
            
            
            
            94,321**Cash
                and cash equivalents, end of the
                year**
            
            **$**
            **41,195**
            
            
            **$**
            **94,321**
            
            
            **$**
            **25,192****Supplemental
                cash flow disclosures:**Income
                tax
                paid
            
            $
            1,042
            
            
            $
            629
            
            
            $
            586





The
      accompanying notes are an integral part of these financial
      statements.


63


**GLOBAL
      SOURCES LTD. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS’ EQUITY**




**(In
      U.S. Dollars Thousands, Except Number of Shares)**


**Common
                  shares****Number
                  of shares**
            
            
            **Amounts**
            
            
            **Additional**
                **paid
                  in**
                **capital**
            
            
            **Retained
                  (deficit)**
                **earnings**
            
            
            **Unearned**
                **compensation**
            
            
            **Accumulated
                  other comprehensive income**
            
            
            **Total**
                **shareholders’
                  equity****Balance
                at December 31, 2003**
            
            ****
            **38,530,368**
            
            
            **$**
            **385**
            
            
            **$**
            **81,829**
            
            
            **$**
            **(50,346**
            **)**
            
            **$**
            **(4,563**
            **)**
            
            **$**
            **675**
            
            
            **$**
            **27,980**Net
                income
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            15,769
            
            
            
            —
            
            
            
            —
            
            
            $
            15,769Non-cash
                compensation expense
            
            
            —
            
            
            
            —
            
            
            
            4,386
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            $
            4,386Unearned
                compensation
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (2,268
            )
            
            
            —
            
            
            $
            (2,268
            )Amount
                received towards directors -purchase plan
            
            
            —
            
            
            
            —
            
            
            
            92
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            $
            92Issuance
                of shares under directors -purchase plan
            
            
            7,321
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Reclassification
                adjustment for gains, net of losses included in net income, net of
                income
                tax of $NIL
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (1,212
            )
            
            $
            (1,212
            )Unrealized
                gain on available-for-sale securities, net of income tax of
                $NIL
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            776
            
            
            $
            776**Balance
                at December 31, 2004**
            
            ****
            **38,537,689**
            
            
            **$**
            **385**
            
            
            **$**
            **86,307**
            
            
            **$**
            **(34,577**
            **)**
            
            **$**
            **(6,831**
            **)**
            
            **$**
            **239**
            
            
            **$**
            **45,523**Net
                income
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            13,378
            
            
            
            —
            
            
            
            —
            
            
            $
            13,378Non-cash
                compensation expense
            
            
            —
            
            
            
            —
            
            
            
            3,017
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            $
            3,017Unearned compensation
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (1,069
            )
            
            
            —
            
            
            $
            (1,069
            )Amount
                received towards directors -purchase plan
            
            
            —
            
            
            
            —
            
            
            
            118
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            $
            118Issuance
                of shares under directors -purchase plan
            
            
            6,655
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Issuance
                of common shares, net of share issue expenses
            
            
            3,630,000
            
            
            
            37
            
            
            
            38,266
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            $
            38,303Reclassification
                adjustment for gains, net of losses included in net income, net of
                income
                tax of $NIL
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (977
            )
            
            $
            (977
            )Unrealized
                gain on available-for-sale securities, net of income tax of
                $NIL
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            948
            
            
            $
            948**Balance
                at December 31, 2005**
            
            ****
            **42,174,344**
            
            
            **$**
            **422**
            
            
            **$**
            **127,708**
            
            
            **$**
            **(21,199**
            **)**
            
            **$**
            **(7,900**
            **)**
            
            **$**
            **210**
            
            
            **$**
            **99,241**Transition
                adjustment on adoption of SAB108 (Note 2 (z))
            
            
            —
            
            
            
            —
            
            
            
            1,851
            
            
            
            (1,851
            )
            
            
            —
            
            
            
            —
            
            
            
            —**Balance
                at January 1, 2006 (adjusted)**
            
            ****
            **42,174,344**
            
            
            **$**
            **422**
            
            
            **$**
            **129,559**
            
            
            **$**
            **(23,050**
            **)**
            
            **$**
            **(7,900**
            **)**
            
            **$**
            **210**
            
            
            **$**
            **99,241**Net
                income before cumulative effect of change in accounting principle
                recorded
                upon adoption of SFAS No. 123(R)
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            27,629
            
            
            
            —
            
            
            
            —
            
            
            
            —Cumulative
                effect of change in accounting principle recorded upon adoption of
                SFAS
                No. 123(R) (Note 2 (x))
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            251
            
            
            
            —
            
            
            
            —
            
            
            
            —Net
                income
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            27,880
            
            
            
            —
            
            
            
            —
            
            
            $
            27,880Non-cash
                compensation expense
            
            
            —
            
            
            
            —
            
            
            
            4,066
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            $
            4,066Unearned
                compensation
            
            
            —
            
            
            
            —
            
            
            
            (7,900
            )
            
            
            —
            
            
            
            7,900
            
            
            
            —
            
            
            
            —Amount
                received towards directors - purchase plan and issuance of shares
                under
                the plan
            
            
            96,800
            
            
            
            1
            
            
            
            358
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            $
            359Cumulative
                effect of change in accounting principle recorded upon adoption of
                SFAS
                No. 123(R)
            
            
            —
            
            
            
            —
            
            
            
            (251
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            $
            (251
            )Reclassification
                adjustment for gains, net of losses included in net income, net of
                income
                tax of $NIL
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (309
            )
            
            $
            (309
            )Unrealized
                gain on available-for-sale securities, net of income tax of
                $NIL
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            2,665
            
            
            $
            2,665**Balance
                at December 31, 2006**
            
            ****
            **42,271,144**
            
            
            **$**
            **423**
            
            
            **$**
            **125,832**
            
            
            **$**
            **4,830**
            
            
            
            —
            
            
            **$**
            **2,566**
            
            
            **$**
            **133,651**




The
      accompanying notes are an integral part of these financial
      statements.


64




**GLOBAL
        SOURCES LTD. AND SUBSIDIARIES**
 NOTES
        TO CONSOLIDATED FINANCIAL
        STATEMENTS
  **(In
        U.S. Dollars Thousands, Except Number of Shares and Per Share
        Data)**







**1)** **The
      Company**




The
      Company’s principal business is to provide services that allow global buyers to
      identify suppliers and products, and enable suppliers to market their products
      to a large number of buyers.  The Company’s primary online service is
      creating and hosting marketing websites that present suppliers’ product and
      company information in a consistent, easily searchable manner on Global Sources
      Online.  Complementing this service are various trade
      magazines.  The Company launched China Sourcing Fairs exhibitions in
      2003.  These offer international buyers direct access to China and
      other Asian manufacturers.  The Company’s businesses are conducted
      primarily through Trade Media Limited, its wholly owned subsidiary, which was
      incorporated in October 1984 under the laws of Cayman
      Islands.  Through certain other wholly owned subsidiaries, the Company
      also organizes China Sourcing Fairs exhibitions, conferences and exhibitions
      on
      technology related issues, licenses Asian Sources / Global Sources Online and
      catalog services and re-sells products that are purchased on consignment
      basis.




**2)** **Summary
      of Significant Accounting Policies**




**(a)** **Basis
      of Consolidation and Presentation**




(i)
            The
                accompanying consolidated financial statements are prepared in accordance
                with U.S. generally accepted accounting principles and comprise the
                financial statements of the Company and its subsidiaries.  All
                significant inter-company transactions and balances have been eliminated
                on consolidation.




(ii)
            The
                results of subsidiaries acquired or disposed of during the year are
                included in the consolidated statement of income from the effective
                dates
                of acquisition or up to the effective dates of
                disposal.




(iii)
            The
                functional currency of the Company and certain subsidiaries is the
                United
                States dollar.  The functional currencies of other subsidiaries
                are their respective local currencies.  United States dollars
                are used as the reporting currency as the Company’s operations are
                global.




**(b)** **Use
      of Estimates**




The
      preparation of financial statements in conformity with U.S. generally accepted
      accounting principles (“U.S. GAAP”) requires management to make estimates and
      assumptions that affect the amounts reported in the consolidated financial
      statements and accompanying notes.  Actual results could differ from
      those estimates.




**(c)** **Cash
      Equivalents**




The
      Company considers all highly liquid investments purchased with an original
      maturity of three months or less to be cash equivalents.




**(d)** **Available-for-sale
      Securities**




The
      Company invests its excess cash in readily marketable securities managed by
      high
      quality institutions and in government-backed securities such as debt and equity
      securities.  These are classified as available-for-sale
      securities.  Investments classified as available-for-sale securities
      are carried at market value with any unrealized holding gains and losses, net
      of
      related tax effect if any, presented under shareholders’ equity as accumulated
      other comprehensive income.




65




**GLOBAL
        SOURCES LTD. AND SUBSIDIARIES**
 NOTES
        TO CONSOLIDATED FINANCIAL
        STATEMENTS
  **(In
        U.S. Dollars Thousands, Except Number of Shares and Per Share
        Data)**









Generally
      the Company holds the securities with specific maturity dates until their
      maturity but the securities managed by high quality institutions are generally
      sold on a quarterly basis and proceeds reinvested in similar
      securities.




The
      Company records the sales of securities upon their maturity or
      sale.




As
      the
      Company’s objective and intent is not to generate profit from short-term price
      fluctuations, the Company classified its investments as available-for-sales
      securities, in accordance with SFAS No. 115, “Accounting for Certain Investments
      in Debts and Equity Securities”.




Realized
      gains and losses and declines in value judged to be other-than-temporary on
      available-for-sale securities are included in the statement of income.
      Other-than-temporary is determined through the assessment of the Company’s
      ability and intent to hold the investment, extent and duration of the
      impairment, and the forecasted recovery of fair value.  The cost of
      securities sold is based on the average cost method.




**(e)** **Inventory
      of Paper**




Inventory
      of paper is stated at the lower of cost or market value.  Cost is
      determined on the first-in, first-out basis. Cost includes the purchase cost
      and
      the delivery costs incurred in bringing the paper inventory to the
      warehouse.




**(f)** **Property
      and Equipment**




(i)
            Property
                and equipment are stated at cost less accumulated
                depreciation.  Cost represents the purchase price of the asset
                and other costs incurred to bring the asset into its existing
                use.




(ii)
            Depreciation
                on property and equipment is calculated to depreciate their cost
                on a
                straight-line basis over their estimated useful lives as
                follows:




Building
            50
                yearsFixtures,
                fittings and office
                equipment
            5
                yearsLeasehold
                improvements
            5
                yearsMotor
                vehicles
            5
                yearsComputer
                equipment and software
            3
                yearsReusable
                trade show booths
            2
                years





Depreciation
      of assets acquired under
      capital leases is included in depreciation expense.





(iii)
            Effective
                January 1, 1999, the Company adopted Statement of Position 98-1,
                “Accounting for the Costs of Computer Software Developed or Obtained
                for
                Internal Use,” to account for the costs incurred to develop computer
                software for internal use.  Costs incurred in the preliminary
                project stage with respect to the development of software for internal
                use
                are expensed as incurred; costs incurred during the application
                development stage are capitalized and are amortized over the estimated
                useful life of three years upon the commissioning of service of the
                software.  Training and maintenance costs are expensed as
                incurred. To account for the development costs related to the products
                to
                be sold, leased or otherwise marketed, the Company adopted SFAS No.
                86,
                “Accounting for the Costs of Computer Software to Be Sold, Leased,
                or
                Otherwise Marketed.”  Development costs incurred subsequent to
                the establishment of the technological feasibility of the product
                are
                capitalized.  The capitalization ends when the product is
                available for general release to
                customers.




66




**GLOBAL
        SOURCES LTD. AND SUBSIDIARIES**
 NOTES
        TO CONSOLIDATED FINANCIAL
        STATEMENTS
  **(In
        U.S. Dollars Thousands, Except Number of Shares and Per Share
        Data)**









The
      Company expensed $241, $66 and $7 during the years ended December 31, 2004,
      2005
      and 2006, respectively, for the costs incurred prior to the establishment of
      the
      technological feasibility with respect to the development of
      products.




**(g)** **Intangible
      Assets**




The
      Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets”, effective
      on January 1, 2002, to account for intangible assets.  The net
      intangible assets as of December 31, 2005 and 2006 was $NIL for both
      years.




**(h)** **Long
      Term Investments**




Long
      term
      investments for business and strategic purposes in privately-held companies
      where such investments are less than 20% of the equity capital of the investees,
      with no significant influence over the investees, are stated at
      cost.




Long
      term
      investments in companies where such investments are in the range of 20% to
      50%
      of the equity capital of the investees and over whom the Company exercises
      significant influence, are accounted under the equity method.




Interests
      in subsidiaries with more than 50% ownership are consolidated and the ownership
      interests of minority investors are recorded as minority interest.




Long
      term
      investments in U.S. Treasury strips zero % coupon, held to maturity are stated
      at amortized cost. The interest income from investments in U.S. Treasury strips
      zero % coupon is recognized as it accrues, taking into account the effective
      yield on the asset.




**(i)** **Impairment
      of Long-lived Assets**




The
      Company reviews the carrying value of its long-lived assets and will recognize
      an impairment loss whenever events or changes in circumstances indicate the
      carrying amount of the assets may not be fully recoverable. The recoverability
      of an asset is measured by a comparison of the carrying amount of an asset
      to
      the estimated undiscounted future cash flows expected to be generated by the
      asset. If the carrying amount of an asset exceeds its estimated future cash
      flows, an impairment loss, measured based on the difference between the carrying
      amount of the asset and its fair value, is recognized.  There was no
      impairment of the Company’s property and equipment as of December 31, 2006 and
      2005.




**(j)** **Revenue
      Recognition**




The
      Company derives its revenues from advertising fees in its published trade
      magazines and websites, sales of trade magazines and reports, fees from
      licensing its trade and service marks, organizing exhibitions and business
      seminars, commission income from consignment sales.




Revenues
      from advertising in trade magazines and websites are recognized ratably over
      the
      period in which the advertisement is displayed.  Advertising contracts
      do not exceed one year.  Revenue from sales of trade magazines and
      reports is recognized upon delivery of the magazine / report. Magazine
      subscriptions received in advance are deferred and recognized as revenue upon
      delivery of the magazine. Revenue from organizing exhibitions and business
      seminars is recognized at the conclusion of the event and the related direct
      event production costs are deferred and recognized as expenses upon conclusion
      of the event. When multiple deliverables are contracted under a single
      arrangement, the Company allocates the total considera-


67




**GLOBAL
        SOURCES LTD. AND SUBSIDIARIES**
 NOTES
        TO CONSOLIDATED FINANCIAL
        STATEMENTS
  **(In
        U.S. Dollars Thousands, Except Number of Shares and Per Share
        Data)**




tion
      to
      each unit of accounting on a pro-rata method based on its relative percentage
      of
      the total fair value of all units of accounting included in the
      arrangement.





The
      Company received license fees and currently receives royalties from licensing
      its trade and service marks.  Revenue from license fees was recognized
      ratably over the term of the license.  Royalties from license
      arrangements are earned ratably over the period in which the advertisement
      is
      displayed by the licensee.




The
      Company derives commission income on the re-sale of its customers’ products on a
      consignment basis.  The commission income which is the sales proceeds,
      net of the cost of the purchased products payable to the consigner is recognized
      upon conclusion of the sale to the buyer.




**(k)** **Transactions
      with Sales Representatives**




The
      Company utilizes sales representatives in various territories to promote the
      Company’s products and services.  Under these arrangements, these
      sales representatives are entitled to commissions as well as marketing
      fees.  Commissions expense is recorded when owed to these sales
      representatives and is included in sales expenses.




These
      sales representatives, which are mainly corporate entities, handle collections
      from clients on behalf of the Company.  Included in receivables from
      these sales representatives are amounts collected on behalf of the
      Company.




**(l)** **Advertising
      Expenses and Magazine Mailing Costs**




The
      event
      specific advertising and promotion costs incurred for events to be held in
      future financial years are expensed by the year-end in which the expenses are
      incurred.  Other advertising and promotion expenses are expensed as
      incurred.  The Company recorded advertising and promotion expenses of
      $2,679, $3,612 and $7,483 during the years ended December 31, 2004, 2005 and
      2006, respectively.




The
      mailing costs incurred for sending the trade magazines and reports to the
      readers are included under community costs. The Company recorded such mailing
      costs of $3,160, $3,553 and $3,535 during the years ended December 31, 2004,
      2005 and 2006, respectively.




**(m)** **Operating
      Leases**




The
      Company leases certain office facilities under cancelable and non-cancelable
      operating leases, generally with an option to renew upon expiry of the lease
      term. Rentals under operating leases are expensed on a straight-line basis
      over
      the life of the leases.




**(n)** **Liabilities
      for Bonus Plan**




Before
      the commencement of the Equity Compensation Plans as described in Note 23,
      the
      Company rewarded its senior management staff based on their performance through
      long term discretionary bonus awards.  These awards were payable in
      cash generally at the end of five or ten years from the date of the award,
      even
      in the event of termination of employment unless certain non-compete provisions
      had been violated.  These awards were expensed in the period to which
      the performance bonus relates.




**(o)** **Retirement
      Contributions**




The
      Company operates a number of defined contribution retirement
      plans.  Contributions are based on a percentage of each eligible
      employee’s salary and are expensed as the related salaries are
      incurred.




68




**GLOBAL
        SOURCES LTD. AND SUBSIDIARIES**
 NOTES
        TO CONSOLIDATED FINANCIAL
        STATEMENTS
  **(In
        U.S. Dollars Thousands, Except Number of Shares and Per Share
        Data)**




**(p)** **Income
      Taxes**




The
      Company accounts for deferred income taxes using the liability method, under
      which the expected future tax consequences of temporary differences between
      the
      financial reporting and tax basis of its assets and liabilities are recognized
      as deferred tax assets and liabilities.  A valuation allowance is
      established for any deferred tax asset when it is more likely than not that
      the
      deferred tax asset will not be recovered.




**(q)** **Minority
      Interest**




In
      2000,
      the Company’s wholly-owned subsidiary, Trade Media Holdings Limited (“TMH”),
      entered into an agreement with United Business Media B.V. (which subsequently
      changed its name to United Professional Media B.V.) (“UPM”), to set-up
      a  Barbados corporation (eMedia Asia Ltd.) to provide new technology
      content, media and e-commerce services to the electronics technology market
      in
      Asia.





TMH
      holds
      a 60.1% controlling equity interest in eMedia Asia Ltd., and the Company
      consolidates the results of eMedia Asia Ltd.’s operations.





The
      remaining 39.9% equity interest in eMedia Asia Ltd. was held by UPM, and as
      part
      of obtaining its 39.9% equity interest, UPM committed to pay $6,000 and interest
      thereon to TMH upon the payment of specified future dividends of eMedia Asia
      Ltd. (“Loan”). The Loan was secured by a charge in favour of TMH over 199 common
      shares of eMedia Asia Ltd. held by UPM (“Charge”).





Pursuant
      to an internal restructuring within UPM’s group, UPM’s 39.9% interest in eMedia
      Asia Ltd. and associated obligations (including those under the Loan and Charge)
      were novated and assigned first to UPM’s related company United Information
      Group B.V. (“UIG”) in September 2003, and then subsequently by UIG to another
      related company UBM Asia B.V. (“UBM Asia”) in October 2003.





Under
      the
      laws of the country of incorporation of eMedia Asia Ltd, a company is not
      allowed to pay cash dividends as long as it has retained losses. No dividends
      have been declared by eMedia Asia Limited, and accordingly the Loan was not
      paid
      in prior years. Due to the contingent nature of the Loan payment, the Company
      did not record in its prior years’ balance sheet the Loan receivable of $6,000
      due from UPM/UIG/UBM Asia and no interest income was accrued as at December
      31,
      2005 and 2004.





eMedia
      Asia Ltd. had excess reserves of cash as it is not allowed to pay cash
      dividends. In October 2006, approval of the board of directors and the
      shareholders of eMedia Asia Ltd. were obtained for distribution of the excess
      cash in eMedia Asia Ltd. to shareholders of eMedia Asia Ltd., by way of a
      one-for-one issue of new shares (as share dividends) and then a purchase back
      by
      eMedia Asia Limited of those share dividends and a consequent reduction of
      its
      share capital.





Pursuant
      thereto, eMedia Asia Ltd. completed the issuance of 1,000 shares to its
      shareholders as share dividends, the subsequent purchase of those 1,000 shares
      (at a price of $13,000 per share) and distribution of the total amount of
      $13,000 to its shareholders by way of a share purchase dividend, and the
      reduction of its share capital through the cancellation of those 1,000 purchased
      shares.





UBM
      Asia
      also fully re-paid the Loan principal of $6,000 and the $1,906 interest thereon
      to TMH.  The Loan and Charge were consequently discharged. The Company
      recorded the $1,906 interest received and the $6,000 principal received as
      a
      gain on sale of shares to minority shareholder and interest income thereon
      during the year ended December 31, 2006 as the contingency was resolved and
      the
      full payment has been received.


69




**GLOBAL
        SOURCES LTD. AND SUBSIDIARIES**
 NOTES
        TO CONSOLIDATED FINANCIAL
        STATEMENTS
  **(In
        U.S. Dollars Thousands, Except Number of Shares and Per Share
        Data)**






The
      minority interest liability of $6,191 and $2,913 as at December 31, 2005 and
      2006, respectively, reflects UBM Asia’s proportionate interest in the net book
      value of eMedia Asia Ltd.




**(r)** **Foreign
      Currencies**




Transactions
      in currencies other than the functional currency are measured and recorded
      in
      the functional currency using the exchange rate in effect on the date of the
      transaction.  As of the balance sheet date, monetary assets and
      liabilities that are denominated in currencies other than the functional
      currency are remeasured using the exchange rate at the balance sheet
      date.  All gains and losses arising from foreign currency transactions
      and remeasurement of foreign currency denominated accounts are included in
      the
      determination of net income in the year in which they occur.




The
      financial statements of the subsidiaries reported in their respective local
      currencies are translated into U.S. dollars for consolidation as
      follows:  assets and liabilities at the exchange rate as of the
      balance sheet date, shareholders’ equity at the historical rates of exchange,
      and income and expense amounts at the average monthly exchange
      rates.  The cumulative translation differences were not material as of
      December 31, 2005 and 2006.




**(s)** **Segment
      Reporting**




SFAS
      No.
      131, “Disclosures about Segments of an Enterprise and Related Information”
requires that companies report separately, in the financial statements, certain
      financial and descriptive information about operating segment profit or loss,
      certain specific revenue and expense items, and segment
      assets.  Additionally, companies are required to report information
      about the revenues derived from their products and services groups, about
      geographic areas in which the Company earns revenues and holds assets, and
      about
      major customers.




The
      Company identifies its operating segments based on business activities,
      management responsibility and geographic location.  The Company has
      two reportable segments: online and other media services and
      exhibitions.  The Company has determined these segments based on the
      business activities whose operating results are reviewed by the Company’s chief
      operating decision maker which is the Company’s board of directors to assess
      their performance and to make decisions about resources to be allocated to
      each
      segment.




**(t)** **Comprehensive
      Income**




SFAS
      No.
      130, “Reporting Comprehensive Income,” establishes standards for reporting
      comprehensive income and its components in financial
      statements.  Comprehensive income is defined as the change in equity
      of a company during a period from transactions and other events and
      circumstances excluding transactions resulting from investment by owners and
      distribution to owners.




Comprehensive
                income consists of the following:**Year
                  Ended December 31,****2004**
            
            
            **2005**
            
            
            **2006**Unrealized
                gain on available-for-sale securities, net of income tax of
                $NIL
            
            $
            776
            
            
            $
            948
            
            
            $
            2,665Reclassification
                adjustment for gains, net of losses included in net income, net of
                income
                tax of $NIL
            
            $
            (1,212
            )
            
            $
            (977
            )
            
            $
            (309
            )Net
                income
            
            $
            15,769
            
            
            $
            13,378
            
            
            $
            27,880$
            15,333
            
            
            $
            13,349
            
            
            $
            30,236





70




**GLOBAL
        SOURCES LTD. AND SUBSIDIARIES**
 NOTES
        TO CONSOLIDATED FINANCIAL
        STATEMENTS
  **(In
        U.S. Dollars Thousands, Except Number of Shares and Per Share
        Data)**




**(u)** **Basic
      and Diluted Net Income Per Share**




The
      Company disclosed the earnings per share under two-class method, prescribed
      by
      SFAS No. 128 and EITF Issue No. 03-6. The net income has been allocated to
      non-vested restricted shares under the Company’s stock compensation plans and
      common shares outstanding during the period in the ratio of respective class
      of
      shares to the combined weighted average shares of both the classes.




Basic
      net
      income per share is computed by dividing net income allocated to each class
      of
      shares by the weighted average number of shares of the respective class of
      shares outstanding during the period.  Diluted net income per share is
      calculated using the weighted average number of outstanding shares under each
      class of shares, plus other dilutive potential common shares.




The
      following table reconciles the number of shares utilized in the net income
      per
      share calculations:




**Year
                  Ended December 31,****2004**
            
            
            **2005**
            
            
            **2006**Net
                income before cumulative effect of change in accounting
                principle
            
            $
            15,769
            
            
            $
            13,378
            
            
            $
            27,629Cumulative
                effect of change in accounting principle
            
            
            -
            
            
            
            -
            
            
            
            251Net
                income
            
            $
            15,769
            
            
            $
            13,378
            
            
            $
            27,880Basic
                net income per common share before cumulative effect of change in
                accounting principle
            
            $
            0.41
            
            
            $
            0.32
            
            
            $
            0.65Cumulative
                effect of change in accounting principle
            
            $
            -
            
            
            $
            -
            
            
            $
            0.01Basic
                net income per common share
            
            $
            0.41
            
            
            $
            0.32
            
            
            $
            0.66Diluted
                net income per common share before cumulative effect of change in
                accounting principle
            
            $
            0.41
            
            
            $
            0.32
            
            
            $
            0.65Cumulative
                effect of change in accounting principle
            
            $
            -
            
            
            $
            -
            
            
            $
            0.01Diluted
                net income per common share
            
            $
            0.41
            
            
            $
            0.32
            
            
            $
            0.66Weighted
                average common shares used in basic net income per common share
                calculations
            
            
            37,069,610
            
            
            
            39,735,854
            
            
            
            40,628,354Effect
                of dilutive shares
            
            
            68,360
            
            
            
            66,275
            
            
            
            70,603Weighted
                average common shares used in diluted net income per common share
                calculations
            
            
            37,137,970
            
            
            
            39,802,129
            
            
            
            40,698,957Basic
                net income per non-vested restricted share before cumulative effect
                of
                change in accounting principle
            
            $
            0.41
            
            
            $
            0.32
            
            
            $
            0.65Cumulative
                effect of change in accounting principle
            
            $
            -
            
            
            $
            -
            
            
            $
            0.01Basic
                net income per non-vested restricted share
            
            $
            0.41
            
            
            $
            0.32
            
            
            $
            0.66Diluted
                net income per non-vested restricted share before cumulative effect
                of
                change in accounting principle
            
            $
            0.41
            
            
            $
            0.32
            
            
            $
            0.65Cumulative
                effect of change in accounting principle
            
            $
            -
            
            
            $
            -
            
            
            $
            0.01Diluted
                net income per non-vested restricted share
            
            $
            0.41
            
            
            $
            0.32
            
            
            $
            0.66Weighted
                average non-vested restricted shares used in basic net income per
                non-vested restricted share calculations
            
            
            1,466,898
            
            
            
            1,621,926
            
            
            
            1,627,408Effect
                of dilutive shares
            
            
            -
            
            
            
            -
            
            
            
            -Weighted
                average non-vested restricted shares used in diluted net income per
                non-vested restricted share calculations
            
            
            1,466,898
            
            
            
            1,621,926
            
            
            
            1,627,408Antidilutive
                share subscriptions
            
            
            -
            
            
            
            100,000
            
            
            
            -





71




**GLOBAL
        SOURCES LTD. AND SUBSIDIARIES**
 NOTES
        TO CONSOLIDATED FINANCIAL
        STATEMENTS
  **(In
        U.S. Dollars Thousands, Except Number of Shares and Per Share
        Data)**




Antidilutive
      share subscriptions had exercise prices greater than the average market price
      during the year.




**(v)** **Stock
      Based Compensation**




Effective
      January 1, 2006, the Company adopted the provisions of SFAS No. 123(R),
“Share-Based Payment” using the modified prospective application transition
      method, which requires application of SFAS No. 123(R) for new awards granted
      after the adoption of SFAS No. 123(R) and for any portion of awards granted
      prior to the date of adoption but have not vested as of the date of adoption
      of
      SFAS No. 123(R).




Prior
      to
      the adoption of SFAS No. 123(R), the Company accounted for stock-based
      compensation using the intrinsic value method prescribed in APB No. 25,
“Accounting for Stock Issued to Employees” and related
      interpretations.  Accordingly, compensation cost of stock options was
      measured as the excess, if any, of the fair value of the Company’s stock at the
      date of the grant over the option exercise price and is charged to operations
      over the vesting period. Under the SFAS No. 123(R), the compensation cost
      associated with the stock options is measured at fair value on the grant date
      and portion of the award that is ultimately expected to vest is recognized
      as
      expense over the requisite service periods.




The
      Company’s employee stock compensation plans are share grants without any
      exercise price or exercise period.  Therefore, the fair value of the
      share grants at the date of grant approximates the intrinsic
      value.  As a result, the impact of fair value based accounting under
      SFAS No. 123(R) is not significantly different from the intrinsic value method
      under APB No. 25.




Prior
      to
      the adoption of SFAS No. 123(R), the Company accounted for equity instruments
      issued to non-employees in accordance with the provisions of SFAS No. 123 and
      EITF Issue No. 96-18, “Accounting for Equity Instruments that are Issued to
      Other Than Employees for Acquiring, or in Conjunction with Selling Goods and
      Services.”  All transactions in which services are received for the
      issuance of equity instruments are accounted for based on the fair value of
      the
      consideration received or the fair value of the equity instrument issued,
      whichever is more reliably measurable.  The measurement date of the
      fair value of the equity instrument issued is the earlier of the date on which
      the counterparty’s performance is complete or the date on which it is probable
      that performance will occur. The equity instruments issued to non-employeesare within the scope
      of
      SFAS No. 123(R), except that such equity instruments should continue to be
      measured using the measurement guidance of EITF Issue No. 96-18. Thus there
      are
      no significant changes required in the accounting treatment of equity
      instruments issued to non-employees upon the adoption of SFAS No.
      123(R).




As
      of
      December 31, 2005, there was $7,900 of unearned compensation costs, related
      to
      share awards under Employee Equity Compensation Plans to our employees and
      non-employees.  Upon the adoption of SFAS No. 123(R) with effect from
      January 1, 2006, the unearned compensation costs associated with Employee Equity
      Compensation Plans at the beginning of the year 2006 were reversed against
      additional paid in capital.




The
      Company recognizes the compensation costs associated with share awards with
      graded vesting to employees on a straight-line basis over the requisite service
      period for the entire award.




72




**GLOBAL
        SOURCES LTD. AND SUBSIDIARIES**
 NOTES
        TO CONSOLIDATED FINANCIAL
        STATEMENTS
  **(In
        U.S. Dollars Thousands, Except Number of Shares and Per Share
        Data)**




The
      Company recognizes the compensation costs associated with share awards to
      non-employees on an accelerated attribution basis over the requisite service
      period.





Under
      SFAS No. 123(R) the Company is required to adjust its compensation cost for
      pre-vesting forfeitures i.e. an award that is forfeited prior to vesting. As
      the
      share grants to the employees include service conditions, the fair value of
      the
      awards is not adjusted subsequent to the grant date. At each reporting date,
      the
      Company would estimate the quantity of share grants expected to vest and record
      the compensation cost for the share grants that are expected to
      vest.





Prior
      to
      the adoption of SFAS No. 123(R), the Company accounted for the shares purchased
      by the directors under Directors Purchase Plan using the intrinsic value method
      prescribed in APB No. 25, “Accounting for Stock Issued to Employees” and related
      interpretations.  Accordingly, compensation cost relating to the
      shares purchased by the directors was measured as the difference between the
      quoted market price of the stock at the grant date and the price paid by the
      directors (exercise price) on the measurement date. Upon adoption of SFAS No.
      123(R), the Company has utilized the Black-Scholes option-pricing model
      (“Black-Scholes model”) for determination of the grant date fair value and the
      recording of compensation cost associated with the shares purchased by the
      Directors under the plan.




**(w)** **Allowance
      for Doubtful Debts**




The
      Company estimates the collectibility of the accounts receivable based on the
      analysis of accounts receivable, historical bad debts, customer
      credit-worthiness and current economic trends and maintains adequate allowance
      for doubtful debts.




**(x)** **Change
      in Accounting Principle**




The
      Company adopted SFAS No. 123 (R) “Share-Based Payment”, effective January 1,
      2006. Under SFAS No. 123 (R) the Company is required to adjust its compensation
      cost for pre-vesting forfeitures i.e. an award that is forfeited prior to
      vesting. Accordingly, the Company changed its accounting principle with effect
      from January 1, 2006, with respect to the accounting for
      forfeitures.




Under
      the
      new accounting principle, at each reporting date, the Company estimates the
      quantity of share grants expected to vest and record the compensation cost
      for
      the share grants that are expected to vest.




This
      change in accounting principle does not have any income tax impact.




**(y)** **Recent
      Accounting Pronouncements**




In
      March
      2006, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue
      No. 06-3, How Taxes Collected from Customers and Remitted to Governmental
      Authorities Should Be Presented in the Income Statement (That Is, Gross versus
      Net Presentation). EITF 06-3 provides guidance on presentation of any tax
      assessed by a governmental authority that is directly imposed on a
      revenue-producing transaction between a seller and a customer. As per EITF
      06-3,
      the presentation of taxes on either a gross (included in revenues and costs)
      or
      a net (excluded from revenues) basis is an accounting policy decision that
      should be disclosed. In addition, for any such taxes that are reported on a
      gross basis, a company should disclose the amounts of taxes in interim and
      annual financial statements for each period for which income statement is
      presented if these amounts are significant. The EITF 06-3 guidance is applicable
      to financial reports for interim and annual reporting periods beginning after
      December 15, 2006. Earlier application is permitted. The Company is
      currently evaluating whether the adoption of EITF 06-3 has any impact on its
      consolidated financial statements.


73




**GLOBAL
        SOURCES LTD. AND SUBSIDIARIES**
 NOTES
        TO CONSOLIDATED FINANCIAL
        STATEMENTS
  **(In
        U.S. Dollars Thousands, Except Number of Shares and Per Share
        Data)**






In
      June
      2006, the Financial Accounting Standards Board ("FASB") issued FASB
      Interpretation ("FIN") No. 48, Accounting for Uncertainty in Income Taxes -
      an
      Interpretation of FASB Statement No. 109.  This Interpretation clarifies
      the accounting for uncertainty in income taxes recognized in an enterprise's
      financial statements in accordance with FASB Statement No. 109, Accounting
      for
      Income Taxes.  This Interpretation prescribes a recognition threshold and
      measurement of a tax position taken or expected to be taken in a tax return,
      and
      provides guidance on derecognition, classification, interest and penalties,
      accounting in interim periods, disclosure and transition.  This
      Interpretation is effective for fiscal years beginning after December 15,
      2006.  The Company will adopt FIN 48 as of January 1, 2007, as required.
      The cumulative effect of adopting FIN 48 will be recorded in retained earnings
      and other accounts as applicable. The Company is currently evaluating whether
      the adoption of this Interpretation has any impact on its consolidated financial
      statements.





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157, “Fair Value Measurements” (“SFAS No. 157”). This Standard defines fair
      value, establishes a framework for measuring fair value in accordance with
      generally accepted accounting principles and expands disclosures about fair
      value measurements. SFAS No. 157 is effective for fiscal years beginning after
      November 15, 2007. As required under SFAS No. 157, the statement shall be
      applied prospectively as of the beginning of the fiscal year in which this
      Statement is initially applied, except that the Statement shall be applied
      retrospectively to certain financial instruments as of the beginning of the
      fiscal year in which this Statement is initially applied (a limited form of
      retrospective application). The Company is currently evaluating whether the
      adoption of SFAS No. 157 has any impact on its consolidated financial
      statements.





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities – including an amendment of FASB
      Statement No. 115.” SFAS No. 159 permits entities to choose to measure many
      financial instruments and certain other items at fair value. Unrealized gains
      and losses on items for which the fair value option has been elected will be
      recognized in earnings at each subsequent reporting date. SFAS No. 159 is
      effective for fiscal year beginning after November 15, 2007. The Company is
      currently evaluating whether the adoption of SFAS No. 159 has any impact on
      its
      consolidated financial statements.





**(z)**  **Transition
      adjustment on adoption of SAB 108**




In
      September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
      Accounting Bulletin No. 108, Considering the Effects of Prior Year
      Misstatements when Quantifying Misstatements in Current Year Financial
      Statements,  (“SAB 108”) which provides guidance on how
      uncorrected errors in previous years should be considered when quantifying
      errors in current-year financial statements. SAB 108 is effective for
      fiscal years ending after November 15, 2006.  In the current
      year, the Company has corrected unadjusted differences (which are not material
      to each of the individual years in which they occurred) pertaining to the years
      2000 to 2005 in the non-cash compensation expenses relating to share awards
      under its Employee Equity Compensation Plans. These differences arose from
      the
      incorrect application of attribution method and in the classification of share
      awards between employees and non-employees. Accordingly, the Company has
      recorded the prior years’ cumulative non-cash compensation expenses of $1,851
      against the Company’s opening retained earnings and the corresponding credit is
      taken to additional paid in capital in accordance with SAB 108. There is no
      income tax impact resulting from this adjustment.


74




**GLOBAL
        SOURCES LTD. AND SUBSIDIARIES**
 NOTES
        TO CONSOLIDATED FINANCIAL
        STATEMENTS
  **(In
        U.S. Dollars Thousands, Except Number of Shares and Per Share
        Data)**






**3.**
            **Available-for-sale
                Securities**




**At
                  December 31,****2005**
            
            
            **2006****Cost**
            
            
            **Unrealized
                  holding gain**
            
            
            **Fair**
                **value**
            
            
            **Cost**
            
            
            **Unrealized
                  holding gain**
            
            
            **Fair**
                **value**Debt
                securities issued by U.S. Treasury
            
            $
            17,832
            
            
            $
            -
            
            
            $
            17,832
            
            
            $
            109,902
            
            
            $
            -
            
            
            $
            109,902Equity
                securities
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            12,237
            
            
            
            2,265
            
            
            
            14,502Other
                securities
            
            
            5,940
            
            
            
            210
            
            
            
            6,150
            
            
            
            5,898
            
            
            
            301
            
            
            
            6,199$
            23,772
            
            
            $
            210
            
            
            $
            23,982
            
            
            $
            128,037
            
            
            $
            2,566
            
            
            $
            130,603







The
      contractual maturity dates of debt securities as at December 31, 2005 and 2006
      were less than one year.




The
      gross
      realized gains and losses from the sale of available-for-sale securities were
      as
      follows:




**Year
                  Ended December 31,****2004**
            
            
            **2005**
            
            
            **2006**Gross
                realized
                gains
            
            $
            1,278
            
            
            $
            1,011
            
            
            $
            309Gross
                realized
                losses
            
            
            (158
            )
            
            
            (34
            )
            
            
            -$
            1,120
            
            
            $
            977
            
            
            $
            309







The
      Company recorded dividend income derived from the available-for-sale securities
      of $NIL, $320, and $1,893 during the year ended December 31, 2004, 2005 and
      2006
      respectively.   The Company recorded interest income derived from
      the available-for-sale securities of $92, $963 and $2,945 during the year ended
      December 31, 2004, 2005 and 2006 respectively.




**4.** **Current
      Assets**




**At
                  December 31,****2005**
            
            
            **2006****Accounts
                receivable:**Gross
                trade
                receivables
            
            $
            6,197
            
            
            $
            7,148Less:  Allowance
                for doubtful
                debts
            
            
            (652
            )
            
            
            (680
            )$
            5,545
            
            
            $
            6,468





75




**GLOBAL
        SOURCES LTD. AND SUBSIDIARIES**
 NOTES
        TO CONSOLIDATED FINANCIAL
        STATEMENTS
  **(In
        U.S. Dollars Thousands, Except Number of Shares and Per Share
        Data)**







**Movements
                in allowance for doubtful debts:****Year
                  Ended December 31,****2004**
            
            
            **2005**
            
            
            **2006****Balance
                at beginning of
                year**
            
            $
            2,097
            
            
            $
            1,028
            
            
            $
            652Provision
                during the
                year
            
            
            —
            
            
            
            18
            
            
            
            216Allowance
                for doubtful debts written-back
            
            
            (716
            )
            
            
            —
            
            
            
            —Write-off
                during the
                year
            
            
            (353
            )
            
            
            (394
            )
            
            
            (188
            )**Balance
                at end of
                year**
            
            $
            1,028
            
            
            $
            652
            
            
            $
            680











**At
                  December 31,****2005**
            
            
            **2006****Prepaid
                expenses and other current assets:**Unsecured
                employee loans and other
                debtors
            
            $
            71
            
            
            $
            127Prepaid
                expenses
            
            
            768
            
            
            
            870Deferred
                expenses – short
                term
            
            
            7,688
            
            
            
            10,834Other
                current
                assets
            
            
            2,058
            
            
            
            2,343$
            10,585
            
            
            $
            14,174







**5.           Property
      and Equipment, net**




**At
                  December 31,****2005**
            
            
            **2006**Building
            
            $
            19,384
            
            
            $
            19,384Capital
                work-in-progress
            
            
            855
            
            
            
            985Leasehold
                improvements
            
            
            7,949
            
            
            
            8,649Motor
                vehicles
            
            
            198
            
            
            
            266Computer
                equipment, software, fixtures, fittings and office
                equipment
            
            
            18,348
            
            
            
            20,113Reusable
                trade show booths
            
            
            86
            
            
            
            191Software
                development
                costs
            
            
            3,571
            
            
            
            3,832Property
                and equipment, at
                cost
            
            
            50,391
            
            
            
            53,420Less:  Accumulated
                depreciation
            
            
            (22,213
            )
            
            
            (25,046
            )$
            28,178
            
            
            $
            28,374





Depreciation
      expense for the years ended December 31, 2004, 2005 and 2006 was $2,572, $2,640
      and $3,428 respectively and the amortization of software costs for the years
      ended December 31, 2004, 2005 and 2006 was $1,480, $1,335 and $1,250
      respectively.  The accumulated amortization of software costs as of
      December 31, 2005 and 2006 was $2,280 and $3,530 respectively.




During
      2004, the Company entered into an agreement to purchase approximately 9,000
      sq
      meters of office space in a commercial building in Shenzhen,
      China.  The building is situated on a leasehold land.  The
      lease period of the land is 50 years, commencing from year 2002.  At
      the end of the lease period the building together with land will revert to
      the
      local government authority.  The construction was completed and the
      property was put to use during the year 2005.  Depreciation of the
      property commenced during the year 2005.  This building which is under
      capital lease is depreciated on a straight line basis over the
      remaining




76




**GLOBAL
        SOURCES LTD. AND SUBSIDIARIES**
 NOTES
        TO CONSOLIDATED FINANCIAL
        STATEMENTS
  **(In
        U.S. Dollars Thousands, Except Number of Shares and Per Share
        Data)**




lease
      term.  The depreciation expenses on the said building amounted to $311
      and $414 during the year 2005 and 2006 respectively.







**6.** **Long-term
      Investments and Bonds Held to Maturity**




(i)
            As
                at December 31, 2006, the Company holds equity instruments carried
                at $100
                in a privately held unaffiliated electronic commerce company for
                business
                and strategic purposes.  The investment is accounted for under
                the cost method since the ownership is less than 20% and the Company
                does
                not have the ability to exercise significant influence over the
                investee.  The investment is shown under long term investments
                in the consolidated balance sheets.




The
      Company’s policy is to regularly review the carrying values of the non-quoted
      investments and to identify and provide for when circumstances indicate
      impairment other than a temporary decline in the carrying values of such assets
      has occurred.




The
      net
      carrying value of the long term investment as at December 31, 2005 and 2006
      was
      $100.  The Company will continue to evaluate this investment for
      impairment.




(ii)  U.S.
      Treasury strips zero % coupon




**At
                  December 31,****2005**
            
            
            **2006**The
                amortized cost classified by date of contractual maturity is as
                follows:Due
                within one
                year
            
            $
            189
            
            
            $
            195Due
                after one year through five
                years
            
            
            274
            
            
            
            94$
            463
            
            
            $
            289








**At
                  December 31,****2005**
            
            
            **2006**The
                fair value based on the market price, classified by  date of
                contractual maturity is as follows:Due
                within one year
            
            $
            193
            
            
            $
            196Due
                after one year through five years
            
            
            280
            
            
            
            95$
            473
            
            
            $
            291








**At
                  December 31,****2005**
            
            
            **2006**Gross
                unrealized holding
                gains
            
            $
            10
            
            
            $
            2





Proceeds
      from the matured U.S. Treasury strips zero % coupons during the years ended
      December 31, 2004, 2005 and 2006 were $383, $240 and $200,
      respectively.


77




**GLOBAL
        SOURCES LTD. AND SUBSIDIARIES**
 NOTES
        TO CONSOLIDATED FINANCIAL
        STATEMENTS
  **(In
        U.S. Dollars Thousands, Except Number of Shares and Per Share
        Data)**










**7.** **Other
      Assets**




**At
                  December 31,****2005**
            
            
            **2006**Employee
                housing
                loans
            
            $
            152
            
            
            $
            184Club
                memberships
            
            
            418
            
            
            
            418Deferred
                expenses – exhibitions – long term
            
            
            541
            
            
            
            750Rental,
                utility and other
                deposits
            
            
            870
            
            
            
            210$
            1,981
            
            
            $
            1,562





**8.** **Current
      Liabilities**




**At
                  December 31,****2005**
            
            
            **2006****Deferred
                income and customers’ prepayments:**Advertising
            
            $
            28,846
            
            
            $
            34,627Exhibitions,
                subscription and
                others
            
            
            23,778
            
            
            
            27,409$
            52,624
            
            
            $
            62,036











**At
                  December 31,****2005**
            
            
            **2006****Accrued
                liabilities:**Salaries,
                wages and
                commissions
            
            $
            1,326
            
            
            $
            2,062Retirement
                contribution
                plans
            
            
            645
            
            
            
            665Current
                portion of liabilities for incentive and bonus plans
            
            
            1,169
            
            
            
            1,399Printing,
                paper and bulk mailing
                cost
            
            
            430
            
            
            
            958Sales
                commissions and professional
                fees
            
            
            1,446
            
            
            
            3,440Others
            
            
            1,628
            
            
            
            3,903$
            6,644
            
            
            $
            12,427







**9.** **Liabilities
      for Incentive and Bonus Plans**




**At
                  December 31,****2005**
            
            
            **2006**Liability
                for long term discretionary bonus plan
            
            $
            307
            
            
            $
            102





**10.**
            **Deferred
                Income and Customers’ Prepayments – Long
                Term**




**At
                  December 31,****2005**
            
            
            **2006**Exhibitions
            
            $
            348
            
            
            $
            1,802







78




**GLOBAL
        SOURCES LTD. AND SUBSIDIARIES**
 NOTES
        TO CONSOLIDATED FINANCIAL
        STATEMENTS
  **(In
        U.S. Dollars Thousands, Except Number of Shares and Per Share
        Data)**






**11.           Related
      Party Transactions**




The
      Company has extended loans to some of its employees to finance their purchase
      or
      lease of residences.  The loans for the purchase of a residence are
      secured by the subject residence, bear interest at a rate of LIBOR plus 2%
      to
      3%, generally have a term of ten years and become due and payable immediately
      under certain circumstances, including their termination of employment with
      the
      Company.  The loans for the lease of a residence are unsecured,
      interest free and are repayable in equal monthly installments over the period
      of
      the lease, typically less than or equal to twelve months.  Loans due
      from employees for purchase of residences were $152 and $184 as of December
      31,
      2005 and 2006 respectively.  Loans due from employees for lease of
      residences were $61 and $31 as of December 31, 2005 and 2006,
      respectively.  There were no other loans due from the Company’s
      directors and executive officers as at December 31, 2005 and 2006. Other
      temporary advances to staff, which are generally repayable within twelve months,
      were $10 and $96 as of December 31, 2005 and 2006, respectively.




The
      Company had $11,404 due to the Former Parent Company as of December 31, 2003.
      Due to the disposal of the Company’s shares held by the Former Parent Company to
      the Company’s chairman and chief executive officer, this liability as at
      December 31, 2003 was reclassified and disclosed as “Amount due to a
      shareholder” in the Company’s consolidated balance sheet as at December 31,
      2003.  The amount due to the Former Parent Company was
      unsecured.  This amount was fully re-paid during the year 2004. The
      amount due to Former Parent Company as of December 31, 2005 and 2006 was $NIL
      and $NIL, respectively.




**12.           Liabilities
      for Incentive and Bonus Plans**




Before
      the commencement of the Equity Compensation Plans the Company rewarded its
      senior management staff based on their current performance through long term
      discretionary bonus awards.  These awards are payable approximately at
      the end of five or ten years from the date of the award, even in the event
      of
      termination of employment unless certain non-compete provisions have been
      violated.  The Company did not incur any expenses related to these
      awards during the years ended December 31, 2004, 2005 and 2006.  The
      required funds were set aside for payment of the discretionary bonuses by
      purchasing U.S. Treasury strips zero % coupons maturing in either five or ten
      years.  These investments are held until maturity and the proceeds are
      used for payment of the discretionary bonuses.




Certain
      sales representatives of the Company are eligible for incentive awards under
      plans administered by the Company.  Costs incurred related to
      incentive awards under plans administered by the Company for the years ended
      December 31, 2004, 2005 and 2006 were $164, $126 and $317
      respectively.




**13.** **Retirement
      Contribution Plans**




The
      Company operates a number of defined contribution retirement
      plans.  Employees working in a jurisdiction where there is no
      statutory provision for retirement contributions are covered by the Company’s
      plans.




The
      two
      principal defined contribution retirement plans are plans where employees are
      not required to make contributions.  One of these two plans is
      separately administered by an independent trustee and the plan assets are held
      independent of the Company.  The other one is not independently
      administered and the Company’s liabilities as of December 31, 2005 and 2006 were
      $591 and $641, respectively.




The
      Company incurred costs of $1,099, $1,166 and $1,213 with respect to the
      retirement plans in the years ended December 31, 2004, 2005 and 2006,
      respectively.




79




**GLOBAL
        SOURCES LTD. AND SUBSIDIARIES**
 NOTES
        TO CONSOLIDATED FINANCIAL
        STATEMENTS
  **(In
        U.S. Dollars Thousands, Except Number of Shares and Per Share
        Data)**






**14.** **Income
      Taxes**




The
      Company and certain of its subsidiaries operate in the Cayman Islands and other
      jurisdictions where there are no taxes imposed on companies (collectively
      referred to as “Cayman Islands”). Certain of the Company’s subsidiaries operate
      in Hong Kong SAR 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.




Income
      before income taxes consists of:




**Year
                  Ended December 31,****2004**
            
            
            **2005**
            
            
            **2006**Cayman
                Islands
            
            $
            12,746
            
            
            $
            12,828
            
            
            $
            27,494Foreign
            
            
            4,901
            
            
            
            2,590
            
            
            
            2,943$
            17,647
            
            
            $
            15,418
            
            
            $
            30,437





The
      provision for income taxes consists of:





**Year
                  Ended December 31,****2004**
            
            
            **2005**
            
            
            **2006**Current
                tax expense:Cayman
                Islands
            
            $
            —
            
            
            $
            —
            
            
            $
            —Foreign
            
            
            622
            
            
            
            650
            
            
            
            932Deferred
                tax expense:Cayman
                Islands
            
            
            —
            
            
            
            —
            
            
            
            —Foreign
            
            
            29
            
            
            
            109
            
            
            
            (33
            )Total
                provision
            
            $
            651
            
            
            $
            759
            
            
            $
            899





The
      provision for income taxes for the years ended December 31, 2004, 2005 and
      2006
      differed from the amount computed by applying the statutory income tax rate
      of
      0% as follows:




**Year
                  Ended December 31,****2004**
            
            
            **2005**
            
            
            **2006**Income
                taxes at statutory
                rate
            
            $
            —
            
            
            $
            —
            
            
            $
            —Foreign
                income and revenues taxed at higher rates
            
            
            651
            
            
            
            759
            
            
            
            899Total
            
            $
            651
            
            
            $
            759
            
            
            $
            899Effective
                tax
                rate
            
            
            3.69
            %
            
            
            4.92
            %
            
            
            2.95
            %





Deferred
      tax assets consist of the following:




**At
                  December 31,****2005**
            
            
            **2006**Net
                operating loss carry
                forwards
            
            $
            7,371
            
            
            $
            5,961Less:  valuation
                allowance
            
            
            (7,371
            )
            
            
            (5,961
            )Deferred
                tax
                assets
            
            $
            —
            
            
            $
            —







80




**GLOBAL
        SOURCES LTD. AND SUBSIDIARIES**
 NOTES
        TO CONSOLIDATED FINANCIAL
        STATEMENTS
  **(In
        U.S. Dollars Thousands, Except Number of Shares and Per Share
        Data)**






The
      Company recorded a full valuation allowance for the deferred tax assets due
      to
      the uncertainty as to their ultimate realization.  The net change in
      valuation allowance for the years ended December 31, 2004, 2005 and 2006 was
      a
      decrease of approximately $52, $39 and $1,410, respectively, resulting primarily
      from net operating losses incurred, expiry of operating losses carry forward
      and
      profits made by some of the subsidiaries during the respective
      years.




As
      of
      December 31, 2006 and 2005, a United States subsidiary had net operating loss
      carry forwards of approximately $16,982 and $17,099
      respectively.  These losses, which expire in year 2020, can be
      utilized to reduce future taxable income of the subsidiary subject to compliance
      with the taxation legislation and regulations in the relevant
      jurisdiction.




The
      Company recognized a deferred tax liability of $436 and $403 as at December
      31,
      2005 and 2006, respectively, which primarily arose from the temporary
      differences between the financial reporting and the tax bases of property and
      equipment in one of the subsidiaries of the Company.




**15.** **Share
      Capital**




On
      February 28, 2005 and 2006, the Company issued 6,655 and 96,800 common shares,
      respectively, under the Directors Purchase Plan.  On March 29, 2005,
      the Company issued 3,630,000 common shares of par value $0.01 at US$12.27 per
      share.  The total proceeds received from this issue was $38,303 net of
      the offering expenses of $2,197.  Out of the total proceeds $37 was
      included in the common share capital and the balance $38,266 was included in
      additional paid in capital. During the year 2006 the Company increased its
      authorized share capital from 50,000,000 common shares of $0.01 par value to
      75,000,000 common shares of $0.01 par value.  The authorized share
      capital of the Company as at December 31, 2005 and 2006 is 50,000,000 common
      shares of $0.01 par value and 75,000,000 common shares of $0.01 par value
      respectively.  As at December 31, 2005 and 2006, the Company has
      42,174,344 and 42,271,144 common shares issued and outstanding,
      respectively.




**16.** **Fair
      Value of Financial Instruments**




The
      carrying amounts of the Company’s cash equivalents, accounts receivable,
      receivables from sales representatives, unsecured employee loans and other
      debtors, accounts payable and accrued liabilities approximate fair value due
      to
      their short maturities.  The fair value of available-for-sale
      securities is disclosed in Note 3.  The carrying amount and market
      value of long term investments are discussed in Note 6.




**17.** **Concentration
      of Credit Risk and Other Risks**




Financial
      instruments, which potentially subject the Company to concentration of credit
      risk, consist primarily of investment in checking and money market accounts,
      available-for-sale securities, investment in U.S. Treasury strips zero % coupon,
      accounts receivable and receivables from sales representatives.  The
      Company maintains checking, money market accounts and available-for-sale
      securities with high quality institutions.  The Company has a large
      number of customers, operates in different geographic areas and generally does
      not require collateral on accounts receivable or receivables from sales
      representatives.  The Company generally collects in advance from
      customers in markets with higher credit risk. In addition, the Company is
      continuously monitoring the credit transactions and maintains reserves for
      credit losses where necessary.  No customer accounted for more than
      10% of the Company’s revenues for each of the years ended December 31, 2004,
      2005 and 2006.  No customer accounted for more than 10% of the
      accounts receivable as of December 31, 2005 and 2006.




In
      2006,
      the Company derived approximately 94% of its revenue from customers in
      Asia.  The Company expects that a majority of its future revenue will
      continue to be generated from customers in this region.  Future
      political or economic instability in Asia could negatively impact the
      business.




81




**GLOBAL
        SOURCES LTD. AND SUBSIDIARIES**
 NOTES
        TO CONSOLIDATED FINANCIAL
        STATEMENTS
  **(In
        U.S. Dollars Thousands, Except Number of Shares and Per Share
        Data)**






**18.** **Operating
      Leases**




The
      Company leases office facilities under cancelable and non-cancelable operating
      leases generally with an option to renew upon expiry of the lease term. During
      the years ended December 31, 2004, 2005 and 2006, the Company’s operating lease
      rental and building management services expenses were $1,275, $1,409 and $1,185
      respectively.  The estimated future minimum lease rental payments
      under non-cancelable operating leases as of December 31, 2006 are as
      follows:




**Year
                  Ending December 31,**
            
            **Operating
                  Leases**2007
            
            $
            5002008
            
            
            4672009
                onwards
            
            
            -$
            967





**19.** **Segment
      and Geographic Information**




The
      Company has two reportable segments:  online and other media services
      and exhibitions.  Revenues by geographic location are based on the
      location of the customer.




**(a)** **Segment
      Information**




**Year
                  Ended December 31,****2004**
            
            
            **2005**
            
            
            **2006**Revenue:Online
                and other media services (Note (a))
            
            $
            92,325
            
            
            $
            97,062
            
            
            $
            113,097Exhibitions
            
            
            13,010
            
            
            
            14,300
            
            
            
            42,122Miscellaneous
            
            
            511
            
            
            
            832
            
            
            
            1,262Consolidated
            
            $
            105,846
            
            
            $
            112,194
            
            
            $
            156,481





Miscellaneous
      revenue consists mainly of technical services fee income, and for year 2005
      and
      2006 also includes rental income and commission income from consignment
      sales.





Revenue
      from barter transactions was $771, $1,366 and $1,268 during the years ended
      December 31, 2004, 2005 and 2006, respectively. Similarly the expenses from
      barter transactions were $806, $1,142 and $1,365 during the years ended December
      31, 2004, 2005 and 2006, respectively.





**Year
                  Ended December 31,****2004**
            
            
            **2005**
            
            
            **2006**Income/(Loss)
                from Operations:Online
                and other media services
            
            $
            17,700
            
            
            $
            13,460
            
            
            $
            21,936Exhibitions
            
            
            (2,133
            )
            
            
            (1,258
            )
            
            
            (3,752
            )Miscellaneous
            
            
            501
            
            
            
            695
            
            
            
            (76
            )Consolidated
            
            $
            16,068
            
            
            $
            12,897
            
            
            $
            18,108







82




**GLOBAL
        SOURCES LTD. AND SUBSIDIARIES**
 NOTES
        TO CONSOLIDATED FINANCIAL
        STATEMENTS
  **(In
        U.S. Dollars Thousands, Except Number of Shares and Per Share
        Data)**






**At
                  December 31,****2005**
            
            
            **2006**Identifiable
                Assets:Online
                and other media
                services
            
            $
            141,076
            
            
            $
            151,926Exhibitions
            
            
            29,316
            
            
            
            67,182Miscellaneous
            
            
            1,288
            
            
            
            1,781Consolidated
            
            $
            171,680
            
            
            $
            220,889







Note:               (a)       Online
      and other media services consists of:




**Year
                  Ended December 31,****2004**
            
            
            **2005**
            
            
            **2006**Online
                services
            
            $
            52,106
            
            
            $
            53,829
            
            
            $
            64,396Print
                services
            
            
            40,219
            
            
            
            43,233
            
            
            
            48,701$
            92,325
            
            
            $
            97,062
            
            
            $
            113,097




**(b)** **Foreign
      Operations**




**Year
                  Ended December 31,****2004**
            
            
            **2005**
            
            
            **2006**Revenue:Asia
            
            $
            97,876
            
            
            $
            104,746
            
            
            $
            146,315United
                States
            
            
            6,573
            
            
            
            6,175
            
            
            
            7,610Europe
            
            
            597
            
            
            
            679
            
            
            
            1,571Others
            
            
            800
            
            
            
            594
            
            
            
            985Consolidated
            
            $
            105,846
            
            
            $
            112,194
            
            
            $
            156,481







**At
                  December 31,****2005**
            
            
            **2006**Long-Lived
                Assets:Asia
            
            $
            30,208
            
            
            $
            30,030United
                States
            
            
            51
            
            
            
            6Consolidated
            
            $
            30,259
            
            
            $
            30,036





**20.** **Contingencies**




From
      time
      to time the Company is involved in litigation in the normal course of
      business.  While the results of such litigation and claims cannot be
      predicted with certainty, the Company believes that the probability is remote
      that the outcome of the outstanding litigation and claims as of the current
      date
      will have a material adverse effect on the Company’s consolidated financial
      position and results of operations.




83




**GLOBAL
        SOURCES LTD. AND SUBSIDIARIES**
 NOTES
        TO CONSOLIDATED FINANCIAL
        STATEMENTS
  **(In
        U.S. Dollars Thousands, Except Number of Shares and Per Share
        Data)**






**21.** **Capital
      Commitments**




The
      commitments as at December 31, 2006 for leasehold improvements, purchase of
      software and for the development of software amounted to $1,427.  The
      capital commitments as at December 31, 2005 were $313 for leasehold improvements
      and for the development of software.




**22.** **Restricted
      Share Award Plan**




On
      February 4, 2000, the Company established a restricted share award plan for
      the
      benefit of its chairman and chief executive officer in recognition of services
      to the Company.  In conjunction with the restricted share award plan,
      the Former Parent Company assigned 5,868,439 common shares of the Company,
      representing a 16% equity interest in the Company to the Company.  The
      Company then awarded these shares to its chairman and chief executive
      officer.  The chairman and chief executive officer’s entitlement to
      733,557 of these shares is subject to an employment agreement with one of the
      Company’s United States subsidiaries and entitlement to such shares vested
      immediately.  The chairman and chief executive officer’s entitlement
      to the remaining 5,134,882 shares is subject to employment, non-compete and
      vesting terms under an employment agreement with one of the Company’s United
      States subsidiaries.  The 5,134,882 shares were to vest ratably over
      10 years, 10% each year on each anniversary date from the grant
      date.  However, effective August 30, 2000, the Company’s Board of
      Directors approved the accelerated vesting of all the restricted shares granted
      to the chairman and chief executive officer resulting in immediate vesting
      of
      all the shares.  The Company recorded a total of $64,000 in non-cash
      compensation expense associated with these awards in the year ended December
      31,
      2000.  At the modification date and subsequently the Company, based on
      historical evidence and the Company’s forecast of future employee separations,
      estimated that the chairman and chief executive officer will not terminate
      employment and appointment as director prior to the date that vesting in the
      shares would have occurred absent the modification.  Therefore, the
      Company has estimated that additional compensation expense to be recognized
      as a
      result of the modification is $NIL.  Should actual results differ from
      this estimate, adjustment in future reporting periods will be
      required.




**23.** **Equity
      Compensation Plans**




On
      December 30, 1999, the Company established The Global Sources Employee Equity
      Compensation Trust (the “Trust”) for the purpose of administering monies and
      other assets to be contributed by the Company to the Trust for the establishment
      of equity compensation and other benefit plans.  The Trust is
      administered by Appleby Trust (Bermuda) Ltd (previously known as “Harrington
      Trust Limited”) (the “Bermuda Trustee”).  The Bermuda Trustee in the
      exercise of its power under the Declaration of Trust may be directed by the
      plan
      committee, including the voting of securities held in the Trust.  The
      Board of Directors of the Company will select the members of the plan
      committee.




On
      February 4, 2000, in conjunction with the establishment of the Trust and the
      Share Exchange, the Former Parent Company assigned 3,667,774 common shares
      of
      the Company at a historical cost of less than $1, representing a 10% equity
      interest in the Company, for the establishment of share option plans and/or
      share award plans, known as ECP I, ECP II and ECP III.  Subsequently,
      share option plans and/or share award plans, known as ECP IV, ECP V, ECP VI
      and
      ECP VII were established.




Eligible
      employees, directors and consultants under ECP I are entitled to purchase common
      shares of Global Sources Ltd. at a price determined by the plan committee at
      the
      time of the grant.  The exercise price of these options may be below
      the fair market value of the Company’s common shares.  The plan
      committee determines who will receive, and the terms of, the
      options.




Optionees
      may pay for common shares purchased upon exercise of options in the manner
      determined by the plan committee at the time of grant.




84




**GLOBAL
        SOURCES LTD. AND SUBSIDIARIES**
 NOTES
        TO CONSOLIDATED FINANCIAL
        STATEMENTS
  **(In
        U.S. Dollars Thousands, Except Number of Shares and Per Share
        Data)**




Eligible
      employees, directors and consultants under ECP II were entitled to purchase
      common shares of Global Sources Ltd. at an exercise price determined by the
      plan
      committee at the time of the grant.  There are two types of options
      under this plan.  The exercise price of both of these options were
      below the fair market value of the Company’s common shares at that
      time.  The plan committee determines who will receive, and the terms
      of, the options.  Employees could decide whether to exercise the
      options for a period of 95 days ending June 29, 2000.  All the options
      granted were exercised.  Optionees were able to pay for common shares
      purchased upon exercise of options by check to the Trust.  Payment has
      been made to the Trust.  Entitlement of the employees, directors and
      consultants to these common shares is subject to employment and vesting
      terms.




Eligible
      employees, directors and consultants under ECP III were awarded a defined amount
      of compensation payable in Global Sources Ltd. common shares, the number of
      which were determined by dividing the amount of compensation awarded by an
      amount determined by the plan committee prior to the Share
      Exchange.




Entitlement
      of the employees and directors to these common shares is subject to employment
      and vesting terms. Entitlement to consultants to these common shares is subject
      to continued services provided by the consultants and vesting
      terms.




The
      non-cash compensation expense associated with awards in accordance with APB
      No.
      25 and SFAS No. 123, under ECP II and ECP III of approximately $2,904 and
      $2,357, respectively, were recognized over the three year vesting term from
      the
      respective award dates.




Eligible
      employees, directors and consultants under ECP IV are awarded a defined amount
      of compensation payable in Global Sources Ltd. common shares, the number of
      which are determined by the plan committee periodically.




Entitlement
      of the employees and directors to these common shares is subject to employment
      and vesting terms. Entitlement to consultants to these common shares is subject
      to continued services provided by the consultants and vesting
      terms.




Eligible
      employees, directors and consultants under ECP V were awarded a one-time grant
      of shares, the number of which were determined by the plan
      committee.




Entitlement
      of the employees and directors to these common shares is subject to employment
      and vesting terms. Entitlement to consultants to these common shares is subject
      to continued services provided by the consultants and vesting
      terms.




The
      Equity Compensation Plan committee approved the awards of common shares under
      ECP IV and ECP V on January 23, 2001.  The Equity Compensation
      Plan committee approved additional awards of common shares under ECP IV on
      April 1, 2001, July 1, 2001 and August 29, 2001 and under ECP V on August
      29, 2001, December 5, 2001, January 2, 2004, January 2, 2005 and on December
      31,
      2005.




The
      non-cash compensation expenses associated with the above awards in accordance
      with SFAS No. 123(R), under ECP IV and ECP V of approximately $3,030 and $2,748,
      respectively, are recognized over the five year vesting term from the respective
      award dates.




Eligible
      employees, directors and consultants under ECP VI are awarded a one-time grant
      of Global Sources Ltd. common shares, the number of which are determined by
      the
      plan committee.




Entitlement
      of the employees, directors and consultants to these common shares is subject
      to
      non-compete and vesting terms.




85




**GLOBAL
        SOURCES LTD. AND SUBSIDIARIES**
 NOTES
        TO CONSOLIDATED FINANCIAL
        STATEMENTS
  **(In
        U.S. Dollars Thousands, Except Number of Shares and Per Share
        Data)**






The
      Equity Compensation Plan committee approved ECP VI on March 13, 2001 and
      made awards of common shares under plan on various dates during the year 2001,
      2002, on July 28, 2004 and on April 1, 2005.




The
      non-cash compensation expenses associated with the awards in accordance with
      SFAS No. 123(R), under ECP VI totaling to approximately $1,399, are recognized
      over the five year vesting term from the respective award dates.




Eligible
      employees, directors and consultants under ECP VII are awarded a grant of a
      defined number of Global Sources Ltd. common shares, the number of which are
      determined by the plan committee periodically.




The
      Equity Compensation Plan committee approved the awards of common shares under
      ECP VII on January 1, 2002 and made further awards on March 31, 2003,
      on June 19, 2003, on January 2, 2004 and on January 3, 2005 on February 13,
      2006
      and on May 19, 2006.  The non-cash compensation expenses associated
      with the above awards in accordance with SFAS No. 123(R), under ECP VII of
      approximately $13,026 are recognized****over the six year
      vesting term from the respective award dates.




Entitlement
      of the employees and directors to these common shares is subject to employment
      and vesting terms. Entitlement to consultants to these common shares is subject
      to continued services provided by the consultants and vesting
      terms.




The
      Company expensed $2,117, $1,875 and $4,000 in non-cash compensation costs
      associated with the awards under the above ECP plans in the years ended December
      31, 2004, 2005 and 2006, respectively. As of December 31, 2006 there was $6,956
      of unrecognized non-cash compensation cost associated with the awards under
      the
      above ECP plans, which is expected to be recognized over the next six
      years.




The
      Company’s non-vested shares as of December 31, 2006 and changes during the year
      ended December 31, 2006 were as follows:




**ECP
                  IV**
                **Grant
                  Plan**
            
            
            **ECP
                  V**
                **Grant
                  Plan**
            
            
            **ECPVI**
                **Grant
                  Plan**
            
            
            **ECP
                  VII**
                **Grant
                  Plan****Shares**
            
            
            **Weighted
                  average grant date fair value**
            
            
            **Shares**
            
            
            **Weighted
                  average grant date fair value**
            
            
            **Shares**
            
            
            **Weighted
                  average grant date fair value**
            
            
            **Shares**
            
            
            **Weighted
                  average grant date fair value**Non-vested
                at January 1, 2006
            
            
            118,333
            
            
            $
            8.15
            
            
            
            72,189
            
            
            $
            8.59
            
            
            
            63,632
            
            
            $
            7.74
            
            
            
            1,237,268
            
            
            $
            8.22Granted
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            372,911
            
            
            $
            10.06Vested
            
            
            (117,352
            )
            
            $
            8.16
            
            
            
            (54,619
            )
            
            $
            9.27
            
            
            
            (33,358
            )
            
            $
            6.41
            
            
            
            (118,608
            )
            
            $
            5.74Forfeited
            
            
            (981
            )
            
            $
            6.96
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (29,642
            )
            
            $
            8.05Non-vested
                at December 31, 2006
            
            
            —
            
            
            
            —
            
            
            
            17,570
            
            
            $
            6.48
            
            
            
            30,274
            
            
            $
            9.19
            
            
            
            1,461,929
            
            
            $
            8.89





The
      total
      fair value of shares vested during the years ended December 31, 2004, 2005
      and
      2006 were as follows:




**Year
                  ended**
                **December
                  31,**
            
            **ECP
                  IV**
                **Grant
                  Plan**
            
            
            **ECP
                  V**
                **Grant
                  Plan**
            
            
            **ECPVI**
                **Grant
                  Plan**
            
            
            **ECP
                  VII**
                **Grant
                  Plan**
            
            
            **Total**2004
            
            $
            781
            
            
            $
            573
            
            
            $
            214
            
            
            $
            122
            
            
            $
            1,6902005
            
            $
            1,171
            
            
            $
            531
            
            
            $
            274
            
            
            $
            785
            
            
            $
            2,7612006
            
            $
            1,175
            
            
            $
            674
            
            
            $
            361
            
            
            $
            1,145
            
            
            $
            3,355







86




**GLOBAL
        SOURCES LTD. AND SUBSIDIARIES**
 NOTES
        TO CONSOLIDATED FINANCIAL
        STATEMENTS
  **(In
        U.S. Dollars Thousands, Except Number of Shares and Per Share
        Data)**






**24.** **Directors
      Purchase Plan**




A
      2000
      Non-Employee Directors Share Option Plan was approved on October 26, 2000 by
      the
      shareholders of the Company.  Each eligible Director was entitled to
      an option to purchase up to 20,000 common shares at a price established at
      year
      end.




The
      option was exercisable before the end of each February following the year end
      at
      which the option price was established.  The non-employee Directors
      have the right to decline all or part of the award, which is
      non-transferable.




For
      grants attributable to the 2001 year, the option price was fifteen percent
      less
      than the average closing price of the shares for the last five trading days
      of
      the previous calendar year.  The award vested over four years with one
      quarter of the shares vesting each year.  Full payment was required
      upon exercising the option.  Upon resignation of an eligible Director,
      all unvested shares would be forfeited and the option price received for the
      forfeited unvested shares would be refunded.  Only one Director
      accepted the offer on February 10, 2001 for the 29,282 shares granted under
      the
      option.  The $164 received as proceeds of this plan was included in
      additional paid-in capital.  On February 28, 2002, 2003, 2004 and 2005
      the Company issued to the Director the 7,321, 7,321, 7,321 and 6,655 common
      shares, respectively, that vested on those dates.




On
      November 1, 2001, the terms of the plan for prospective grants were amended
      to
      require only 15% of the exercise price to be paid upon exercise date and that
      the resignation of a director would no longer result in a forfeiture of the
      subscribed shares.  The plan entitles the directors to a grant of
      options of a price established at the prior yearend.  The ownership of
      the awards will transfer after four years.  Optionees must pay 15% of
      the option price, which is the average closing price of the shares for the
      last
      five trading days of year 2001, at the time of exercising the
      option.  The balance of 85% must be paid on or before the end of the
      holding period.  The resignation of a Director following his or her
      exercise of the Grant of Options and payment of the Option Price shall not
      cause
      a forfeiture of the subscribed shares.  All the eligible non-employee
      Directors accepted the offer before February 28, 2002 and $50 was received
      towards the 15% of the option price. During the year 2006, the Company received
      before the end of the holding period, the balance 85% amounting to $283 from
      the
      Directors and the 96,800 shares were issued to the Directors on February 28,
      2006. Out of the total proceeds, $1 being the par value of the shares issued,
      was included in share capital and the balance of $332 was included in additional
      paid in capital.




On
      February 27, 2002, the terms of the plan for prospective grants were amended
      to
      require only 10% of the exercise price to be paid upon exercise
      date.  The plan entitles the directors to a grant of options at a
      price established at the prior yearend.  The ownership of the awards
      will transfer after four years.  Optionees must pay 10% of the option
      price, which is the average closing price of the shares for the last five
      trading days of year 2002, at the time of exercising the option.  The
      balance of 90% must be paid on or before the end of the holding
      period.  The resignation of a Director following his or her exercise
      of the grant of options and payment of the option price shall not cause a
      forfeiture of the subscribed shares.  Three eligible directors
      accepted the offer before February 28, 2003.  The $30 received towards
      the 10% of the option price was included in the additional paid in capital
      in
      2003.




On
      May 8,
      2003, shareholders approved the amendments to the 2000 Non-Employee Directors
      Share Option Plan to allow both employee and non-employee Directors to
      participate prospectively in the plan.  The plan was renamed as
      Directors Purchase Plan by the Board of Directors on August 14,
      2003.




Directors
      purchasing the shares under the plan pay 10% of the purchase price, which is
      the
      average closing price of the shares for the last five trading days of year
      2003,
      on or before February 28, 2004.  The balance of 90% will be paid by
      February 28, 2008 and the shares will be issued thereafter.  The
      resignation of a Director following his or her purchase of the shares and
      payment of the 10% initial installment shall not cause




87




**GLOBAL
        SOURCES LTD. AND SUBSIDIARIES**
 NOTES
        TO CONSOLIDATED FINANCIAL
        STATEMENTS
  **(In
        U.S. Dollars Thousands, Except Number of Shares and Per Share
        Data)**




a
      forfeiture of the purchased shares.  Six directors opted to purchase
      29,282 shares each and one director opted to purchase part of the 29,282
      shares.  The amount of $92 received towards the 10% of the purchase
      price was included in the additional paid in capital in 2004.




As
      per
      the terms of the Directors Purchase Plan, Directors purchasing the shares under
      the plan in year 2005, pay 10% of the purchase price which is the average
      closing price of the shares for the last five trading days of the year 2004,
      on
      or before February 28, 2005.  The balance of 90% will be paid by
      February 28, 2009 and the shares will be issued thereafter.  The
      resignation of a Director following his or her purchase of the shares and
      payment of the 10% initial installment shall not cause a forfeiture of the
      subscribed shares.  Five directors opted to purchase 26,620 shares
      each.  The amount of $118 received towards the 10% of the purchase
      price was included in the additional paid in capital in 2005.




As
      per
      the terms of the Directors Purchase Plan, Directors purchasing the shares under
      the plan in year 2006, pay 10% of the purchase price which is the average
      closing price of the shares for the last five trading days of the year 2005,
      on
      or before February 28, 2006.  The balance of 90% will be paid by
      February 28, 2010 and the shares will be issued thereafter.  Failing
      to pay the 90% balance of the purchase price before the end of the holding
      period will result in the 10% deposit being forfeited and all rights under
      the
      purchase plan and the issuance of shares to automatically lapse and expire
      and
      the shares will not be issued.  The resignation of a Director
      following his or her purchase of the shares and payment of the 10% initial
      installment shall not cause a forfeiture of the unissued shares, provided that
      the balance of the purchase price is paid in full on or before the due date
      thereof.  Four directors opted to purchase 24,200 shares
      each.  The amount of $77 received towards the 10% of the purchase
      price was included in the additional paid in capital.




As
      per
      the terms of the Directors Purchase Plan, Directors purchasing the shares under
      the plan in year 2007, pay 10% of the purchase price which is the average
      closing price of the shares for the last five trading days of the year 2006,
      on
      or before February 28, 2007.  The balance of 90% will be paid by
      February 28, 2011 and the shares will be issued thereafter.  Failing
      to pay the 90% balance of the purchase price before the end of the holding
      period will result in the 10% deposit being forfeited and all rights under
      the
      purchase plan and the issuance of shares to automatically lapse and expire
      and
      the shares will not be issued.  The resignation of a Director
      following his or her purchase of the shares and payment of the 10% initial
      installment shall not cause a forfeiture of the unissued shares, provided that
      the balance of the purchase price is paid in full on or before the due date
      thereof.  Four directors opted to purchase 22,000 shares each and one
      director opted to purchase part of the 22,000 shares.  The amount of
      $155 received in January and February 2007 towards the 10% of the purchase
      price
      will be included in the additional paid in capital in 2007.




A
      summary
      of share option activity under Directors Purchase Plan during the year ended
      December 31, 2006 was as follows:




**Shares**
            
            
            **Weighted
                  average exercise price**Outstanding
                at January 1, 2006
            
            
            -
            
            
            
            -Granted
            
            
            140,000
            
            
            
            9.596Exercised
            
            
            80,000
            
            
            
            9.596Forfeited
            
            
            -
            
            
            
            -Expired
            
            
            60,000
            
            
            
            9.596Outstanding
                at December 31, 2006
            
            
            -
            
            
            
            -Exercisable
                at December 31, 2006
            
            
            -
            
            
            
            -







88




**GLOBAL
        SOURCES LTD. AND SUBSIDIARIES**
 NOTES
        TO CONSOLIDATED FINANCIAL
        STATEMENTS
  **(In
        U.S. Dollars Thousands, Except Number of Shares and Per Share
        Data)**






**25.** **Credit
      Facilities**




The
      Company holds a Documentary Credit facility with the Hongkong and Shanghai
      Banking Corporation Limited, for providing documentary credits to the Company’s
      suppliers.  This facility has a maximum limit of $577. As at December
      31, 2006, the unutilized amount under this facility was approximately
      $548.  Hongkong and Shanghai Banking Corporation Limited has also
      provided guarantees on behalf of the Company to the Company’s
      suppliers.  As at December 31, 2006, such guarantees amounted to
      $3.




**26.** **Other
      Commitments**




The
      Company has entered into a number of licence agreements during the year 2004
      for
      its exhibition events amounting to $29,730 including fee increases for year
      2007
      and 2008, in payments over five (5) years.  The agreements are
      cancelable under Force Majeure conditions, and with the consent of the other
      party but may be subject to a payment penalty.  As of December 31,
      2006 the amount paid under these agreements was $13,896.  The amount
      paid is expensed when the related events are held.




The
      Company also entered into several agreements for the event specific promotion
      of
      exhibition events amounting to $3,978 in payments over four
      years.  The amount paid under these agreements as of December 31, 2006
      was $2,686.




In
      August
      2005, one of the Company’s subsidiaries, eMedia Asia Limited (“eMedia”) entered
      into an agreement with Penton Media Inc, (“Penton”) to publish and distribute,
      in certain Asian territories, local language editions of Penton’s “Electronic
      Design” publication, relating to the electronic design industry. The first such
      edition to be launched is a simplified Chinese edition in mainland China
      entitled “Electronic Design-China”, the online website of which was launched in
      January 2006, and the first monthly issue of which was launched in March
      2006.  Under the agreement eMedia pays Penton forty per cent of the
      net after-tax profits of the business and also an annual content license fee
      for
      usage of Penton’s editorial material.




**27.** **Bonus
      Shares**




On
      March
      6, 2006, the Company announced a one for ten bonus share issue on the Company’s
      outstanding common shares.  Shareholders of record on March 15, 2006
      received one additional common share for every ten common shares held, of face
      value of $0.01 each.  The bonus share issue was distributed on April
      17, 2006.  In addition, the Company has reclassified $35 and $35 from
      additional paid in capital to common share capital as of December 31, 2005
      and
      2006, respectively.




**28.** **Purchase
      of Shares of HC International, Inc.**




HC
      International, Inc. (“HC International”) is a company listed on the Growth
      Enterprise Market of The Stock Exchange of Hong Kong Limited. On May 24, 2006,
      Trade Media Holdings Limited (“TMH”), a wholly owned subsidiary of the Company,
      IDG Technology Venture Investment, Inc. (“IDGVC”) and International Data Group,
      Inc. (“IDG”) entered into a conditional sale and purchase agreement (the “Sale
      and Purchase Agreement”) pursuant to which IDGVC agreed to transfer 47,858,000
      shares or 10% of the issued share capital of HC International, being part of
      its
      shareholding interests in HC International, to TMH at a consideration of
      approximately $9,875 or approximately $0.2063 per share, of HC International
      (the “HC Share(s)”), which is subject to adjustment to approximately $13,862 or
      approximately $0.2896 per HC Share (the “HC Share Transfer”), if and when HC
      International achieves a certain benchmark with reference to the HC
      International group’s performance during the Option Period (as defined below) or
      upon completion of the sale and purchase of the Option HC Shares (as defined
      below). IDG, being the sole shareholder of IDGVC, agreed to guarantee the due
      and punctual discharge by IDGVC of its obligations under the Sale and Purchase
      Agreement.


89




**GLOBAL
        SOURCES LTD. AND SUBSIDIARIES**
 NOTES
        TO CONSOLIDATED FINANCIAL
        STATEMENTS
  **(In
        U.S. Dollars Thousands, Except Number of Shares and Per Share
        Data)**









The
      Company announced the completion of the above transaction via a press release
      dated June 21, 2006. As of December 31, 2006 the Company owns, together with
      5,916,000 HC Shares owned by the Company prior to the Sale and Purchase
      Agreement (which represent approximately 1.24% of the issued share capital
      of HC
      International) and 8,878,000 HC Shares purchased by TMH after the completion
      of
      the Sale and Purchase Agreement (which represent approximately 1.87% of the
      issued share capital of HC International), an approximate 13.09% total equity
      interest in HC International. On August 1, 2006 HC International appointed
      the
      Company’s Chief Operating Officer, John Craig Pepples, as a non-executive
      director on the board of directors of HC International and subsequently Beijing
      Huicong International Information Co., Ltd. appointed him as a non-executive
      director on the board of directors of Beijing Huicong International Information
      Co., Ltd.





TMH
      also
      entered into a call options deed (the “HC Options Deed”) with IDGVC, Guo
      Fansheng (“Guo”) and others which include certain members of the senior
      management of HC International (the “Option Grantors”), pursuant to which each
      of the aforesaid Option Grantors agreed to grant to TMH, (i) a right (the “HC
      Options”) exercisable during the 12-month period from June 21, 2006, the date of
      the completion of the Sale and Purchase Agreement (the “Option Period”), to
      purchase all, but not in part only, of the 167,722,814 HC Shares owned by the
      respective parties (representing approximately 35.05% of the entire issued
      share
      capital of HC International) and any HC Shares that may be issued by HC
      International to certain directors of HC International if the options granted
      in
      accordance with the share option schemes of HC International (amounting to
      an
      aggregate of 4,185,320 Option HC Shares) are exercised, which together amount
      to
      a maximum of approximately 35.61% of the entire issued share capital of HC
      International (the “Option HC Share(s)”) at an exercise price of approximately
      $0.2896 per Option HC Share; and (ii) an undertaking to accept any offer for
      the
      Option HC Shares at a price not less than approximately $0.2896 per Option
      HC
      Share, during the Option Period. Huicong Construction Co., Ltd. (“Huicong
      Construction”), in which Guo has an 80% equity interest, entered into a call
      option deed (the “Beijing Huicong Option Deed” and together with the HC Options
      Deed, the “Option Deeds”) with TMH, pursuant to which Huicong Construction
      agreed to grant to TMH a right (the “Beijing Huicong Option” and together with
      the HC Options, the “Options”) exercisable during the Option Period, to purchase
      (or to nominate a subsidiary of TMH to purchase) from Huicong Construction
      its
      entire 18% equity interest (“Beijing Huicong Equity Interest”) in Beijing
      Huicong International Information Co., Ltd.  (“Beijing Huicong”), a
      82% indirect subsidiary of HC International, at an aggregate exercise price
      of
      approximately $31,916.





The
      HC
      Options and the Beijing Huicong Option are inter-conditional. The sale and
      purchase of the Beijing Huicong Equity Interest is subject to confirmation
      from
      the Securities and Futures Commission (“SFC”). If the SFC’s confirmation is not
      forthcoming, the sale and purchase of the Beijing Huicong Equity Interest will
      not be completed but TMH may proceed with the completion of the sale and
      purchase of the Option HC Shares.





Pursuant
      to the terms of the Beijing Huicong Option Deed and subject to the completion
      of
      the sale and purchase of the Beijing Huicong Equity Interest, Huicong
      Construction will also be required to transfer or assign its licenses and
      related contracts in relation to the provision of internet information and
      content services in the People’s Republic of China to a TMH-nominated company,
      but pending such transfer or assignment, Huicong Construction has agreed to
      continue to provide services in relation to the internet content provider
      license to Beijing Huicong in the same manner and on the same terms as currently
      agreed.





The
      exercise and completion of the HC Options by TMH, if materialized, will result
      in a change in control of HC International (as the Company’s aggregate
      shareholding in HC International will increase from approximately 13.09% to
      a
      maximum of approximately 48.14%) and will trigger an obligation on the part
      of
      TMH to make a general offer in compliance with Rule 26 of the Hong Kong Code
      on
      Takeovers and Mergers to acquire all the issued HC Shares (other than those
      already owned by TMH or parties acting in concert with it).


90




**GLOBAL
        SOURCES LTD. AND SUBSIDIARIES**
 NOTES
        TO CONSOLIDATED FINANCIAL
        STATEMENTS
  **(In
        U.S. Dollars Thousands, Except Number of Shares and Per Share
        Data)**






The
      Company has recorded the $14,503 being the approximately 13.09% equity interest
      in HC International, at fair value based on the closing share price of HCI,
      as
      at December 31, 2006, of $0.23148 per share, as available-for-sale securities
      in
      the Company’s financial statements as at December 31, 2006. The unrealized
      market gain of $2,265, has been credited to accumulated other comprehensive
      income, shown under shareholders’ equity.





As
      a part
      of this transaction, the Company also acquired the following as mentioned in
      the
      above paragraphs:





(i)
            The
                HC Options and the Beijing Huicong
                Option.




(ii)
            The
                option to acquire the licences and related contracts in relation
                to the
                provision of internet information and content services held by Huicong
                Construction.




In
      addition, the Company has a contingent payable, subject to HC International
      achieving a certain benchmark with reference to the HC International group’s
      performance during the Option Period as stated in the above
      paragraphs.




The
      options were recorded as a current asset in the Company’s balance sheet and the
      contingent payable was recorded as a liability as at acquisition
      date.




As
      the
      option was out of money and the likelihood of the payment of the contingent
      liability is remote due to the reported losses of the HC International
      subsequent to the date of transaction, the Company has recorded full impairment
      charge relating to the option assets and has written off the contingent payable
      in the Company’s financial statements as of December 31, 2006, the net of which
      was $743.








**29.           Reclassification**





Certain
      prior year amounts have been reclassified to conform to the current year
      presentation. Effective from the year 2006, the Company has presented the
      non-cash compensation expenses associated with the employee equity compensation
      plans and Directors Purchase Plan under the respective categories of expenses
      in
      the income statement as required under SAB 107. Accordingly, such non-cash
      compensation expenses for prior years have been reclassified to respective
      categories of expenses to conform to the current year presentation.







**30.           Post
      Balance Sheet Events**





On
      March
      5, 2007, the Company announced a one for ten bonus share issue on the Company’s
      outstanding common shares. Shareholders of record on March 16, 2007 will receive
      one additional common share for every ten common shares held, of face value
      of
      $0.01 each. The bonus share issue will be distributed on or about April 16,
      2007. All common shares and per share amounts in the consolidated financial
      statements and related notes have been retroactively adjusted to reflect the
      one
      for ten bonus share issue for all periods presented. In addition, the Company
      has reclassified $38 and $38 from additional paid in capital to common share
      capital as of December 31, 2005 and 2006, respectively.




In
      March
      2007, a subsidiary of the Company entered into a number of venue license
      agreements for its exhibition events amounting to $44,396 in payments over
      five
      and a half years. The agreements are cancellable under Force Majeure conditions,
      or upon notice and payment of cancellation charges to the other
      party.




91




**GLOBAL
        SOURCES LTD. AND SUBSIDIARIES**
 NOTES
        TO CONSOLIDATED FINANCIAL
        STATEMENTS
  **(In
        U.S. Dollars Thousands, Except Number of Shares and Per Share
        Data)**




During
      the first quarter of 2007, the Company entered into a letter of intent, followed
      by a purchase agreement, to purchase approximately 1,939.38 square meters of
      office space in a commercial building known as “Excellence Times Square” in
      Shenzhen, China, at a purchase price of approximately $7,000, out of which
      a
      total down-payment of approximately $91 has been made, with the total remaining
      balance of approximately $6,909 being payable in or around April 2007. Delivery
      of the office space to the Company is expected to be completed in or around
      April 2007.









92


**ITEM
      9.** **THE
      OFFER AND LISTING**




**Price
      history of stock**




The
      following table sets forth the high and low per share closing prices for our
      common shares for the periods indicated, as adjusted for the one for ten bonus
      share issues announced on February 16, 2004 and on March 1, 2005.




**Period**
            
            **High**
            
            
            **Low**Year
                2002
            
            $
            3.69
            
            
            $
            1.89Year
                2003
            
            $
            7.35
            
            
            $
            2.69Year
                2004
            
            $
            12.27
            
            
            $
            4.27Year
                2005
            
            $
            16.81
            
            
            $
            4.88Year
                2006
            
            $
            14.58
            
            
            $
            6.89First
                Quarter 2005
            
            
            16.81
            
            
            
            7.36Second
                Quarter 2005
            
            
            9.28
            
            
            
            4.88Third
                Quarter 2005
            
            
            7.85
            
            
            
            5.72Fourth
                Quarter 2005
            
            
            8.07
            
            
            
            5.52First
                Quarter 2006
            
            
            9.41
            
            
            
            7.58Second
                Quarter 2006
            
            
            10.13
            
            
            
            6.89Third
                Quarter 2006
            
            
            10.60
            
            
            
            6.89Fourth
                Quarter 2006
            
            
            14.58
            
            
            
            7.84First
                Quarter 2007
            
            
            16.93
            
            
            
            11.29December
                2006
            
            
            16.20
            
            
            
            11.33January
                2007
            
            
            18.81
            
            
            
            15.01February
                2007
            
            
            18.67
            
            
            
            13.10March
                2007
            
            
            15.62
            
            
            
            13.93April
                2007
            
            
            19.85
            
            
            
            13.90May
                2007
            
            
            22.48
            
            
            
            16.41





**Markets**




Our
      shares are listed and traded under the symbol “GSOL” on the Nasdaq National
      Market.




**ITEM
      10.** **ADDITIONAL
      INFORMATION**




**Memorandum
      and Articles of Association**




**Description
      of shareholder rights attaching to our common shares**




The
      following discussion of our common shares, and the laws governing the rights
      of
      our shareholders, is based upon the advice of Appleby, our Bermuda
      counsel.




Our
      authorized share capital consists of 75,000,000 common shares, par value $0.01
      per share.  A bonus share distribution of one share for every ten
      shares was issued to all of our shareholders of record on March 16, 2007 and
      distributed on or about April 16, 2007.  As of April 30, 2007, we had
      42,337,568 common shares issued and outstanding.




93







*·*
            *Holders
                of common shares have no preemptive, redemption, conversion or sinking
                fund rights.*




*·*
            *Holders
                of common shares are entitled to one vote per share on all matters
                submitted to a vote of holders of common shares and do not have any
                cumulative voting rights.*




*·*
            *In
                the event of our liquidation, dissolution or winding-up, the holders
                of
                common shares are entitled to share ratably in our assets, if any,
                remaining after the payment of all our debts and
                liabilities.*




*·*
            *Our
                outstanding common shares are fully paid and
                non-assessable.  Non-assessable as that term is understood under
                Bermuda Law means in relation to fully-paid shares of a company and
                subject to any contrary provision in any agreement in writing between
                such
                company and the holder of shares, that no shareholder shall be obliged
                to
                contribute further amounts to the capital of the company, either
                in order
                to complete payment for their shares, to satisfy claims of creditors
                of
                the company, or otherwise; and no shareholder shall be bound by an
                alteration of the memorandum of association or bye-laws of the company
                after the date on which he became a shareholder, if and so far as
                the
                alteration requires him to take, or subscribe for additional shares,
                or in
                any way increases his liability to contribute to the share capital
                of, or
                otherwise to pay money to, the
                company.*




*·*
            *Additional
                authorized but unissued common shares may be issued by the board
                of
                directors without the approval of the
                shareholders.*




The
      holders of common shares will receive dividends, if any, as may be declared
      by
      the board of directors out of funds legally available for
      purposes.  We may not declare or pay a dividend, or make a
      distribution out of contributed surplus, if there are reasonable grounds for
      believing that:




*·*
            *we
                are, or after the payment would be, unable to pay our liabilities
                as they
                become due; or*




*·*
            *the
                realizable value of our assets after such payment or distribution
                would be
                less than the aggregate amount of our liabilities and our issued
                share
                capital and share premium
                accounts.*




The
      following is a summary of provisions of Bermuda law and our organizational
      documents, including the bye-laws.  We refer you to our memorandum of
      association and bye-laws, copies of which have been filed with the
      SEC.  You are urged to read these documents for a complete
      understanding of the terms of the memorandum of association and
      bye-laws.




**Share
      Capital**




Our
      authorized capital consists of one class of common shares.  Under our
      bye-laws, our board of directors has the power to issue any authorized and
      unissued shares on such terms and conditions as it may determine.  Any
      shares or class of shares may be issued with such preferred, deferred, qualified
      or other special rights or such restrictions, whether in regard to dividend,
      voting, return of capital or otherwise, as we may from time to time by
      resolution of the shareholders prescribe.




**Voting
      Rights**




Generally,
      under Bermuda law and our bye-laws, questions brought before a general meeting
      are decided by a simple majority vote of shareholders present or represented
      by
      proxy.  Each shareholder is entitled to one vote for each share
      held.  Matters will be decided by way of votes cast on a show of
      hands, unless a poll is demanded.




If
      a poll
      is demanded, each shareholder who is entitled to vote and who is present in
      person or by proxy has one vote for each common share entitled to vote on such
      question.  A poll may only be demanded under the bye-laws
      by:




94







*·*
            *the
                chairman of the meeting;*




*·*
            *at
                least three shareholders present in person or by
                proxy;*




*·*
            *any
                shareholder or shareholders present in person or by proxy and holding
                between them not less than one-tenth of the total voting rights of
                all
                shareholders having the right to vote at such meeting;
                or*




*·*
            *a
                shareholder or shareholders present in person or represented by proxy
                holding shares conferring the right to vote at such meeting, being
                common
                shares on which an aggregate sum has been paid up equal to not less
                than
                one-tenth of the total sum paid up on all such common shares conferring
                such right.*




No
      shareholder shall, unless the board of directors otherwise determines, be
      entitled to vote at any general meeting unless all calls or other sums presently
      payable by that shareholder in respect of all shares held by such shareholder
      have been paid.




**Dividend
      Rights**




Under
      Bermuda law, a company may declare and pay dividends unless there are reasonable
      grounds for believing that the company is, or would, after the payment, be
      unable to pay its liabilities as they become due or that the realizable value
      of
      the company’s assets would thereby be less than the aggregate of its liabilities
      and issued share capital and share premium accounts.




Under
      our
      bye-laws, each share is entitled to a dividend if, as and when dividends are
      declared by the board of directors.  The board of directors may
      determine that any dividend may be paid in cash or will be satisfied in paying
      up in full in our common shares to be issued to the shareholders credited as
      fully paid or partly paid.  The board of directors may also pay any
      fixed cash dividend which is payable on any of our common shares half-yearly
      or
      on other dates, whenever our position, in the opinion of the board of directors,
      justifies such payment.




Dividends,
      if any, on our common shares will be paid at the discretion of our board of
      directors and will depend on our future operations and earnings, capital
      requirements, surplus and general financial conditions, as our board of
      directors may deem relevant.




We
      have
      not paid any cash dividends on our common shares since October
      1999.  Previously, we paid dividends as a private company as a means
      to distribute earnings to shareholders.  Beginning in October 1999, we
      have focused on the implementation of our growth plans, and we have retained
      earnings in furtherance of such plans.  The Company’s board of
      directors reviews its options for the use of cash on a regular basis, including
      whether or not to pay any cash dividends.




**Purchase
      by a Company of its Own Common Shares**




We
      may
      purchase our own common shares out of the capital paid up on the common shares
      in question or out of funds that would otherwise be available for dividend
      or
      distribution or out of the proceeds of a fresh issue of common shares made
      for
      the purposes of the purchase.  We may not purchase our shares if, as a
      result, our issued share capital would be reduced below the minimum capital
      specified in our memorandum of association.




However,
      to the extent that any premium is payable on the purchase, the premium must
      be
      provided out of the funds of the company that would otherwise be available
      for
      dividend or distribution or out of a company’s share premium
      account.  Any common shares purchased by a company are treated as
      cancelled and the amount of the company’s issued capital is diminished by the
      nominal value of the shares accordingly but shall not be taken as reducing
      the
      amount of the company’s authorized share capital. However, pursuant to recent
      changes to the Companies Act 1981 of Bermuda, effective December 29, 2006,
      a
      company may purchase its own shares, to be held as treasury shares, if
      authorized to do so by its memorandum of associa-




95


tion
      or
      bye-laws. A proposed resolution for the amendment of our bye-laws, to authorize
      us to purchase our own shares, to be held as treasury shares, was put forth
      to
      our shareholders for approval at our Annual General Meeting, held on June 18,
      2007 (Hong Kong time). The resolution was approved by our shareholders, so
      we
      are now able to acquire our own shares and hold them as treasury shares, subject
      always of course to the provisions of the Companies Act 1981 of Bermuda, to
      the
      Securities laws of the United States and to the rules of Nasdaq National
      Market.




**Preemptive
      Rights**




Our
      bye-laws do not provide the holders of our common shares with preemptive rights
      in relation to any issues of common shares held by us or any transfer of our
      shares.




**Variation
      of Rights**




We
      may
      issue more than one class of shares and more than one series of shares in each
      class.  If we have more than one class of shares, the rights attached
      to any class of shares may be altered or abrogated either:




*·*
            *with
                the consent in writing of the holders of not less than seventy-five
                percent of the issued common shares of that class;
                or*




*·*
            *with
                the sanction of a resolution passed at a separate general meeting
                of the
                holders of such common shares, voting in proxy or present, at which
                a
                quorum is present.*




The
      bye-laws provide that a quorum for such a meeting shall be two persons present
      in person or by proxy representing a majority of the shares of the relevant
      class.  The bye-laws specify that the creation or issue of shares
      ranking on parity with existing shares will not, subject to any statement to
      the
      contrary in the terms of issue of those shares or rights attached to those
      shares, vary the special rights attached to existing shares.




**Transfer
      of Common Shares**




Subject
      to the “Transfer Restrictions” section below, a shareholder may transfer title
      to all or any of his shares by completing an instrument of transfer in the
      usual
      common form or in such other form as the board of directors may
      approve.




**Transfer
      Restrictions**




The
      board
      of directors may in its absolute discretion and without assigning any reason
      refuse to register the transfer of any share that is not fully
      paid.




The
      board
      of directors may refuse to register an instrument of transfer of a share unless
      it:




*·*
            *is
                duly stamped, if required by law, and lodged with
                us;*




*·*
            *is
                accompanied by the relevant share certificate and such other evidence
                of
                the transferor’s right to make the transfer as the board of directors
                shall reasonably require;*




*·*
            *has
                obtained, where applicable, permission of the Bermuda Monetary Authority;
                and*




*·*
            *is
                in respect of one class of
                shares.*




A
      “blanket” authorization has been obtained from the Bermuda Monetary Authority
      for all transfers of our common shares between persons who are not resident
      in
      Bermuda for exchange control purposes, provided our common shares remain listed
      on an “appointed stock exchange” (which includes listing on the Nasdaq National
      Market).




96







**Transmission
      of Shares**




In
      the
      event of the death of a shareholder, the survivor or survivors, where the
      deceased shareholder was a joint holder, or the legal personal representative
      of
      such shareholder, including executors and administrators, shall be the only
      persons recognized by us as having any title to the shareholder
      shares.




**Disclosure
      of Interests**




Our
      bye-laws provide that a director who has at least a five percent interest,
      directly or indirectly, in an entity that is interested in a contract or
      proposed contract or arrangement with us, shall declare the nature of such
      interest at the first opportunity at a meeting of the board of directors, or
      by
      writing to the board of directors.  If the director has complied with
      the relevant sections of the Companies Act and the bye-laws with regard to
      the
      disclosure of his interest, the director may vote at a meeting of the board
      of
      directors or a committee thereof on a contract, transaction or arrangement
      in
      which that director is interested and he will be taken into account in
      ascertaining whether a quorum is present.




Under
      Bermuda law, the Company may not make loans to directors unless approved by
      a
      majority of the shareholders holding 90% of the voting rights.




**Rights
      in Liquidation**




Under
      Bermuda law, in the event of liquidation, dissolution or winding-up of a
      company, after satisfaction in full of all claims of creditors and subject
      to
      the preferential rights accorded to any series of preferred stock, the proceeds
      of such liquidation, dissolution or winding-up are distributed among the holders
      of shares in accordance with a company’s bye-laws.




Under
      our
      bye-laws, if we are wound up, the liquidator may, with the sanction of a
      resolution from us and any sanction required by the Companies Act, divide
      amongst the shareholders in specie or kind the whole or part of our assets,
      whether they shall consist of property of the same kind or not and may for
      such
      purposes set such values as he deems fair upon any property to be divided as
      set
      out above and may determine how such division shall be carried out as between
      the shareholders.




**Meetings
      of Shareholders**




Under
      Bermuda law, a company is required to convene at least one general meeting
      per
      calendar year.  The directors of a company, notwithstanding anything
      in its bye-laws, shall, on the requisition of the shareholders holding at the
      date of the deposit of the requisition not less than one-tenth of the paid-up
      capital of the company carrying the right of vote, duly convene a special
      general meeting.




The
      bye-laws provide that the board of directors may convene a special general
      meeting whenever in their judgment such a meeting is
      necessary.  Unless the bye-laws of a company specify otherwise,
      Bermuda law requires that shareholders be given at least five days’ notice of a
      meeting of the company.  Our bye-laws extend this period to provide
      that at least 21 days’ written notice of a general meeting must be given to
      those shareholders entitled to receive such notice.  The accidental
      omission to give notice to or non-receipt of a notice of a meeting by any person
      does not invalidate the proceedings of a meeting.




Under
      Bermuda law the number of shareholders constituting a quorum at any general
      meeting of shareholders may not be less than two individuals.  Our
      bye-laws add to this quorum requirement to provide that no business can be
      transacted at a general meeting unless a quorum of at least two shareholders
      representing a majority of the issued shares of the company are present in
      person or by proxy and entitled to vote.  A shareholder present at a
      general meeting or a meeting of a class of shareholders in person or by proxy
      shall be deemed to have received appropriate notice of the meeting.




Under
      our
      bye-laws, notice to any shareholders may be delivered either personally, by
      electronic means or by sending it through the post, by airmail where applicable,
      in a pre-paid letter addressed to the shareholder at his address as appearing
      in
      the share register or by delivering it to, or leaving it at such registered
      address




97


or,
      in
      the case of delivery by electronic means, by delivering it to the shareholder
      at
      such address as may be provided to the company by the shareholder for such
      purpose.  A notice of a general meeting is deemed to be duly given to
      the shareholder if it is sent to him by cable, telex, telecopier or electronic
      means.




**Access
      to Books and Records and Dissemination of Information**




Under
      Bermuda law, members of the general public have the right to inspect the public
      documents of a company available at the office of the Bermuda Registrar of
      Companies.  These documents include the memorandum of association and
      any alteration to the memorandum of association.




Our
      shareholders and directors have the additional right to inspect our minute
      books
      and our audited financial statements, which must be presented at an annual
      general meeting. For the avoidance of doubt, with respect to the aforesaid
      inspection of our minute books, our shareholders only have the right under
      our
      bye-laws to inspect minutes of shareholder meetings.




Our
      bye-laws provide that our register of shareholders is required to be open for
      inspection during normal business hours by shareholders without charge and
      to
      members of the general public on the payment of a fee.  A company is
      required to maintain its share register in Bermuda but may, subject to the
      provisions of the Companies Act, establish a branch register outside of
      Bermuda.  We have established a branch register with our transfer
      agent, Mellon Investor Services, LLC, at 85 Challenger Road, Ridgefield Park,
      NJ
      07660, USA.




Under
      Bermuda law, a company is required to keep at its registered office a register
      of its directors and officers that is open for inspection for not less than
      two
      hours in each day by members of the public without charge.  Our
      bye-laws extend this obligation to provide that the register of directors and
      officers be available for inspection by the public during normal business
      hours.  Bermuda law does not, however, provide a general right for
      shareholders to inspect or obtain copies of any other corporate
      records.




**Election
      or Removal of Directors**




The
      bye-laws provide that the number of directors will be such number not less
      than
      two, as our shareholders by resolution may from time to time
      determine.  A director will serve until his successor is appointed or
      his prior removal in the manner provided by the Companies Act or the
      bye-laws.  Our bye-laws provide that at each annual general meeting
      one-third of the directors will retire from office on a rotational basis based
      on length of time served.  A director is not required to hold shares
      in a company to qualify to join the board, and once appointed may sit on the
      board regardless of age, unless the bye-laws provide otherwise.  Our
      bye-laws do not require qualifying shares to join the board and do not set
      age
      limits for directors who serve on the board.  All directors must
      provide written acceptance of their appointment within thirty days of their
      appointment.




The
      board
      has the power at any time and from time to time to appoint any individual to
      be
      a director so as to fill a casual vacancy.  The board may approve the
      appointment of alternate directors.




We
      may,
      in a special general meeting called for this purpose, remove a director,
      provided notice of such meeting is served upon the director concerned not less
      than fourteen days before the meeting and he shall be entitled to be heard
      at
      that meeting.




The
      office of a director will be vacated in the event of any of the
      following:




*·*
            *if
                he resigns his office by notice in writing to be delivered to our
                registered office or tendered at a meeting of the board of
                directors;*




*·*
            *if
                he becomes of unsound mind or a patient for any purpose of any statute
                or
                applicable law relating to mental
                health;*




*·*
            *if
                he becomes bankrupt under the law of any country or compounds with
                his
                creditors;*




98







*·*
            *if
                he is prohibited by law from being a
                director;*




*·*
            *if
                he ceases to be a director by virtue of the Companies Act or is removed
                from office pursuant to the
                bye-laws;*




*·*
            *if
                he (or his alternate director, if any) is absent  from more than
                three consecutive board of directors’ meetings without the permission of
                the board of directors and the board of directors resolves that his
                office
                be vacated; or*




*·*
            *if
                he is requested to resign in writing by not less than three quarters
                of
                the other directors.*




**Amendment
      of Memorandum of Association and Bye-Laws**




Bermuda
      law provides that the memorandum of association of a company may be amended
      by a
      resolution passed at a general meeting of the shareholders of which due notice
      has been given.  An amendment to a memorandum of association does not
      require the consent of the Minister of Finance save for specific circumstances,
      for example, the adopting of any objects which constitute restricted business
      activities under the Companies Act.




In
      certain limited circumstances, shareholders can apply to the court of Bermuda
      to
      annul an amendment to the memorandum of association.




Our
      bye-laws provide that they may be amended in the manner provided for in the
      Companies Act.  The Companies Act provides that the directors may
      amend the bye-laws, provided that any such amendment shall be operative only
      to
      the extent approved by the shareholders.




**Transactions
      with Interested Shareholders**




Our
      bye-laws prohibit us from engaging in a business combination with any interested
      shareholder unless the business combination is approved by two-thirds of the
      holders of our voting shares (other than shares held by that interested
      shareholder), or by a simple majority if the business combination is approved
      by
      a majority of continuing directors or if certain prescribed conditions are
      met
      assuring that we will receive fair market value in exchange for such business
      combination.  In this context, a “business combination” includes
      mergers, asset sales and other material transactions resulting in a benefit
      to
      the interested shareholder or the adoption of a plan for our liquidation or
      dissolution; a “continuing director” is a member of our board of directors that
      is not an affiliate or associate of an interested shareholder and was a member
      of our board prior to such person becoming an interested shareholder; and an
      “interested shareholder” is any person (other than us or any of our
      subsidiaries, any employee benefit or other similar plan or any of our
      shareholders that received our shares in connection with our share exchange
      in
      2000 prior to the listing of our shares on the Nasdaq National Market) that
      owns
      or has announced its intention to own, or with respect to any of our affiliates
      or associates, within the prior two years did own, at least 15% of our voting
      shares.




**Appraisal
      Rights and Shareholder Suits**




*Amalgamation*




The
      Companies Act provides that, subject to the terms of a company’s bye-laws, the
      amalgamation of a Bermuda company with another company requires the amalgamation
      agreement to be approved by the board of directors and at a meeting of the
      shareholders by seventy-five percent of the members present and entitled to
      vote
      at that meeting in respect of which the quorum shall be two persons holding
      or
      representing at least one-third of the issued shares of the company or class,
      as
      the case may be.




Our
      bye-laws alter the majority vote required and provide that any resolution
      submitted for the consideration of shareholders at any general meeting to
      approve a proposed amalgamation with another company requires the approval
      of
      two-thirds of the votes of disinterested shareholders cast at such
      meeting.




99







Under
      Bermuda law, in the event of an amalgamation of a Bermuda company, a shareholder
      who did not vote in favor of the amalgamation and who is not satisfied that
      fair
      value has been offered for such shareholder’s shares, may apply to a Bermuda
      court within one month of notice of the meeting of shareholders to appraise
      the
      fair value of those shares.




*Class
      Actions and Derivative Actions*




Class
      actions and derivative actions are generally not available to shareholders
      under
      Bermuda law.  Under Bermuda law, a shareholder may commence an action
      in the name of a company to remedy a wrong done to the company where the act
      complained of is alleged to be beyond the corporate power of the company, or
      is
      illegal or would result in the violation of the company’s memorandum of
      association or bye-laws.  Furthermore, consideration would be given by
      a Bermuda court to acts that are alleged to constitute a fraud against the
      minority shareholders or, for instance, where an act requires the approval
      of a
      greater percentage of the company’s shareholders than those who actually
      approved it.




When
      the
      affairs of a company are being conducted in a manner which is oppressive or
      prejudicial to the interests of some part of the shareholders, one or more
      shareholders may apply to a Bermuda court, which may make such order as it
      sees
      fit, including an order regulating the conduct of the company’s affairs in the
      future or ordering the purchase of the shares of any shareholders, by other
      shareholders or by the company.




**Capitalization
      of Profits and Reserves**




Under
      our
      bye-laws, the board of directors may resolve to capitalize all or any part
      of
      any amount for the time being standing to the credit of any reserve or fund
      which is available for distribution or to the credit of our share premium
      account; and accordingly make that amount available for distribution among
      the
      shareholders who would be entitled to it if distributed by way of a dividend
      in
      the same proportions and on the footing that the same may be paid not in cash
      but be applied either in or towards:




*·*
            *paying
                up amounts unpaid on any of our shares held by the shareholders;
                or*




*·*
            *payment
                up in full of our unissued shares, debentures, or other obligations
                to be
                allotted and credited as fully paid amongst such
                shareholders.*




As
      a
      proviso to the foregoing, the share premium account may be applied only in
      paying up unissued shares to be issued to shareholders credited as fully paid,
      and *provided, further*, that any sum standing to the credit of a share
      premium account may only be applied in crediting as fully paid shares of the
      same class as that from which the relevant share premium was
      derived.




**Registrar
      or Transfer Agent**




Our
      transfer agent and branch registrar is Computershare Investor Services,
      LLC.  In addition to a register held by Computershare Investor
      Services, LLC, a register of holders of the shares is maintained by Appleby
      in
      Bermuda located at Canon’s Court, 22 Victoria Street, Hamilton HM 12
      Bermuda.




**Personal
      Liability of Directors and Indemnity**




The
      Companies Act requires every officer, including directors, of a company in
      exercising powers and discharging duties, to act honestly in good faith with
      a
      view to the best interests of the company, and to exercise the care, diligence
      and skill that a reasonably prudent person would exercise in comparable
      circumstances.  The Companies Act further provides that any provision
      whether in the bye-laws of a company or in any contract between the company
      and
      any officer or any person employed by the company as auditor exempting such
      officer or person from, or indemnifying him against, any liability which by
      virtue of any rule of law would otherwise attach to him, in respect of any
      fraud
      or dishonesty of which he may be guilty in relation to the company, shall be
      void.




100







Every
      director, officer, resident representative and committee member shall be
      indemnified out of our funds against all liabilities, loss, damage or expense,
      including liabilities under contract, tort and statute or any applicable foreign
      law or regulation and all reasonable legal and other costs and expenses properly
      payable, incurred or suffered by him as director, officer, resident
      representative or committee member; provided that the indemnity contained in
      the
      bye-laws will not extend to any matter which would render it void under the
      Companies Act as discussed above.




**Material
      Contracts**




We
      believe that there are only the following material contracts
      outstanding.




During
      the first quarter of 2004, a subsidiary of the Company entered into a number
      of
      venue license agreements for our exhibition events amounting to approximately
      $29.7 million including fee increases for year 2007 and 2008, in payments over
      five years.  The agreements are cancelable under Force Majeure
      conditions, or with the consent of the other party, but may be subject to a
      payment penalty.  As of December 31, 2006, the amount paid under these
      agreements was approximately $13.9 million. In August 2005, one of the Company’s
      subsidiaries, eMedia Asia Limited (“eMedia”), entered into an agreement with
      Penton Media Inc. (“Penton”) to produce, publish and distribute, in certain
      Asian territories, local language editions of Penton’s “Electronic Design”
publication, relating to the electronic design industry.  The first
      such edition launched pursuant to the agreement was a simplified Chinese edition
      in mainland China entitled *Electronic Design – China*, the online
      website of which was launched in January 2006, and the first print monthly
      issue
      of which was launched in March 2006.  Under the agreement, eMedia pays
      Penton forty per cent of the net after-tax profits of the business. eMedia
      also
      entered into an agreement with Penton, under which eMedia is allowed to use
      and
      reproduce editorial content from Penton’s electronics publications, including
*Electronic Design, EE Product News* and *Microwaves & RF*, in
      consideration for which an annual content license fee is payable by eMedia
      to
      Penton.




HC
      International, Inc. (“HC International”) is a company listed on the Growth
      Enterprise Market of The Stock Exchange of Hong Kong Limited. On May 24, 2006,
      Trade Media Holdings Limited (“TMH”), a wholly-owned subsidiary of the Company,
      IDG Technology Venture Investment, Inc. (“IDGVC”) and International Data Group,
      Inc. (“IDG”) entered into a conditional sale and purchase agreement (the “Sale
      and Purchase Agreement”) pursuant to which IDGVC conditionally agreed to
      transfer 47,858,000 shares of HC International (representing 9.81% of the issued
      share capital of HC International as of April 30, 2007), being part of its
      shareholding interests in HC International, to TMH at a consideration of
      approximately $9.875 million or approximately $0.2063 per share of HC
      International (the “HC Share(s)”), which is subject to adjustment to
      approximately $13.862 million or approximately $0.2896 per HC Share (the “HC
      Share Transfer”), if and when HC International achieves a certain benchmark with
      reference to the HC International group’s performance during the Option Period
      (as defined below) (“Performance Benchmark”) or upon completion of the sale and
      purchase of the Option HC Shares (as defined below). IDG, being the sole
      shareholder of IDGVC, agreed to guarantee the due and punctual discharge by
      IDGVC of its obligations under the Sale and Purchase Agreement.




On
      June
      21, 2006, TMH completed the HC Share Transfer.  The Company has
      announced, via a press release dated March 19, 2007, that the Performance
      Benchmark referred to above has not been met, and that accordingly TMH will
      not
      be required to make the price adjustment referred to above under the condition
      relating to the Performance Benchmark.




As
      of
      April 30, 2007, the Company and TMH collectively own, together with 5,916,000
      HC
      Shares owned by the Company prior to the Sale and Purchase Agreement
      (representing approximately 1.21% of the issued share capital of HC
      International) and 8,878,000 HC Shares purchased by TMH after the completion
      of
      the Sale and Purchase Agreement (representing approximately 1.82% of the issued
      share capital of HC International), a total of 62,652,000 HC Shares
      (representing an approximate 12.84% total equity interest in HC
      International).




On
      August
      1, 2006, HC International appointed the Company’s Chief Operating Officer, John
      Craig Pepples, as a non-executive director on the board of directors of HC
      International. Subsequently, Beijing Hui-




101


cong
      International Information Co., Ltd. (“Beijing Huicong”), an 82% indirect
      subsidiary of HC International, also appointed him as a non-executive director
      on the board of directors of Beijing Huicong.




TMH
      also
      entered into a call options deed (the “HC Options Deed”) with IDGVC, Guo
      Fansheng (“Guo”) and others which include certain members of the senior
      management of HC International (the “Option Grantors”), pursuant to which each
      of the aforesaid Option Grantors agreed to grant to TMH, (i) a right (the “HC
      Options”) exercisable during the 12-month period from June 21, 2006, the date of
      the completion of the Sale and Purchase Agreement (the “Option Period”), to
      purchase all, but not in part only, of the 167,722,814 HC Shares owned by the
      respective parties (representing approximately 34.38% of the entire issued
      share
      capital of HC International as of April 30, 2007) and any HC Shares that may
      be
      issued by HC International to certain directors of HC International if the
      options granted in accordance with the share option schemes of HC International
      (amounting to an aggregate of 4,185,320 Option HC Shares) are exercised, which
      together represent a maximum of approximately 35.24% of the entire issued share
      capital of HC International as of April 30, 2007 (the “Option HC Share(s)”) at
      an exercise price of approximately $0.2896 per Option HC Share; and (ii) an
      undertaking to accept any offer for the Option HC Shares at a price not less
      than approximately $0.2896 per Option HC Share, during the Option
      Period.




Huicong
      Construction Co., Ltd. (“Huicong Construction”), in which Guo has an 80% equity
      interest, entered into a call option deed (the “Beijing Huicong Option Deed” and
      together with the HC Options Deed, the “Option Deeds”) with TMH, pursuant to
      which Huicong Construction agreed, subject to completion of the Sale and
      Purchase Agreement, to grant to TMH a right (the “Beijing Huicong Option” and
      together with the HC Options, the “Options”) exercisable during the Option
      Period, to purchase (or to nominate a subsidiary of TMH to purchase) from
      Huicong Construction its entire 18% equity interest (“Beijing Huicong Equity
      Interest”) in Beijing Huicong, at an aggregate exercise price of approximately
      $31.916 million.




The
      HC
      Options and the Beijing Huicong Option are inter-conditional. The sale and
      purchase of the Beijing Huicong Equity Interest is subject to confirmation
      from
      the Securities and Futures Commission of Hong Kong (“SFC”). If the SFC’s
      confirmation is not forthcoming, the sale and purchase of the Beijing Huicong
      Equity Interest will not be completed but TMH may proceed with the completion
      of
      the sale and purchase of the Option HC Shares.




Pursuant
      to the terms of the Beijing Huicong Option Deed and subject to the completion
      of
      the sale and purchase of the Beijing Huicong Equity Interest, Huicong
      Construction will also be required to transfer or assign its licenses and
      related contracts in relation to the provision of internet information and
      content services in the People’s Republic of China to a TMH-nominated company,
      but pending such transfer or assignment, Huicong Construction has agreed to
      continue to provide services in relation to the internet content provider
      license to Beijing Huicong in the same manner and on the same terms as currently
      agreed.




The
      exercise and completion of the HC Options by TMH, if materialized, will result
      in a change in control of HC International (as the aggregate percentage
      shareholding of TMH and the Company in HC International will increase to over
      30%) and will trigger an obligation on the part of TMH to make a general offer
      in compliance with Rule 26 of the Hong Kong Code on Takeovers and Mergers to
      acquire all the issued HC Shares (other than those already owned by TMH or
      parties acting in concert with it).




However,
      the Company has announced, via a press release dated June 18, 2007, that TMH
      will not be exercising the HC Options and the Beijing Huicong
      Option.




During
      the first quarter of 2007, a subsidiary of the Company entered into a number
      of
      venue license agreements for our exhibition events amounting to approximately
      $44.396 million in payments over five and a half years. The agreements are
      cancellable under Force Majeure conditions, or upon notice and payment of
      cancellation charges to the other party.




We
      do not
      believe any of our other contracts to be material to the operation of our
      company, taken as a whole.




102







**Exchange
      Controls**




**Bermuda
      Law**




We
      have
      been designated as a non-resident under the Exchange Control Act of 1972 by
      the
      Bermuda Monetary Authority.  This designation will allow us to engage
      in transactions in currencies other than the Bermuda dollar.




The
      Registrar of Companies (Bermuda) has neither approved nor disapproved of the
      securities to which this document relates, nor passed on the accuracy or
      adequacy of this document and accepts no responsibility for the financial
      soundness of any proposals or the correctness of any statements made or opinions
      expressed with regard to such securities.  Approvals or permissions
      received from the Bermuda Monetary Authority do not constitute a guarantee
      by
      the Bermuda Monetary Authority as to our performance or our
      creditworthiness.  Accordingly, in giving such approvals or
      permissions, the Bermuda Monetary Authority will not be liable for our
      performance or default or for the correctness of any opinions or statements
      expressed in this document.




The
      transfer of common shares between persons regarded as resident in Bermuda for
      exchange control purposes and the issue of common shares to such persons may
      be
      effected without specific consent under the Exchange Control Act and regulations
      thereunder.  Issues and transfers of common shares to any person
      regarded as non-resident in Bermuda for exchange control purposes require
      specific prior approval from the Bermuda Monetary Authority under the Exchange
      Control Act.




There
      are
      no limitations on the rights of persons regarded as non-resident of Bermuda
      for
      foreign exchange control purposes owning our shares.  Because we have
      been designated as a non-resident for Bermuda exchange control purposes, there
      are no restrictions on our ability to transfer funds, other than funds
      denominated in Bermuda dollars, in and out of Bermuda or to pay dividends to
      non-Bermuda residents who are holders of our shares, other than in respect
      of
      local Bermuda currency.




Under
      Bermuda law, share certificates are only issued in the names of corporations,
      partnerships or individuals.  In the case of an applicant acting in a
      special capacity, for example an executor or a trustee, certificates may, at
      the
      request of the applicant, record the capacity in which the applicant is
      acting.




Notwithstanding
      the recording of any such special capacity, we are not bound to investigate
      or
      incur any responsibility in respect of the proper administration of any such
      estate or trust.




We
      will
      take no notice of any trust applicable to any of our common shares whether
      or
      not we had notice of such trust.




*·*
            *As
                an “exempted company,” we are exempt from Bermuda laws which restrict the
                percentage of share capital that may be held by
                non-Bermudians.  However, as an exempted company we are
                generally not permitted to participate in most business transactions
                and
                activities conducted from within Bermuda, except in furtherance of
                our
                business carried on outside Bermuda or under a license granted by
                the
                Minister of Finance of
                Bermuda.*




**Taxation**




**Bermuda
      Taxation**




We
      have
      received from the Minister of Finance a written undertaking under the Exempted
      Undertakings Tax Protection Act, 1996 (as amended) of Bermuda, to the effect
      that in the event of there being enacted in Bermuda any legislation imposing
      tax
      computed on profits or income, or computed on any capital asset, gain or
      appreciation, or any tax in the nature of estate duty or inheritance tax, then
      the imposition of any such tax shall not be applicable to us or to any of our
      operations or to our shares, debentures or other obligations until
      March 28, 2016.  These assurances are subject to the proviso that
      they are not construed so as to prevent the application of any tax or duty
      to
      such persons as are ordinarily resident in Bermuda or to




103


prevent
      the imposition of property taxes on any company owning real property or
      leasehold interests in Bermuda.




Currently
      there is no Bermuda withholding tax on dividends that may be payable by us
      in
      respect to the holders of our common shares.  No income, withholding
      or other taxes or stamp duty or other duties are imposed upon the issue,
      transfer or sale of the shares or on any payment thereunder.  There is
      no income tax treaty between Bermuda and the United States.




**Documents
      On Display**




**Where
      You May Find More Information**




We
      are
      required to comply with the reporting requirements of the Securities Exchange
      Act of 1934, as amended, applicable to a foreign private issuer.  We
      will file annually a Form 20-F no later than six months after the close of
      our fiscal year, which is December 31.  As a foreign private
      issuer, we are exempt from the rules under the Exchange Act prescribing the
      furnishing and content of proxy statements, and our officers, directors and
      principal shareholders are exempt from the reporting and short-swing profit
      recovery provisions contained in Section 16 of the Exchange
      Act.  We will furnish our shareholders with annual reports, which will
      include a review of operations and annual audited consolidated financial
      statements prepared in conformity with U.S. GAAP.  We may, although we
      are not obligated to do so,  furnish our shareholders with quarterly
      reports by mail with the assistance of a corporate services provider, which
      may
      include unaudited interim financial information.  We may discontinue
      providing quarterly reports at any time without prior notice to our
      shareholders.




Our
      reports and other information, when so filed, may be inspected and copied at
      the
      public reference facilities maintained by the Securities and Exchange Commission
      at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
      20549.  Copies of such material may be obtained from the Public
      Reference Section of the Securities and Exchange Commission, 450 Fifth Street,
      N.W., Washington, D.C. 20549 at prescribed rates.




These
      reports and other information may also be inspected at the offices of the Nasdaq
      National Market, 1735 K Street, N.W., Washington, D.C. 20006.




**ITEM
      11.** **QUANTITATIVE
      AND QUALITATIVE 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
      gains 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 revenue that was not fully offset by lower expense
      levels in Asian operations.




This
      decline in revenue 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.




The
      following table summarizes our foreign currency Accounts Receivable and provides
      the information in U.S. Dollar equivalent:




104







As
                of December 31, 2006 (in U.S. Dollars Thousands)
            
            
            As
                of December 31, 2005 (in U.S. Dollars Thousands)Expected
                maturity dates
            
            
            
            
            
            
            
            
            Expected
                maturity datesCurrency
            
            2007
            
            
            Thereafter
            
            
            Total
            
            
            Fair
                value
            
            
            2007
            
            
            Thereafter
            
            
            Total
            
            
            Fair
                valueHKD
            
            
            1,741
            
            
            
            -
            
            
            
            1,741
            
            
            
            1,741
            
            
            
            1,340
            
            
            
            -
            
            
            
            1,340
            
            
            
            1,340CNY
            
            
            2,447
            
            
            
            -
            
            
            
            2,447
            
            
            
            2,447
            
            
            
            1,926
            
            
            
            -
            
            
            
            1,926
            
            
            
            1,926TWD
            
            
            1,034
            
            
            
            -
            
            
            
            1,034
            
            
            
            1,034
            
            
            
            1,117
            
            
            
            -
            
            
            
            1,117
            
            
            
            1,117JPY
            
            
            167
            
            
            
            -
            
            
            
            167
            
            
            
            167
            
            
            
            212
            
            
            
            -
            
            
            
            212
            
            
            
            2125,389
            
            
            
            -
            
            
            
            5,389
            
            
            
            5,389
            
            
            
            4,595
            
            
            
            -
            
            
            
            4,595
            
            
            
            4,595







We
      believe this risk is mitigated because historically a majority (ranging between
      98% and 99%) of our revenue is denominated in U.S. dollars or is received in
      the
      Hong Kong currency, which is currently pegged to the U.S. dollar, the Chinese
      currency which historically remained relatively stable but slightly strengthened
      recently against the US Dollar and New Taiwan Dollar which is relatively stable
      against U.S.Dollar. Correspondingly, a majority (approximately 60% to 80%)
      of
      our expenses are denominated in Asian currencies.  To the extent
      significant currency fluctuations occur in the New Taiwan dollar, and Chinese
      Renminbi or other Asian currencies relative to the U.S. dollar, or if the Hong
      Kong dollar is no longer pegged to the U.S. dollar, our profits would be
      affected.




As
      of
      December 31, 2006, we have not engaged in foreign currency hedging
      activities.




In
      the
      year ended December 31, 2006 and the year ended December 31, 2005, we derived
      more than 90% of our revenue from customers in the Asia-Pacific
      region.  We expect that a majority of our future revenue will continue
      to be generated from customers in this region. Future political or economic
      instability in the Asia-Pacific region could negatively impact our
      business.




**ITEM
      12.** **DESCRIPTION
      OF SECURITIES OTHER THAN EQUITY SECURITIES** **–
      (Not applicable)**




**PART
      II**




All
      financial information contained in this document is expressed in United States
      dollars, unless otherwise stated.




**ITEM
      13.** **DEFAULTS,
      DIVIDEND ARREARAGES AND DELINQUENCIES** **-
      (Not applicable)**




**ITEM
      14.** **MATERIAL
      MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS** **-
      (Not applicable)**




**ITEM
      15.** **CONTROLS
      AND PROCEDURES** **-
      (Not applicable)**




**ITEM
      15T.** **CONTROLS
      AND PROCEDURES**




**Disclosure
      Controls and Procedures**




The
      Company’s management carried out an evaluation, with the participation of its
      Chief Executive Officer and Chief Financial Officer, of the effectiveness of
      the
      Company’s disclosure controls and procedures (as defined in Rule 13(a)-15(e)
      under the Securities Exchange Act of 1934) as of December 31, 2006.
      Based




105


upon
      that
      evaluation, the Company’s Chief Executive Officer and Chief Financial Officer
      concluded that the Company’s disclosure controls and procedures were effective
      as of December 31, 2006.




**Management’s
      Annual Report on Internal Control over Financial
      Reporting**




Management
      is responsible for establishing and maintaining adequate internal control over
      financial reporting. The Company’s internal controls over financial reporting
      are designed to provide reasonable assurance regarding the reliability of
      financial reporting and the preparation of financial statements in accordance
      with United States generally accepted accounting principles. Because of its
      inherent limitations, internal control over financial reporting may not prevent
      or detect misstatements.




Management
      maintains a system of controls intended to ensure that:




(a)
            transactions
                are authorized;




(b)
            assets
                are safeguarded; and




(c)
            financial
                records are accurately maintained in reasonable detail and fairly
                reflect
                the transactions of the Company




Management
      assessed the effectiveness of the Company’s internal control over financial
      reporting as of December 31, 2006, based on the criteria set forth in the
      Internal Control – Integrated Framework issued by the Committee of Sponsoring
      Organizations of the Treadway Commission (COSO). Based on this assessment,
      management believes that, as of December 31, 2006, the Company’s internal
      control over financial reporting is effective.




This
      annual report does not include an attestation report of the Company’s registered
      public accounting firm regarding internal control over financial reporting.
      Management’s report was not subject to attestation by the Company’s registered
      public accounting firm pursuant to temporary rules of the Securities and
      Exchange Commission that permit the Company to provide only management’s report
      in this annual report.




**Changes
      in internal control over financial reporting**




In
      conjunction with the Company’s review and evaluation of its internal control
      over financial reporting during the year ended December 31, 2006, the Company
      implemented a number of measures to improve its internal control over financial
      reporting in various processes as it deemed necessary. The Company’s management
      has assessed that, while these changes were an improvement to the Company’s
      control activities, there have not been any changes in its internal control
      over
      financial reporting (as defined in Rule 13(a)-15(f) under the Exchange Act)
      during the year ended December 31, 2006 that have materially affected, or are
      reasonably likely to materially affect, its internal control over financial
      reporting. Management continues to monitor the Company’s business processes, and
      expects that it will continue to make improvements to its processes and controls
      in upcoming periods, in efforts to improve process efficiency and effectively
      utilize the Company’s resources.




**ITEM
      16A.** **AUDIT
      COMMITTEE FINANCIAL EXPERT**




Our
      audit
      committee financial expert is Roderick Chalmers, an independent director. Our
      other two audit committee members are David F. Jones and James Watkins, who
      are
      our independent directors.




**ITEM
      16B.** **CODE
      OF ETHICS**




We
      have
      adopted a Code of Ethics that applies to our chief executive officer, chief
      financial officer, chief accounting officer or controller and other persons
      performing similar functions.  Our Code of Ethics is available on our
      website at www.corporate.globalsources.com.




106







During
      2006, the Company did not grant any waiver, including any implicit waiver,
      from
      any provision of the Code of Ethics to the chief executive officer, chief
      financial officer, chief accounting officer or controller or other person
      performing similar functions.




**ITEM
      16C.** **PRINCIPAL
      ACCOUNTANT FEES AND SERVICES**




The
      following table sets forth the aggregate audit fees, audit-related fees, tax
      fees of our principal accountants and all other fees billed for products and
      services provided by our principal accountants for each of the fiscal years
      2005
      and 2006:




**Year
                  ended**
                **December 31,****2006**
            
            
            **2005**Audit
                fees
            
            $
            427,445
            
            
            $
            378,919Audit-related
                fees
            
            
            —
            
            
            
            —Total
            
            $
            427,445
            
            
            $
            378,919Tax
                fees
            
            
            1,800
            
            
            
            1,800All
                other
                fees
            
            
            283,379
            
            
            
            118,956Total
                fees
            
            $
            712,624
            
            
            $
            499,675





Audit
      fees include fees associated with the review of the Company’s annual financial
      statements and services that are normally provided by the accountant in
      connection with statutory and regulatory filings or engagements for those fiscal
      years.




Tax
      fees
      for year 2005 for tax compliance, tax advice and tax planning consisted of
      preparation of tax returns and review of tax provision for a
      subsidiary.  For year 2006, such fees consisted of preparation of tax
      returns and review of tax provision for a subsidiary.




All
      other
      fees for year 2005 consisted mainly of cyber process certification for the
      Company’s management’s assertions on the computation of the number of Community
      membership, provision of information technology security assessment services
      and
      review of tax status.  For year 2006, such fees consisted mainly of
      cyber process certification for the Company’s management’s assertions on the
      computation of the number of community membership, provision of information
      technology security assessment services, due diligence for an investment and
      review of tax status.




**Audit
      Committee’s pre-approval policies and procedures**




Our
      Audit
      Committee nominates and engages our independent auditors to audit our financial
      statements.  Our Audit Committee also requires management to obtain
      the Audit Committee’s approval on a case-by-case basis before engaging our
      independent auditors to provide any audit or permitted non-audit services to
      us
      or our subsidiaries.




**ITEM
      16D.** **EXEMPTIONS
      FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES - (Not
      applicable)**




**ITEM
      16E.** **PURCHASES
      OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS - (Not
      applicable)**




**PART
      III**




All
      financial information contained in this document is expressed in United States
      dollars, unless otherwise stated.




**ITEM
      17.** **FINANCIAL
      STATEMENTS – (Not applicable)**




107





**ITEM
      18.** **FINANCIAL
      STATEMENTS**




As
      provided in Item 8, the Company has presented financial statements in accordance
      with U.S. accounting standards in lieu of Item 18.




**ITEM
      19.** **EXHIBITS**




**EXHIBIT
      INDEX**




**Exhibit
                No.**
            **Description**1.1
            Memorandum
                of Association of the Company. *1.2
            Bye-laws
                of the Company. *1.3
            Amendments
                to the Bye-Laws of Global Sources Ltd., as approved at the May 6,
                2002
                Annual General Meeting of Shareholders. ++2.1
            Specimen
                Certificate. *4.2
            Form
                of executive officer employment agreement. *4.3
            Employment
                Agreement dated November 1, 1999, by and between Trade Media Holdings
                Limited and Merle Hinrichs. *4.4
            Amendment
                to Employment Agreement dated January 19, 2000, between Trade Media
                Holdings Limited and Merle Hinrichs. *4.5
            Employment
                Agreement dated as of January 29, 2000, by and between LER
                Corporation and Merle Hinrichs. *4.6
            Form
                of Restricted Stock Award and Agreement, dated as of January 29,
                2000, by and between LER Corporation and Merle Hinrichs.
                *4.7
            Amendment
                No.1 to Restricted Stock Award and Agreement dated as of February
                29,
                2000, by and between LER Corporation and Merle Hinrichs.
                *4.8
            Form
                of The Global Sources Employee Equity Compensation Plan No. I.
                *4.9
            Form
                of The Global Sources Employee Equity Compensation Plan No. II.
                *4.10
            Form
                of The Global Sources Employee Equity Compensation Plan No. III.
                *4.18
            Form
                of The Global Sources Employee Equity Compensation Plan No. IV.
                **4.19
            Form
                of The Global Sources Employee Equity Compensation Plan No. V.
                **4.20
            Form
                of The Global Sources Employee Equity Compensation Plan No. VI.
                ***4.21
            Form
                of The Global Sources Employee Equity Compensation Plan No. VII.
                *****4.22
            Global
                Sources’ Code of Ethics (approved and adopted by the Board of Directors on
                March 7, 2003). ###4.23
            Form
                of The Global Sources Employee Equity Compensation Plan No. V (Amended).
                *****4.24
            Placement
                Agency Agreement dated March 17, 2005, between the Company and W.R.
                Hambrecht & Co. LLC. ####4.25
            Form
                of Purchase Agreement between the Company and certain purchasers
                of the
                common shares. ####4.26
            Shenzhen
                International Chamber of Commerce Tower Subscription Agreement dated
                July
                5, 2004 (English translation).++++4.27
            Real
                Estate Sales Contract of Shenzhen (Presale) dated August 31, 2004
                (English
                translation).++++4.28
            Supplemental
                Agreement to the Contract on Purchasing Shenzhen International Commercial
                Chamber Center Premises dated August 31, 2004 (English
                translation).++++4.29
            Summary
                Table of Property Units and Payment Amounts.++++4.30
            Supplementary
                Agreement Concerning Alteration of Payment Method dated December
                3, 2004
                (English translation).++++4.31
            Sale
                and Purchase Agreement, dated May 24. 2006, by and between IDG
                Technology Venture Investment, Inc., Trade Media Holdings Limited
                and
                International Data Group, Inc. ~4.32
            Call
                Option Deed Relating to Shares in HC International, Inc., dated
                May 24, 2006, between Trade Media Holdings Limited and other parties
                thereto. ~4.33
            Call
                Option Deed Relating to Equity Interest in Beijing Huicong International
                Information Co., Ltd., dated May 24, 2006, between Trade Media
                Holdings Limited and HC Construction Co., Ltd. ~4.34
            The
                Global Sources Ltd. Directors Purchase Plan (as of 5 November 2005).
                +++++4.35
            The
                Global Sources Equity Compensation (2007) Master Plan.
                +++++4.36
            The
                Global Sources Share Grant Award Plan.4.37
            The
                Global Sources Retention Share Grant
                Plan.


108


**Exhibit
                No.**
            **Description**


8.1
            Subsidiaries
                of Global Sources Ltd.12.1
            Certification
                of the Chief Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.12.2
            Certification
                of the Chief Financial Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.13.1
            Certification
                by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
                as
                adopted pursuant to Section 906 of the Sarbanes – Oxley Act of
                2002.13.2
            Certification
                by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
                as
                adopted pursuant to Section 906 of the Sarbanes–Oxley Act of
                2002.14.1
            Consent
                of Independent Accountants for incorporation of their report filed
                with
                Form 6-K into the Company’s previously filed Registration Statements File
                No. 333-59058 and 333-62132. ****14.2
            Changes
                in Registrant’s Certifying Accountant. +++14.3
            Letter
                to the SEC from the Company pursuant to SEC Release No. 33-8070,
                dated
                April 9, 2002. ****14.4
            Consent
                of Independent Accountants for incorporation of their report filed
                under
                Form 20-F into the Company’s previously filed Registration Statements File
                No. 333-104426, 333-59058 and 333-114411.14.5
            Press
                release dated February 16, 2004 to announce the bonus share issue
                by
                Global Sources Ltd. ##14.6
            Press
                release dated March 1, 2005 to announce the bonus share issue by
                Global
                Sources Ltd. #####14.7
            Press
                release dated March 6, 2006 to announce the bonus share issue by
                Global
                Sources Ltd. ######14.8
            Press
                release dated March 5, 2007 to announce the bonus share issue by
                Global
                Sources Ltd. #######


___________________





*
            Incorporated
                by reference to Form 20-F Annual Report of Global Sources Ltd. filed
                with
                the Securities and Exchange Commission on June 30,
                2000.**
            Incorporated
                by reference to Form 20-F Annual Report of Global Sources Ltd. filed
                with
                the Securities and Exchange Commission on April 5,
                2001.***
            Incorporated
                by reference to Form S-8 Registration Statement filed with the Securities
                and Exchange Commission on June 1, 2001.****
            Incorporated
                by reference to Form 6-K filed with the Securities and Exchange Commission
                on April 25, 2002.~
            Incorporated
                by reference to Form 20-F Annual Report of Global Sources Ltd. filed
                with
                the Securities and Exchange Commission on June 12, 2006 and
                confidential treatment requested (the confidential portions
                of such
                exhibits have been omitted and filed separately with the Securities
                and
                Exchange Commission)*****
            Incorporated
                by reference to Form S-8 Registration Statement filed with the Securities
                and Exchange Commission on April 10, 2003.+
            Incorporated
                by reference to Form 20-F Annual Report of Global Sources Ltd. filed
                with
                the Securities and Exchange Commission on April 30,
                2002.++
            Incorporated
                by reference to Form 6-K filed with the Securities and Exchange Commission
                on May 6, 2002.+++
            Incorporated
                by reference to Form 6-K filed with the Securities and Exchange Commission
                on August 13, 2002.++++
            Incorporated
                by reference to Form 20-F Annual Report of Global Sources Ltd. filed
                with
                the Securities and Exchange Commission on May 13, 2005.+++++
            Incorporated
                by reference to Form S-8 Registration Statement filed with the Securities
                and Exchange Commission on November 7,
                2006.


109







#
            Incorporated
                by reference to Form 20-F Annual Report of Global Sources Ltd. filed
                with
                the Securities and Exchange Commission on May 05, 2003.##
            Incorporated
                by reference to Form 6-K filed with the Securities and Exchange Commission
                on February 18, 2004.###
            Incorporated
                by reference to Form 20-F Annual Report of Global Sources Ltd. filed
                with
                the Securities and Exchange Commission on May 4, 2004.####
            Incorporated
                by reference to Form 6-K filed with the Securities and Exchange Commission
                on March 21, 2005.#####
            Incorporated
                by reference to Form 6-K filed with the Securities and Exchange Commission
                on March 8, 2005.######
            Incorporated
                by reference to Form 6-K filed with the Securities and Exchange Commission
                on March 7, 2006#######
            Incorporated
                by reference to Form 6-K filed with the Securities and Exchange Commission
                on March 7, 2007







110


SIGNATURE




The
      registrant hereby certifies that it meets all of the requirements for filing
      on
      Form 20-F and that it has duly caused and authorized the undersigned to sign
      this annual report on its behalf.




GLOBAL
                SOURCES LTD.By:  /s/
                EDDIE HENGEddie
                Heng, Director and Chief Financial
                Officer





Date:
      June 28, 2007








111